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

Free Basics versus Free Internet

The divide between propagandist of for and against net-neutrality debate is getting louder. Facebooks’ Free Basics is the lone corporate warrior along with ISPs, who is pushing ahead with its agenda of discriminatory pricing regime for the Internet in India.

Two things make Internet fancied around the world. It is a platform that existed since the 1970s but was consigned to only research institutes, to collaborate. With the advent of World Wide Web (www) the power of connecting each other evolved and more and more people started connecting to it. It is a platform that became powerful as it was able to connect any and everybody from one continent to another seamlessly without any barriers. In true sense, the world became one market for sourcing of information and collaboration. Secondly, as it was evolving and its power growing, thankfully, no country or its government controlled it, the reason enough people trusted Internet to be non-partisan.

Internet has grown in its acceptance from 16 million (0.4% of world population) in December 1995, to 3366 million (46.4% of world population) in December 2015. This growth is faster especially in the last two years, even on the high base. In India, the number of Internet users has increased from 5 million in 2000 to 243 million users in 2014, covering about 19% of India’s population and this growth rate is much higher in India than world’s average.

With the introduction of Free Basics by Facebook and zero rating by Airtel, the real intention does not seem to give access, but mere profit. While profit may not be a bad word, at the cost of the platform’s existence of non-partisan one platform-one world, should be a definite no. The arguments of increasing the access to people in India who can’t afford the Internet, is a lame excuse. If this argument, for argument’s sake is accepted, what will it create is not a WWW view of Freebasics or Non-FreeBasics view, but probably more than 300 views of Internet worldwide, divided by the ISPs through their “programme”. The corporate may successfully be able to divide it even further based on the “view” that they would like to perpetuate. In this scenario of shrinking slices of available “programme members”, any view from any continent would not only be distorted, but also biased. And that is detrimental to the platform itself.

Facebook cited TRAI’s 1999 tariff order to justify that non-discrimination requirement reaches only discrimination between subscribers of the same class and argues “Thus that prohibition would not appear to reach zero rating or sponsored data programmes, since all subscribers pay the same price (zero) are subject to the same terms, for the same class of service,”. This justification is not valid, as it would kill the competition theory, if one with muscle power can sustain the initial period of “Investment”, to flourish when all the competitors have been vanquished.

Internet is oxygen to the digital world, and any dissection in the name of flavored oxygen should be resisted, however tempting it may be. It is better to remove the pollution from this oxygen, together, and facilitate its greater flow to larger masses in its purest form.

Get top talent in a Start-up. Here is how.

Person with an idea, entrepreneurial zeal, passion and perseverance can commence with a new venture, with or without some like-minded friends. This initial team will take the venture only a distance, beyond which a team at the CXO level is needed, complementing the skills of the founders. Most ventures, till they become celebrated ones, struggle to attract the top talent, creating a vicious circle of top talent makes the venture celebrated or vice-versa.

To understand how to attract top talent at CXO level, it is important to understand what turns them down. One of the largest studies undertaken ever, by the Gallup organization, surveying over a million employees and over 80000 managers, finds relationship with the boss being the primary reason for dissatisfaction and leaving. “People leave Managers not companies” is the key message by its authors Marcus Buckingham and Curt Coffman. Other studies reveal reasons in that order, include unchallenged and boring work, financial opportunities elsewhere, not felt to be contributing to organization’s business goals, without autonomy and independence, without clear strategic direction, unfit in the organization culture with the level of politics, nepotism and policies.

This does not mean anyone fit for a big organization is fitter for a startup. Those with lack of risk taking ability will not join the startup. People without passion to create or help solve a problem will most likely stay away.

People, who are willing to join the startup, will primarily join if they distinctly see the career path in the organization in comparison to an established company. Risk may be higher and calculated, but it needs to show the prospects what it would do to their career if venture hits high. Offering equity on milestone achievement is the most resorted to. Ventures keep a fixed allocation of equity to be offered to employees partaking risks for growth.

Financial stake is not the most important factor. Career progression out of achievement of fulfilling venture’s goals, recognition in the start-up eco-system and naturally, increased market value of the person, all contributes to fan the individual’s inert feelings in making it happen. Such an environment can possibly happen only when it is transparent, plans are big and challenging, owned-up, and are given with freedom to execute. Failure is only a lesson for course correction and not for finger pointing.

To me, here are the top reasons why top talent will join a start-up

1. Founders to have clear and big vision - Vision of the founders is an important energizer, background and intention of the founders as exhibited in the assessment discussions, is often a deal maker or breaker, as both sides assess the other. Big responsibilities offered to CXO candidates are a big attraction for them to consider the position. 
2.  Transparency between founders and CXO candidates - A heart-to-heart talk is extremely important between founders and the candidate. Both sides must be frank in admitting the constraints and document them. Founders will be skeptical to take candidates, who color themselves more aligned or are referenced by the investors. 
3.  Open and intuitive organization culture – Exciting and intuitive work environment, open-door policy, lean organization structure, transparency and equality in information reach, promotion of entrepreneurial instincts, tolerance to failure, incentivizing to learn, fun at work are some traits that make conducive work environment like in Google and IDEO. 
4. Financial stability in a short run – Funded with promotor or angel money, the venture should be able to sustain for a year. This assurance is important to candidates who will need time before proving themselves worth running it. 
5. Flexibility, flexibility and flexibility – Rarely business plans work the way they were conceptualized in the beginning. Flexibility of the founders to adapt to changing situations, flexibility of the senior team in changing course and flexibility of investors to back the venture come the changes, is the key. 
6. Low ego – People from corporates, many times come with huge ego. Work at a start-up may not be conducive in massaging this high ego, either of the founders or of candidates. Humility is the key in making the work and relationship successful. 
7. Don’t pay the peanuts – Most motivated and self-initiated individuals value money not among the top 3 reasons to join a company. Though, they do not want to negotiate every now and then and must feel to be satisfied with the package they have joined at. Good talent knows its value and must get it, to deliver without distractions.

