Tips to avoid failure in startups

Investment or mentoring - Which should be first?

In 2016 and H1 2017, over 200 visible startups in India failed. It is not that all of them failed due to non-availability of funds, but infact otherwise.

On analyzing the invested startups, we can draw conclusion that many startups failed either because they got more money they could chew or they were starved off the funds. let me explain.

Many Hyperlocal companies like PepperTap, LocalBanya, GrocShop shut their shop in 2016 and 2017, due to splurge in customer acquisition, to the extent customer acquisition costs were higher than lifetime value of the customer!

PepperTap got $50m including $36 from SnapDeal and they continued their operations on negative transaction cost over a long period, inviting it attracting for local grocer to make a purchase, pocketing a discount of 20% (offered in the name of new user discount) and sold to his customers as otherwise he would have. Operations were not reviewed and trends not seems to have been analysed. This problem occurs when money is available in plenty and our desire is to scale fast, even fulfilling artificial KPIs.

On the other hand, food delivery startups, who started with promise as last mile delivery is still a issue to be resolved efficiently, TinyOwl, ZuperMeal, iTiffin, BiteClub all folded up, as money which was easily available last year, isn't available this year that easily, as investors have tied their purse, witnessing bloodshed at the marketplace. Scale of these startups needed, as per design, higher infusion of capital and that was not available this year.

In both of these situations, somehow, the trust between founder and investor got broken.

I am of the believe, before investing, due diligence should happen over a period of time when founders should understand the investors and like wise the reverse. This can happen when mentoring happens before the investment in the venture.

With this view, we have structured our next accelerator program, different from the market offerings. Accelerators generally give money first and then mentoring take place. The Startup Board is coming up with a accelerator program in which about 15 founders and over 30 top industry CXOs will meet every Saturday for 16 weeks, and virtually thereafter for over a year, to not only expose connections, guide as board of directors guide the management team, but also hand-hold on strategic direction and resolution of strategic issues. This approach will be better to build trust and consequent investment, when maximum weight investors have started giving on the execution capability and value system of the founders.

I would love to get your views.

Cheers! Ashish Jain

Social pullback from Start-up dream

Start-up dream is now-a-days seen by many youngsters but not everyone ends-up with his /her start-up.

I happen to know a youngster, who passed out in 2015 from a prominent southern private engineering college. Let’s call this youngster Pranav. He has been active in college fest, organizing activities for “societies” and getting “tech-app” made from his juniors. Highly connected with students, professors and evangelists from other colleges in the area, he had a dream to commence with his own start-up and even had firmed-up his ideas on technology and domain to venture into. On campus placements, he rejected four such offers, including from the big Indian IT companies and consulting MNCs. He knew, for sure, the challenges he was likely to face in his start-up. Usual ones were finding a team with same zeal and passion as he had, funding it, getting the product ready, competing against competition, sustaining the various ups-and-down of a startup and then making it big to succeed. He graduated and was ready for all of these challenges.

He was ready but his family was not. He has discussed the options with his parents before rejecting his campus placement offers, but parents were under pressure from the “society”. Few relatives were skeptical of his choice in life and were not seeing the vision and life he was seeing for himself. Anyone, Pranav or his parents discussed the idea with, brought the rejection of the start-up idea in favor of more established options of higher studies (post-graduation) or taking up a job.

Pranav isn’t along. There are numerous graduates, hailing from middle-class, who are facing challenges even before starting their own venture. The society in India is yet to reconcile to what’s-the-big-deal-to-failure mentality. Is it a big blow if someone fails in an experiment? What about the learning from such a failure?

I did a simple arithmetic of the options that are available to be engineering graduate, soon after college.

Please allow me to exclude the outliers from IIT and IIM.

Based on latest figures, an engineering graduate gets about Rs 3 – 3.50 lakhs as his starting salary. Assuming everyone, who gets into a job gets an increment of 25% in the year 2 and 3 appraisals, 20% for the next two and 15% subsequently, as the base salary is growing and this percentage reflect the general 60% of the candidates who fit in the middle of the bell-curve. An engineering graduate gets about 11 Lakhs after about year 9, unless he reskills himself or switches jobs too frequently, with a cumulative earnings of Rs 61 Lakhs after 9 years of service.

