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Tag Archive : learning

Startup Board Meetings 101

Most founders deem that their relationship with their board will be adversarial and combative. I assume that the founders must get sleepless nights before the board meeting. Maybe it provides the founder flashbacks to the nights spent they spent rolling their beds as they tried to present their school report card to their stricter parent, usually their dad.

Why do I think that?

The creative ways I see founders avoiding calling (forget conducting) board meetings as if it were the plague. Founders drum up excuses for delaying the board meetings, much like my classmates and I did to avoid submitting our signed and acknowledged report cards. Founders get sick; then a family member gets sick, then the ICU and next the morgue. Next when the health issues run out, then the team members are blamed; the reporting systems cop the blame – the list is endless. It is comical to witness the founder’s unnecessary creativity. However, the board is not a founder’s dad, waiting to rap them and it does not need to be that way.

That start-up boards must not have an adversarial relationship with the founders. This relationship should not disintegrate into that abyss is the responsibility of the investor board member and the founder.

For starters, the board must not get into the day-to-day working of the company unless there is a crisis, and the board must over-ride the management – it is rare but required. How can a founder avoid this situation is to be honest, in the founder’s hands.

A first step to building trust in the board-founder relationship is for the founder to get into the habit of organizing, conducting and following-up on productive board meetings.

  • A board meeting must be conducted every quarter – at the very least.
  • Some start-ups may require monthly board meetings, but a long-term plan of conducting monthly board meetings is onerous – on the founder and their board.

An important distinction that many founders fail to make is that a board meeting is not an investment pitch, but neither is it the investor update. A board meeting’s purpose is to get into the meat of things that the founders are working on versus the sizzle that sold to current and prospective investors.

If you, as a founder, are confused about what to discuss at your board meeting, I believe that Mark Suster’s How to Prepare for a Board Meeting to Make Sure you Crush It is a must-read for you.

Essential points that Mark delves into are the importance of a well-thought-out agenda, a solid deck and providing enough time to your board members to prepare for the meeting.

Now, if you’re scratching your head on what goes into a board deck, then Bryan Schreier’s post on Sequoia Capital’s website, aptly titled, Preparing a Board Deck should be in your reading list. 

A start-up founder that has an adversarial or a laissez-faire relationship with its board members is losing the plot. The best situation that a founder could wish for is a well-functioning board is their sounding board and guide for the road ahead. The board gives the founder a third party and a bird’s eye perspective on their venture’s progress because founders lose their objectivity in the day to day function of their ventures.

But it is important to note that the responsibility of creating the right board relationship must begin from the founder and supported by their board members – not the other way around.

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How to deliver bad news to investors

Hey founders, today I’m going to address a crucial topic: When to update your investors with bad news. If you’re an entrepreneur and running a business, you will have to give bad news at some point.

There are many ways to give bad news. One of them is not to give any news at all, let everything go down, and then explain why you have only ruins and not a building on fire. This method isn’t recommended, but some people choose it – I don’t.

There are minor issues or bad news that can be managed in your monthly and quarterly updates. Like missing your quarterly numbers by 3-4%, or if you’re having a tough time recruiting people, or if a particular distributor who was contributing a large part of the business dropped you for reasons unknown or customer complaints. These are the kinds of things you can manage in your monthly and quarterly updates.

However, certain kinds of news shouldn’t be neglected. These should be communicated to the investors immediately. If a co-founder has left, or one of the co-founders has been diagnosed with severe disease and will not be available for the next 6-8 months, or your fundraising efforts are falling through, or a significant client that contributes a substantial chunk of the profit has left. These are the kinds of situations that need to be communicated to the investors immediately, preferably not on e-mail.

What I recommend is organizing a conference call or an in-person meeting. Explain what is going on to the investors face to face, in a way that is direct with no sugar coating. Be humble about the fact that things have gone wrong. Don’t try to play up things to avoid the investors being angry at you. If the situation is terrible, investors have a right to be irritated and will point out things that could have gone better. You should take criticism in your stride as you’re expected to execute successfully. Take responsibility, be direct, and you’ll find that investors will probably come back with solutions for you to manage the mess.

