Incubators in India

Sramana Mitra writes:

India needs Incubator Funds. 3-4-5 Partners with solid entrepreneurial experience, rolling up their sleeves, with strong ties to the valley, experience of the cultural nuances of the country, with strong understanding of product and strategic marketing, up-to-speed, current.

In some cases, these Partners would need to come up with ideas for new ventures, and recruit teams around them. Vinod Khosla used to do this at one time. This is not the job of analysts, bankers or professional fund managers.

LISTEN ALL YE VC GLITTERRATI WHO ARE ANNOUNCING BIG INDIA STRATEGIES : TAKE $25 MILLION FROM YOUR INDIA FUND, AND CREATE AN INCUBATOR WITH A GROUP OF EXPERIENCED ENTREPRENEURS, WHO CAN ACTUALLY MAKE A PIPELINE HAPPEN.

Startups and Business Plans

WSJ writes:

Budding entrepreneurs can spend months, sometimes years, polishing elaborate 50- to 100-page business plans that include financial projections, market research, and intricate details on day-to-day planning and organization. But skeptics say there’s little concrete evidence that extensive planning is highly correlated to success.

A more practical approach, they say, for entrepreneurs who aren’t seeking external start-up financing from venture capitalists or angel investors, is to write a “back-of-the-envelope” plan with basic financial projections, such as cash flow, and fine-tune the business model after launching the business.

Pitching Right

Guy Kawasaki has an article by Bill Reichert:

The purpose of your pitch is to sell, not to teach. Your job is to excite, not to educate.

Pitching is about understanding what your customer (the investor) is most interested in, and developing a dialog that enables you to connect with the head, the heart, and the gut of the investor. If you want advice about pitching, you can ask a venture capitalist, but you probably wont get a very good answer. Most VCs are analytic types, and so they will give you a laundry list of topics you should cover. They wont tell you what really floats their boat, mainly because they cant articulate it in useful terms. I know it when I see it, is about the best answer youll get.

Building Web 2.0 Companies

Fred Wilson writes:

It may take only two or three great developers to build and launch a web service. But it still takes a bunch more to maintain it, develop it from there, deal with scalability, deal with feature enhancements, take the service in new directions, respond to competitive threats, etc, etc.

Two years into the creation of a web services company, you’ll certainly have more than ten engineers on your team and you could be looking at closer to twenty. That costs money.

Another unavoidable fact is that customers are expensive. They require service. And you can’t provide customer service forever with a blog that most of your customers don’t even know exists. You have to provide email support for sure. And more and more web services company (certainly the ones who want to service mainstream customers) are moving to some form of phone support.

Lessons for Startups

David Beisel writes about seven lessons. Among them:

“Input not consensus.” Scott K. While many have different views on management styles, I favor decision-making processes being inclusive to all parties who deserve to share their opinion, but having the ultimate decision made by a single person who is ultimately responsible for it. The problem with true consensus thinking isnt that good decisions dont come out of it, but rather that its unclear when final decisions are made. Startup situations arent the right place for muddled thinking or unclear directives. Once a decision has been made, owners of responsibility must immediately run off and execute. Although many extremely successful organizations were built on consensus-driven cultures, my opinion is that there isnt time for it in a startup – but there is absolutely time for everyones input.

Startups

Peter Rip writes:

There is an enormous temptation in startups to think and talk expansively about a long-term vision centered on the technology of the Company. That vision often includes the word enable as in we will enable Thats your first clue. Enable is one of those value-halving words. So are Discover, Context, Create, and Build. All those words really say, The proof of value is left to someone else. That applies equally to the valuation. The proof of value is left to someone else because we can’t articulate it.

Companies started by technologists routinely fall into this trap. (I mean both business and engineering technofiles, BTW) They dont start with the intent of solving a specific problem. They start with the intention of leveraging a specific technology. The fact that the technology is a piece of many potential futures seduces the team to think they have a big opportunity. It is uncomfortable for the team to commit to a market because they dont know the end user. There are two solutions to this. Turn inward and build technology, or turn outward and recruit people who do understand the solution. It is dilutive, but if it doubles your value, you cant afford not to do it.

Entrepreneurial Learnings

Knowledge@Wharton writes about a Wharton conference:

Raffi Amit, academic director of Wharton’s Goergen Entrepreneurial Management Programs, set the tone for the discussion by noting that academic research has debunked much of the conventional wisdom about entrepreneurs.

“There’s a myth that entrepreneurs have special traits that distinguish them from other people,” he said. “But research shows no unique characteristics. There’s a myth that entrepreneurs are risk takers. But research has shown that they try to manage risk. They outsource it where they can. And there’s a myth that entrepreneurs have some sort of secret method that they can apply to venture after venture. But many second-time entrepreneurs fail.”

VC Business Changing

Robert Cringely writes that AJAX, Google, and YouTube are forcing venture capitalists to adapt.

The old model was for top firms (those run by intelligent people) to look at 800 deals per year and invest in two to six, pumping them with enough money to assure success while also killing off the founders and pushing for an early IPO and VC cash-out. The other VC firms just watched what the top firms were doing, then bought in on B or C rounds where the risks and returns were proportionally lower.