			25%	25%	20%	20%	15%	15%	10%	10%
	Option	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9
1	Job, Right now	3	4	5	6	7	8	9	10	11
			7	11	17	24	32	41	50	61	Cumulative
2	Higher Edu India - PG (2 Years)	(5)	(5)	7	8	10	12	13	15	16
			(10)	(3)	5	15	27	40	55	71
3	Higher Edu Abroad - PG (2 Years)	(20)	(20)	10	12	14	17	19	21	23
			(40)	(30)	(18)	(4)	13	32	53	76
4	Startup - Failed, Join Job after 2 years	(20)	-	15	18	22	25	29	31	35
			(20)	(5)	13	35	59	88	119	154
5	Startup - Successful	(20)	-	40	48	58	66	76	84	92
			(20)	20	68	126	192	268	352	444

Consider the same graduate going for higher post-graduation studies within India. He invests about 10 Lakhs in the fees and hostel and gets to start at about Rs 7 Lakhs. Assuming the same increment percentages as earlier, his CTC at year 9 is at 16 Lakhs, with cumulative earnings of 71 Lakhs over 9 years of service. If the same graduate had gone for higher studies abroad, he had to invest about Rs 40 Lakhs an would have been much better taking CTC of Rs 23 Lakhs (cumulative 76 L) after the same period.

Consider starting a venture. What does it take for founders to start a venture and take it to a level recognized in the industry? He needs to build product (technology savvy), understand market dynamic including competition (marketing plan with branding), define go-to-market strategy (led sales), arrange funds (CFO role), hire and retain people (CHR role), manage organization growth, address regulatory compliances, etc. If this venture has made its presence, founders have learnt which no other course in the world can teach them! Innovative and modern outlook companies are constantly looking for such people who are not only all-rounder, but also possess fighting spirit and attitude to solve problems as they come. It makes these founders in-valuable, whether they lose out on their venture or make success out of it. Anyone who fails still has a better market value and conservatively valued at 15 Lakhs as starting salary, if he had to resume job after venture failure. Not to mention, he is better off than any of the earlier discussed cases, even if he has burned about Rs 20 Lakhs of his own.

What if he succeeds? There is no looking back. What one earns is un-comparable to job that could have given. Pranav has been able to convince his parents to travel on this path.

If one argues higher education in India or abroad provides connect with fellow batch-mates and this can be leveraged for better opportunities in life. This is no-doubt a take away. However, this is much more explicit had one started his venture.

It is also pertinent to mention that business is not for everyone. Only some have the aptitude and attitude to take the risk and have the endurance to undergo the hard work physically and emotionally. So, for all those we are appropriate for it, startup venture is the right way to go.

It is time that as parents we support our wards to take the path less traveled and enable them to be the torch bearer for the generation to come, without compromising self-interest.

Ashish Jain

www.thestartupboard.com

About Author - Ashish mentors founders of start-ups on strategy

Leading International Business - Locally

KFC entered India with Beef and Pork products, without realizing the potential retaliation from the local market. The result, it had to close shop for nearly two years. Future Group with Kishore Bayani as its first generation entrepreneur setup 80 people core team in Bangalore which visits stores, observes customers, meets them, engage with them and alike to gather what he considers core facts for his retail strategy. When Big Bazaar was started, the floors were neat and clean akin to large malls. Customers were reluctant with missing market buzz of shopping. Big Bazaar swiftly adopted the change to succeed, based on the facts gathered through their market insights. Is it business knowledge or cultural knowledge? I would attribute it to knowledge of local culture (India) as same factors may not work in another country just the same way even if other business parameters are kept similar.

Knowledge of local culture, therefore, is as much important as knowledge of business itself. This is hygiene factor, without which, chances of failures increases leaps and bounds. Leaders are expected to have this market knowledge before launching their country strategy. In an International environment, mistakes are costly, not only from financial perspective but also from the damage to the brand.

