Published August 10-14, 2020
26
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.
27
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.
28
Imitate First, Innovate Later
When I was running IndiaWorld, I did my best to copy the good ideas out there. It gets things going faster. I was sitting in India. I had a small team. I did not have the luxury to experiment. So, when I wanted to launch a search engine for India, I started by looking at what Yahoo was then (a directory of websites) and replicated that for India. I then added keyword search in crawled pages similar to what Excite and Altavista offered. That became Khoj. During those days, I would always look for good features and sites that I could replicate for India.
For a startup, it is difficult to do A/B testing and run multiple experiments. The Internet is itself the laboratory. So, pick up good ideas that are working elsewhere and get started. Over time, to thrive, one has to innovate. But innovation itself is not a precondition to get started. This applies to product features also. Too often, a lot of time is spent coming up with ‘innovative’ ideas – at the cost of time. In the early stages, speed trumps everything else. The innovation journey has a high cost – in time and money.
The problem is that we are all taught from early days that copying is a bad idea. That is the right approach in education. But in the real-world, that means starting from scratch rather than building on the body of work that already exists. That simply takes too long and is very risky. Some will innovate – good for them. But that path has more failures than success stories. Let others run the evolutionary race for ideas and features. As a proficorn entrepreneur, you should simply choose from the best out there.
Imitation will not help you win the race – it is merely a ticket to play the game. After that, innovation needs to kick in – either in the product, pricing or business model. The sequencing is important. Starting off with innovation needs time and a large R&D budget which is not practical at the early stages of a venture. A good way to start therefore is to clone first to become competitive, and then work on the incremental innovations.
29
Delta Dollar Decision Rule
One of the big mistakes we make when buying products or services is to compare absolute prices. Look, that product is $100 and this is $130. There is no way one can pay $130. All things being equal, of course, one cannot pay $130 for the same product. The way to look at it is what are the extras you get for the $30 difference. But this idea of the “delta” is lost out in decision-making.
I explained this to my son a few years ago when we were on vacation. I had booked a room for our vacation where the daily tariff was $250. Of course, there were other hotels where I could get a room for $150-175. I told my son that considering the costs of the overall trip, the additional $1000 spend for the two weeks was a small increase – a small delta. But the additional spend brought a lot of convenience – a bigger room, free breakfast, a more convenient location, and so on. By itself, $1000 was a large sum, but when taken on the base of the spend on the vacation, it was perhaps less than a 20% delta.
These decisions happen a lot in life. We look at products and baulk at their price. We may be prepared to pay Rs 40,000 for a laptop, but suddenly step back when asked to pay Rs 55,000 for much better. The sticker shock of Rs 55,000 hits us. But if we just look at the delta of Rs 15,000 and think about the benefits, then perhaps we will make a better decision.
That is why I think we all need a “delta dollar decision rule.” Set a threshold below which one will not waste thinking time – the answer should be a Yes. For me, that threshold is $100 (Rs 7,500). This simplifies decisions like buying a book, booking a better seat on a flight, going to a better restaurant for a business meeting – the answer is always Yes. The same applies in business also – the decision threshold can be higher. Always look at the benefits and the delta, rather than the absolute.
I recently made a decision to subscribe to a $500 online course on decision-making. By itself, it’s a lot of money. Most people would baulk at doing it. But then as I thought about it, the delta spend on myself is a small fraction versus the benefits that I can derive. From the series of lessons, even if there are a few good ideas I can get, the investment would have been worth it. That is why I do not hesitate attending conferences, buying books, and subscribing to online publications. A year later, one will not even notice these expenditures. Of course, every small spend adds up – but there are some categories where the delta needs to be seen on the large spend base, rather than as an integer by itself.
So: think about your delta dollar decision threshold – and start applying it to build a better you, which will lead to a better business.
30
Just Get Started
There is a famous quote by Jim Collins: “Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”
This is a very valid point and can apply to a lot of what we do. At the same time, taken to its logical extreme, it can also paralyse us. “I will not publish my blog post because it is merely good and not great. I will not launch the website because it is not perfect. I will not go public with my ideas because they are still half-baked.” This is the type of thinking that can cause more harm than good. At times, great can be the enemy of good. As with every good quote, context matters.
For a startup, it is important to get the product out there. Of course, it cannot be bad, but at the same time, one cannot wait for it to be great. When I launched IndiaWorld in March 1995, it was good. I had a certain pricing for a year’s subscription. I had many sections. I had a decent design. I had also delayed the launch a few weeks – working to make it better every day. One fine day, I decided – enough is enough. And just like that, I launched it.
In the next 3 weeks, I made many changes. I changed pricing twice, I tweaked the design. I changed which sections were free and which were available as part of the subscription. I improvised on the fly based on feedback I got. Unless I had launched, I would never have got the inputs – I was just playing mental games trying to figure out what the perfect (great) product should be.
I have done this many times. Once things are good enough, get started. I did this with my blog in April. I had waited many years to re-start. And then one day, I just started. I told myself, “I am writing for myself. If I keep thinking about what others want, I will never get started. Instead, if I think of my writing as being to help me clarify my own mental models, there is no reason for me to delay.” As I write on different topics, ideas become better. And then I can write more – a second series and a third.
The same is true of the Velvet Rope Marketing ideas. These have evolved over the past few months. I was very hesitant to do the first CMO presentation – I wanted the ideas to be perfect. And then, I said – let’s start, and we will improve as we go along. Because the feedback from others was more important than achieving perfection with my own thinking. And the presentation now is in its fifth revision and much better – but it would not have been had I not started.
So, if you have an idea or a new venture, just get started. Work on improving it. Don’t wait for the perfect idea – because there never will be one. The end goal is to achieve greatness, but the path starts with being merely good, and then working one step at a time to becoming better. When you look back a few months or a year later, you will see a huge body of work – which would never have happened had you not made the decision to begin the journey, however imperfect that start may be.