Managing Obstacles in Scaling-up
- How to check if our focus is correct? (Insight #1)
2. Are we set to move from being a “wanna-be entrepreneur” to an entrepreneur? (Insight #2)
3. Scaling-up on your mind? Managing through the chaos of this stage (Insight #3)
FOCUS: How this story got generated?
This story took a shape when I was trying to figure out what is next logical step for my startup; Addwit.
On my laptop, I had recently set up a Word doc — a simple table with four columns — Priority, Target, Narration and Tools. It looked like this —
The take-away from this table is that there are two categories of activities
- Activities that are not required (1a. In our complete control, 1b. Partly in control and 1c. Not in control)
- Activities that are ‘required’ (2a. In our complete control, 2b. Partly in control and 2c. Not in control)
I am sure, you also got the point that we must give ZERO % time and efforts to Category 1 items, even if those are within our control to do.
We naturally follow the rule — do what is in your control. I too kept focus on 2a — activities that were required + in control.
But, I was wrong. I needed to stretch myself and my creativity on 2b segment — where I had partial control. For example — setting up teams and spreading the risks involved in business.
Depending on what stage we are in our business, the “2b” items may be different — there was time when I just did not have any control what exactly is going to be our product or business model.
2a is the area that may keep us engaged and busy, but 2b is the area that will help us shift orbits.
In recent, my major 2b category challenge has been putting up resources to assemble and sustain a team. As an employee, even at the key positions, we are “provided” with resources.
I started my career as an employee; and stayed in for good 20+ years. The mindset and inner composition for employee and entrepreneur are fundamentally different. And, the transition from one “E” (employee) to another “E“ (entrepreneur) may take many, many years. Robert Kiyosaki has written tremendous amount of great books and blogs in this area. If you have never read him, this article could be good starting point; or, could be to follow RTK on Twitter
Unless the person has developed, business cannot. I wish there was a simpler way to put it.
INNER GROWTH: Real Development is Organic
If you read that book by yours truly, you know that it took many years (about 10 years) to develop the concept and scaling up mechanism for Addwit.
(If you are curious what we do; then, briefly speaking, Addwit has mastered the art of solving large-scale + unstructured + silent problems in society, education and business. Our work started in a very haphazard manner; with no clarity about what exactly we wanted to accomplish and how?) Read more here.
Development takes time and efforts that cannot be defined or estimated in advance. Recall the creation of those landmark books like How to Win Friends And Influence People or Think And Grow Rich, that took twenty years!. If these books took decades of work, a real business definitely may take a decade to shape up.
If these books took decades of work, a real business definitely may take a decade to shape up.
Further, please allow me to repeat because this is important —
Development takes time and efforts that cannot be defined or estimated in advance.
TAKING OFF: Transitioning into Scaling Up Stage
Unlike development of Think & Grow Rich that was supported by Andrew Carnegie, many of us start-up founders may not have the luxury of having someone sponsor.
Scaling up stage takes resources + team — for ad campaigns, hiring professionals, taking tech architecture to higher orbits, administrative expenses like office and travel — to count few.
There are three options to provide for financial resources and human resources required for scaling up —
- Sell, Sell, Sell (Find customers)
- Find investor
- Find partners
Till we have given deep thinking to every detail of scaling up also, we cannot really claim to be an “entrepreneur” yet. Business has ONLY two functions, as said revered Peter Drucker — innovation and marketing.
Let’s review each of the three options — finding customers, investors and partners.
(I have discussed finding investors first and then finding partners because that is what I want to end the story at. Chronologically, it may be just the reverse. Or, there are successful entrepreneurs who never took investments and succeeded entirely by broadening customer base. Example? Zoho- bootstrapped and profitable).
1 . Sell, Sell, Sell (Find customers)
Founders-owners need to be good at selling — no two thoughts about it. But selling only to end-users may become a “S” quadrant strategy.
We need to master the process of creating ‘selling systems’ that work automatically.
2. Find Investors
On option #2, the “investors” — do not get trapped in the jargon — Angel, Seed funding, VC, Pitch-deck, Impact investment… Almost everything boils down to (a) does your proposal “fit in” where the investor / their representatives have multiple parameters and priorities and (b) IRR and ROI…
Option #2 may become an “E” quadrant strategy because most times the investor will take away anything between 50% to 100% of ownership; reducing the founder to be an employee (or an outsider) with few shares. (Remember how Steve Jobs was kicked out of the company he founded?)
Not a good deal, unless someone is willing to give up.
3. Find partners
Let’s consider the final option — finding partners.
To break it down, this option involves addressing two decision points
- The new partners must find it interesting enough financially.
- The new partners must find it interesting enough personally.
Making it financially interesting
Suppose, a founder has invested INR 30 million during eight years of development. After these 8 long years, when he introduces business to someone who can bring in INR 0.5 million, her share is meager 2%. Definitely not interesting.
Solution? Split the initial expenses on development into two parts — say INR 25 m and INR 5 m. Partners may agree to keep first part to be paid back via a “1% of revenue” channel; and they may share business profits in 91:09 INR 5m: INR 0.5m. 9% partnership is financially more interesting than 2% partnership.
(In fact, this can further be split down to smaller chunks — say INR 10k; creating 500 units (to match the risk-taking capacity of potential partners and to create stock options).
POINT: To exercise the risk-taking capacity is the first requirement from any wanna-be entrepreneur — in whatever small manner they may want to start.
To actually live the risk-taking capacity = the first requirement from a wanna-be entrepreneur.
I must point out that (1) Roping in many founders runs the risk of “fractured capital structure” in the lingo of investors, yet, if it produces more entrepreneurs, then it is well worth the risk; and (2) Implementing such thought will require due paper-work for which law / accounting / finance experts must be consulted.
Making it personally interesting
The second point — that it must be interesting enough personally — is worth diving deeper.
Hard-core investors are not interested in developing personality. I know this is a sweeping statement, and may not apply to all investors; yet, I am saying this with caution. I am talking about the internal transformation which can vary — [reaching “entrepreneur mindset” from “employee mindset”] for one; and [being able to see the real “Purpose of Capital”] for anther.
(There is a landmark book Purpose of Capital by Jed Emerson. I am yet to read the book, but the title itself conveys a lot).
Many of us are theoretically “excited” about entrepreneurship yet doing very little about being one. Very few are taking the internal journey of fighting our own ignorance, fears and resistances.
In that example, assume, for raising INR 1.2 million, if I go to 12 friends who take risk of 0.1 m each, and gradually absorb the traits of entrepreneurship in the further experiences; and even if one of them eventually becomes ‘Peter Thiel’ of tomorrow, then this game-plan is much more valuable for everyone than borrowing that INR 1.2m from one investor and losing a big chunk of ownership.
Unless the person actually takes risk; no one can make it “interesting” for her. I have met many who need “all the clarity” before taking one step. No; that is not how it works. And; while saying so I must also add — I am not for being vague and unclear, but it is something like this — we cannot ask a cab driver or football player to give ‘in writing’ every step he will take on the route / on the ground. When we hire a cab or buy a match ticket, there are risks; yet we decide — because there is an innate personal interest.
No one else can make entrepreneurship “interesting” for anyone — it must come from within.
In essence —
1. Work actively on 2b category (required but in partial control) items. This is the segment to stretch our ability to go an extra mile.
2. Never under-sell ownership of business. Do not end up becoming innovation cubicle for investors.
3. In the process of raising funds, we can raise another entrepreneur as well.