Wednesday, October 25, 2006

Learning your way up the business through networking

I have chased lot of my well-meant advisors in my early days and thinking back I am thankful for their time and patience with me. Do we need to meet new advisors after early stage money?

The singlemost success factor of a startup I believe is the ability of the founder to discern the good people from the rest - be it team, investors, advisors, customers. Who is really good for your business, and how to take what they can offer to really build your business?

I come across several new entreprenuers, with passionate ideas. I see a typical cycle for this early entreprenuer, that I was in once. They network like crazy and clean up their pitch and raise their first angel money in the range of $250 to $500K. The angels mean well and offer a bunch of contacts. The entreprenuer visits all of them. They offer more contacts and he meets more of them. Every meeting is about planning and strategizing and enjoying how great this idea is. Some teams build some validation of their technology in this time, but stop short of productizing or contacting particular customers.

It scares me to see the cozy comfort nest the entreprenuer operates inside the network of these advisors which blind sights them from seeing the real market.

Most entreprenuers think money is the most valuable component needed to build their business. Thats not true! Its time. You will have passion for only so long if you do not build to the next stage. The market will wait only for so long even if you are way ahead of competition.

This spinning wheel comes from lack of execution focus. They collect advice and more advice. What makes an entrepreneur is their passion, which I would like to define as the ability to take risk with a smile. So, don't forget who you were before your raised that money. Your risk appetite is more than that of your angel, thats why you are the one building the company.

In my early days, I knew how to build out a web division inside a company, but did not know how it was done as a stand-alone business. I went networking but maintained a list called "what I know that I don't know". The famous management cliche "what you cannot manage you cannot measure" holds good for entreprenuers in early years more than anyone else. One piece of advice from my advisor Piyush Patel, then chairman and CEO of Cabletron was "stay paranoid" and "keep a tentative timeline with milestones for yourself".

So, when you meet advisors or their contacts, heres what you can do:

1. Check their background and see where they can help and ask for it.

2. Respect your time. Make sure your meeting gets you something. In the web world, I found fellow web company entreprenuers met often and did partnership deals with each other. But in the end it didn't get anything for either parties, except some garnish for their web sites, partners section. It mislead the team to work towards some integration and referrals that did not get customers.

3. Make a list of all that your business needs - people to fill certain positions, money, contact into customers, processes to scale business, etc. and update this list often. Make sure you take some action item out of each new person you meet.

4. Learn to say 'No" to well-meant people who would like to meet you and just chat about your business when you think its not the right time or because they came from your angels or best friend's referral.

5. Most entreprenuers say they want to start on their own to be their own bosses. "Be your own boss!". It takes clear conviction. Do not go about meeting people or trying all ideas to prove your capabilties to your investors. Do it only when you believe it will build your business.

6. Don't be afraid to fail. You hear a great idea, say a new channel for your business. Validate it by calling up some potentials. Or better still see if you can get this advisor to help you validate it. Then decide if it makes business sense or drop it.

Making new people work for you is an aquired skill and this maybe the best time to practise building it. People will work for you, meaning do stuff to help you if you motivate them by sheer excitement (sometimes) or sell whats in it for them.

It truly pains me to see entreprenuers change their pitch and expand their dreams into more markets without executing on a single product with focus, or signing a single vertical of customers, just talking and dreaming more and more.

7. Lead your team to focus. Focus clearly on your goals, centered on your customers and let all your actions speak towards it.

In both my startups I started with a consumer focus and soon found business customers up the food chain. At Coola, we had a typical startup office with a LED sign showing the number of users we signedup. That was exciting for the team to track and communicated to them that was the most important metric. We got close to 1Million Palm users, who did not pay us. It took me time to realize that I was not communicating the urgency of number of customers launched, as the key metric for success.

I've written about how the early days are unstructured. Its beautiful chaos like random walk, with lot of room for creativity to build what you want, like a puzzle, but if you don't focus your time and energy towards one short-term goal at a time, it will disintegrate into real disorder.

So, next time you decide to meet someone for advice, make a list, and come back from the meeting and build one more block towards building your customer base and execute on it.

Saturday, October 21, 2006

Are failures really stepping stones to success?

A reader asked me this question: “I have failed in my first startup and worked for another startup and that too failed. I know in my heart that perhaps I can really make it but luck has not smiled on me as yet. How can I regain the confidence to start again? How do I know if I have got the entrepreneurial skills to succeed? When is it time to give up and get a job?”

