3 years ago I was at the Unplugged conference in Bangalore to see about 10 startups presenting. There was one that stood out – Gazemetrix.
I wrote about them and also thought they were the only ones worth funding that day.
That said I also mentioned they were in for a long, tough slog.
I met Deobrat after that event and really liked him. I did not end up funding them though.
Pankaj Jain from 500 Startups did.
They moved to the accelerator program at 500 during the fall of 2012. I met Deobrat again, with the teams from InstaMojo, WalletKit and Tradebriefs. All super great folks.
Sampad from Instamojo was hustling, Sri from Trade Briefs was calm, Kevin from Walletkit was trying to find his groove, and Deobrat was trying to find his mojo but was really struggling.
I dont profess to know what Deobrat and his team went through the last few 3 years. I have an idea though. It would have been a tough, long, hard slog.
They did not get significant funding from the US investors, and they returned to India, to work at the Microsoft Ventures cohort.
I am sure the journey was bittersweet, but totally worth it. I am so happy for the team.
That’s the journey an entrepreneur goes through. Ups and downs, sideways and running in place. Some make it, some don’t, but, most would not trade their journey for any other thing.
Yesterday I was judging the #MVLunchbox event at Startup Hall in Univ of Washington. There were 3 companies in the advanced category – Build Pulse, an analytics platform for office buildings, Metric Story, an analytics simplification tool for Websites and GlobAtom, a Import Export Paperwork simplification tool.
There were 5 more companies, in the earlier category, and the winner was Stuff Hopper, which allows you to sell stuff by just taking a picture (similar to what OLX and Quickr do), but they will come by and pick up your stuff as well.
The winner of the advanced category was Metric Story. It allows you ask simple questions and get answers to your Web analytics questions. Currently the web analytics space is largely dominated by Google Analytics, although there are a host (over 50) smaller players such as MixPanel, Kissmetrics, etc.
The interesting part about Metric Story is not that what they are doing is new or innovative. In fact I have seen variations of the same many years ago. I also tried to help build a product in the space a while ago – GitGrow.
The good part of Metric Story is that the founders actually have been consultants in the Web analytics space. This has allowed them to understand and package their expertise into a simple to use product, with very little unique or proprietary technology but more the expertise of working in the space long enough to know what the “just enough” to get paid by the customer requirements are.
Which leads to the question – is the best way to get expertise, knowledge and understanding of a space, by being a consultant and “learn on the customer’s dime” while providing value?
It also helps you make money to bootstrap and at the same time find out the “minimum viable solution” to solve the problem without building a product.
The problem with this approach for most people is that consulting is lucrative enough for many folks, so they don’t ever get to building a product.
Nonetheless, I’d love to hear more about this and if you have been successful going from a consulting gig to being a product startup founder, I’d like to know how you made the transition?
One of the things I have been very focused on over the last 2 weeks is email “open rates”. Since this blog now has 100K+ subscribers, it is a very important metric to me. I dont get too many metrics beyond the open rate since the WordPress hosting that I use provides only that metric.
Email open rate research suggests that open rates vary from 15% to 25% with the average being 22%. The open rate for this blog had hovered around 17% (that’s low) and now after a few tweaks has inched up to 19%.
Email Subject line length
The best days for open rates for this blog have been Thursday and between the hours of 7 am Pacific (730 pm India time) to 9 am Pacific (10 pm India).
There are 3 changes I made which have progressively yielded better open rates.
Writing more effective headings / Subject lines of the right length. This is the #1 thing I am focusing on. On an ongoing basis, I spend 23-28 minutes a day writing a blog post. In the first few months, I’d spend 95% of that time writing the blog post and less than 2% of the time writing up the heading or Subject line. Now I am spending 15% of the time coming up with the right heading. The other experiment I am conducting is taking my old blog posts and ReTweeting them with new headlines to understand how to write catchy and effective Subject lines.
Moving from inline images to featured images. WordPress has an option called “featured image”. If you choose that, it appears as an image at the top of the post, instead of inline. While most email clients filter images and the use has to explicitly download them, images are very important for people reading blog posts on my site. So the best compromise is to not have inline images but instead have it featured. That way it does not appear on the email body but definitely appears on the blog post. If you can do 2 images, then your open rates increase even further.
Consistent time of publishing.This is pretty obvious, but if you setup a routine to send emails and publish posts, you will get a higher open rate. So, even if you write your blog posts at a time that’s not your usual time, publishing it “later” helps ensure the open rates are higher.
I have a friend who I have known for a long time. She constantly complains. In person, social media, everywhere. If it is not the traffic, it is the weather, else it is her manager or the number of people waiting ahead of her in line at a restaurant.
