Did anyone predict that a substitute player would win the World Cup 2014 for Germany and that too against the team that has the worlds most branded player. If this subsitutute player was not brought in at the 88th minnute of the game, would the game go into penalty kicks? And who would have won if penalty kicks was the sole determinant of the outcome? Penalty kicks are more about individual performance and not teamwork.
At the end it is all about the psychological confidence, teamwork and quick strategic decisions taken at critical moments that makes a winner in this sport. Startups are no different. When a company is starting out, there are more often than not, other branded players operating in their space with experienced management. However what differentiates a successful startup from those that are not so successful is the psychological confidence, trust and teamwork of the team in executing rapidly, and the critical strategic calls - what should the product positioning be, what should the approach be, who are the key hires, etc. Great companies are created by ordinary people doing extraordinary things together under the right leadership. A well functioning team can achieve a lot more than individual prima donnas in a team that is not gelling well together. And branded/experienced individuals are not necessarily the winning formula in creating winning companies. Inexperienced passionate smart individuals can create entrepreneurial magic as has been witnessed time and again with first time entrepreneur success worldwide.
Football and other team sports are a good teacher of lessons in entrepreneurship!
There has been some activities by international incubators in india, especially in the consumer internet space. This is the path they seem to be following :
a. Think of a copycat idea that has worked globally
b. Fund the company with reasonable startup capital - own most of the company
c. Hire smart consultants/bankers, give him nominal equity, and make them work real hard for 4 years
d. Build the company with the hope of an exit in 4 years
There are several flaws to this model :
1. Hiring CEOs into ground zero startups rarely work and more so in India where there is a lot of friction to starting a company. Many hired CEOs dont have the entrepreneurial gut to tide through the myriad issues at the early stages of a company. And given that it is not their baby, there is limited passion.
2. In markets that take time to mature, hired CEOs don't have the staying power to stick it out for a decade or longer. Given that it is not their idea, there is no pride of ownership, economic incentive or moral responsibility to stick around.They look at the opportunity as a learning experience for a few years and decide to move on well before the company has really matured. Typically in such markets, an exit is unlikely in 4-5 years.
3. Sometimes Consultants/Bankers may not make the best entrepreneurs. Just raw smarts may be a necessary but not sufficient condition to becoming a great entreprenuer. And if they are really smart, they realise that working in an incubator with miniscule equity for a long period of time is less desirable than starting on thier own since the equity in these incubated companies will take a lot of time to be worth anything and it is better to start your company if you are going to put in a decade of hard work.
Several incubated companies started in 2009-10 have now begun to crack. Management is leaving these companies en masse. Moral is not high. I am sure the incubators are worried. And if not, they should wake up and smell the Indian coffee....
Moral of the story - Try and implement this strategy in developed markets where you can incubate, hire for smarts, micromanage the hired help for 4 years and then flip the company. In India it can take a lot lot longer and this formula may not work.
There has been a lot of news recently on startups raising a large sums of venture capital in technology and the internet . For some reason, a large capital round seems to be equated to the success of that startup. The fundamental assumption is that the investors must be smart if they are investing big cash into the company and this company is bound to succeed. Well, there is more to the success of a company than capital.
The reason the investors are investing big monies is that they have seen strong traction in the company and are betting that with this large round, the company can accelerate growth, establish leadership and become profitable. However raising a large round does not guarantee success. In fact the onus is that much greater for the entrepreneurs to deploy the large pools of capital very effectively and strategically as missteps at this stage can prove fatal to a company. This is what defines a good entrepreneur from a great entreprenuer. A great entrepreneur understands the revenue drivers and cost structures of the business deeply and think though what will it take to achieve a sustainable and profitable market leadership in the segment it is operating in. Sometimes spending "habits" can creep into a fast growth company - for example, overhiring at the top, high compensation, large marketing spends, unweildly capex, large offices, high travel expenses, etc. A great entrepreneur continously checks and challenges these spends. A great entrepreneur also understands that excessive marketing can hide the lack of differentiation or defensibility in a product. He or she understands that marketing is temporary and the core value proposition and differentiation is what will eventually win and obsessively focuses on strengthening that core proposition - be it superior product, flawless customer service, etc.
Recent news on Whatsapp, the worlds biggest venture backed company exit till date, mentions how the priority of the entrereneurs were to create a very simple product that had no bells and whistles so that adoption was viral acquistion costs could be close to nil. The company could have easily invested in features and consumer marketing after they raised their last large round given the hyper competition in this space. Full marks to the founders for keeping the discipline on superior product offering with an eye towards building a profitable and sustainable business. Many other messenger companies exist in the world have access to similar levels of capital and possibly even more than what Whatsapp had.. Yet, Whatsapp has achieved world domination. Capital doesn't build great companies, great entrepreneurs do!
At Nexus, we are blessed to be able to work with some such great entrepreneurs who are on their way to building great market leading companies.
There has been a lot of chatter recently on Hybrid commerce as a new business model. I have seen and heard various versions of this. Some examples of business lines that ecommerce companies are contemplating are :
a. Offline Stores
b. Bulk Exports
c. Domestic Wholesale
d. TV Shopping
From marketing to merchandising, from warehouse to logistics, from technology to sales, the processes and organisational DNA required are very different. The reason many of the entreprenuers are thinking about this is because they want to grow their business faster and are thinking of new avenues of growth.
