By Ashok Subramanian & Shridhar Bhagwat
Over the last six months, we have met more than 50 startups across Bangalore, Mumbai, Delhi, Hyderabad and Chennai — Indian cities that have become breeding grounds for tech-startups. During our discussions with founders we have noticed that they have ideas, passion and the desire to execute. However, after studying their pitch, business plan and personal interviews, we could gather a few factors that we consider are imperative for them to succeed.
Think of a startup as soccer game. You have positions, a game plan, and a coach — and of course a sponsor to pay the players’ necessities and the training facilities. Similarly, you need specialists to run a business, a business plan, a mentor — and of course, an investor, who funds all these.
Lack of players, that too, specialists
Startups in India have 1 to 5 founders. All have more ideological connect, than functional connect. Many are part-timers who also ‘contribute’. Almost 70% of these startups have issues around running operations consistently, building marketing efforts and reach and understanding the gaps in business on an overall basis. When we analyzed in depth, we found that the founders discount specialists as a trend.
It is about the founders’ focus, time and effort that define which function really evolves. In this context, a solo-founder succeeding is a rarity. We need technology, operations, strategy and sales to be separate pillars or focus areas. Finance, HR, payroll and similar functions can be shared as support functions. But the ‘pillars’ deserve special treatment and focus on their own merit. For this, we need separate players in the founding or the management team, and that better be specialists.
Lack of seed money or ‘short funds’
Most organizations are ‘cash short’. This means they are still one stage away from angel funding. They are however short of working capital. Now, they have reached their tether’s end here, as they are either not willing to, or unable to create short-term debt funds or loans. Instead, they are willing to trade equity. More than 90% of startups are pliant to this situation — this is not what they planned for, but anticipated. The summit is not far off, as they say. There are founders who want to trade equities for ‘business plan writers’, ‘software developers’ and the likes.
Equity in business is the most serious entity ù and it cannot be doled out as cheap toffees. The value of equity and the power of a vote matters a lot in business, and startups seem to treat equities as the bargaining chip to get initial stuff done.
What can be acquired or hired is NOT worth trading with equity. Sweat Equity is again based on the value a person brings. Software developers as CTOs and co-founders are a costly trip, which will be clear later. Equity is given to people who contribute in running, strategizing and investing ù and cannot be the substitute for salary or a fee.
Another aspect that we discovered was that most startups pick co-founders or players, based on their ability to share the idea, compatibility as friends or bringing some augmented but not necessarily complimentary. While they are able get the right mix to take shape, they essentially miss on the fuel-factor, which is the fund supplier. So this person may not be the smart brains, or your best buddy, but he does bring the “fuel” which will see the startup cope with the winter season and get ready for the sun.
Lack of a business plan
Most organizations lack a business plan — a REAL business plan which shows the founder/s the mirror? How many “what if” scenarios have the startup founder seen? Yes, there are ‘I am my own thing’ entrepreneurs in business. The captain can derive a strategy. But there HAS to be a plan. A game plan is the most professional way of bringing the team to visualize and execute on a consistent basis. Objectives, structures, roles, responsibilities, budgets all are components of a business plan. As they say, unless you put it in writing, you cannot visualize. If you cannot visualize, you cannot lead. And that is what most entrepreneurs refuse to put — the vision and business plan on paper. Business plan helps confront ‘what if” scenarios — confront risks and reality. Business plan is not a one-time document, but a working document, that is to be reviewed every 90 days. Three components of the marketing plan are – Research (market, product or service validation), business model clarity at functional level, and the financial outlay.
Lack of a Mentor
Do Entrepreneurs really need a consultant, coach or mentor. Each of the soccer players is a specialist. Now, there are points of differences between players. When everybody is in the field, a bird’s eye view is needed. And sometimes, a mature, laid-back mind provides perspective to lot of problems, if not suggestions or solutions.
However, like a football game, the on-field decisions are the players’ and the captain’s, and in a business it is the management and the entrepreneur who decide. The role of a coach, a consultant and a mentor is therefore clearly not ‘executive decisions’ but guidance per se. Businesses that are mature have non-executive directors on board to bring in this perspective. Startups that cannot afford salaries for large boards, better can look at a consultant, coach or a mentor.
Who could be a mentor is a debatable issue; it’s just like wondering why Lionel Messi can be the best coach because he is the best among the best players. Actually, a mentor need not be the most successful person in the industry, but someone who can see the light at the end of the tunnel, one who works with the founder as a navigator to help overcome different business scenarios, who while respecting the founder/s’ view can offer an alternative path to evaluate and help improvise.
The issue is not around how planned a founder is, but rather how a startup has evolved. Sometimes, a founder is hit with stuff that is not planned for. This is where the gaps emerge. A more structured approach, in short business a plan factoring in risks, market acceptance, failures and buffer for cash burn is what the solution is. Apart from this, there is a need for specialist players and short-term funds. As we analyzed the same, we came to a possible solution — that will work in a concerted platform, but purely on an individual, case by case basis.