Published on June 13-17, 2020
In my previous two essays on proficorns, I wrote about building a proficorn and compared proficorns and unicorns. In this series, I want to share some of my learnings through my 28 years as an entrepreneur who has focused on profitability, never raised external capital and yet created significant value through two successful enterprises – IndiaWorld and Netcore.
Even though I coined the word ‘proficorn’ a few months ago, I realised that there are many common threads in my approach to doing business. The need for profit was drilled into me early on by my father – because without profits one has to either shut down or be dependent on a continuous inflow of external capital which would mean sacrificing decision-making freedom at some point of time. To be profitable and maintain a track record of profitable growth in a business is never easy, especially in the world of technology where obsolescence and disruption are never too far away.
As I have been thinking about proficorns, I have realised that there is a mindset which defines one’s approach to business. For me, getting to cash flow profitability on a monthly basis was the most important requirement – the spectre of continuing cash burn was too horrific to contemplate. As such, the decisions I made were driven by the desire to get to profitability and keep it that way. It also meant creating a cash reserve during the good times which could serve one well during difficult times – like the present times where most businesses are facing declining revenues.
Like the Feeling
An entrepreneur’s life is never easy. There is no switching off Friday evening. The business and its future consumes you because failure is just one mistake away. It is also a lonely perch because no one else can fully understand today’s challenges and tomorrow’s uncertainties. Decisions made cannot be easily unmade; the rear view mirror exists only for post-mortems. And through all these times, one must always maintain a positive outlook because pessimism can create a negative spiral.
These words from Dan Bricklin that I read a long time ago have stayed with me through the years and beautifully capture the essence of being an entrepreneur:
Being a successful entrepreneur is tricky. You have to live with having control and not having control at the same time. It’s like this: In big business, when you need to cross a river, you simply design a bridge, build it, and march right across.
But in a small venture, you must climb the rocks. You don’t know where each step will take you, but you do know the general direction you are moving in. If you make a mistake, you get wet. If your calculations are wrong, you have to inch your way back to safety and find a different route.
And, as you jump from rock to slippery rock, you have to like the feeling.
That is the feeling I have liked and lived through for 28 years.
Journey not Money
My wife, Bhavana, once told me, “The more you chase money, the further it runs away from you.” As an entrepreneur, I have never obsessed about money. I have done things because I saw a problem and gap in the market, and I tried to solve it. At times, it has worked. At other times, it has failed. The journey of discovering the opportunity, thinking through the solution and taking it to customers is what has been the driver. It cannot be about the valuation and exit one will get – focusing on these will distract and make for short-termism which will necessarily hurt the growth and profitability of the business.
At this point, it is useful to understand what an entrepreneur does. Israel Kirzner has this to say:
We have to recognize that when the entrepreneur discovers the automobile, he is not simply disrupting the calm. He is identifying what was in fact waiting to be introduced. Technological knowledge was being misapplied. Resources were being wasted on trains, carriages, and bicycles, when, in fact, what was waiting to be put together was this new gadget called the automobile. A person who recognizes this is responding to a preexisting, gaping hole in the market.
[I]n a more fundamental sense, he is correcting an already existing discoordination. He is redirecting resources that are already misplaced. People do not have to go on for years and years behaving in ways that are socially inefficient. The person who abruptly draws their attention to this inefficiency is assisting in the process of economic coordination.
While entrepreneurs may not know it, it is exactly what they do. This journey of filling in gaps in the market is what has to create the excitement. The financial reward that lies in store for success is just icing on the cake.
For me, when I launched IndiaWorld, the gap was in the flow of information from India to NRIs globally and the recognition that the Internet could play an instrumental role. The excitement was in making this happen – and not that one day I would sell the business and make a lot of money. It was this desire to make lives better that drove me – starting with news, then cricket scores, recipes and much more. The thrill lay in solving one problem and then the next and so on. Proficorns are built thus – one solution at a time.
One of the approaches I have followed in life is to be very open with my ideas. Whether it was IndiaWorld in 1994 or Velvet Rope Marketing in 2020, I have always been of the view that sharing and discussing ideas with others improves the ideas. I go into meetings thinking that if there is one new thing I can learn then the meeting will have served its purpose. And since I will never know until I do a meeting whether I will have learnt something or not, I tend to be open to doing meetings. And in these meetings, I talk about my ideas and thinking – even though they may not be fully baked. The feedback I get from others helps me refine the ideas. The more the inputs, the better the idea becomes.
