Category: Entrepreneurship

Avoid Equal Co-founders

One lesson I have learnt through the years is that a new venture must avoid having equal co-founders. The emphasis is on the word “equal.” Whenever there is more than one founder, the temptation is to ensure that everyone is treated equally – and thus equity and powers should be also divided equally. I used to think the same way in my early days as an entrepreneur. What I realised over time is that this doesn’t work well in reality. The solution is to have one person who is the dominant leader and the final arbiter in decisions.

Businesses are not about democracy. There has to be one person in charge – the leader. That leader can have multiple deputies, but the buck stops with the leader. What is true for countries also applies to companies. In the absence of a single leader, decision-making becomes slow in the search for consensus and accountability disappears. No single person can be held to account. That is why countries have “Prime Minister” and “President”, not co-Prime Ministers and co-Presidents. And that is why companies must have a single CEO at the top.

For startups, agility is important. In the early days of a venture, there are many uncertainties to be grappled with. Each decision is about reducing the risk of failure. Every day survived brings one a step closer to success. As an entrepreneur one is flying blind in the early days. Decisions need to be made quickly, and course corrections need to be applied frequently. During this process, it becomes very difficult to sit and debate every decision in a group. All that will do is to get the team to the lowest common denominator in decision-making and that too after delays.

In my early days as an entrepreneur, I had many 50:50 ventures. All failed. The search for equality resulted in failure. Too much time was spent debating pros and cons, and us getting each other to see the other person’s point of view. I would have been served better had one of us taken charge and moved ahead. Ever since, I have eschewed equal partnerships at the founding level. One can be liberal in granting equity, but at the end of the day, there must always be a single person in-charge to make the key decisions.

Tomorrow: My Proficorn Way (Part 28)

Optimising Costs

As a proficorn, one always has to look at controlling costs. The question always is how far to take the focus on costs. I remember what my uncle, who runs a hospital in Pune, once told me many years ago. He said, “Accept that there will 2-3% chori (theft) in the business. Factor that into your costs. Don’t try and focus on that. If you keep trying to find the chor (thief), you will put so many control points in the business that it will become unmanageable.”

In most businesses, theft is perhaps too strong a word. I like to think of it as costs that are wrong but difficult to identify. It could be as simple as vouchers filled by sales people for meetings that did not happen. It could be some items bought at prices higher than they should have been. There are many ways such costs happen. The key point my uncle was trying to make is that accept that there will be a small percentage of such spends and get on with life. In the effort to control each and every spend, the entrepreneur will be so bogged down that the bigger focus and perspective will be lost. Keeping a tab on costs is very critical, but one cannot make it an obsession.

I have always been cautious on big bets – especially when it comes to marketing spends. The focus needs to be more on the product. In IndiaWorld, I put a press release and an ad when we launched – and that was it. My belief was that if the product (in this case, the content service) was good, word-of-mouth will help us grow. Ads could get someone in for the first time, but after that it was the product that had to bring them back the second and third time. I was confident of our product. And that worked out well – sites like Samachar, Khoj, Khel and Bawarchi grew because of the strong word-of-mouth marketing by happy visitors.

Even as one tracks revenues and cashflows, an entrepreneur needs to keep a check on the costs – up to a point. Don’t try and optimise every cost. Else the functioning of the business will be paralysed. Eventually, most costs can be justified if there is strong business growth. Until then, trust – and verify.

Tomorrow: My Proficorn Way (Part 27)

Giving Up

One of the hardest parts about being an entrepreneur is the decision to end a venture – the act of giving up. This is different from just failing. My view is that every entrepreneur is actually starting off with a high probability of failing and then goes to work to reduce the risks. Giving up is different – it is about the decision to end the venture. It is never an easy decision because it means firing the people who have been part of the journey and also separating oneself from the idea that one has lived through for the past few years.

The first time I “gave up” was in November 1994. I had come back from a 2-month trip to the US. I had gone with the recognition that I was failing in what I was doing and I needed to re-start, but did not know what exactly to do. It was during that visit that the IndiaWorld idea was born. When I came back, I knew I had to “give up” on my old idea of building an image processing software product. I had to reduce staff and start a new journey into a new and unknown future.

Asking people to leave was the hardest thing I had done in life till then. I still remember that afternoon as I sat on my desk, met with the few employees that I was letting go, and telling them that they will have no job in a few weeks. The shared dream was over. They were on their own. And in some ways, so was I.

