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Tag Archive : startups

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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The passionate vs the obstinate founder

Recently, I had a long conversation with someone about the challenges I faced working with an obstinate founder that they referred to me. The person countered that the founder was passionate about their business idea, and I misunderstood their passion. I disagreed with their assessment.

During the week, I have contemplated the difference between obstinate and passionate. I realize that it was difficult to separate the two. Obstinate is often misunderstood to be obsessive; a term often used to describe Mark Zuckerberg, Jeff Bezos, Brian Chesky, Elon Musk or Jack Ma.

I love obsessive founders. I considered myself an obsessive founder. I am probably even more obsessive as an investor. Why VCs love obsessive founders is well explained by Mark Suster in this Medium post titled Why I Look for Obsessive and Competitive Founders. If you are a VC investor, then you should read this post.

Moral: Obsessive is good, but obsessive is not obstinate.

Obstinate is what Oxford defines as stubbornly refusing to change one’s opinion or chosen course of action, despite attempts to persuade one to do so.

Obstinate founders can take a fantastic thing and reduce it to rubble because their need to be right is more important than their need to win. It is the classic winning the battle but losing the war syndrome.

Gordon Tredgold wrote a wonderful article explaining the difference between stubbornness and determination, aptly titled Don’t Confuse Stubbornness with Determination.

In it, he provided a list of signs that can warn a founder whether their stubbornness is becoming an issue.

  • If you never win and you never quit, you’re an idiot
  • Will power vs. Won’t power
  • Remember that your goals must be measurable
  • Think about results
  • Consider adaptability
  • Your goal will remain the same, but your plan for achieving it will be different

His suggestions are absolutely banging on. I encourage you to read the article if you constantly find yourself butting heads with prospective and/or current investors.

The failure vortex and how to get out of it

It is easy to figure out when founders have been pitching for investments without any success and for a while. The pitches become nonstop monologues that will end at the allotted time or when abrupted by questions from us.

Naturally, the founders overcompensate to avoid failing on another pitch. They try different tactics to avoid disappointment, but a series of rejections can take its toll on a founder’s psyche, and slowly the tactics become bad habits. Many founders are not aware that these bad habits are creating a vortex that is attracting further rejections. What seems intuitively correct is practically fatal.

So here are a few tips for founders that will help them in their next pitch.

  • Eliminate the problem areas in your pitch deck

If you’re getting stuck at the same point in your presentation, then it may be an excellent time to eliminate that slide. If that is a slide that you cannot eliminate then use an example to get your point across.

Doing the same thing again and again but expecting a different result is the definition of insanity- for a good reason!

  • Speak at a measured space and

The two significant signs of low confidence are speaking in a high pitch and speaking at a fast pace. The good news is that there is an easy fix for this.

  1. Record yourself pitching so that you hear the difference between your regular and confident voice and that you use during pitching.
  2. Do test pitches where you speak in a tone much lower than your standard baritone and speak at slower than your average space.  
  3. Write down, “breathe” at a spot where you can see it during your pitch and breathe.

These exercises may seem stupid to you, but you have to ensure that your message is getting into our heads. When you talk fast at a high pitch and without taking a breath,  the only thing I’m thinking is – something is wrong with this business!

  • Act as if

Yes you may have just enough money left to take the Uber ride home

Yes your core team may be on the verge of quitting

Yes your parents are hounding you to take that job you hate so you can make ends meet and;

Yes all this stress is tearing you apart inside

However, those are your problems that we are not aware of right now. During your pitch, we should not be feeling the weight of the issues we’re inheriting. Instead, we want to dream about the promise your opportunity holds, and we want to know you are the guy that will get us to that promised land.

Therefore, clear your head before you start a presentation. I watch specific videos or listen to particular music that gets me in the right frame a mind before I make my pitch for investment. I force myself into a mental state where all the issues in my personal or professional life don’t get reflected in my pitch for investment. For my investors, I am ‘the guy’ wearing the confidence of the success, and a bank account overflowing with money.

Confidence is infectious and FOMO is not a myth!

  • Do not brag or lie

Asking you to act as if may seem like I am encouraging you to lie or brag but let me be clear that that is far from the truth.