It promoted me to write my Oct Startup Diary column- full article here

We hear about the "learning" from failures, should it not really be from successes? Is it because the winners are busy celebrating, that we don't hear their learnings? I went through a lot of introspection before I dared to start again!

I hung on to my startup as my dear life, before I would accept defeat which I would like to believe is out of sheer will power; when I was in the moods of the reader who asked me about daring to start again, I thought I had stayed on out of denial. Maybe it was a combination of both :-)

I have written earlier how we started Coola as a service company offering hosted solution for mobility to Web companies and written about our upward growth, supported by Palm User groups and customers.

Now you want to hear the gory details of how we actually changed direction to an enterprise software and hung on as the dot coms crashed around us?

We had,, IDG (conference division), mostly publishers as customers and what we saw as a promising list of B level sales pipeline. Our customers payed a monthly fee to use our hosted solution co-branded with their look and feel, based on a tiered pricing based on number of users. Those were the days when web deals were made based on sharing eye-balls between players, saying it increased stickyness and user loyalty.

Before the dot com crash, we faced companies like cityspace, infospace, which were big branded web properties who could not tell us a clear story of their own revenues for us to show justification of how they would earn real money out of our sales by extending their services to mobile users using Coola. Ok, I had a smart team. We realized that the web world had lots of free eyeballs, but no real money. So we decided we would move to the enterprise market as pure software play.

I would be lying if I said that my team just rolled up their sleeve and went to work packaging our server as a software. There was lot of work to do - find the new market, identify who was the customer, rebuild the software product, productize it with sales support documents etc. It sounds a lot like the early days of starting up before the funding.

Yeah, the only difference is that I was a running company of 30 people and that meant real people, their dreams, agendas, fears and inertia to change. Added to that, we were in the middle of our second round funding cycle and bulk of my time was spent visiting VCs and then the dot com crash began - slowly at first. So, we had work like early stages and very less money, but with a running payroll to pay.

The first thing I did was to communicate to my team. We reduced salaries and made a plan to work to build the new software product. I raised a bridge round of $500K and we plugged along. Then the crash deepened around us and VCs started stalling deals.

I decided to focus on my new customers. We looked into the 1 million users we had as consumers of our software and found people from large companies. My current sales VP was great for web companies, but he had not done enterprise sales. Neither had I. But it was my company, so I cold-called and found GE medical as my first customer.

We shipped our first CD to them. Then we got NIH, Albany Medical etc. They setup Coola as a server inside their firewall and loved the idea of sending their mobile workforce out into the field with a palm pilot and a small application that can access their inventory, update their workorders and connect back to their backend systems.

A real business is happy with two things - customers and their money to keep paying bills. We now had a pipeline of positive customers. Still the energy in the team was mixed. We had set out to raise money and customer money was not cash flow. A simple accounting lesson, I learnt the hard way.

I got a VC term sheet for $5mil and that VC began visiting us and ate a lot of our time. I started a bridge round contingent on closing this round and started getting some checks. But as VCs started stalling deals with the dot com crash and with the announcement (we were built upon the Palm economy) that Palm would split as hardware and software company, the VC decided to stall and added more horrendous terms. I decided the VC deal didn't make sense for my team and that we won't close it. I cannot tell who was more scare at that meeting - the VC or me. I called my bridging angels and returned their checks.

I spent 3 months looking for buyers and found dummy deals or honest comments that in the crashing market, nobody was going to announce an aquisition and attract attention to their shares. That was the time to close and exit.

We had a cool office in Woburn, with a ping-pong table for reception and great gizmos and a LED sign tracking the number of Coola users. I decided my first layoffs and called fellow enterprenuer friends who had large office leases and were stuck with them after layoffs. Couple offered to share their space and give us a ready setup for the couple people I would bring. We auctioned our furnitures and ping pong table, and raised whatever money we could and moved in to our new shared office space.

I called my customers and found that their budgets were shrinking for wireless space. I decided to keep Coola alive till my core team could find jobs. Then I would hang in there with the trickling customer monies and scale back when market went up again.
If I had a real business, customers would have to pay for it and I was going to put my best fight and try it out. Try I did for a year! I got amazing advice "to declare victory" - lots of dummy deals to sell the company.

Then, at my investors request, I took the hardest path to close the firm - not declaring bankruptcy, but paying all my suppliers and selling all assets and closing my company. I will have to write about the one-year of my survival separately. Its touching to hear your customers cry.