Late last year she was laid off unfortunately. It was an acquisition by a larger company that made her role redundant and she was let go. She called me up and told me that the first time in many years she was “without a job” and felt scared and slightly unnerved at the same time.
After many days of back and forth, I suggested this was the opportunity for her to be an entrepreneur.
She hemmed and hawed for a few days and told me after a week that she had no ideas to start a company.
So, I asked her to stop complaining on Facebook or telling anyone else about her complaints, and instead asked her to write all the things that bugged her about her life in a notepad. Daily.
Then after a week or so we talked again. She had 11 things. She said she still had “no ideas”. I said she had 11 opportunities.
Everything that you complain about is an opportunity for you to do something about I mentioned.
It took her a while, but the “Few opportunities for women in tech resonated with her the most”.
She’s started a company 4 months ago. I rarely hear from her – either on FB or the phone anymore.
So I called her last week to check in.
I know how to push her buttons, so I mentioned that I was missing all her complaining.
“Who has time to complain”, she said. “If I am not doing something about it, I am likely the cause of the problem”.
Bingo.
Dont complain.
Do something about it.
That’s an entrepreneur.
Everyone else who complains is an opportunity to be solved. Likely someone whose job will get automated by a robot or software or intelligent technology.
Since I get nearly 60% of my visitors to the blog and nearly 80% of email requests for connections to funding sources from India, I thought I’d do a quick round up of what’s getting funded in India, so people can determine which areas they would have an easier time to get funded, and which areas they are likely to struggle.
There are 13 sources of funding data for me from India – 1. Venture Intelligence, 2. VCCircle, 3. YourStory news, 4. TechInAsia, 5. Economic Times Tech, 6. IAN newsletters, 7. Mumbai Angels newsletter, 8. LetsVenture, 5 of the accelerators (9. Microsoft, 10. GSF, 11. 91 SpringBoard, 12. Tlabs, 13. Startup Village and 14. CIIE Ahmedabad), 15. TIE, and 4 other angel networks and sources – Hyderabad, Chennai, Bangalore and Kolkata. Besides this I also track the top 25 Venture firms announced deals.
If you triage that data you get roughly about 273 deals done this year from accelerator to seed and from VC to later stage deals. I suspect another 10-20% have gone unreported.
The deals have totaled about $4.1 Billion so far ( 9 months) compared to $5.1 Billion in 2014. While we cant predict for sure, I think we can safely say that we should go past the funding amounts for last year.
Of these deals, over 28% have been accelerator stage, 21% have been seed and the rest have been later stage. Some companies have gone through 2 deals in this year alone.
The not so surprising part – Over 50% of the companies have been funded without going through an accelerator – which makes sense if you consider the domains getting funded.
Over 62% of the companies are in eCommerce. The rest are in SaaS, Content (media), Ad supported businesses and Enterprise software businesses.
B2B has made up less than 22% of the funded deals. They have been more in the later stage deals and the accelerator stage, but VC’s have largely been slow to adopt B2B this year.
The top 3 areas within B2C eCommerce are – services (delivery – food, groceries, etc.), goods (furniture, etc.) and travel / transport (cabs, buses, etc.)
In B2B, SaaS is the first category, followed by some Ad tech, but IoT, Cloud infrastructure, drones, Robotics, are largely being ignored.
So if you are looking to raise funding now, you are better informed.
Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.
This was a real constraint they had – no money to “eat” so they had to make it happen somehow.
I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.
The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.
So there are ways that you can create “artificial” constraints to force innovation to happen.
Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.
While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find a way to seek a path to go forward.
I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.
I got a question yesterday about how to expand into a new market (the question was specifically about expanding from India to the US or other markets) and the approach / strategy one could take to grow the business.
I have personally good knowledge only of the US, UK, German and Indian markets, since I have stayed at and sold in all these markets. I have also advised companies who have started in US and India and wanted to sell to the other country.
I am going to make some assumptions about the type of company and stage, to make things easier. First, I assume you are a startup with a B2B focus, not consumer or eCommerce. Second, I assume you have some initial customers in your own market who have validated that the need exists, and your solution provides some value. Third, I am going to assume that your product costs more than $10K, which means you will have to “meet and convince” your customers to buy your product, instead of asking them to self serve or buy online.
If you do not have some early customers, in your market that you currently operate in, I recommend you do that first. If your product costs < $10K annually, you should focus on making the process of acquiring, trying and using your product simple and seamless, so you can focus purely on self-service approaches to getting customers.
The best way to think about a new market or region is to assume you are starting a new venture all together. I would focus purely on getting the first few customers in a new market via referrals from either existing customers or from friends and colleagues.
