Published February 10-14, 2021
Every Idea Is a Failure Until…
Previously I have written about the times I have failed in my life. Even as I have failed many times, I keep trying out new ideas – in tech and in the political arena. In the past months, I have started many new initiatives. As an entrepreneur, one goes into every new venture with utmost optimism. While thinking positive is good and even critical to attract talent and the first set of customers, the reality is that every idea must be assumed to be a failure – until it actually succeeds.
When an entrepreneur is birthing a new idea, the challenge is that the prospective customers are already using a different product or are set in their ways of doing things. What the entrepreneur has to do is to persuade them to switch – give up the old to make way for the new. This is never easy. Habits (and therefore products) are hard to change. The inevitable outcome of an inability to change can lead to failure for the entrepreneur. Therefore, the mindset of an entrepreneur must be that unless one can change minds (and therefore actions), the idea will fail. So, an entrepreneur must go to work daily to reduce the chances of failure by getting future customers to see the benefits in the new offering.
We remember the successes. Google, Facebook, Apple, Amazon, Microsoft, Netflix, Zoom have all made their way into our lives. They all succeeded in replacing the old way of doing things with their offerings. But there are many failures littered on this path of change. Yahoo, Friendster, Nokia, Segway, AOL, Netscape are all brands that promised a lot, even succeeded in capturing the popular imagination for some time, but eventually flamed out. For every success, there are hundreds of failures. Entrepreneurs compete with incumbents and other entrepreneurs to overcome the near inevitability of failure. Keeping this in mind is critical to ensure that entrepreneurs stay grounded even as their imagination soars.
I too have failed many times. Each time I had great hope but I could not manage to change enough minds and switch enough customers to succeed. In retrospect, most failures were expected – because that is the norm. What actually needs to be explained is success – because many things have to go right for an entrepreneur in the marketplace. Each time I have succeeded has been a combination of luck, timing and mistakes by competitors – a sequence of small steps that combine together a giant leap. There is no one path to success – the operating context for every entrepreneurial venture is different.
So, the next time you are starting off on a venture, accept the reality of failure – and then go out and work hard to reduce the risks every day.
No one likes competition – we all would love to run monopolies. But unless the monopoly is mandated by the government and is in a space that is impervious to disruption, competition is inevitable. There are always going to be other entrepreneurs working to make things better – and therefore switch away one’s customers to their product or service. So, competition is the reality of business. It is what makes the world a better place.
We are taught to compete from early on in our life. We have to compete in school. We compete in college. We compete for jobs. We compete in the workplace. We are made to think of it as the “rat race.” Is competition really that bad? No. If we think back to our childhood, competition is what pushed us, made us study that much harder. We did not speak negatively about those we competed against – in fact, some of them were our best friends. Competition is what we liked because it made us better.
And yet, in the marketplace, we tend to think disparagingly about competition. We think our product is the best, and if we are winning it is because others must be doing something not in making with the spirit of the game or even using unfair practices to win. “Oh, they got that contract because their investors knew each other.” “They spend so much on marketing because of their VC money.” “They must have paid a kickback to win that account.” “They undercut us and took the order at a loss.” Very rarely do we acknowledge that the competitor won because they had a better product – it is what the customer wanted.
Once we can face up to that reality, competition can make us better. We can learn from them – just like we learnt from our friends in school. Competitors do not have to become enemies – we may be on different sides of the table, but we both have a common goal: to deliver more value to the end customer. Whoever is perceived to deliver more value wins. When we lose an order, instead of blaming external factors, it is good to introspect and ask: why did we lose, and what can we do better?
The products that we sell today are outcomes of decisions we made in the past. If we are failing to win, it is because of some of the options we chose and which perhaps were not the right calls. Business is an infinite game, which means that the future can be changed in our favour – as long as we can learn from the past mistakes and do the necessary course correction. In this journey, use competition as teachers – there is nothing wrong in learning from them and even imitating their techniques. To succeed in business, pay attention to the competition. As Simon Sinek puts it, “We have to stop thinking of other players as competitors to be beaten and start thinking of them as Worthy Rivals who can help us become better players.”
Know the Law
One morning, I got a call from my father. The police had come to his office (also the address of Netcore’s registered office) to arrest him, my mother, my wife and me. As directors of Netcore, we had all been named in a bounced cheque case, an FIR had been filed, and there was a non-bailable arrest warrant against all of us. I froze. I knew there was an ongoing legal issue in the courts about the case, but I never realised until that moment that anyone could be arrested.
We had bounced a post-dated cheque we had given to a vendor because we believed that we had not got the service that we had paid for. At that time, I did not know that bouncing a cheque was an offence for which one could be arrested. As I found out later, under Section 138 of the Negotiable Instruments Act, 1881, it’s a cognizable offence. In other words, if charged, it’s punishable with an imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both. The aggrieved party can file a civil or criminal complaint against you, the issuer of the cheque.” [Source: VakilSearch]
My logic was: we had given a cheque in advance, we did not get the service, and so we put a stop payment on the cheque at the bank, which resulted in the cheque being bounced. It all seemed perfectly logical to me. Those were early days in our business, and no one in the finance team red-flagged the consequences of this to me. I should have known better, but I did not. I also did not seek any advice from experts who would have warned me.
