Start Ups- a survival guide : Notes from TEDx IIT Delhi
Author : Atim Kabra
Source : From LinkedIn Archives
Date first published : February 20 , 2016
From talk given in TEDx IIT Delhi on February 20 , 2016
I was invited recently to IIT Delhi to present a session at TEDx held there.
The audience was primarily would be entrepreneurs from a premier institute but it is a sign of the times that the topic I presented on was — Start Ups- a survival guide.
I am summarizing key pointers from the talk:
While It is fashionable to be an entrepreneur these days, it is equally fashionable :
* to advise young folks to follow their heart and take the plunge into entrepreneurship
* to believe that there is an angel investor lurking just around the corner with a bagful of money just itching to fund your idea
* to believe that raising seed money will be easy and Capital shall find you as you grow and revenue models are not critical
* to believe that business will keep growing in a linear fashion, well thought out business models are not necessary and profitability is the least of the concerns when you start and is a logical derivative of whatever you do
* to believe that voices that talk of sustainability and predictability of earnings represent the ghosts of an era past
* to believe that just because you have a start up, you have made it and are worth millions of dollars
To all who hear this, I would say the following:
* believe that risk and return go hand in hand. Read the story of risk and remember the various excesses that occur regularly in financial markets
* Look around carefully and observe the pace at which Unicorns are turning into Unicorpses
* Remember the virtues of liquidity and that markets can be illiquid far longer than what rationality predicts
* I believe in the transformative power of the Internet. This is something as fundamental as the advent of steam engine, the discovery of electricity and the invention of the transistor chip. Increasingly, we live in an app driven world which is here to stay.
However, increasingly, I am troubled by what I am seeing. I am having trouble reconciling :
* the increasing dissonance between risk and valuations
* the almost fanatical belief in the availability of investors wanting to invest in often what are half baked ideas
* the belief that valuations only move up in the private markets
* the view that revenue models and profitability can be deferred for ‘the right time’ and clearly defined business models don’t really matter
The unbridled optimism of youth needs to be tempered with the cynicism and hard nosed realities of the real world.
What we are observing in start up space is that :
* companies are struggling to raise their next round of capital. The ratio of number of start ups to series A /next round financing is deteriorating at a fast pace probably due to business models which don’t live up to scrutiny and are half baked and/or unrealistic valuation expectations
* increasing dissonance between team members. As scale up becomes difficult and best laid plans don’t come to light, we are witnessing intense bickering amongst various stakeholders, be they the management and/or the shareholders.
* shareholder dissonance is another factor affecting startups. Investors were promised the moon to justify the high valuations and when reality falls short and clashes with the rosy projections, the angst felt by the shareholders is resulting in clashes with the management over strategy, growth trajectory and the elusive profitability.
So what do we do now to avoid the future pitfalls and reduce the probability of future dissonance. A few ideas not necessarily in any particular order are highlighted here.
* Take a hard relook at your business model and reevaluate strategy. Are you selling what the customer truly desires? Often entrepreneurs end up selling what they have created and many a times, it is too late to pedal back from where they are given the huge amount of time and effort invested in reaching their current position.
* Put yourself in the shoes of the customer and understand your users. Rest should follow
* Rethink your sales strategy and revenue realization strategy. Identity networks that you can piggyback on and which can push your products through their system. If necessary modify you products to suit your channel partners requirements. If the situation demands, modify B2B to B2B2C with the additional B representing the intermediate sales channel.
* Map your exits upfront as a strategy. Identify gaps in potential acquirers product portfolio and try plug those holes through your products. Work backwards from where you see yourself a couple of years hence.
* Pick sound co-founders who share your vision. You need to envisage their ability to get along with you when the going gets tough. You don’t need solo shining brilliance but you do need team players
* Focus on scalable ideas which offer well rounded solutions to genuine problems faced by consumers. Even if the start up does not offer a complete solution at the start, business should be modular with the potential to offer complete solutions over time.
* Focus on revenues and a clear path to monetization. Yes, once in a while a Facebook comes along but remember Facebook and Groupons of the world spawnd multiple copy cats which have disappeared without a trace. A clear cash breakeven strategy increases the probability of survival and gives breathing time to pivot during tough times
* Cash flow, Cash flow & Cash flow Cash was king, is the king and will remain so. Get good financial help to map out your models into numbers with detailed cash flow analysis. A good CFO equivalent is a must for any start up.
* Do not copy models successful elsewhere blindly. Aping requires sense. Concepts have to be refined to suit conditions on the ground and adapted to local conditions
* Be reasonable on valuations — Build a business which is viable. Valuation is a derivative, not the other way around.
In the end, its about risk mitigation and controlling as many variables in the environment as you can.
Entrepreneurship is not an easy path. Fortune favors the bold. I can promise you many sleepless nights on the path to entrepreneurship and moments of extreme ecstasy, deep despair and agonising decisions. But in the end, it will be an adventurous life lived full, with perseverance prevailing in the face of adversity. More importantly, you would have been the master of your own destiny.
I am sure you are all invested in multiple startups. Feel free to modify and share with your portfolio companies.