Before you start to “scale” your marketing and sales efforts to acquire customers who have no background or experience working with you I’d recommend you get customers who you “know”. Focus on building your pipeline either by tapping into your own network, or if you don’t have a network, I’d suggest your attend a conference or two in your space and find a way to start (as an attendee) and build a relationship with 3-4 people who you could start to talk about your product with.
The first few customers are critical to helping you establish your credibility, so while there may be an “ideal” customer with a large budget, immediate need and willingness to take a risk with your company, I’d err on the side of someone who you can get instead of the ideal customer.
To find the early customers, I would also build an early target list that would focus on 4 characteristics – the industry (I prefer finance, technology and telecommunications since they tend to be early adopters), size of customer (mid-sized customers have budget and move quickly, whereas smaller customers don’t have budget and large enterprises move slowly), title of the buyer (marketing, sales and services move quicker than finance and HR) and location (US – coasts are better than Japan or Europe for example, since they are risk-friendly).
For B2B startups, one of the biggest challenges and costs is “sales”. Especially if the product costs greater than $10K annually. While many of the lower price point SaaS products might spend more money on marketing, the immediate costs of hiring, managing and growing a sales team is a big challenge for most entrepreneurs.
I hear from a lot of entrepreneurs who try to “develop” a channel, the frustrations of working with a large company’s sales force.
In the attempt to tap into their existing customer base, they end up educating the “channel” sales team on questions to ask prospects, how to qualify opportunities and how to handle objections and not getting enough from the process.
In still other cases, entrepreneurs try to work with partners in the ecosystem – system integrators for example or existing products in adjacent spaces and trying to engage with their sales and technical sales professionals to help position and sell new products to customers. They realize after many weeks or months that the teams are rarely given an incentive to do anything more than sell the company’s own products.
While I am a big fan of trying to drive indirect sales via partnerships and business development efforts, I also believe doing it too early sets the wrong precedent for startups.
The question is “When is too early to engage partners to sell”?
There are no actual numbers, but some rules of thumb that I follow.
First, if there is enough demand for your products that you are unable to return customer calls or you are unable to fulfill requests from customers for meetings, then you should engage partners. The best and easiest way to help build a loyal partner base is to drive the initial business to them.
Second, you should have enough case studies to cover at least 3 use case scenarios in your top industries as examples. What that means is that you should have 3 possible case studies of how your product helps drive initiatives in a specific industry that the partner operates in, where you are targeting to get customers.
Third, you sales cycle time should be reducing 10% per opportunity and your sales process must be defined enough so it is consistently predictable. For most companies, this does not happen until you are selling for a year and have about 30-50 customers already.
I usually get the question that if these were already in place, why would you need partners? The short answer is to scale.
Similar to funding from institutional investors, if you already have a business that’s doing well and growing, then funding and partnership sales helps you scale quickly not to generate the initial excitement.
In fact, my suggestion to enterprise B2B startups is to not consider channels and partnerships for selling until they have raised their series B funding from an institutional investor.
Channel sales for startups
Channels take time to develop and you have to invest a lot of money to gain the benefits over a long period of time.
I would highly recommend you be in control of your own destiny and push yourself to directly engage, generate and close your initial leads and customers.
If you have a profitable, but slow growing business, which complements another larger existing company in a relatively small market, you will have the opportunity to shop your company for sale.
Many founders who have organically (customer funded) or via outside investments (VC / Angel funded) grown their company, get the 7 year and 10 year itch to sell their company.
Whether you have decided to sell your company or just wanting to shop it to see the potential value, you will likely run into investment bankers who will offer their advisory services to help position, pitch and sell your company,
An investment banking firm is typically a partnership, (similar to a legal or accounting firm) with the founders having the capability to leverage their connections and expertise of certain markets, to create “synergies” for new companies.
Investment banking services
When an investment bank is hired by a company that wants to acquire other companies, they represent the “buy side” and if they are helping you sell your company to acquirers, they are known as representing the “sell side”.
If you engage with an investment bank to help shop your company to acquirers you are giving them a “mandate“. Most, (likely all) investment banks will expect an exclusive mandate, meaning, you cannot have anyone else shopping your company to potential acquirers. Even if you do have others and they end up selling the company, your investment bank will likely get a portion of the sale.
I was going to focus this post purely on sell side services of investment banks. The agreement letter or advisory letter or “letter of agreement” is a contract between the investment bank and your company.
Most entrepreneurs get hung up over just the commission or the “rake” the investment bankers take for the transaction – that’s only one part of the agreement – similar to your valution. Most bankers typically charge between 2% (highly unlikely, but possible if you are a hot company, with a high probability of sale at a large price) to 7% (smaller transaction, < $5 Million).
The analogy I hear from a lot of entrepreneurs is similar to a “HR consultant” or a recruiter, who works on a non-exclusive basis to fill a position. I do get questions as to why investment consultants demand exclusive rights. To which, I’d say that even the best HR consultants and those that work on executive positions work on a exclusive mandate.