In adverse situations, you should have a turnaround plan. I would recommend having one if you’re going to have a face to face meeting. If you don’t have one, let the investors know and get back to them in a few days or a few weeks. There may be some questions the investors have, for which you may not have the answers. I would recommend not making up turnaround plans on the spot. If you don’t have the answers, tell them. Mention that you’re going to get back to them in 5, 7 or 10 days (or whatever number of days you believe you need) but ensure that you keep those promises.

Delivering bad news should not be difficult. It’s only tricky when you don’t want to give bad news, and you feel hiding is the best way forward. But it doesn’t solve anything. In fact, it only leads to the problem of getting bigger. If hypothetically, the company shuts down, and investors find out that you knew in advance, you could find yourself in a hot legal soup.

I’ll leave you with that, and I would love to know how some of you guys have shared bad news in the past. Also, if you have tips for other entrepreneurs, do share them in the comments.

Video of the Week: The Undisputed King of Bollywood

I must be honest that I was not a big fan of Akshay Kumar through most of my teens. His movies centred around his martial arts abilities and he had typecast himself into a brand of cinema which I did not identify with. Then something happened 10 years ago that altered the actor’s career and this transformation & success formula should be a case study at the top management & entrepreneurial schools in India as it pole-vaulted him to highest paid Bollywood actor (7th highest in the world).

Akshay has been a vocal critic of movie schedules that can take 300-400 days and he adopted a simple success formula which I found is on the lines of the lean start-up mentality.

  1. Akshay completes his movie schedules in 60 days (Housefull 3 was done in 38 days!) which significantly reduces the carrying cost of the movie i.e. the path to profitability is significantly reduced.
  2. He releases 4 movies a year, therefore, increasing the number of shots he has at delivering a hit. Compare that to the competition that does 1-2 movies a year, therefore, has to maintain a near perfect record.
  3. The more releases per year also means that Akshay gets to read the audiences’ pulse regularly and he can adjust/alter/update his next product iteration thereby catering to his customer’s (read: audience) preferences much faster.
  4. The success of this simple success formula can be gauged by the fact that Akshay has delivered 100+ crores in box office collections every single year since 2007

The inspiration to do this research came from two videos wherein the actor provide an insight into his journey, both are must watch videos!

The first one is in Hindi

The second one in English

84/2018

The Investment Banker Pandemic

Time and again, I have warned early-stage founders to steer clear of using the services of a banker to help raise money but unfortunately, that pandemic has overrun our ecosystem. Many bankers have made a comfortable lifestyle out of fleecing unsuspecting founders. The false dream that these 1-star bankers promise founders make my skin crawl, as many of the business models that they push to me aren’t even eligible for venture capital, and the bankers are aware of it.

I would also like to acknowledge that there are many bankers that are doing some excellent work and every penny paid to them is worth their weight in gold. Some of these bankers have worked with our portfolio companies and I have interacted with a few for fundraisers, but NONE aka ZERO were for raising amounts below $5 million (Rs. 35 crores).

Then there are angel networks that reach out to us about their portfolio companies and while I am disillusioned with the concept of angel networks, the angel networks do not (or should not) charge their portfolio companies for connecting them to funds; it is a part of their duties.

Raising outside money is the toughest and most gruelling of exercises (I had to endure this myself while raising $6 million for my fund) and no banker is going to make it easy for you. I too have had investors drop out or reduce commitments at the last moment and while I understand that it can be frustrating, the cold-calling, the rejections, the ‘getting close’, are all part of the process. FYI, I reached out to over 5,000 people for the first close and will be reaching out to 5,000 more for the next one. Every founder must do this; persistence is key.

If you still feel that you need the services of a banker, I have compiled a few articles that could help with the selection process. Eventually, it is up to the founders to decide to ‘banker’ or not but choosing an advisor to delegate the fundraising process without doing the required due diligence to select them is truly just “abdicating” the responsibility, which is simply unrewarding in every sense of the word.