I would strongly urge entrepreneurs to think through the drivers of a new contemplated business direction, the management and resource bandwidth required and the distraction/opportunity cost of not focusing on the core business. Sometimes, "new" channels may seem like the easy answer to growing revenues, but with that can come signficant hidden organisational costs that can cause strain to the core business, especially in a young startup where capital is scare and organisational stability is fragile.
An entrepreneur should assess how much of the "new channel" is leveraging existing people and processes and organisational learning and how much of it is an entirely "new business line" which requires organisational retooling. To give a simple analogy, Mcdonalds entering Fine Dining is a new business line while McDonalds introducing "Drive Thru" or "Home Delivery" is one more channel.
Look around you in any city in India and you will see a small business owner. High chances that someone in your family is a small business owner. All of these small businesses are resource constrained and are looking for on demand technology solutions across the value chain from more efficient marketing to easier data management to better book-keeping to cost effective communication. Unlikely any of these small businesses have an IT team and are looking for "zero touch" solutions that can be deployed and managed with ease and low cost.
The advent of cloud has really helped in innovation for the small business across segments. India can be a great test bed for such technologies that could then also be deployed globally.
India is beginning to see active entrepreneurship in this arena. Some of the early examples in the Nexus portfolio are DimDim (Web Collaboration) , Helpshift (Mobile CRM), Unicommerce (Supply Chain), Druva (Data Backup), GenWi (Mobile Publishing), etc. Some of the other notable companies are Tally (Accounting) and FreshDesk (CRM), Practo (Healthcare), Knowlarity (Communication), Capillary (Retail Loyalty), etc. There are hundreds of startups that are emerging and will emerge in the next few years. This next decade will witness the emergence of the Indian Software for Small Business.
Copying internet models that have worked in the early internet markets like the US has been a prevelant business practice worldwide ever since the internet was invented. From the Yahoo, Amazon, eBay, Expedia clones half a decade ago to the more recent Airbnb, Gilt, Uber and, Zillow and Yelp clones today. Almost every successful internet business model has seen copycats come up worldwide. There are some investment/incubation firms that seem to have made "Immitate and Invest" a business model.
Entrepreneurs/investors that are making a living from copying business models that have worked elsewhere need to understand the business drivers of the business model worldwide and try and understand if these drivers exist in India and what local tweak may be required for the business in India. Couple of examples in the Indian context
a. Dating (Match.com of India) - Do women feel safe to put up their profiles on an internet site? Are they culturally open to doing so in a largely conservative Indian society?
b. Ecommerce (Amazon of India) - Is there brand loyalty while shopping online in India or are consumers price sensitive? How does one pay in a largely cash dominated societey in India?
c. Social Travel (Airbnb of India) - Is there enough trust for end consumers to list their homes for daily/weekly rentals by strangers? Is tenancy regulation amendable to this business model?
d. Private Taxi Marketplace (Uber of India) - What are the altenate modes of transport available to the consumer? What pricing is neeed for the private taxi operator to make money? And how does that pricing compare to the other modes of transport (Can that pricing being sustained in the market? Given the traffic in key cities like Bangalore and Mumbai, can the taxis reach on time?
In all of the above examples, the "me too" business clearly requires significant local innovation in order to make the model viable. An entrepreneur needs to build in the friction involved in trying to localise the business to Indian conditions which could impact time to market and profitability.
Some Me too models that don't require on ground execution in an English speaking country like India may not work at all. For example, if it is a product play only that consumers need to adopt, there is no advantage of a local player over an international player if there is no langauge barrier. So India doesnt need a local Google, Facebook, Whatsapp, Pinterest while China may due to the language barrier. The business driver in the above is mainly marketing/customer adoptoin which an international company can do as effectively as a local company. So a "local moat" doesnt really exist in these businesses.
It is encouraging to see "me too: entrepreneurship flourish in India. However, there is no free lunch when it comes to copying business models. It requires a lot of deep thinking and superlative execution and long long hours at work.
In a recent board meeting of an early stage internet startup, one of the senior executives asked me "Should I hire a Senior Sales Head who has experience in the Industry or should I hire someone who maybe good with managing a sales organisation but in a different industry?". My immediate answer was "Experience is Overrated!".
Let me explain.
What is required from a Sales Head in an early stage startup is someone who can roll up their sleeves and do the initial selling to the customers, someone who understands the product roadmap well and can dynamically adjust the product positioning and pricing based on market needs, can build a motivated team, can design and implement processes, operating metrics, etc. Given the nascency of the internet in India, there are few companies on the internet that have scaled where one can find Sales Heads with the right mindset and experience in a fast growing innovative and dynamic setting . And many times in the offline world, the experience is a lot more structured where there is less "out of the box" entrepreneurial leadership thinking. And often times, an experienced hire can come with unwanted baggage from an industry or a company that then requires "unlearning". Or the hire can come with strong views of how to approach things which may or may not work in the context of what the startup is looking for or may bring on board a team that may have performed well in a different context or environment (may still be the same industry but sometimes online and offline skills in the same industry can be very different) but may not be able to adjust to the new environment.
So unless there is deep domain that is absolutely required (in some fields like pharma, medicine, etc, this maybe required), the core functional skills and mindset of the person is more important than the experience. Obviously if the core skills check out in a candidate that also happens to have the experience, it is an added bonus.