There are 3 things that investment bankers like to call their “service value proposition” – their knowledge of the industry to help you navigate the buying landscape, their connections to potential buyers and their expertise in helping you structure and negotiate your final sale agreement.
Thee are 5 items you want to pay attention to in your advisory agreement:
Term of the agreement – Since most M&A transactions take 3-6 months, these agreements will last at least for that duration. Most agreements also specify that if your company gets sold for 6-12 months after the start of the engagement, the investment bank will likely get a portion of the sale, even if they did not make the introduction or help negotiate the final sale. While many will claim it is standard to have a 12 month clause, there is no “standard” – it is all negotiable.
The engagement fee or retainer: To help prepare your documents, pitch deck and start to position your company, the company will ask for a retainer fee between 10% and 20% of the expected final sale price (or about $25K to $100K) – whichever is lower. This fee is purely for them putting the time and energy to get your documents together and is independent of whether they final sale happens. If your company is “hot” many will waive this fee. If you are looking to sell, expect to pay this amount – 50% before they start and 50% after 3 months of the final completion of the agreement whichever is earlier.
List of preferred buyers or list of buyers already in agreement. In your agreement sometimes, you will have a list of companies you might suggest to the banker to not approach since you have already been taking to them or the opposite – you have a term sheet from one buyer which you are not 100% happy with, so you want to shop for more deals. In this case you might specifically ask for a certain company to be on this list to be shopped to.
Other considerations. If the buyer directly does not approach you, then in a lot of cases, you will find them to want some protection clauses, such as 3 year commitment for the founders to stay at the company etc. To ensure this happens, they will have an “earn out” amount associated with the sale. That is usually counted as part of the acquisition price, but is paid over time. An investment banker, typically will not have the patience to wait for that period of time or control over the longer term outcome, so they will want their “fee” to be paid in full for the net amount. That’ s something you can negotiate as well.
There are a few other negotiable clauses, but these are the main ones. At the end of the day, I would say that like most agreements, it depends on who needs who more. If you are eager to sell, expect to give in on certain parts of the agreement. If your banker, however needs you more, they will be willing to give you more leverage.
Finally in certain cases entrepreneurs use bankers to help raise their series B investment round, so most of these clauses hold good for that type of agreement as well.
Yesterday I crossed over 1000 blog posts. Sometime in the next month I will (hopefully) cross 100K subscribers. It has been a long journey and with many twists and turns. My original intention was to “become an expert” on online communities – hence the URL. Sometime over the next few years, my focus changed to be more about technology in general, building a thought leadership profile, talking about entrepreneurship and finally about investing and startups.
On a good day, my blog gets 24% open rate from my subscribers, and most days less. On average 40% of the subscribers are in India and 34% are from the US. I did some work with full contact API data and found that about 60% of subscribers have “founder” in their title on LinkedIn.
There have been many folks who have been inspiring and helped me along when I was not exactly sure why I was blogging or for whom. There have been a few role models who I consider the best in the business and are people I think have a day job, and still have built a strong brand around their work. They have been doing it consistently for years, so I dont consider them “flash in the pan” type overnight successes.
I wanted to call out 6 of them who I have been reading and trying to emulate, and if you are into blogs or reading online I think you might know them all. I dont tend to follow a lot of publications and media blogs like TechCrunch but individual bloggers.
Horace Dediu of Asymco: If there was one person who writes with more authority and is very data driven, I’d say its Horace. His graphs and charts are worth putting on a picture frame at times. I am a huge fan.
Ben Thompson of Stratechery. I have been following Ben only for the last year and he is very insightful, I wish I had the ability to see things around the corner like he did.
Jean-Louis Gassee of Monday Note. I first met Jean-Louis about 15 years ago, after he left Apple. He is possibly one of the most authoritative voices on Apple, more than any of the others who are “insiders” or into Mac media culture.
Neil Patel of Quick Sprout. Another long time writer and essayist, his posts are very actionable, which I admire. Few people can push you to do something immediately about something the way Neil’s writing can.
Mark Suster of Both Sides of the Table: Mark’s pretty authentic. There are 2-3 of his posts that I ready every month – Lines not dots, is still my most recommended piece to new entrepreneurs.
Tomasz Tunguz of Tom Tunguz. Relatively new on my radar, Tomasz writes very well researched pieces and is quite possibly an expert in the SaaS space by sheer ability to write so much after a lot of hard work researching the topic.
If you look at the highlighted / bold words – data driven, insightful, authoritative, actionable, authentic and well researched are what I aim for. I dont end up doing that with every post, but that’s my goal.
Even without meeting me, these folks have been mentoring me with their writing. This is my thanks to them.