How to Choose the Right Investment Banker

By David Mahmood, Founder, Allegiance Capital

The Art of Selecting an Investment Banker

By Katie May, CEO of ShippingEasy

7 things to consider when choosing an investment banker

By Martin A. Traber, Chairman of Capital Markets Group of Skyway Capital Markets

10 Questions to Ask When Choosing an Investment Banker

By Dan Lee

80/2018

Book Review: The Maruti Story

Being born in the early 1980s, I have been a witness to Maruti’s slow takeover of the automobile market in India. I faintly remember sitting with my cousins in the trunk of our first Maruti-800 that my father & uncle bought together. It had the glass panel lifted so that we could avoid our heads banging into the glass each time the car hit the brakes or a pothole.  

My family had to sell the car due to a serious loss that the family business suffered, but in 1989 we bought a new car that stayed with us for a decade. A cream coloured Maruti-800 with the registration number MKO-1044. I have vivid memories of sitting in the front seat of that car while my uncle would drive me around town. This was also the car I learnt to drive in and the one I had my first driving mishap in. Once, while trying to park the car, I turned too sharply leaving me only cms (notice how I didn’t say inches because I was that close) away from a wall. In an attempt to help me avoid scraping my car, 4 watchmen from my building picked it up with their bare hands and hauled it into my garage. A few years later, that car got stolen, but by that time the family had bought a Maruti Esteem and also gifted me a Maruti 1000 to drive to junior college. We have owned many a car since then but a Maruti continues to hold a special place in our memory, all of which came flooding back when I read about the painstaking efforts and risks that individuals like RC Bhargava took in bringing a true “people’s car” to India through The Maruti Way 

Book summary: 

The book is narrated from the viewpoint of Maruti’s current Chairman, RC Bhargava, someone who has served the company since its incorporation in 1981. He tells the story of how an impossible project, provided with an impossible timeline was completed in a hostile business environment. The book narrates detailed stories on the various issues that Maruti faced e.g. import constraints, labour issues, political pressures, infrastructure constraints, etc. and how it solved these issues by utilising Japanese management techniques coupled with a dose of Indian pragmatism.  

Maruti’s management was treading on a thin line since it was a government sector company. had Despite being denied the freedom that private companies had, Maruti was expected to churn a profit and grow rapidly.  How Maruti achieved this improbable task and became India’s most valuable automobile company kept me hooked throughout.   

What did I love about this book? 

An automobile company has various moving parts (repair shops, suppliers, spare part stockists etc) within and outside the company, therefore there could be various issues that have conflicting motivations when looked at from different vantage points. The solution to those issues could pit two parties against each other unless the issues were fully understood, and all the stakeholders bought in on providing a solution.  

There are many things to learn through the book as Mr Bhargava divides different issues into specific chapters, explains the problems from various vantage points and exhaustively describes how these problems were successfully resolved by Maruti’s management.  

The chapter on “People” boldly stands out from the rest of the book. It is a chapter I can read again and again.  I rate this book alongside Simply Fly & the Virgin Way in my list of best books for an entrepreneur starting the journey in the Indian entrepreneurship space.  

What did I not like about the book? 

The book provides vivid details on how most of the problems were solved but very little depth on their failures. It felt as if I was reading a management book on the best practices to start an automobile company in India.  

Similarly, there were a lot of details about how Maruti 800 was chosen to be the first car to roll off the production line but surprisingly, provided very little information on the automobile launches that bombed e.g. the revamped Maruti800 in the early 2000s, the Omni, Gypsy, and even the first edition of Baleno.

Who is the book for? 

This book is apt for all entrepreneurs & founders. Since Mr Bhargava was a co-founder of Maruti, most of the challenges that he describes are easily relatable to, by founders. It is the way in which he finds creative solutions to resolve these problems and persistently continues to drive growth, that can be a lesson to all. 

79/2018

3 Things to Learn About Investing from a Founder that Sold his Company for $465 Million in 2013

On Friday, AIMWI  invited me to be a panellist for their 6th annual Family Office Summit India 2018. One of the perks of being a panellist is the opportunity to listen to the speakers scheduled before my session. I can point out many instances where the nuggets of wisdom imparted by speakers have led to impactful changes in my entrepreneurial, investing and even personal strategy and/or views. Today was one of those occasions.