In the fall of 1994 when I first thought up the idea of how an Internet portal could bridge the news and information for NRIs, I discussed the idea with dozens of people. I had a Visit-USA ticket on Delta – which allowed me to fly standby for a period of two months for a fixed price. It was an entrepreneur’s dream! I would talk to people and anyone who agreed to meet, I would tell them, “How about I meet you at your office tomorrow so we can discuss this in depth?” (That was, of course in the pre-Zoom days!) Go the airport, take the first available flight, and do the meeting. No cost-benefit analysis; just meet. The travel time would allow me to read and think. The different settings would trigger new ideas. And the meetings themselves were link hyperlinks which opened up new windows. I became better each day – one meeting at a time.
I find too many entrepreneurs now are very cagey about sharing their ideas. What they don’t realise is that someone somewhere is likely to have the same idea anyway. The idea is just the starting point. It is a key that opens a door. After that, it’s all about the way one executes and creates the new world. And in execution, a million things have to go right for eventual success.
So, to build a proficorn, start by sharing ideas – every person you meet and discuss it with will add value and make the idea better. Open your mind, open-source your idea and learn from the wisdom of others.
Living in the Future
One of my defining memories is reading CK Prahalad and Gary Hamel’s book, “Competing for the Future,” when it was published in 1994. That was a very difficult time for me. I had failed multiple times in various ventures that I had tried over the past two-and-a-half years. The realisation had dawned on me that my most recent foray into creating an image processing solution was headed the same way and had to be shut down. I was staring at an abyss.
It was at that time that I picked up the Prahalad-Hamel book and started reading it. The book transformed me. I made notes on Post-Its through the book – these notes became the eventual business plan for IndiaWorld. There is one particular passage that struck a chord and has stayed with me through the years:
There is not one future but hundreds. There is no law that says most companies must be followers. Getting to the future first is not just about outrunning competitors bent on reaching the same prize. It is also about having one’s own view of what the prize is. There can be as many prizes as runners; imagination is the only limiting factor. Renoir, Picasso, Calder, Serat, and Chagall were all enormously successful artists, but each had an original and distinctive style. In no way did the success of one preordain the failure of another. Yet each artist spawned a host of imitators. In business, as in art, what distinguishes leaders from laggards, and greatness from mediocrity, is the ability to uniquely imagine what could be.
To build a proficorn, an entrepreneur must imagine the future and get there first. One is not building just for the next few months – one has to imagine tomorrow’s world and create that future. If you get there first, you win. This journey is what makes entrepreneurship so exciting. It is a race – where there are many competitors, known and unknown. But there is a second race – in the entrepreneur’s mind, to create and craft a future that isn’t yet unknown. The entrepreneur then also has to persuade others (employees, partners and customers) about that future. It is the ultimate reality game!
Even now, as I sit at home, I am trying to imagine the new future – one where every offline business needs an online business, where hundreds and thousands of new online-only brands will get created. All of them will need help with their customer relationships – identifying their best customers and ensuring they reach their full spending threshold. What kind of tech solutions will they need? How can I as an entrepreneur fill this gap? The future beckons, and that’s where proficorn entrepreneurs live.
The Profits Flywheel
Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible.
Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn.
You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction. Three turns … four … five … six … the flywheel builds up speed … seven … eight … you keep pushing … nine … ten … it builds momentum … eleven … twelve … moving faster with each turn … twenty … thirty … fifty … a hundred.
Then, at some point—breakthrough! The momentum of the thing kicks in your favor, hurling the flywheel forward, turn after turn … whoosh! … its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.
Now suppose someone came along and asked, “What was the one big push that caused this thing to go so fast?”
You wouldn’t be able to answer; it’s just a nonsensical question. Was it the first push? The second? The fifth? The hundredth? No! It was all of them added together in an overall accumulation of effort applied in a consistent direction. Some pushes may have been bigger than others, but any single heave—no matter how large—reflects a small fraction of the entire cumulative effect upon the flywheel.
The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel—that adds up to sustained and spectacular results.
The flywheel is what a proficorn entrepreneur looks for. What are the series of small steps and actions that can create a profit machine?
In IndiaWorld, it was the twin combination of our own portals and website development. The services business of developing websites kept the cash coming in. Advertising on our own portals for these new sites to get their own traffic helped accelerate the flywheel. The additional profits helped us build even more of our own sites and get more traffic. Each step helped make the flywheel go faster.
As I think about Velvet Rope Marketing, it can become a similar profitability flywheel for businesses – get more revenue from the Best Customers, acquire more like them, help them get to their maximum thresholds faster. What I still need to think about is how to make it even better – perhaps our owned properties which can reduce cost of acquisition even further.
Every entrepreneur needs to find their profitability flywheel – that is the difference between a good business and a great built-to-last business, one that can grow with its customers. When one sees a proficorn, there will inevitably be a flywheel as the secret to its success.