Bulletproofing your Startup Ravi Challu Past President – 2000-2002 IIT Kanpur Alumni Association Business Coach for MSME entrepreneurs ravichallu@yahoo.com

My Background B Tech (EE) IIT Kanpur Leadership role in Global entities with revenue from USD 50M to 130M. Worked with startups Currently working with Unlimited Unnati Pvt. Ltd. as Business Leadership Coach in the MSME sector Unnati is a 19 year old personal and business leadership coaching and consulting organization. It has worked with 10000+ individuals and 1000+ organizations.

Are you just following someone? What is a Startup? As per Ministry of Commerce and Industry notification released on April 17, 2015. An entity that is. Up to five years from the date of incorporation. Has turnover not exceeding 25 crores in the last five financial years. innovating, developing, deploying, and commercializing new products, processes, or services driven by technology or intellectual property. Or Are you just following someone?

The Startup Graveyard 997 of 2,281 startups launched in India after June 2014 are dead already, within two years. Only 32 of the 997 failed startups had succeeded in raising funding from investors. Are you self funded adequately? Have you figured out the cash burn? Only 17 startups shut down in all of 2015. Are you funded for at least an year? The average age of the failed ventures – 11.5 months   The average age of the failed founders - 27 years 4 months. Logistics (21%), Ecommerce (20%) and Foodtech (19%) accounted for highest number of failures. Failures in VR and AR as well. Have you understood why they failed? Funding crunch for startups with no clear or a poor business model or no differentiation from rival ventures Do you have a clearly defined business model in place? More than ¾ of the failed entrepreneurs took up a job after their failure. Only around 23% ventured to start up again.  Are you ready to stake your life? Only 5-10 percent of start-ups will become large and scale-up and that as much as 70 percent will fail.  Infosys co-founder Kris Gopalakrishnan Date Source: market research firm Xeler8

Have the funds have become more discerning? The number of angel, seed and venture capital funding 2016 2015 668 903 The total value of disclosed deals 2016 2015 $1.5 B $4.2 B 1st Half CY2016- 538 startups that raised funds with a disclosed deal value of $2.4 Bn Date Source: Techcircle analysis Date Source: Inc.com Do you have a differentiated business model with strong financials

Have the funds have become more discerning? Date Source: Inc.com Do you have a funding strategy in place?

Is falling deal value of significance? Date Source: Inc.com Is your funding strategy aligned with changing scenario?

Major funding in early stage a sign of early death? Date Source: Inc.com Do you have a fund focus? Who is most likely to fund you?

If any of this sounds familiar how do you plan to fix it? Reasons for failure Not serving a market need 42% Running out of cash 26% Ignoring the competition 19% Flawed or weak/untested business model Not a user-friendly product or a service Starved of customer feedback No attention to marketing The wrong price Too early to market Not the right team –fear of diluting the equity Too many copycats, not enough differentiation If any of this sounds familiar how do you plan to fix it? Source: CB Insights Survey

What the entrepreneurs said Not enough attention has gone into the cash burn and quality problems on the ground. Ecommerce in India is a tough space for the smaller players unless they have a clear niche advantage We were trying to do everything for everybody. Focusing energies is important. We were neither experts nor target users of the product that we were building. We underestimated hardware We did not do the due diligence on the idea before we started building the product. We let sunk cost bias affect our decisions about pivoting. Do you have a tight control on cash flows and quality? Are you responsive? Have you understood your ecosystem thoroughly? Do you have a razor sharp focus? How well do you understand the target user’s needs? Who has verified it? How thoroughly have you tested your idea before embarking on this? How ruthless can you be with yourself in the larger interest?

Why a Startup? Why not a New Business? Because we believe……… All we need to be good at is coding? Startups get funded and businesses don’t? Create wealth quickly? Gets visibility and support faster? It is a Business at the end of the day like any other Date Source: Techcircle analysis

Our Learning From Working With MSME MSME employs 65% of the work force but contributes 35% to the GDP 70% MSME close by the 3rd generation New MSMEs struggle to get funded till very late stage; private funding happens MSME revenue growth tapers off quickly and either stays flat or starts falling Inadequate understanding of the market need Non existent business model Very poor understanding of how to manage business professionally and drive growth Working in the business rather than on the business Reasons For Failure Are Startlingly Same

Can You Bulletproof Your Startup Yes You Can

Use time tested Frameworks & Practices The How Dream- It is all about Passion. Passion leads to belief Ideate – Give a shape to your passion Test the idea- thought experiment, scenario analysis, market study, ask your potential customers, study failures Understand Yourself- What you want to do versus What you want to be… Question and examine the entrepreneul zeal of the team, yourself Understand the Ecosystem in great detail– Where will the business exist Have a robust testable Business Strategy Create a detailed Business Model Have an Operations Plan Define operating metrics and review mechanism Use time tested Frameworks & Practices

Do You Have A Dream? Desire = Dream

How will I make a dent in the universe? Steve Jobs Do you have a dream? Close your eyes for 30 seconds and ask yourself this one question. Open your eyes and write down your dream on a piece of paper. If you can’t put it into words in 30 seconds then you need to question your readiness to chase it How will I make a dent in the universe? Steve Jobs

Is this dream worth chasing? Now hand over the paper to your neighbor and have him give you 3 reasons why it will not succeed. Take the paper back and read the comments your neighbor has provided Have someone who knows you and you trust question your dream