A successful person does not need to stamp their success everwhere, and neither do they have to remind people of their success. Most of the successful people I know underplay their success, displaying palpable confidence that is felt but not witnessed.  

Therefore when founders start bragging about meetings with Saif, Sequoia, Lightspeed or well-known super angels in a feeble effort to create FOMO they are pulling the rug from under them. We can safely estimate at what stage of the start-up’s development these top funds will take an interest in investing in them.

Therefore, bragging about meeting x, y or z, when you don’t have a POC, is a sign of your immaturity in understanding how the venture capital ecosystem works. To misunderstand their interest in taking a meeting is a sign that desperation is getting to you – not something you wish to convey to a potential investor!

Act as if is an attitude, a demeanor, and a mental state. There isn’t any space for lies and show off when you are acting as if.

The fastest path to the CEO chair is very different than what you might believe!

The Fastest Path(s)

Last week I concluded the appraisals for 2019 as well as inducting two analysts into our team at Artha Venture Fund. I attempt to have a conversation with each of the new inductees, and one of the questions I ask them is where they see themselves in the next five years. Most of them have plans on doing an MBA or becoming a manager, but very few have plans to become entrepreneurs.

Therefore when I do their appraisal, I ask them the same question once again, and it isn’t surprising that most of them have had a shift in their five-year goals. Invariably they would like to be in some entrepreneurial position whether that was in a start, proprietorship, NGO or as a fund manager. I hold the entrepreneurial energy that flows within the walls of our office responsible for this shift, and I am confident that I am the one responsible for dropping cans of fuel to flame any evidence of an entrepreneurial spark.

While I have recalibrated the goals for many team members, I have found that like the entrepreneurs that I have met, my team holds misconceptions about the path one should take to becoming a CEO/Founder. I could harp on my own experiences as a case study for them to follow, but it was a pleasant surprise to learn that the team of Nicole Wong, Kim Powell, and Elena Botelho were conducting a study that I could share!

In a ten year study, the trio assembled data on 17,000 C-Suite executive assessments, studying over 2,600 of them in-depth. They wanted to analyze who gets to the top and how and they went onto publish a book based on their findings called, The CEO Next Door.

Their study (aptly called the CEO Genome project) took a close look at the career paths of individuals that they have (once again) aptly called, CEO-sprinters. Their study discovered that on average, it took 24 years from the date of joining their first job to become a CEO. Therefore CEO-sprinters are those individuals that got the CEO title before 24 years.

Some of the data sharing from the study are thought-provoking:

  • 24% of the CEOs had an elite-MBA
  • 7% graduated from an Ivy League school
  • 8% did not complete college
  • 45% had had a significant career blow-up

The study concluded that the CEO-sprinters had three types of career catapults that got them to the CEO chair early viz:

  • Go Small to Go Big
  • Make a Big Leap
  • Inherit a Big Mess

Understanding these career catapults and experiencing them is crucial. Their importance is inferred by the fact that:

  • 97% of the CEO-sprinters had had at least 1 of those experiences
  • ~50% had had at least 2

I will review the book in a future post, but until then you can learn about the career catapults as well as other findings from the CEO-genome project at   

I concur with the findings of the CEO Genome project, and it has once again confirmed what my mentor & ex-boss used to ingrain into each leader that was led by him

The people that solve the most problems make the most money!

My PR Experiment

Yesterday was an interesting day. I started off by tasting different blends of single shot coffee made by a start-up that we have been eyeing for a while now. They have been some gaining significant traction and the tasting culminated in the issuance of a term-sheet. In my next appointment, I visited several branches of a food aggregator that provides home cooked meals in an IoT enabled device. The heavy dose of caffeine from the morning helped me stay awake after an extraordinarily heavy lunch, but I really liked what the company was doing, and so we issued them a term-sheet too. In the last meeting of the day, I was with two entrepreneurs who are looking to fill the niche left open by Bira in the beer industry, and so I ended up tasting their different beers. Their product, taste, packaging and brand positioning are all unique and I’ll be honest, we are contemplating issuing them a term-sheet too. But no, this blog isn’t about tasting and issuing term-sheets, it’s about the commonality I observed in all three funding outlays, which I asked the founders to rectify i.e. instead of outsourcing it to an external agency, build an in-house marketing team to manage social media channels, PR and internal-external communication.