The new model is venture capital masquerading as a combination of hedge funds and investment bankers. Seed rounds are the only rounds and they are limited to angels, friends, and family. Very few companies go public and those that do are unique in their niches. Acquisition has always been the other exit strategy, but if the VCs don’t have a piece of the company being acquired, they can’t enjoy the benefits of a sale, so what’s to do? The VCs start acquiring companies, that’s what, in a classic hedge fund maneuver called a “roll-up.”

A related story on Founders Fund from San Francisco Chronicle.

Entrepreneurs and VCs

VentureWoods writes:

It is very hard for an entrepreneur to trust a VC who doesnt have the necessary background in the activities that the entrepreneur is carrying out and the experience in having run (or be a part of) a startup. Somebody who has never answered the board from a management teams position almost always never understand how is it to run a company. So, while it is important to have people in your board who are independent Directors and arent involved in the day-to-day running of company, it is also important for the management team to be able to respect them. The respect comes automatically when the entrepreneur knows that the board member can (and does) empathize with the issues / challenges faced in a company and yet can give open and critical feedback.

India has its own unique problems. On one hand – we need serial entrepreneurs who have been successful in the past and not just the 1st generation entrepreneurs AND on the other hand, we need Venture Capitalists who have been entrepreneurs before.

1m * $100 Plans

VentureWoods has a nice discussion in the context of India and startups:

We are seeing more and more businesses around the theme to offer a $100 a year service to a million users. Few ideas that have got discussed here include:
1. Online DVD rentals
2. Online photo printing
3. Online tutoring (export oriented – ok more like 100k x $1000 here)

What are the views around feasibility and scale on some of these? Will these land up being more like 100k x $ 30 plans in the online context? Given that 5-10 startups are starting out at the same time, will the market fragmentation be too high?

An Entrepreneur Brain Flip

Rick Segal writes about the ultimate VC nightmare:

An EBF happens when a founder wakes up one day and ‘flips’ into employee mode. To me, nothing is scarier then a founder saying “It’s just a job.”

This can happen for a number of reasons but the signs are pretty clear.

When you are closing a deal and the entrepreneur negotiates for his/her pay like it’s a job, that’s trouble.

If you don’t feel like you are the owner, jezz, don’t take the money; don’t close the deal. If you feel the need to fight over severance in your employment agreement and it runs 30 pages, bad start to the game. If you worry about ‘ getting fired ‘ and aren’t thinking about the business, who is right for the business, etc, etc, don’t close the deal.

Building a Good Board

Fred Wilson has some suggestions:

1 – Have at least one founder on the board. Many VCs like to move the founders out of the way. They think they will be difficult and meddle. That’s always a risk, but the benefit of having founders on the board vastly outweighs any downside in my mind. Having too many founders on the board is bad too. You want a diverse set of people on your board, not any one concentrated group.

2 – Keep the number of VCs on the board to two or three. The number of VCs on the board is in inverse proportion to the success of the deal.

3 – Local board members are better. They will come to the meetings. Avoid too many board members who live elsewhere. They’ll call into the meetings. Trust me. And that sucks.

4 – Have at least one and ideally two industry insiders on the board who are independent of the founders and the VCs. They should bring operating experience. They should be mentors to the CEO. They should be local so they come to the meetings.

Get Big Cheap

David Cowan writes:

The winning recipe today for aspiring entrepreneurs is GET BIG CHEAP. Dont waste expensive development on untested ideas, and dont let a fat marketing budget mask a weak value proposition. If instead you tinker your way to scalable organic growth, youll have a valuable business on your hands. Dont worry about how long it takesjust make sure your burn rate is low enough to accommodate several cycles of iteration.

There’s never been a better time to start a company. Find a community underserved by technology be they disenfranchised American teenagers, bored commuters in Asia, or small business advertisers in Europe and repeatedly craft a better user experience for them until you GET BIG CHEAP.

Innovation and Entrepreneurship in India

India Knowledge@Wharton reports on a panel I participated in recently. One of my comments:

Jain: One of the first things you need to innovate is the ability to imagine tomorrow’s world. How is the future going to be different? The entrepreneur in some ways has to live in that future world. We don’t do enough of that in India. We tend to project based on what we’re seeing today. But just looking at the impact of developments today helps you imagine the future. For example, what happens if broadband comes, what happens if the mobile data infrastructure becomes even better than it is right now with 3G networks? Then what are the new opportunities which become available?

Second, what’s required is the ability to think big. We have a large domestic market in India. What are its needs and how can one go about fulfilling these needs, rather than just looking outside India? So it’s about products and solutions for the local market.

The third thing is the ability to be prepared to fail. What would you do if you were not afraid of failure? This is very important because otherwise we tend to think very incrementally. Of course, an entrepreneur is not necessarily a person who goes out there trying just to make audacious decisions. As an entrepreneur, you’re basically going out there every day to reduce your risk of failure. But, at the same time, you need to look at disruptive innovations rather than just think incrementally. If you put all of this together, you’ll see the world very differently and new ideas will emerge.

Art of Projections in a Dotcom 2.0 World

Guy Kawasaki writes: “The world is running amok with entrepreneurs pitching every sort of Web 2.0, social networking, user-generated-content startup. Its the attack of the bull-shiitake startup projections, so Im losing my hearing; theres a ringing in my head, and I get dizzy every once in a while. Before the world implodes (again), here is a top-tenish list of ways to create realistic projections in this Dotcom 2.0 world.”