Root your dream in reality A Dream = An Idea Root your dream in reality

Build a sharp focus on detailing Map Is not A Territory “(History) offers a ridiculous spectacle of a fragment expounding the whole.”  — Will Durant in Our Oriental Heritage eCommerce, Foodtech, Logistics, Healthtech, SaaS, AR, VR are Maps Study and understand your specific war zones or territories in detail Prototype = Product/Service -Building a prototype is the easiest part of building a startup Build a sharp focus on detailing

What is the Value Proposition Who is the customer? Who will benefit? Why will he benefit? Have you understood the need or will you create the need? How? How is it differentiated? Have you tested your assumptions? How will you create a ring fence around your value proposition? Have you examined the full service delivery chain? This is perhaps the most important stage of ideation

What is your fundamental business advantage? If someone has already setup a similar business how will you be different? If it is easy to setup has someone already set it up. How will you be ensure differentiation? Can Biotech, Nanotech, Defense, Aerospace be your advantage? Why not Hitech Do you have good contacts in the industry who could be your early customers and/ or guides and therefore your fundamental business advantage It must be a business advantage

How deeply should you ideate? Have a high level Business Model and thoughts on Product/service design, Production engineering, Manufacturing/ Service Delivery, Business Process, Distribution and marketing/sales in place. Study success and failures in your space. Find a set of customers in your space who could be your early movers or influencers Identify a strong team comprising of members who complement each other’s skills and ensure that they have shared their personal aspirations and level of commitment in absolute clarity with you Don’t ignore anything. Building a contextual perspective Stick to your gut but look at the data, look at the market, then look at your company and make the decision. Build presentation and pitch. Run the pitch with Angel investors, other successful entrepreneurs, potential customers Go Visual: Draw it out on flipcharts; use post its. Really dig deep; Meet failures; Work with successful They could help reduce cash burn Look for Complementary skills, trust and long term commitment Choose Carefully It is your dream. Make it your future

Whose Skin Is In the Game? Friends & Relatives Banks Seed funds, Angels or VCs Government schemes Founders often leave startups midway, go abroad for higher studies, or simply get bored or change the idea. All founders should have skin in the game What is the pressure to pay back the money

What are your key milestones? Increasing customer traction is the best way to prove to investors that you have reached product/market fit Positive unit economics; Scalable business process Achieving milestones only way to establish credibility

How do you plan to fund your business? VC Fund > 1M Business plan, Team, Revenue growth; 15-18 months Angel Fun upto 3 Cr. Business plan, Team, Customer traction, 3 to 6 months Crowdfund Seed Funding 10- 50L Business plan + Prototype; 2 to 3 months Bootstrap Preparing a funding plan is a MUST

How do you plan to be valued? The cost to duplicate approach The market multiple approach looks at what similar companies have recently been acquired for. The development stage approach The discounted cash flow approach Doing a risk vs. reward analysis is a MUST

Ideation = Entrepreneurship Working on yourself is equally important

You are yet to prove your entrepreneurial skills The Narrative Fallacy Product of a premier institute Coding whiz Have business “genes” Will take an year or two off before taking a job My idea will get funded You are yet to prove your entrepreneurial skills

Minimize Your Blind Spots Identify skill sets that will be required Know yourself first and identify your gaps key skills key knowledge area inner abilities interests & motives  traits & personality  What you can do is more important than what you want to be Develop an “I Can I Will” attitude Finding a mentor or a coach could be critical

Entrepreneur needs to work both IN and ON the startup Working ON or IN your Business ?? B u SINESS Entrepreneur needs to work both IN and ON the startup

You can fulfil your dreams and realize your potential Is Your Wheel of Life balanced? You can fulfil your dreams and realize your potential

Ideation = Business Plan Use time tested frameworks

How to make your business planning, execution & management robust Apply time tested Business Planning Frameworks for Define strategy Create a business model Develop an Operations Plan Measure, Review and Course correct – probably pivot Most, like MSME, skip this at their own peril

The Five Questions Of Strategy This framework avoids Endless visioning exercises Misdirected SWOT analyses Uninformed big thinking 3 Year aspiration Revenue Profitability Identity USP Cost Differentiation Structure Processes Measures Customer segment Product Category Channels Geographies People Functions Infrastructure Be prepared to iterate Date Source: HBR

Business Model Canvas Production Problem Solving Platform/ Network Strategic Alliances Coopetition Joint Venture to develop new business Buyer-Supplier relationships Newness Performance Customization Getting the job done Design Brand/ Status Price Cost reduction Risk Reduction Accessibility Convenience/ Usability Personal assistance Self Service Automated service Communities Co-creation Mass Market Niche Market Segmented Diversified Multisided Physical Intellectual Human Financial Sales force Web sales Own stores Partner stores Wholesaler Cost driven Value driven Fixed costs Variable costs Economies of scale Economies of scope Asset sale Usage fee Subscription fee Lending/ renting/Leasing Licensing Brokerage fees Advertising Pricing Mechanism Fixed Dynamic

Customer Segments Are you serving the Mass Market? For example –Consumer Electronics Is your market Niche? Customer mindshare Price 

What is My Competition The four components of the marketing mix, also referred to as the four P's to use while assessing competition. Value Proposition (Product) Geography (Place) Customer mindshare (Promotion) Price 

??? Ensuring Success Open communication makes a happy office Have a proper office Robust business process Grow fast: If the growth doesn’t happen after a certain amount of time, then the growth will not happen. A company that is not growing is shrinking. Versatility: Startup teams must possess the ability to change products, adjust to different compensation plans, take up a new marketing approach, shift industries, rebrand the business, or even tear down a business and start all over again.