I used to erroneously advocate outsourcing PR and media management, but that viewpoint was permanently altered. I conducted a yearlong experiment in which I discontinued the services of our external PR agency and brought those functions in-house. Not only did I gain more control on what Artha (and I) wanted to communicate, but we also got more media mentions, got covered by the top journalists and were invited to renowned events around the globe. We also started publishing separate monthly and quarterly newsletters for our LPs and well-wishers.  All this effort has paid off through a marked increase in business for all the Artha entities, but most importantly, we achieved all these objective at 60% off our previous costs.

All of our PR (yes, all of it) was organic and genuine i.e. unpaid for. We did not sponsor events, pay for advertising in publications or authored articles. Things are moving so well that this year we are expanding the internal team by bringing in a Social Media Head that can move us from prose to video. Since we understand that the entire process isn’t a one-man job, we are allocating him/her a budget to recruit a team to facilitate this transition.

This massive cost saving got me questioning the PR/Media management agency model and whether it really works for an early-stage startup. I am afraid it does not. It takes many months and a lot of effort to get a brand new startup relevant and unpaid media attention. Unfortunately, early stage start-ups do not have the budget to compensate top-level agencies for their effort or even tier 2 or tier 3 players (unless they can secure a strong referral). Therefore, start-ups end up working with PR firms that themselves are starting up.  These PR firms overload their staff with multiple projects, to make ends meet, distributing the employee cost over the projects to make operations profitable. However, that divided cost also means divided time and focus on each project – a situation that does not bode well for start-ups trying to make a dollar for every penny invested in marketing. In fact, I have seen PR agents pitch 4-5 ideas to the same journalist in a single bid hoping to get any of them published. Is that really how you want your start-up to be pitched?

Another issue that works against the interest of the start-up is when a PR agency works hard to meet the KPIs they have promised and manages to do so in the first 15 days of the month. Having met their KPIs, they go radio silent for the rest of the month. This essentially means that their promised KPIs are the limit and not the base on which the agency works – completely opposite to how founders set KPIs for their internal team. After all, you can only create value for your company when you get more value than you pay for, isn’t it?

Therefore, I have come to a conclusion that PR agencies are useful for short sprints or Big Bang announcements, but the marathon work of building an image and brand for your startup should be done by an in-house team. In fact, even the 22 Immutable Laws of Marketing recommends the same!

37/2019

Influencing v/s Incentivizing Customers

I have been reading Drive by Daniel H Pink and not only am I surprised by how little I understood about customer motivation but also have found the answer to why almost any company that has tried to buy customer loyalty has failed (and miserably at that). Yesterday, as I was setting up my newly created family office in Hyderabad, I got into a discussion about the influence versus incentive strategy that startups utilize to gain initial traction utilised by startups with the principal of a newly created family office in Hyderabad.

The discussion started over how Paytm was going to recover the losses it was willing to make to get customers to transact using its platform. Earlier, I would have defended Paytm stating that these incentives were like dangling a carrot to get customers into the habit of using Paytm, but I’d also ask, whether the platform understands that selling its service below cost means that they value their service at zero (or less than that). As I am learning through the research carried out in this book,  using incentives to alter consumer behaviour can have similar effects as addictive drugs have on the human body. For example, in Paytm’s case the massive incentives lead to a sale, but in order to get the customer to transact again, Paytm has to keep increasing the size of these incentives. All the while the platform remains unaware, if the customers would want to transact at all, if the subsidies were taken away. In fact, it could even lead to a situation wherein users that would have used their services regardless, have developed the habit of being incentivized and therefore expect incentives to be doled out each time. In essence, the customer acquisition cost becomes a transaction acquisition cost, a cost that continues to escalate with each interaction – a truly dangerous situation, in my opinion.

I realised that I myself, was guilty of this behaviour last month while searching for the alternatives that were available to buy a new phone. I was willing pay the sticker price to offline stores, but got lured into buying the phone online with Paytm’s offer to give me 8% cash back; a cash back to subsidise the interest on EMIs and money in my PayTm Mall wallet. It was a no brainer for me to choose this option that was giving me the same phone at a deeper discount than any offline retailer was willing to offer. However, when I was looking in the market to buy something for my dog, the lack of any cash back offers from Paytm prevented me from using it, and I chose Amazon instead. With the cash back money in my wallet I should’ve used Paytm, but intuitively only wanted to utilise Paytm if and was getting a deep discount.

