Entrepreneurship 101 For India
These few weeks, I have been hearing from a lot of Indian entrepreneurs in response to the series I have written on early-stage activity in India. There’s frustration, there’s despair. I want to give you guys a few pointers, as you are thinking through your options on how to get your companies to the next level, or just to get yourselves off the ground:
Prepare your business plan assuming that a VC will evaluate it, even if that’s not the route you go.
This means, that you need to be very focused on what you want to do. Indian companies, typically, claim to do a LOT of different things, thereby diluting the positioning. The one thing that VCs NEVER fund is a defocused business plan. You shouldn’t either. Think of yourself as a VC, investing your own time, energy, credibility, career in a deal. Should you?
VCs invest in 3 things: (a) Market (b) Team (c) Defensible Technology.
Positioning is one of the most important things to learn for an early-stage entrepreneur. Read Geoffrey Moore’s “Crossing the Chasm”. It’s the best book on high tech strategic marketing. It has concepts that new entrepreneurs absolutely need to learn and use. Most importantly, this helps you define the market.
Once you have a positioning hypothesis, calculate the corresponding Bottom-Up-TAM (Total Available Market). The big mistake people make in pitching VCs is that they use “a multi-billion dollar market opportunity” that is high level and top down. Be clear, that a top down, 30,000 ft approach means nothing. The question that needs to be addressed is: How much can YOUR particular solution be sold for? How many people / businesses are likely to buy it? The multiplication of the two is your bottom-up TAM. THIS is the crucial number.
If your positioning hypothesis yields a miniscule TAM, you better change the positioning and try to expand the TAM.
Your Team must have some relevant background in what you want to do, unless you have such trackrecord that you can move outside of your areas of proven expertise, in which case, you don’t need to read this post. Pick an area to work in where your background can be leveraged.
On Technology, the key issue is that VCs prefer to invest in companies that either have or can build some technology advantage, as opposed to pure labor arbitrage. This is not to say that labor arbitrage deals are not being funded, but your chances would go up significantly if you can find a nifty technology angle as leverage.
Litmus test: Hold your business plan against this checklist. It, however, is more of an Enterprise / SME oriented checklist. You need a variation of this for Consumer facing businesses.
Understand how the Venture Capital business works. In 1997, when I started raising my first venture round, I read this book to learn the basics: “High Tech StartUp” by John Nesheim. Anytime you are out to sell something, you need to understand the buyer’s point-of-view. In this case, you are selling equity in your venture to an investor. You absolutely need to understand the investor’s point-of-view.
You can bitch and moan about the fact that VCs don’t fund you, or you can learn their game, and present a fundable deal to them, in which case they WILL fund you. Those of us who have traveled down the path of entrepreneurship multiple times, have all had to start somewhere. We had to learn the same things that you have to learn now.
So learn it. And succeed.
Think of yourself as a VC…
Sramana Mitra just posted a very intelligent and helpful description of how to prepare for Venture Capital which draws from her learning in Indian start-ups. She refers to a couple of books that she has found beneficial and I would…
[...] Sramana Mitra just posted a very intelligent and helpful description of how to prepare for Venture Capital which draws from her learning in Indian start-ups. She refers to a couple of books that she has found beneficial and I would like to add “Blue Ocean Strategy” by Kim Mauborgne to the list when it comes to market positioning. [...]
[...] Sramana Mitra has a great post on preparation and positioning a start-up when getting ready to meet a VC. She highlights the importance or limiting the idea to make it simple and understandable which is always a difficult thing to do when considering a new venture. She mentions a few helpful books that can help with this process and I would also like to add Blue Ocean Strategy by Kim Mauborgne as another. [...]
Thanks for another nice article!
Great write up!
I can see clearly what additional quality needed for successful venture besides what is already mentioned in the article.
The article is written very intelligently. (Requirement for a successful venture and getting funded by convincing a VC)
The article and check list shows the rigor needed for detailed study and analysis. (Requirement … a VC)
The article shows the passion. (Requirement …. a VC)
The article shows focus on the topic. (Requirement … a VC)
The article shows very strong positive energy. (Requirement …. a VC)
However, still eBay buys Skype at a sky high price.
I don’t know the statistics, but may be a BIG % of the venture funded companies don’t meet the target. Looks like some art than 100% science as the article indicates, to make it ‘click’ which makes it more interesting and fun!
Santanu,
The venture business is by no means 100% science. There is a lot of Art to it. There is also, as you point out, a great deal of irrational decision-making as well. Vonage is a classic example. I have no idea why that company makes sense as a business. To me, it doesn’t. And yet, look at the amount of funding they have raised.
In my life and career, I have made the choice to bet not on chance or luck, but rather make rational decisions that make business sense. That has helped me develop frameworks for analyzing and envisioning new businesses, and I am trying to share some of that framework with you guys, so that you can benefit from it. Remember, Luck is not a repeatable event. So don’t build your careers assuming that you will be lucky.
The Art, on the other hand, is in the personality and presence of an entrepreneur. It is in the charisma and the passion that obviously comes through when you are in the room with investors. At the end of the day, this is a big swing factor, and those who have this kind of presence, are able to raise money over and over again, convince people, sell their products, hire top talent, etc. – all the things that make great entrepreneurs.
Finally, one factor that I have not addressed in this article is the market’s vagaries. Investors also go through phases. Certain types of deals are hot at certain times. In the late nineties, it was the dotcoms, in ‘99-’00 it was optical networking, in ‘05-’06 it is web 2.0, India, China.
85% of the investors go along with the trends. Few in the venture business are contrarion investors.
Personally, I am a contrarion thinker, so I often tend to have difficulty aligning myself with the VCs. I am learning, as I go on, to mitigate my tendencies to be ahead of the market, because BIG Home Runs do not happen unless you get the timing right. Being ahead of the market is just as problematic as being slow and behind.
I find the check list useful and interesting.
A successful venture case study that fills up the answers to this checklist at different points in time throughout the life cycle of the venture will be even more insighful.
If you can share your logs from your past that will be big help.
PS: There half a chance that anyone can get lost in the business plan process itself. I remember Karthikeyan of Venture Intelligence mentioning that raising money is a fulltime job.
Cheers.