The matter had then gone to court. Even then, I still did not realise the gravity of what I had done in bouncing the cheque and what powers the other party had. I was confident that we had a very solid case and could win in the court. At some point, it became an ego issue – “let’s teach them a lesson”, rather than a simple business decision even as the legal costs started to mount. But the worst was yet to come.
The phone call from my father shook me to the core. My regular lawyer who should have warned me was unavailable. (The case was filed in a different city hence that lawyer was not our regular one.) I frantically called up a couple of lawyers I knew. After an hour of keeping the police at bay, I finally got through to the outstation lawyer. To my relief, he said that he had already got a stay order against an arrest the previous day but had been too busy to inform us. He faxed across the order and the police accepted that and went away.
That one hour for me is when life had stood still – I had imagined all four of us being arrested, taken to a different city, and put in jail for an indeterminate period of time (knowing how slow the Indian justice system worked), and my young son being left all alone.
After this incident, I set aside my ego and negotiated an out-of-court settlement. I also learnt a couple of lessons – understand the law of the land where one operates. Even more important, have the right managers and advisors who can provide the right guidance. A small mistake can be devastating. No amount is too high to pay for peace of mind – and freedom.
For a proficorn to thrive, the leadership team is very critical. That people matter is known. What is not commonly understood is that a different set of people may be required as the business grows. Every few years, the team needs to be upgraded because the challenges faced by the business change. The people who got the venture to the current level may not always be the ones to take it forward.
Initially, it is the entrepreneur who drives things. As the business grows, it becomes necessary to strengthen the leadership team with new hires. Delegation to grow starts to become important. With time, a core trusted team develops around the leader. The leader’s most important role at this stage is to ensure that each of the core team also grows with the company. For this, the second and third levels of leaders need to be developed.
Some people are natural at re-inventing themselves and managing newer and growing responsibilities. A few others find it difficult and therefore may require mentoring and coaching. In certain situations, they may also require a new leader above them who can help scale the business faster. This is where the challenge comes for the entrepreneur – the once trusted lieutenant needs to be told that in the interests of the business, a new leader is needed and what was once a direct reporting relationship will need to change. This can either make or break the organisation. If not handled right, part of the team that built the organisation may start to disintegrate with exits.
I went through this once when I hired a CEO for Netcore. All those reporting to me now had to report to the CEO. Suddenly, there was a ‘middle-man’ in their world. New power equations came into play. Luckily, everyone stayed on and there was a smooth transition. That helped set the foundation for Netcore’s growth.
One of Netcore’s board of advisors once told me two thumb rules: the leadership team needs to be strengthened every time the size of the business doubles (which for growing companies is once every three years or so), and that only about half the leaders show the learnability to make it to the next level. Managing this transition is perhaps the most important responsibility for the entrepreneur/CEO – because eventually business success comes not just from the right products and strategy but also from having the right people in the right place at all times.
In one of our recent Advisory Board meetings, we were discussing the different lines of business in Netcore – email, automation, SMS. To this, we also had the geographies (geos) – India and SE Asia where we had a presence for a long time, US where we have been building the team and growing the business over the past year, and other global markets where we need to expand. One of our advisors suggested we look at McKinsey’s “three horizons” framework.
It immediately brought back memories. I remembered reading about it many years ago. I loved how the three horizons and the steps to getting there made such a beautiful graphic to outline the future. At that time, Netcore was a much simpler business and I found little use for that model. After the timely advice from our advisor, it was time to revisit the three horizons model. As I read, I realised that there is very good applicability when putting together strategy for any growing business.
Here is an overview from McKinsey:
As companies mature, they often face declining growth as innovation gives way to inertia. In order to achieve consistent levels of growth throughout their corporate lifetimes, companies must attend to existing businesses while still considering areas they can grow in the future. The three horizons framework—featured in The Alchemy of Growth,1 —provides a structure for companies to assess potential opportunities for growth without neglecting performance in the present.
Horizon one represents those core businesses most readily identified with the company name and those that provide the greatest profits and cash flow. Here the focus is on improving performance to maximize the remaining value. Horizon two encompasses emerging opportunities, including rising entrepreneurial ventures likely to generate substantial profits in the future but that could require considerable investment. Horizon three contains ideas for profitable growth down the road—for instance, small ventures such as research projects, pilot programs, or minority stakes in new businesses.
The following graphic captures the essence:
Horizon 1 is the business that generates today’s profits. Horizon 2 is the business that will take over from Horizon 1 in the near future, while Horizon 3 are the options that one is betting on for the future. The key point to note is that each of the businesses needs to be managed concurrently and differently.
So, at the next strategy meeting, ask your team to segment your business lines on these three horizons. Then think of how you can put in place different metrics for measuring each business. It is an exercise which should be repeated every year or so. Even within a business line, it is possible to apply the same framework – for example, the three horizons could be different geos. In a nutshell, the three horizons framework helps the leaders manage both today and tomorrow.