Communication of existence of such an environment to attract the right candidates is still a task, which “The best job in the world” campaign in a popular competition by Tourism Queensland, promoting Great Barrier Reef, attracted many able candidates inexpensively. 

Payment Banks - Opportunities for start-ups

My younger daughter when she was 3 years old, used to ask, what we do in a bank. I did not want to complicate things for her and answered “we put money and we get money”. This could not be more appropriate for the current set of 11 payment banks which RBI has given permission to setup. These banks can not lend and hence “we get money and we give back money” can’t be true.

New striped down payment banks have a big impact not only on the financial and technology fraternity, but also on the Indians in the remotest places, resulting in three things. One, it will help financial inclusion of the unbanked. Secondly, it will spur into greater percentage of cashless economy, and the third, banking transaction costs will reduce across the board. Payment banks are unlikely to open the branch network on a scale as “full” banks do. They are not even obliged to. Lean organization structure, technology enabled banking - mobile or net banking, specialist and limited services on offer, partnering as banking agents, will enable them to reduce the transaction costs. It is big impact for the current set of banks as many transactions and low capital cost accounts are likely to shift to payment banks. When the impact of payment banks on people is such immense, will it have opportunities for new ventures? There are many and we will discuss the same here.

First, let us evaluate the scope of opportunity for SME. Conventional banks have only been able to reach 30,000 out of 5.94 lakhs villages; resulting in almost 50% Indians without a bank account. Unbanked rural folks will find it convenient to pay using mobile. Mobile phone will become paperless cheque and ATM. Urban Indians will shift due to convenience, speed and captivating deals on mobile transactions.

Payment technologies have proved hugely popular in other developing countries. In Kenya, the most cited success story, Vodafone’s M-Pesa is used by two in three of adults to store money, make purchases and transfer funds to friends and relatives. One study found that in rural Kenyan households that adopted M-PESA, incomes increased by 5-30%, due to time saved in avoiding regular banking and savings on transactions costs.

This opens up opportunities for many start-ups. Payment banks will have to depend upon “local” entrepreneurs for reaching wide and deep. These entrepreneurs will have more accessibility to last-mile customer and hence the trust, a key ingredient. These entrepreneurs on non-exclusive basis, like in telecom tower business, can create business catering to multiple pay-banks / banks and source products and services including cash dispensing. This is cost effective and win-win model.

Faster adaptation of banking by vast majority of unbanked population will depend on correct and effective consumer education. More than 24 languages, regional biases, dialect, and cultural differences make education of masses a complex task. New ventures can be opened in content creation and local delivery of such content effectively. A friend of mine, who runs a NGO, publishes a “newspaper” with huge amount of local news and pastes them on the milk-van for people to read free wherever this van goes. His income comes from advertisement that consumer non-durable and durable product companies gives to reach this deep. Innovative solutions like this will come more when people at grass-root are involved. This also will help gain trust.

Can the money be sent from Airtel network to non-Airtel network without both collaborating? Here, aggregators come into play that is not among the banks. These new ventures will build plug-ins with each service provider and offer a platform that is ready-to-offer services, like payment gateway aggregators in today’s world, drastically reducing the go-to-market time and cost, while standardizing the platform.

Think of grocery store accepting mobile payment instead of card, as it would entail him to lower service charges (transaction deduction rate – TDR) than 2% he forgo in case of cards. How about electricity and other utilities accepting mobile payments? Purchase a magazine on the traffic light? Purchase goods and pay while talking over phone without the need to disclose the bank account or debit card details? How about lending small amount to a friend /relative in need at a distinct location without the availability of any bank or the ATM? Soon, many apps will be made by ventures on mobile cash management, setting-triggers for regular payments, usage spent limits by spend category, dashboard for predictive spends in future months, suggestions on avenues to spend basis available cash, on-the-fly proximity and spend based restaurant search among many innovations that ventures can think of. Many technology companies will bring innovation; build their application and tie-up with banks to facilitate transactions for each use case, just the same way value added services (VAS) like astrologer, cricket scores, news updates etc. happens on mobile today.

All these services will fail if trust is breached on the safety of money kept in mobile wallet or linked bank account. How to secure if mobile is lost or mobile number changed without opting for mobile number portability? Start-ups with specialization on security of m-cash transaction and reconciliation services will see the day soon.

It is an opportune time for start-ups to prepare and grab the pie, advent of payment banks opportunity throws before them. Size of the market is at least 10 times bigger than the credit card market size.

Ashish Jain