All posts by Mukund Mohan

My discipline will beat your intellect
Management, Personal

How to decide which startup to join if you are considering switching jobs

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I get an email or 2 every week from employees at large companies who have interviewed at a startup wondering if “startup X” is good, will do well, or “is a good bet”. Most of the time I dont know about the startup or the founders, so I tend to focus mostly on the market trends and the problem the startup is trying to solve.

Occasionally I will also get folks sharing their salary and ownership details with me (mostly junior folks) who would like some advice on how to negotiate a better salary or more stock options.

I used to be rather dismissive of the negotiators and ask them to focus on the learning and experiences, but that turns off most people I think. They wanted advice on how to negotiate better and here I was telling them what they were getting was good enough.

Instead, I decided to develop a framework to think about the opportunity and the startup role.

The first thing you want to ask yourself is why you want to work at a startup. Or leave your current job and join another startup. If you are at a big company (and have been there for a while) and have made a good salary and are looking for a “big retirement win from 3-4 years of work” at a startup that’s going to go public, then it is very hard to choose the right startup.

If you are however at a big company and looking to learn more and get a different set of experiences, you will likely have expectations that can be met.

Predicting which startups will do well is hard. In fact, over the last 10 years, given that most companies are raising a lot of money in private markets, it is harder to “get an exit” and make it big (financially speaking) in a short period of time.

Lets start with your objective.

If you are looking to make “risk free money in a short period of time” with your talent, you will get a small reward. A role that similar to your big company role and with a pay package that fairly consistent.

If you are seeking to learn how to be an entrepreneur and master how to start a company, you are better off joining an earlier stage startup than one that’s “sure to go public in a year or two”.

If you are looking to make more money than your current role offers and advance your career, it is best you join a later stage startup that’s looking to scale.

Startups that are less than 2 years young are the riskiest, will offer the most in stock and less in pay. Especially if they have only raised a series A.

Startups that are 2-5 years young and have done one or two rounds of institutional funding will likely offer good pay and decent benefits but limited upside in stock options.

Finally, “unicorns” which are over a billion dollars in capitalization will offer compensation that’s commensurate with your current pay and benefits and even more limited upside in terms of stock options.

If you are looking for the “perfect role” with the “most awesome pay”, that’s equivalent to your current pay and “huge upside” in stock options with guaranteed returns, that does not exist.

So, my recommendation is to decide what’s important to you – steady pay with strong benefits, but learning a new technology or being part of a new culture – then join a later stage startup.

If you decide that being a part of a fast growing startup which has some traction but still has potential to scale, where you will learn and grow with the company, is important to you, then join a venture which has been around for about 3-5 years.

Finally if you wish to learn how to start your own company after this one’s done and want to learn the fundraising elements of the startup, understand how to market and scale the business, then join a much earlier stage startup.

Entrepreneurship

New Market analysis – The data center “server” market #napkinStage

Another weekly feature I want to start is an analysis of a new market, so I can understand trends and learn about opportunities.

The hardware market for servers is a fairly large market overall. These are expensive high end systems that have a 7-10 year life-cycles and tend to be shelved and end-of-life-ed after that.

According to IDC and Gartner over $50 Billion dollars is spent on server hardware each year. That constitutes about 8-9 million units each year. So, the average unit price of a server is about $5000.

There has been a dramatic shift on both sides of this market – the buyer (service providers and data center owners) and the sellers (OEM’s, ODM’s and Contract Manufacturers).

First the buyers. The biggest tend has been the rise of the cloud. From 70K to 85K buyers and service providers in 2000, there are now only 25K buyers. The rest of the companies have “given up and gone to the cloud”.

Data Center Server Market Distribution of Buyer
Data Center Server Market Distribution of Buyer

The second trend, related and a resulting effect of the first trend, on the buyer side we have gone from a even spread at the top (long head) to a sharp head (consolidated top buyer profile).

What that means is that in 2000, the top 100 buyers accounted for 25% of the server purchases. Now in 2015, the top 10 buyers are accounting for 25% of the purchases. That indicates consolidation in a significant level. Companies like Google, Facebook, Twitter, Baidu, Tencent, Alibaba, Sina, Microsoft, IBM (with acquisitions) and Amazon (AWS) now account for a quarter of all server purchases annually. The next set of buyers – traditional ISP’s such as AT&T, Verizon, GoDaddy and about 1000 others account for 10% of the market.

Finally buyers are now also purchasing more “commodity” servers with cheap hardware components and systems and going away from expensive OEM servers. While HP,Dell, IBM and Lenovo continue to be the market leaders, more ODM’s such as Quanta, Wistron and Invetec.

What this means is that the major OEM vendors are losing market share to ODM’s and contract manufacturers or Electronics Manufacturing services (EMS) such as Foxconn and others.

 

Entrepreneurship

How accelerators make money to manage operating costs

There are over 500 startup accelerators in the US and over 1000 worldwide. Most accelerators are aligned with Universities (at over 35%), some are government funded (local government mostly) at 29% and some (15%) get grants from rich individuals and institutions such as Kauffman Fund. The remainder (21%) are privately funded accelerators such as 500 startups, