Author Archive
Confirmation Bias – What are Startups Doing about it?
The CEO of the startup was conducting due diligence on a potential acquisition target. The Board (including him) had prepared a list of questions they wanted detailed responses to. These answers would then need to be cross-verified by the appropriate experts, lawyers and accountants. The founders of the potential acquisition target were known to the CEO for several years and they had done business together as well. The CEO believed that the acquisition would benefit his company and desperately wanted to make the acquisition happen as he believed it would double the size of his company, enhance offerings and customers and of course, provide some bragging rights since an acquisition tends to (at least initially) be an ego-booster. As the diligence process began, it started becoming apparent that the financial position of the target company wasn’t as healthy as had been conveyed or imagined. In addition, the customer base and sales pipeline too didn’t look as attractive. The Board started having second thoughts on the deal. The CEO aggressively pushed for the acquisition, so much so that he started rationalizing the deficiencies and gaps thrown up by the diligence. He also downplayed “bad news” (eg loss of a customer) or kept the information only with him. The Board wanted the CEO to look for other targets and options as well but having invested so much time and energy (emotional and otherwise) in trying to make this acquisition happen, the CEO wasn’t in a mood to listen.
Partnering – Big or Small?
The startup was in a tizzy. One of its largest partners who sourced the startup’s products, bundled them with other offerings and sold them to customers had decided to make the products itself. The partner was much larger than the startup, had more money and reach. About 10% of the startup’s revenues came from this large partner, albeit at a lower margin than if the startup sold products directly. On the other hand, it did not have to incur additional sales and marketing costs. For the partner, the revenues from the startup were a tiny fraction of its current revenues but the market opportunity was large and fast growing. It was quite possible that the startup would be in direct competition with its partner before long. The startup was therefore understandably nervous – should it continue to supply the partner or should it stop supplying products? Should it aggressively cultivate other comparably large partners while continuing to do business with this partner?
Merger, Acquisition and Startups : People Issues are Paramount
At some point in their existence, many startups have to confront certain existential questions – about themselves and their future. Some of these typical questions: “Are we on the right track? Are we likely to reach where we wanted to? We need to grow fast but how? Should we acquire and grow? Should we be acquired”?
Revamping Practices
I received a letter by courier yet again last week from a well known financial institution. It took me a while to reach the letter since the envelope in which the letter was enclosed had been fortified by no less than 9 staple pins. In addition, the envelope was tightly sealed with gum and two strips of sticky tape. I finally retrieved the letter but not after some cursing and a bruised finger. This was the nth such letter I had received from the company, complaints notwithstanding!
Welcoming Indipreneurship – The Force Within
1991 was when India achieved its second independence – that of economic liberalization. But, in retrospect, one has to say that it has been far more than just economic liberalization. It also liberated the mind of the baggage of self-doubt, low confidence and ignorance. It has therefore been my belief that those born around or after 1991 would be the change agents of India. Entrepreneurship and entrepreneurial thinking would be the vehicles of change.
Wanted Fools and Angels
Alexander Pope’s 1709 “Essay on Criticism” had these immortal lines “…for fools rush in where angels fear to tread”. He was of course referring to the literary critics of his time and, in his time, implied some one who behaved foolishly rather than referring to a simpleton or someone lacking in intelligence as it does now.
What’s the DNA of your company?
Early last year, I met a startup team that was building the next great mobile application. They had built a system that could offer mobile social networking to end consumers. The team had great technologists including a few successful entrepreneurs among them. They were convinced that their system would be the next great thing for consumers; they were supremely confident (bordering on overconfidence) about the uniqueness of their offering. This company was trying to build a company focused on the end-consumer as their customer. This meant that they had to build a brand, build a system that would be ridiculously easy for consumers to use, have a mechanism that would keep attracting people back to them, and figure out a way to make money. Of course, companies like Google and MySpace were their role models. The team had enormous expertise in building and running systems for businesses, selling and marketing to businesses and supporting business customers. They however had no experience in developing consumer facing businesses, no experience of creating and running a brand, and no experience of the mobile world. And most importantly, they were targeting a consumer segment (namely, youth) that was far removed from the world the team inhabited – for example, the team was comprised of technology people in their late thirties to early forties who didn’t blog, didn’t socially network and essentially didn’t do the social things that their customers were involved with. Given that they were great technologists, they quickly figured out the nuances of mobile technology. But solving the other issues required a different mind-set, a different set of experiences, a different set of expertise and involvement. In short, it required a different organizational DNA.
Krishnas and Arjunas at the NASSCOM Product Conclave
The Arjuna-Krishna session is the title of a session on Advisors that I’m moderating at the NASSCOM Product Conclave.
People around the startup
In the last column People First, I talked about the need to have the “right” people in your startup. But there’s another important set of people the startup should surround itself with namely, a board of directors (BOD) and a set of advisors/mentors. While no man is an island it is even more true that no startup can be built in isolation. The importance of building and leveraging relationships cannot be over-stated. The importance of sounding out business strategies, feedback on technology direction, dealing with employee issues (hiring, retaining, company culture), sales & marketing, customers introductions and management, partnerships and so on with people who’re experienced in these areas can be critical. Governance, financial discipline and reporting systems are important soft infrastructure issues that also need to be put in place to ensure that the company is professionally run and built for scale.
ENTREPRENEURIAL MBA?
An increasing number of universities and colleges are offering courses in “Entrepreneurship” as part of their business education. Around the world, business plan competitions are held by academic institutions at regular intervals. The wide publicity given to “entrepreneurship” in recent times has resulted in entrepreneurs gaining respect and being acknowledged as critical participants in a country’s economy, wealth and job creation.