I had to do this again in February 2019 when I shut down Nayi Disha. We had almost 40 people working on the idea of creating a movement for prosperity in India. But as the elections got closer, I realised that we would have no impact on the outcome. I could keep doing my videos but I was broadcasting them into the ether. No one was listening. I called my entire team and told them we were shutting down completely. There would be no Nayi Disha. I had failed.

It was one of the hardest things I did. For the preceding few years, I had dreamt of how we could create a pathway to prosperity in India by persuading people to create an independent voters movement. But I had made far too many mistakes. I did not listen to many who told me that I would fail. I thought I was invincible. Until, I was not. I realised that no course correction was possible. I was too far away from the destination. On a long flight back from San Francisco to Mumbai, I “gave up” – Nayi Disha was dead. And the sooner I recognised it, the better it would be for everyone.

It is only when one door is closed that new ones can be opened. If there is one learning I have, it is that in all my failures, I have clung on to the past much longer than I should have. Giving up is not a bad thing – creation happens after destruction. That is the way the world of entrepreneurship and innovation works. Give up to start-up. Let not the past hold back the dawn of a new future. But first, let the past go.

Will be continued soon.

Blogging

My first foray into writing started with a fortnightly column in Express Computer, thanks to the then-editor Venkatesh Hariharan. Those were the early days of the Internet – perhaps around 1996 or 1997. He approached me to write a long column on the Internet – 1500 words. That meant a full page in the tabloid-sized paper. Writing two columns a month meant that I had to think and explain ideas to others. It was the first time for me – and I agreed. It was perhaps the best decision I made – and one that has stood me in good stead through the years.

Around 1999-2000, I started my blog at emergic.org. I started a series “Tech Talk” wherein I would write a short new post daily – much like I do now. Then, I would also post links to other interesting readings. Over time, the “Tech Talk” phrase disappeared but the daily writing became a habit. I continued until August 2012 – when I stopped because I was getting too deeply involved in the political side of things, and I did not want to become the news because of something I wrote.

The blog format through those years is what I liked very much. I wrote for myself. To clarify my own thinking. Without worrying about who was going to read and what they would think. Without the need to be perfect. It was like I was speaking out my thoughts aloud and simply typing them out.

I never created a social media presence. I somehow did not like the short snappy comment format. I also did not want to write for others. If they read and benefited, that would be fine. But I wrote for myself.

When I look back on the years that I stopped writing, I realise that it was a mistake. I should never have let my writing cease, because that came at a cost of limiting my own thinking.

And so, I am happy now that I have started blogging again. The same format, the same mindset. The discipline of publishing a new post daily ensures that I have to keep the writing – and thinking – flow going.

For an entrepreneur, writing is a big positive because it helps clarify one’s own thinking and also communicate ideas to others. I don’t worry about whether the ideas are perfectly formed. My aim is to get them out there – because it ensures that I read and think about them. There will always be time for a new series later to improve on the initial ideas.

I think every entrepreneur should write a blog. Not just tweets or pithy LinkedIn posts. But write about one’s ideas and aspirations in real-time. Give people a glimpse into the world that you see. Because that is what you are really doing – creating a future ahead of others. And blogging is a great way to accelerate that future.

Tomorrow: My Proficorn Way (Part 25)

One Meeting, One Idea

I am reasonably open to meetings. I don’t say Yes to every request that comes, but if there is a referral from a source I trust, I go ahead and do the meeting. When I go into a meeting, I have one key objective: to get one new idea.

When one meets with different people, we see the world through their eyes. They have constructed mental models of the world. These are different from ours. So, one has to understand how they view the world because that will give us a new frame of reference which can provide new ideas. That is why it is important to have conversations, read books, listen to different people and put ourselves in different situations.

Meetings are for me the best source of new ideas. While I always have plenty of things to talk about, I do try and listen to learn. Each meeting is unique and goes in many different directions. A typical 60-minute meeting means more than 10,000 spoken words. That is a lot! Do 6 meetings in a day, and it is almost like writing a book.

My approach to meetings is three-fold: to listen, to be alert when something different and interesting is said, and to walk away with at least one good new idea. To listen means ensuring that there are no visual distractions – no emails, no Whatsapp, and the likes. My approach is to make notes – so it keeps me from getting distracted with my own tangential thoughts. When I sense something interesting, I mark it in my notebook so I can come back to it later – especially if I have a continuous stream of meetings which limit thinking time between meetings. Finally, either after a meeting or at the end of the day, I will review my notes to see which ideas stood out and how I can link them and enhance my own mental models.

So, go into a meeting with a simple objective: can you learn one new thing that you did not know. If you can do this, the meeting will have served its objective, and you will be better for it.

Tomorrow: My Proficorn Way (Part 24)

Chase Profits Not Valuation

Too many entrepreneurs start a new business thinking about the exit. There is a fancy business plan with big numbers (created to please would-be investors). And when there are investors, there is always talk of exit and returns. And thus it starts to become a valuation game. Once money is invested from an investor in a business, the game is on. Money needs to be spent and new money needs to be raised in the chase for a higher valuation. Little thought is given to the quality of the spend or the business model.

Chasing valuation is the wrong way to run a business. Valuation does not create the business model; it is the business model and growth that results in a valuation. The valuation is an outcome over which an entrepreneur has no control. What the entrepreneur controls is just the business.

In IndiaWorld, I had to focus on profits because I did not have funds or investors. And once we were profitable, while I did get incoming interest from investors, I was never under any pressure to do a deal. I was cashflow positive, profitable and had money in the bank. I could take my time and quote my price.

It wasn’t easy staying focused on profits because everyone else was chasing valuation. As such, there was huge spending on brand building that was happening all around me. It wasn’t easy keeping my head down and staying focused on the business. The pressure to raise-and-spend was there, but I knew that once I went down that route, it would be hard to stop.

Even in Netcore, we have followed the same approach. We do not skimp on the right spending. We stay focused on profits. Valuation is what will come when it comes. I always have a mental estimate when I am asked, but it’s not the chase. The focus is on staying profitable and growing them.

During the current pandemic times, this has worked out well. Because of our profitable and private foundation, we can take the long view and imagine the business we want to be in two years time, and work to build that. Had we been chasing valuation, then I would have had to perhaps spend a lot of time worrying about the impact of down-rounds and the need for cost cutting.

So, as a proficorn entrepreneur, stay focused on the profits. The valuation will come when it comes!

Tomorrow: My Proficorn Way (Part 23)

Making Notes

Many who have seen me comment on my spiral books filled with my notes and how I seem to be forever writing in them during meetings. Much to the chagrin of my family, I take those books even for social meetings. I had to stop taking them to movie theatres and weddings after my wife Bhavana read me the riot act! My solution was to carry a folded paper in my pocket. My contention: ideas can come anywhere and so I need to write them down. This way, I don’t forget and also keep my mind clear.

There is a method to my madness of writing things down. In meetings, it keeps me focused. As I make notes, I remember better. I don’t drift into my own faraway world. I also find that some of the better ideas come when my own thoughts interplay with what I hear or say in a meeting – and it’s best to capture them as they flow. A little later, and I may have lost the context and the idea.

Over the years, I have seen many entrepreneurs with a similar mindset. They may all use different tools – iPads, a smartphone, a tablet or a notebook. I find it quite astonishing when I see the person I am meeting not making any notes – I truly find it hard to believe that a person can remember big and small points of the meeting. I guess – to each their own.

I find there is a very important side-benefit of focused note-taking in meetings. While the big points will always be remembered, I find that it is the seemingly less significant points that can have a lot of value later when one reviews the meeting. An off-comment, a phrase, a reference – all can have value if used correctly. And these can become hard to remember later especially if one has a series of back-to-back meetings.

My preferred method is a 300-page spiral book – it is easy to fold, and because it has lots of pages, I don’t have to economise on my writing. I have a big stock of these books and seamlessly move to the next when one is over. I don’t often go back to the older spiral books – but they are useful in case a specific meeting needs to be referenced.

Think of making good notes like punctuality – good habits that make for a proficorn entrepreneur.

Tomorrow: My Proficorn Way (Part 22)

Tracking Cashflow

I am not much of a finance person – except for one thing. Tracking cashflow. Because if there is one sure way a business dies, it is because of a lack of cash.

I cannot read financial statements and haven’t bothered to learn how to analyse balance sheets and P&L statements. But what I always track is the cashflow. Cash is the oxygen of every business. Without cash, you cannot pay salaries or vendors. And that creates a negative spiral from which it can be very difficult to recover.

It is possible to be profitable and yet have cash challenges if you do not get your payments on time. In India, this is especially difficult because of four issues. First, customers take their own sweet time to pay – 90-120-150 day payment cycles are not uncommon. Second, salaries, rents and even some vendors expect to be paid on time. Third, statutory payments to the government have to be made on schedule. Fourth, because rule of law doesn’t exist in India (justice delayed is justice denied), higher write-offs are a reality of life.