I thought it was one journey, but later realized its the beginning. We all have some passion, we execute any idea that comes our way in certain ways based on our passion built upong our experience base.

Coola was my passion to give mobility to everyone for all kinds of information with a dream to seamlessly integrate a mobile experience with existing systems - web sites, enterprise systems, all making life easy for people on the go. Its cool when people can use the power of the web from a small mobile device, without stopping to think about the technology behind it with clean user experience. Businesses can save a lot of money from the increased productivity of integrating systems and accessing them on the go.

As I started my second startup, I realized I had a core passion to solve problems and a clear execution style, that was my success from my first startup. I believe we were too early for our times, but we faced real customer scenarios we could not have envisioned without executing what we did.

I love building out innovative products and getting them to customers and the energy of building teams to make it happen and thats what I'll keep doing as long as I can find problems I can solve and customers waiting for my marketing to reach them :-)

Sunday, October 15, 2006

To ask a girl out, just ask her!

I began writing today's blog because I want to share some learnings for entreprenuers today to develop their bizdev plans more efficiently than I did :-)

We have experienced and heard horror stories from the dot com bust about how large companies did dummy deals. With my startup Coola, we started with Web businesses as our customers.

I market validated and found the first few potentials even before raising money. Then we signed our first few customers and I hired a VP Sales from the Web world, who was great to get us to such customers. But, before the web world started tanking, we realized something was wrong because for large $$$ deals, we had to justify how the customer would recover the cost paid to us and we found that the large web businesses themselves did not have clear revenues. We switched to Enterprise customers with a clean software lisencing fee, which is a separate story.

All our meetings were around increasing stickyness or increasing customer loyalty, while the site customers (consumers mainly) did not pay.

Web business with consumers as customer:
ok, targeting consumers and building web businesses is in vogue again today after the success of social networking sites. I agree fundamentally there are several problems waiting to be solved for consumers so we need those sites. But remember, web consumers are spoilt- Web consumers don't pay. For any product, you can give away some freebies and get a set of early adopters to pay, that cannot build out your business.

I have two options for consumer businesses -
a) Look up the food chain. Find some existing business targeting the same consumer and make them your customer. Own all of them. For example, if you want to sell to Moms, goto P&G. Its like going to the parents to sell stuff to kids.

b) Find non-web channels to the same customers. Once you reach them, supplement with web revenues.

Web Business Targeting other businesses:
If you are all about going to Google to entice them to buy you, you don't have a b-model. I don't want to talk to you.

If you have some technology that will help large businesses, I suggest starting with validating your dreams TODAY! Is there a real need? Will they pay for it? Once you meet them, they may require your product to be built fundamentally differently because they cater to their customers who they know best.

I cannot list the number of times, I find smart, really smart entreprenuers painting beautiful scenarios about how specific companies will buy their technologies and postponing actually contacting them. They think its like asking out a girl you really like and worrying about what if she rejects. ok, its a little like that. But, with large companies, it takes a looooooong time, even if they are interested.

I think the fundamental problem is entreprenuers like to stay in their comfort zones, so the tech guys build technologies, the operations guys focus on production and operations, so customers are out there not knowing you have a solution for them.

I recently heard from an entreprenuer talking about a potential big client and how he heard they had problems *exactly* in the area he is working and he will have his solution for them in a year. Today is the time to present them your solution. Maybe they will build something else, however inferior to yours and you will have a whol team of morons to fight once you contact them with the perfect solution.

Another problem is thoerizing about all aspects of a potential deal with this large potential customer. All deals start with building relationships, which can start because you are ready to understand their problem, listen to their suggestions and have a smart team to work with them. Nitty gritty of the deals will be worked out during the contract stage, which may happen 1 year down the line if you start now, or never if you postpone contacting the customer today.

So, you want a cool date, just ask and ask now!

Tuesday, October 10, 2006

Location, Location, Location for your startup

Just this week, I came across across startups all in the same space - offering a platform to host consumer videos on the web (yeah like youtube and Google video) namely metacafe, videoegg and iflim but whats fascinating is one more aspect they have in common.

metacast moved from Tel Aviv and Videoegg moved from CT, both to silicon valley where iflim and youtube are already based.

I decided to start my startup from Boston suburbs which was home for me and I had the comfort level to know the hiring market and believed I had my network.

I traveled through my first 140 days and raised most of my money from Silicon Valley. After I scaled my company to 10 people, I spent bulk of my time traveling to the valley as we were a Palm based company and Palm was located there.