I had the privilege of listening to Hexaware Technologies’ founder, Mr Atul Nishar, who shared the wisdom of putting to work, the wealth he gained after selling his stake to Barings PE in 2013. There were 3 key points that will remain etched in my memory:

  1. Putting money into fixed deposits is the riskiest investment one can make
  2. A part of one’s investment portfolio should be earmarked for investing in start-ups
  3. People that believe that 99% of start-ups fail are misinformed

76/2018

When is the Right Time to be Acquired?

Yesterday I met a startup that I have been mentoring for the past 18 months. The founders have developed a deep tech product that has a niche in the B2B space. While their sales have not managed to light up the startup world, I can ascertain that they have developed a robust product that services a small but solid customer base.

One of the discussion points on the agenda was an unsolicited acquisition offer from a customer that wanted to develop what they had built and found that it was better to buy them vs build the solution, in-house. They had asked the founding team to discuss the offer with the investors and gauge if there was interest in pursuing such a transaction.

IMHO, the founding team has worked very hard to develop a product that any entrepreneur should be proud of and landed a client most could only dream of. However, it was evident that the limited success beyond the major client had started to eat at the founder’s confidence. So, although they didn’t say it, it was clear that they were in favour of the idea and just wanted to know if I was onboard with their decision.

I know that the founders would respect my opinion if it contradicted their decision but I cannot make this decision for any of my founders. I see my role as that of a guide, showing them the path from where to get the answers for themselves, therefore, my advice to any founding team that is agonising over the decision to get acquired or slug it out is simple.

First, clear the din created by all the advice offered by investors, advisors, mentors, employees, co-founders, parents, siblings and basically anyone that can talk. Secondly, seek an honest answer to these questions:

What will make me/us happier?

If my/our efforts were part of a larger canvas? Or If my/our efforts were the canvas, itself?

75/2018

Don’t Sweep your Failures Under the Carpet

Yesterday, we revamped the pitch book that we share with potential investors interested in Artha Venture Fund. Although the revamp was long overdue, I kept procrastinating until a fund manager in Hong Kong took out an hour from his day to offer me insightful critique for our 35+ slider presentation. He asked me to cut out 35% of the existing presentation but add a slide that initially I was hesitant to do.

Right after the slide that talks about our previous investment performance including the top 6 companies in our portfolio (by valuation), we added a slide that talks about our two biggest investment blunders, why they happened, what the outcome was and what we learnt from it.  It didn’t take me more than a minute to decide which investments I would include on that slide since I discuss them frequently with investors in person, but I was apprehensive of putting them on a presentation that wouldn’t allow me to explain myself.

While reviewing companies, our team always goes through their reviews on Google, Amazon, Flipkart, Zomato, the Play store, Glassdoor, etc. During this process, we don’t look for the best & recent reviews but scour through the list for the 1 & 2-star poor reviews to understand where the company’s product/service is lacking. We do this because 99% of founders will provide snippets of the best feedback in their pitch deck but leave out the bad ones altogether. I believe they do it for the same reasons I did because not being able to explain why there is a big ugly black blot on an otherwise beautiful painting takes away the cloak of invincibility that you work on building throughout a presentation.

In my opinion, after adding the hotly debated slide, we have enhanced our reputation as astute investors. That slide candidly lays out our biggest blunders for potential investors offering a window into how we look at our failures and what we have learnt from them. It makes us relatable, it makes us human.

I recommend that all founders who are currently preparing, reviewing and editing their pitch book should put a slide of their ugliest reviews and explain why it is there, how they resolved the situation with an offended customer/supplier/whoever, whether the guffaw warranted a corrective action within the company, if the corrective action lead to lasting changes (be honest) and what the result of those actions was.

I (now) firmly believe that this is a slide that will stand out in your pitch because it does in mine.

68/2018

4 Reasons Jet Airways Has Been Reduced to Ashes

I have been a loyal Jet Airways customer for the past couple of years. Unfortunately, that role made me a witness to their rapid descent from a premier airline into a confused brand, trying to be everything at the same time i.e. a full-service airline and a low-cost carrier. I believe that the downward spiral that the airline is currently bound in, is due to 4 major reasons. These should be a lesson for all entrepreneurs.

1. Alienating loyal customers

Analysts estimate that airlines’ Frequent Flyer programs generate almost 50% of their profits and keep them from losing customers to their competition.