What this means is that the business needs some working capital. That can either come from past profits or one has to raise it externally. Growth also requires deploying additional capital since there is a gap between money coming in (later) and money going out (early).

That is why in IndiaWorld I was very keen to make the business cashflow positive as soon as possible. In the early days, subscriptions and website development fees sustained the business until advertising took off. We kept a sharp eye on our cashflows to ensure we never would get squeezed for cash.

I had learnt these lessons in my childhood – writing a daily cash diary for my mother. Each month, my father would give her a certain amount for household expenses. At the end of each day, she and I would sit and write down all the day’s expenses under different headings and calculate the amount left for the month. This way, there would be no surprises until the next cash inflow came when my father got paid at the start of the following month.

No proficorn can be built without attention to cashflows from the early days. And once there is a cash buffer available, keep it safe in liquid investments so it is always accessible. Take the risks in business, but not with your hard-earned cash.

Will be continued soon.

Punctuality

One of the good things that the lockdown has done is to make us Indians punctual! There is zero travel time so no traffic excuses. All one has to do is to click a link to join a meeting from home – so it becomes harder to be late. “My previous meeting ran over” can only work so many times.

Punctuality has been part of my DNA since I can remember. I don’t know when it began. Maybe it was because I grew up listening to BBC World Service radio – and news on the hour wouldn’t wait for me to switch on the radio!

I find my early attention on punctuality quite surprising since I haven’t worn a watch since I was 12 years old. (I had an old Favre Leuba wrist watch in school, and I lost it on a picnic to Gorai Beach – it fell out of my shirt pocket and got washed away with the waves. I was so upset with myself then that I decided not to buy another watch.) I soon learnt to estimate time quite accurately and realised that I didn’t need it – even in the pre-mobile era.

Punctuality is a personality trait. You are either punctual or not. There is no halfway house. And it is not difficult – one has to factor in a little buffer for meetings. You cannot expect others to be punctual if you are not. Of course, there are some unavoidable situations – in which case the host needs to be informed, even if it is a matter of a minute or two delay.

In business and in life, punctuality helps. It can be seen as a proxy for reliability and willingness to keep commitments – if you cannot be on time, what is the guarantee that you will honour a contract. This may be a bit of exaggeration, but given that many people neglect being on time, it becomes easy to stand out.

Starting meetings on time is the right thing to do – else you penalise people who are punctual. The “let’s give the others a few minutes” line is ridiculous – what it actually means is “it was stupid of you to come on time because the later-comers will decide when the meeting starts.” This attitude can easily spread to other aspects.

An entrepreneur needs many things to be successful – punctuality is one of them.

Tomorrow: My Proficorn Way (Part 20)

Entry and Exit

An entrepreneur has a good sense when to enter a business. What is not so clear is when to exit.

I faced such a decision in late 1999. I had unsuccessfully tried to raise venture capital many times over the preceding few years. And then, suddenly, almost against the run of play, I had two acquisition offers on the table. I had been looking to just raise some capital so I could keep running my “forever business.” But now I faced the prospect of selling. The offers were good – way beyond what I could ever have imagined. But giving up my entire business for money? I had not considered that eventuality.

I had toiled hard for a few years growing IndiaWorld. Even vacation time was filled with thinking about what to do next. And there was so much to do. I never imagined myself doing anything else.

I had hired DSP Merrill Lynch as my investment banker to help me raise some capital so I could better compete in the marketplace. We were profitable, but the game in 1999 seemed to be shifting from passion and profits to capital and cash-burn. I was going to have to adapt. Profits were too small for me to make the large investments the business was inevitably going to need down the line.

I was confused. It was then that Hemendra Kothari, DSMPL’s Chairman, gave me advice that I have given many others. He sat me down one day and said, “Rajesh, in a business, even more important than knowing when to enter is to know when to exit. The valuation that you are getting today – it will be difficult to get the same again for a long time. You have many ideas. Sell this business and build others. You will have the freedom to do many other things in life if you do this deal.”

Those words of Hemendra bhai – “know when to exit” – turned out to be prophetic. A few months later, the stock markets tanked and a long dotcom winter began. Even though I didn’t know it then, it was his wisdom that saved IndiaWorld and perhaps my future.

So, for proficorns, there will be a moment when they may have to decide – continue to build, or sell and move on. At these times, one will have to keep the emotional aspect aside and remember those words from Hemendra bhai, “Even more important than knowing when to enter is to know when to exit.”

Tomorrow: My Proficorn Way (Part 19)