Ten Tips for startups to ride out the economic slowdown

1. Don’t panic! Economic cycles are a part of life. The best companies are built in the worst of times. If you panic, your employees will panic.

2. Conserve cash. Delay spending on non-critical things that do not result in revenue generation. Renegotiate vendor contracts, rental contracts, etc.

3. Improve productivity. Get more out of your team.

4. Differentiate between high and low performers. Reward high performers. Counsel out low performers.

5. Optimize the organization. Hire critical talent as they may be available at a reasonable cost. Transition or re-deploy non critical resources.

6. Continue selling or marketing your product or service. Being in front of customers or vendors builds confidence that you are a long term player.

7. Focus on growth with an eye on profitability. Since the cost of capital is high today, be cautious on how much capital you raise to invest for growth. Avoid over-investing in the business in the hope for exponential growth in the future.

8. Communicate with your team internally. Make sure that your team understands that you’re building a lasting and successful enterprise and that some of the cost cutting measures, including layoffs, are necessary for the health of the company. Anxiety levels can be high in tough times.

9. Act swiftly. Try to deliver any bad or tough news at one shot to the company. Continuous bad news can affect morale and instill fear.

10. Have fun! Make sure your team is having fun. A happy environment builds loyalty and performance for the long term.

Venture Capital is about investing in the right people

Markets change. Competitors change. Customers change. Regulations change. Suppliers change. But people rarely change. What differentiates a great venture capitalist from a good one is the ability to identify and invest in the right people or "six sigma" entrepreneurs as we like to call them at Nexus India Capital.

TOP 10 TRAITS OF A "SIX-SIGMA" ENTREPRENEUR :

1. Smart - High on common sense
2. Passionate - Really believes in the idea
3. Quick - Acts on things immediately
4. Great listener - Understands the customer's needs
5. Adaptive - Willing to change course midway if needed
6. Team builder - Can attract and retain a leadership team
7. Self aware - Understands own strengths and weaknesses, leverages the strengths and finds ways to compensate for the weaknesses.
8. Focused on execution - Spends majority of the time on the high priority issues. Does what it takes to achieve a task.
9. Visionary - Dreams big. Spots trends in the future before anyone else
10. Ethical - Honest. Genuine. Can be trusted

More often than not, companies fail because of the wrong person at the helm. It is better to back an "A" entrepreneur with a "B" idea than to back a "B" entrepreneur with an "A" idea. Many of us Venture Capitalists get swayed by domain experience and/or top tier eduation as that is something tangible we can relate to. For e.g., we are more likely to fund someone from the travel industry to start an online travel company than someone who has worked in garment exports. We are more likely to fund an IIM MBA who has worked at Infosys or Tata than someone who has worked at a small software shop with a local chartered accountancy degree. While domain expertise and a decent education can be a plus, it is not what makes a six sigma entrepreneur.

Identifying six sigma entrepreneurs is more of an art than a science. It requires a killer observation, good listening skills, laser focus and a lot of intuition. And those who are good spotting these entrepreneurs make great venture capitalists.

Is there money to be made on the Internet in India?

30 million + internet users in India is not a number to snigger at. Check out Linkedin, Facebook, Orkut, Expedia, Amazon, Youtube, Google and you will find that there are hundreds of thousands if not millions of Indians actively engaged with these sites. On the home front, names like Rediff, Naukri, Shaadi , Bharatmatrimony, Baazee, Makemytrip, Yatra, Cleartrip, Indian Railways boast similar usage patterns.
Indians are accessing the internet from home, office, cybercafé, college, mobile, wherever. Indians are no different from the rest of the world in their online needs – they are looking for entertainment, information, convenient commerce, social communities like their counterparts in Brazil, Poland and China and the US.
So why is there so few online successes in India today when there is such a great need? The popular reason seems to be “lack of broadband”. While broadband can definitely enhance the user experience, lack of broadband is not the reason why millions of Indians today are not widely adopting internet sites within India today. Multi user environments like office and cybercafés do provide ample broadband access today. Many applications also work fine on narrowband access. Many global and domestic companies have done just well with the current internet situation, so why can’t more such companies exist?
The answer is simple. The main reason is that there are not enough compelling applications online today that really solve a customer need. Take for example, bus ticketing online. Intuitively, a great concept. There is a consumer need to book bus tickets online and get them delivered to your doorstep. There is no reason why bus ticketing online cannot take off just like railway bookings did. However, if you go to any of the popular bus ticketing sites today, you will find limited inventory which either kills the consumer experience or limits the audience appeal. The reasons for this are structural within the bus operator industry – fragmentation, lack of online connectivity, questionable practices (double booking), lack of manpower to manage orders and fulfilment, etc. So unless the bus ticketing sites decide to solve these issues, consumer adoption may never take off. A pretty looking site with limited inventory doesn’t solve mass need. The day these bus ticketing sites offer breadth of inventory, instant bookings where the seats are guaranteed without a fear of double booking, flexibility of payment options and prompt fulfilment, you will see adoption take off. Online companies, especially in ecommerce sometimes need to solve offline structural issues to succeed.
Another good example of a lack of compelling application is social networking . There are more than a dozen Indian sites seemingly trying to solve a need. Don’t understand what the need is given that Facebook, Orkut, hi5, etc allow Indians to connect, chat, poke, play games, flirt, form community groups, share their moments, etc. I firmly believe that if there is a site in India that meets a compelling social need that is not being addressed by the global sites today, it will take off, no question, broadband or no broadband.
There is a lot of wealth to be created by Indian entrepreneurs who come up with Internet companies that address a real need. And it may require more than just putting up a pretty site and praying for something great to happen. Nexus India Capital has invested in two companies that are trying to solve a real need online - Komli and DimDim. Komli is an online ad network in India and DimDim, is a free web conferencing platform - both addressing real needs in the country today. Komli is helping Indian advertisers advertise across a list of online publishers that would otherwise not be accessible to them and Dimdim allows small businesses to hold a web meetings for sales training, seminars, etc at no cost to them.
Hope to see more online companies emerge in the future that address a real need. There is tons of money to be made on the Internet in India.