This behaviour and its end result remains the same for any venture using an incentive laden customer acquisition model. The customer needs more and more incentives to be loyal and will stop using the product/service the minute the incentives are taken away.

In fact, Ronnie Screwvala had asked this question on twitter a few weeks ago and received a cheeky reply from Vijay Shekhar Sharma but not an answer.

27/2019

Sell the Sizzle in Your Next Pitch

Many things are important towards the success of a start-up pitch but getting the audience to relate to the problem that is being solved can be the difference between a nod or a nay. For many founders this could mean that they must essentially dumb down their pitch, and I would agree with that approach over a technologically complex and “intelligent sounding” presentation any day.  In sales we call this approach, selling the sizzle.

In a nut shell what I am suggesting to the presenter in you, is to hone down on the objective of the first pitch i.e. being relatable enough to warrant further investigation. I would not advise neither expect a presentation to get an investor to write a cheque immediately after the pitch, that is unheard of and nearly impossible. However, if your pitch has the recall value to keep investors thinking for hours, days or even weeks after it – the goal has been achieved.

These are some key ingredients to achieve the desired effect on an investor audience:

  1. Create an image of your target customer
  2. Explain the challenges that the target faces today
  3. Delve into the loss (in time, money, etc.) that this target faces
  4. Elaborate how that loss is hurting the target and how the current solutions aren’t helping
  5. Elucidate how your solution solves these problems (a video case study is recommended)
  6. Calculate the value delivered to the target
  7. Quantify how many such targets exist i.e. TAM, SAM, SOM, etc

Your story should get woven in such a way that the investor finds themselves in the shoes of the target and can visualize the issue, the solution and the value it would provide to them. A great example is this Bhavish Agarwal’s 2011 pitch for Ola.

Notice how Bhavish asks the audience for a show of hands of how many people have had a bad taxi experience. Almost everyone has faced this issue at some point or the other or knows of someone that has, i.e. relatable. Instead of delving into the awesomeness of Ola’s tech stack, he uses ‘you’ multiple times during the presentation to gently put the audience into the shoes of a taxi hailer. He shares just enough pain points to get your creative juices flowing and start looking for a solution to this imaginary problem. Smartly, he chooses to stay out of the techplaining which he understands can (and will) get covered during follow-on conversations with interested investors.

If you think about it, it is easy to argue with an explanation but hard to argue with an experience. Therefore, it makes logical sense to cut out the excess fabulousness of your pitch and focus on only delivering a pitch that is edible, visualizable and recallable. The rest can wait.

19/2019

What a Bank Should Do for My Business

After what seems like an eternity, the relationship manager of one of the largest private banks in India sat down with me to understand my grievances with this bank. Recently, I moved one of our business accounts to a competitor bank and that triggered the RM of the current bank, to question why I was looking elsewhere. When asked, I pointed out the inconvenience of needing a specific certificate to be issued and installed on each device to be able to log into my business bank account. If for some reason I ever found myself without the certificate ordained devices, I was locked out of all my business accounts (which for obvious reasons is a hassle). While I am yet to understand how this process made it off the drawing board in the first place, the fact that one of the biggest banks in India was still using it, years after expiry, clearly indicates how little the bank understood about the requirements of a business today.

The RM promised that a completely revamped system was coming into place in 7-8 months and tried pitching the “support” that they provide for start-ups. As a response to this, I asked if I would have to continue to write physical letters to be able to change the address of my digital mailbox (aka email address). While he could not answer my question, I got the exact answer that I expected – to put it bluntly, large banks take their business customers for granted because of the lack of better options. While the start up support initiatives that banks put on marketing creatives look good, their backend continues to operate like it did in the 1990s. It is high time that this changes. Though the RM left with promise to do what he could, we both knew he was just a small cog in a big mess.

