If you are thinking of starting up or already have taken the leap, consider some tried and tested remedies that can prevent your start up from getting a nasty hangover:
H = Hanging Out With Friends
The worst hangovers happen when you hang out with close friends and folks with whom you feel uninhibited. It works well in a personal setting, but consider a different approach whilst starting up.
I come across Start Up entrepreneurs who spend too much time ‘hanging out’ internally. What I mean by internally is with peers, co-founders, friends and colleagues. Very often, this restricts important learning from folks who are in the real Industry that you want to create value in but are not spending time with.
In 1998, when I started contests2win.com, I wanted to create a new paradigm in promotions. But I had spent a decade in textiles and in a factory. Contesting dealt with creativity and direct marketing. I hounded the two experts in India who were the best in their fields – Cyrus Oshidar (creative founder of MTV India) and R. Sridhar (head of Direct Marketing at O&M). I hung out with them and was even lucky to get them on my board as advisors. The lessons I learnt from both of them were invaluable (Cyrus is my creative founder in all 2win companies).
A venture we (media2win) recently incubated – hover.in has very interesting founders. Arun Prabhudesai is an experienced tech services expert and Bhasker Kode (Bosky) is a young engineer who is a techie (CTO) but has leanings towards marketing, branding and sales. For months Bosky would ‘theorize’ about brand gyaan in our meetings and we would yell at him saying ‘that’s not the way brands think’. Bosky is now ‘hanging out’ in brand and agency offices and I can tell how quickly he is learning what the real market is!
A = Angel (Client)
If you get drunk with someone you know, she will surely drop you home and make sure you are safe. Similarly, whilst starting up, try and cultivate one or two major clients who can completely uplift your venture. It’s nice to say that you are working across lots of clients or customers but getting many to sign up becomes very difficult at an early stage.
Contests2win latched onto MTV in early 1999 and they made us famous as a website via massive TV promotions. Mobile2win China got Coke interested in mobile promotions via TV and that scaled us up in China. Mobile2win India bagged the Indian Idol sms business and that made us front-runners in the media short code activation business. Games2win got lucky with Viacom’s addictinggames.com and they exposed us to USA and EU audiences.
Get an angel client and get dead drunk with her.
N = Now
If you want to avoid a hangover, you know when you should have that last drink. Never say ‘after this one’.
Similarly, whilst starting up, learn to test your ideas and theorize NOW. I come across so many entrepreneurs who keep extending their launch dates in the hope of perfecting their offerings. The point they are missing is that the market and their clients will often help them decide how to perfect their product as they build it along!
In the case of Inviziads.com (a business division of Games2win), we foolishly spent months developing an ‘auto wrapper’ for the large publishers to DIY (do it yourself). Later we figured out that they never DIY’d this process and hence weren’t interested. Similarly at Hover.in, we presented a DIY option for publishers to create their own ads – however we understood that publishers neither have the time nor the resources to do these time consuming things. In both Companies, we finally listened to what the Publishers really wanted, created the appropriate solution and there was no looking back ever since!
G = Get out and don’t generalize
I have the opportunity to judge business cases for competitions and B-School events and I am appalled at the ‘generalizations’ I have seen in business plans.
Entrepreneurs wildly estimate market sizes using industry reports (made by a bunch of armchair consultants who have no clue of the external environment). Further, entrepreneurs calculate conversion rates and business revenue lines as if their business would be as simple to execute as the excel sheet that they had created.
Get out there, and measure every metric that you have modeled you business on. For example, if you think 5% of all companies will sign up after you present your holiness, try meeting 20 and check if 1 (5%) converts.
In contests2win.com I made 1000 cold telephone calls before the Annapurna Brand owner just agreed to meet me. I never knew it was going to be that tough.
O = Overdose
OD on a few drinks down and check out the amazing hangover you will enjoy. It’s difficult to restrict drinks when you are having a rocking time, but that’s the only way to survive the night and the day after.
Start Up entrepreneurs suffer from a similar ‘Overdose Syndrome’. They try their hands at many things with little time. This results in a half-baked business that serves no one.
Have the patience to look at the ONE big idea that you believe will create value for yourself and your clients and then focus on making that happen. It’s tough to stick to one offering when there are so many options, but that helps create expertise and value in one core proposition.
At mobile2win India, we were good at creating mobile advertising campaigns for brands. Later we diversified into Media activation via Indian Idol. We should have stopped there. Instead the team got into mobile gaming, telecom services, content aggregation and even website creation and solutions. It was a disaster. The OD created a massive de focus within management and team members and potential investors no longer could understand what the Company was really trying to do well.
V = Venture Capital yourself first.
The last thing you want to do is get drunk on someone else’s money. Similarly, try and fund the business initially with your savings and current cash flows.
If this means working for a couple of years and building a capital and then starting the start-up on the side, so be it.
A company I mentored achieved this beautifully. Amongst the 5 founders who had worked for about 3 years, they pooled in start up capital and then quit their jobs very gradually (one founder every 2 months), so that they had the cash flow to scale up.
Avoid getting start up funding from friends and family. It’s what I call ‘Sticky’ capital – very difficult to return and even harder to digest. VCs too don’t like a start up with 20 chunnu munnu (mini) stake shareholders.
E = Equity distribution
Often I come across young Start Ups comprising entrepreneurs who have studied or worked together, connected up and started up a business together. Almost logically, equity gets distributed equally amongst the founders. However, as the venture rolls and the challenges surmount, founders react differently. Some give up, others just watch from the sidelines and the truly passionate founder gives the venture her heart and soul.
The question is – should equity continue to be shared equally in such a situation?
Equity is a fruit of creating a business from an idea – not just conceptualizing it. Once equity is given out, it’s difficult to roll back. This puts the hard working ‘living on fresh air, gallons of coffee and and start-up love’ entrepreneur at a distinct loss compared to the guy who walked out and got a job with a Multi National. Sometimes this can be so demoralizing, it can derail the start up.
The solution? Get an ‘equity earn out’ model in place. So, each founder is entitled to ‘earn out’ their equity over a 36-month period and with certain signed and sealed parameters like full time working, etc. If then a founder wants out, he is entitled to the pro-rata equity earned, and the remaining shares kept available to new founders who could join. This is a common condition in Series A funding, so why not follow it while starting up? Also, appoint a good friend as arbitrator so she could easily sort out differences between partners.
R = Revenues
If you like to get drunk, then make sure you have the wallet power to support your habit.
The concept of ‘revenue later’ is DEAD. Don’t be fooled into thinking that the dot com logic of scale and market size will carry you into a funding round. Even the mightiest of start ups are tumbling since they have no foreseeable revenue.
Get into the game of Revenue generation from day zero. It doesn’t matter how much you earn, but the fact that you are able to generate revenue from your start up proves the long-term viability of the business.
So what are you waiting for? Grab that idea with a drink and an excel sheet but avoid a hangover!
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Originally posted on August 22, 2010 on rodinhood.com