Does location matter to a startup? Heres my take on it:

Bootstrap where you are most comforable:

You should startup where you believe your chances of success are high, in terms of your comfort level to build the core team, market validate and raise initial capital.
Boston is great for starting up because of the local colleges, most of which have a program to encourage interns with startups.

Disperse across geographies in today's global world?

In todays global world of technology, people are less tethered to their offices. We did hire coupel people from silicon valley and let them work from there. But I believe in the early stages, a cohesive team thats proud of a common vision is what really makes a company. Its common to build an offshore facility in India or Israel, but adding each location does add its overhead and there are the people aspect of communication and identities which comes right after say 8 people.

Build where it makes sense for the business:

Team: A company should be built where you can hire the core development team, and where you are closer to your customers.

Customers: So, if your customers are large financial firms, Boston or NY may make sense. Especially for large companies, its a relationship game of nurturing relation between the actual people working on the implementation in the company and the startup people.

Also, you can get a pool of talent with experience in that space if there are more companies in finance space nearby.

Funding: I find startups moving to silicon valley because there is more liquid money there. I think it makes sense to move there only if customers and hiring also makes sense. Yeah, some investors invest only locally, which is more true for early stages. I raised my second round $5million from west coast again. Yesh, I did meet VCs in Boston, NY and only those I had referrals into out of West coast. But I believe, geography of company should not be based only on investors.

To that argument, did metacafe raise $14million only because of their silicon valley move? Did videoegg move only to escape the noreasters? I believe they have moved to where they will be closer to their customers - large media companies, large web properties and ability to hire people from them.

As a kid, I have been fascinated by a narrow congested street in Chennai, India called "Ritchie street" which is full of small shops all selling electronic parts, circuits, chips etc. I got my dream to become an entreprenuer one-day as I walked Ritchie street looking to buy circuit kits to make a calling bell or a radio or the latest voice synthesizer chip to make a circuit. There is no difference between any two store there, but every seller is very optimistic. If a store didn't have what you wanted, they'd send a boy running to another store to buy it and bring it to sell to you -to own you as their customer. All of them being in the same place created a market, so we knew the one place to got for such items.

Maybe silicon valley has created that for net startups, and now videos, the fastest growing content on the web!

Tuesday, October 03, 2006

Raising Money

I write a regular column called "Startup Diary" for India New England paper.

I have been focusing on raising money in the last 3 issues, which I thought might be an interesting add here. I seem to have barely scratched the surface and plan to add more in my next columns.

As usual, your comments are welcome :-))

Issue: June 16 to 30, 2006: Know your basics before raising money

July 15 to 31, 2006: Validate your idea before plunging into business world

August 16 to 31, 2006: Give investors enough reason to believe in your idea

What makes entreprenuers in a market

I was traveling in India on vacation during summer and saw a buzz of entreprenuership.

It makes me wonder what makes entreprenuers? Are they always there? Is there a market condition that creates them? Well, I believe it will help us as entreprenuers to understand that to find and nourish the entreprenuer in us.

I have written before that I always thought of myself as an entreprenuer even as I worked in big companies.

I still believe in an entreprenurial personality - ready to take the risk, self-motivated to push oneself to limits of our capabilities, ambitious but methodical and ready to work hard to reach that new vision or dream.

I saw and made friends with fellow- entreprenuers as the web boom took off in 95 in US. Then, I believed they came to solve problems, as we could see new ways to solve problems with the advent of the web. So they created businesses cutting through inefficient business layers producing valuable savings for customers.

Now, I can't say that for India. Problems were waiting to be solved always. I know of many entreprenurial personalities all around me even in earlier times.

What dawned to me as new is the liquidity of money and free markets. I write about it here because I see the distinction between the time we wakeup with an idea to when we start calling our ideas as a "business". I have had many ideas. I have even built web systems and launched to users for fun, and never took it to the next step many years before my startup Coola.

I don't want to sound touchy-feely, but I think the main difference is in the confidence of the entreprenuer that he or she can raise money to make it a business. That confidence creates the market full of businesses. Liquidity of money, rather our access to us, makes us the entrepreneur we are all born and waiting to become.

This explains the recent boom of startups with VCs creating liquidity for their monies which was waiting through the slow downtimes of 2001-2003.

Does this mean that there is a good market timing to start companies, well, I believe the best time for you is when you are ready.