When I woke up this morning and replayed the interaction in my head, I had serious doubts whether the relationship manager could do even 10% of what he had promised. Therefore, I created a wish list of what I would like my bank to provide in order to have me and my business as a customer…  

  1. Single-day opening and shutting of bank accounts
  2. Business savings accounts to park excess monies
  3. Painless and easy ways to obtain a corporate credit card
  4. Seamless processes to add/edit/remove employees from company accounts
  5. A smart and all-encompassing mobile application
  6. An automated overdraft facility based on corporate credit history
  7. Easily accessible innovative lending products
  8. Quick and simple access to company investment accounts to park excess funds (in mutual funds or other investment products)

Do you have any to add?

17/2019

My Angle on the Angel Tax Notification

Through a flurry of tweets, DIPP announced the changes that were made to alleviate the Angel Tax problem that the early stage ecosystem has been continuously grappling with. In a recent post I had put forth my own views on how the government could resolve these issues by accrediting angel investors, and to my surprise DIPP did accredit angel investors (in a way)  in the notification made on the 16th of January.

There were several reactions to the notifications which ranged from the positive…

….to the cautiously optimistic

I believe that the government’s baby steps toward rectifying the angel tax issue is a good sign. I also believe that there will be more incremental changes on the anvil and the biggest positive take away from these notifications is that the government is listening and (more importantly) acting.

However, I do feel that DIPP could have invited better representation that just the heads of angel groups. Most of them stand on behalf of investors but rarely make angel investments on their own. Instead the angels that are writing cheques, dealing with founders and tax authorities regularly are the ones who should be getting invited to provide their inputs. A minimum criterion of 25 investments in the last 3 years could be a good starting point. These angels’ inputs would be valuable as they would make the next set of changes more acceptable.

A couple of the changes that I would like to propose to DIPP

Let’s see what the next set of changes are going to be!

13/2019

The Journey from 500k to 5 Billion Demolishes 5 long-held Startup Myths

It has been over a week now since the news of OYO’s $1 billion round and ascent to unicorn status became official. This is a huge accomplishment for Ritesh and the entire Indian start-up ecosystem as the new round’s purpose is primarily to expand OYO’s reach outside India, something very few Indian start-ups can boast of. I expressed the enormity of this moment in a quote to Ananya Bhattacharya of QZ.com.

OYO’s journey smashed many myths that founders, investors and journalists hold strongly about start-ups. I took the last week to decide the 5 most common myths that can be done away with, for good.

1. The first-round valuation is important to set the floor for later rounds

OYO’s starting valuation of less than 3 crores was not an obstacle in its journey to become the 2nd most valuable Indian startup. The important thing is that Ritesh was able to EXECUTE the plans and ideas that he pitched in his fundraising presentations.

P.S. OYO did well even though we invested in their seed round in tranches… it did not affect any of their growth rounds of equity, obviously!

2. Founders should save equity for later rounds

It is important to note that: 75% of zero, is zero. Unless there are multiple term-sheets being shoved into a founder’s inbox giving him/her stronger negotiation leverage, founders should just focus on raising enough capital to execute the objectives set for the round and investors should provide value-adds besides the capital. Founders that under-raise or hold long drawn-out negotiations for better valuations are doing themselves and their startups a disservice.

3. IITs/IIMs degrees is a pre-requisite for startup success

It is well known that Ritesh did not go to college and got a $100k Thiel Fellowship for choosing entrepreneurship over a college degree.  His journey is a testament that even the best education is useless if it cannot be applied in the real world that we live in. I enjoy working with humble founders like Ritesh who; work hard, study hard and are teachable over conceited founders that expect royal treatment for the degree(s) that they hold.

4. Only deep-tech and hi-tech startups get the big bucks or those with a truly unique idea

The real beauty of OYO’s success is the simplicity of its business. Since none of the incumbents were paying attention to the gap in the budget accommodation space, it allowed OYO to swoop in and leave them in the dust. OYO’s initial premise was to provide a clean room, free breakfast and free wifi at an affordable price – that’s all. The execution required hard-core sales and marketing prowess and strong leadership aided by technology, not the other way around.

5. Founders should not pivot or that will destroy their startup

It is important for founders to have a flexible business plan so that they can address the changing needs of their target market. Ritesh pivoted Oravel to OYO rooms, Harsh Shopsense to Fynd and there are many such success stories that started out very differently from where they ended up and they all teach the same lesson – be prepared to change the action if the outcome is not what was expected.

91/2018