Jet Airways has tinkered with their JetPrivilege program far too many times by

Many members (like myself) switched to other airlines and the exodus of loyal customers forced Jet Airways to offer deep discounts and increase promotional spends to attract new customers. This significantly inflated customer acquisition costs – something that burns deep holes in any balance sheet.

2. Destroying their USPs

Jet Airways consistently eliminated the USPs that made them the preferable choice over other LCCs and Air India. However, their ill-advised cost-cutting measures battered the benefits they offered over their competition. The meals became smaller, cheaper, and frankly disgusting. The baggage allowance was also reduced to 15 kgs which is the same amount offered by Indigo & Spice with no-frill fares.

Once the comparisons with other LCCs started – Jet Airways’ brand was destroyed.

3. Participation in price wars

Someone in Jet Airways’ boardroom decided that it was a prudent choice for the company to compete with the LCC’s on fares. In my opinion, that person should be the first one fired!

Jet Airways had the opportunity (which Vistara is encroaching now) to provide comfort and luxury for frequent and business travellers whose needs are more than the bare minimum, for which they are willing to pay a premium. Instead of finding that niche and dominating it, Jet Airways pulled a Kingfisher by trying to provide maximum value at a minimum price. While the LCCs were optimizing the balance between price & value, Jet Airways’ value proposition was lopsided in favour of the customer. By reducing the benefits to correct the anomaly, Jet Airways’ led its customers astray.

As history demonstrates, rarely has a brand ever made it out of that death spiral without aggressive structural changes (and an apology.)

4. Concentrating on market share vs share of market profit

In a price conscious and emerging market like India, I expect that the LCCs would command a lion’s share of the market because they make air travel accessible to a new traveller. Jet Airways, however, opens the customer’s eyes to the value-adds of a full-service carrier, therefore introducing them to a whole new class of flying.

Therefore, as a full-service carrier, Jet should have positioned itself as a brand that provides more than just a metal tube from point A to point B.  Their motto should have been:

You will learn to fly with the LCCs but enjoy flying with us.

Despite having some of the highest levels of talent on board, Jet Airways made some glaring mistakes. It is surprising that no one was able to prevent them, leading Jet Airways into this mighty fix.

65/2018

Founders: Lawyers aren’t your Moral Compass

One of our investee companies made a significant change to their cap table without any proper intimation or disclosure to the existing investors. Not only did they make the change, but also went ahead to complete the transaction, keeping the remaining investor pool in the dark. What the founder failed to consider is that these things cannot remain in the dark for long. So, when the news came to light, I was upset at the way the entire transaction had taken place. A couple of days later, I had a face to face meeting with the founder to understand why such a crucial mistake had been made.

During the meeting, the founder admitted that he had made a mistake by not informing the investor pool about the changes. However, instead of owning up to his mistake, he retorted, “my lawyer told me it was okay.” After hearing this, I asked him if he genuinely thought his decision was morally or ethically correct and his reaction said it all. He couldn’t even look me in the eye or deny his lack of responsibility.

As human beings, knowing the difference between right and wrong is our basic instinct. Therefore, we should not rely on the shoulders of service providers (read: lawyers) to defend our actions (or as in this case, inaction). The critical trust between a founder and an investor is not based on the paper that is signed. The paper only defines what the individuals have agreed to do in the worst-case scenario of a complete breakdown in communication.

Thus, I believe that it is my responsibility to go above and beyond the minimum standards that I have committed to in the investment documents. Hiding behind the cloak of a legal professional’s advice is a smoking gun and founders that do so simply weaken the trust their investors have in them.

For the record, the advice given by the lawyer was incorrect so legally speaking we can sue the company for violating the investment agreement. Not only that, but the founder has also lost all credibility among the investors & what price can you really put on that?

All of this could have been avoided if only the founder had openly communicated what he/she was doing. If you, as a founder are reading this post, remember that communicating with the investors about both, the good and the bad things going on with your company, help to build trust.

In fact, I would go a step further in suggesting that you communicate the bad news quicker if not as quickly as the good. Not only will this help reduce the damage that it can cause but it is also just the right way to do business. Nothing harms your business’ growth like the loss of an investors’ trust.

54/2018