Raising the appropriate amount of capital is key

Many times, I run into Indian entrepreneurs who want to raise less capital because they dont want to dilute equity in their company. They feel that they could raise less money initially, cut corners to make the capital last, try and build some traction, and then go out and raise further capital later. Sounds very logical. However the danger with this strategy is that you if don't raise enough initial capital to be able to execute effectively to get some decent traction, raising the next round of capital may become a big challenge!

It is very important to really understand what it will take to take a company from a concept to early growth - people costs, product costs, operating costs, capital equipment costs, marketing costs, etc. It is always good to overestimate costs and underestimate revenues in the early days to really get a sense of cash requirements. More often than not, the best people you want to hire in India will come at a cost that is higher than budgeted. Sales cycles with corporate customers are generally longer than expected. Small missteps in execution can cause unexpected capital outlays.

My advice to entrepreneurs is to raise a bit more capital than you think is required even it is means a little more dilution. The main focus should be on building a successful enterprise and not on immediate ownership levels. Having said that, too much capital is not a good thing either. It can ruin fiscal discipline and dampen the entrepreneurial spirit in a company. The right balance is key.

Building the management team in an Indian startup

It takes a few good men and/or women at the top that are passionate, focused, and work well together and have the right complementary skills to get a startup off the ground. However attracting quality senior management to a startup is certainly a non trivial task. Identifying, attracting and converting senior management candidates in India is time consuming and a lot of hard work.

Here are a few tips to ease the process of attracting senior talent into your startup in India :

Start focusing on the organization early. An entrepreneur needs to quickly evaluate the gaps in his or her organisation and be obsessive about bringing on the "right" senior management team on board. An entreprenuer needs to be intellectually honest about his or her own strengths and weaknesses and look to bring on people who can execute much better than him or her in the weak areas. An entrepreneur also needs to think laterally when looking at bringing on senior talent as there may not be abundance of talent available with direct domain expertise in India. Often, domain knowledge can be learnt. What is more important is the core competencies and values that an individual demonstrates.

One a candidate is shortlisted, convincing them to join can be a difficult task. A credible investor, board member and/or advisor can play a very important role in helping build the senior organization in a startup. Typically, Indian managers harbor entrepreneurial ambitions but are scared to take the leap to join an unknown startup. If there is someone the candidate can converse with whom they find credible that is personally involved with the company, it can really help faciliate thier decision to join. So an entrepreneur must always try to choose the right investors and advisors that can help them build a strong organization. This holds specially true for India and may not be the case in other developed markets where startups are well understood and an entrepreneur can easily attract talent.

Understanding the Internet consumer in India is critical

There has been a lot of "buzz" recently about investing in consumer internet in India. There are VCs flying down to India from all over the world looking for the next big Internet venture for the domestic Indian market. And keeping these VCs busy are a plethora internet entreprenuers with "me too" ideas (internet businesses that have worked elsewhere in the world)- social networking, blogging, travel, peer to peer collaboration, dvd rentals, photo sharing, matrimonials, ticketing, payments, classifieds, etc. As an Indian internet entrprenuer and now most recently a venture capitalist, I have met almost every internet entrepreneur in the country looking to start a new venture. A word of caution to those starting an online venture or to those looking to finance one - understand the "pain" of the Indian consumer that your online business is trying to mitigate. For example, lets take a look at a hot internet category - Online travel. Today, an Indian traveller calls up his or her travel agent (there are thousands of these companies in every part of urban India) and requests a flight or hotel reservation for a desired date. The travel agent does the research and typically calls back within a few hours with several options and fares tailored to the Indian consumer's request. The consumer then chooses amongst the several options given, post which the travel agent will send a person to the consumer's home to deliver the ticket and/or collect cash/check payment. The biggest pain today for the Indian consumer is seat/room availability and transparency (ie. Am I getting a competitive fare?). Collection of inventory and payments is not a pain for today's Indian traveller. And talking to an agent on the phone is certainly not a pain point for most. In fact it is something that the Indian travel appreciates. So a Online travel intermediary that provides competitive pricing of inventory on the website, guarantees availability of the most popular flight/hotel inventory, provides phone service, home delivery and payment pick-ups will win in this market. Online travel companies who insist on remaining purely online and not provide these so called "non online" services will find it hard to survive. It is no secret that internet is poised for a take off in India. And broadband will eventually happen. Entreprenuers who understand their target customer's pain points and come up with indigineous solutions to mitigate thier pains will make a lot of money for themselves and thier investors. Others who try and port US models to India will be in for a rude shock!