Insights here are not intended to be exhaustive, but are catalyst to generate interest and help through few guiding rules. Some insights work on the region while others work on the country.

The first exposure is to communicate in International markets. Americans and British like to crack jokes and involve humor with business while French, German, Dutch and Japanese would not mix the two, till they have become ‘friends’. It is strict ‘No’ to discuss politics, religion, family, children, and salary with Americans and Brits. Safest bet is to discuss local sports like baseball, basketball in US and Soccer in Europe apart from Weather. French likes to discuss art, wine, travel experiences and sports. It is kind of ritual in Latin America to discuss health issues in great details. French do not like to get a smile from passer by, just the opposite of Brits. It is compulsory not to discuss family and criticize king / queen in Islamic countries, else…you know best. Italy does not take discussion on Mafia, taxes and politics easily. In Australia and NZ, avoid discussion on politics, racism, labor issues, kangaroo population and highly of NZ in Australia and vice versa.

Australian, Brits, French, Canadian and Americans use chit-chat to familiarize fast. China and Hong Kong uses chit-chat just to discuss the travel experience but swiftly moves to elaborate conversation on even personal topics like family, Income etc. People in Middle East and India like to engage in conversation for a long duration. Eye contact is positive in US and Europe unlike Asian and Latin American, as it is seen as attentiveness, alertness, self confidence, truthfulness and respect. Japanese, Koreans and many Asian countries find stare quite uncomfortable, to the extent of doubting and not agreeing. Accent is very important to Brits and is able to find out educational background from the accent. Standard English were found in supervisory positions more often than were persons who speak with pronounced accent. Americans like to speak slower. In Middle East, Italy, Germany and Taiwan, they associate volume with strength and sincerity and thus speak loudly. Japanese prefer to speak and hear softly.

One of the most authoritative work as a project was carried out by Geert Hofstede (www.geert-hofstede.com) on cultural dimensions. Geert analyzed a large data base of employee values scores collected by IBM between 1967 and 1973 covering more than 70 countries, updated in 2001 with scores for 74 countries / regions.

Hofstede developed a model that identifies five primary Dimensions to assist in differentiating cultures: Power Distance - PDI, Individualism - IDV, Masculinity - MAS, and Uncertainty Avoidance – UAI and Long-Term Orientation – LTO. Values of some countries are mentioned here.

Country	PDI	IDV	MAS	UAI	LTO
Arab World	80	38	52	68
Australia	36	90	61	51	31
Belgium	65	75	54	94
Canada	39	80	52	48	23
China	80	20	66	30	118
India	77	48	56	40	61
France	68	71	43	86
Germany	35	67	66	65	31
Italy	50	76	70	75
Japan	54	46	95	92	80
Mexico	81	30	69	82
Netherlands	38	80	14	53	44
New Zealand	22	79	58	49	30
Pakistan	55	14	50	70
United Kingdom	35	89	66	35	25
United States	40	91	62	46	29

Power Distance Index (PDI) - Society's level of inequality is endorsed by the followers as much as by the leaders. Higher the number means higher the inequality.

Individualism (IDV) – This is opposite to collectivism - in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families. Higher the number, lower the collectivism bond.

Masculinity (MAS) – Distribution of roles between genders. Masculine assertiveness over feminine shows higher number.

Uncertainty Avoidance Index (UAI) – Factor to show society's tolerance for uncertainty and ambiguity. Laws and rules are stick for uncertainly avoidance in high scoring countries / regions. People in uncertainty avoiding countries are more emotional. The opposite type, uncertainty accepting cultures are more tolerant of opinions different from theirs. Long-Term Orientation (LTO) - It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition and fulfilling social obligations.

Knowing cultural diversity and its impact on business is any leader’s dream. HSBC aptly characterized it in its punch line “Think Global, Act Local”. Leadership can only be better by avoiding traps KFC found itself in.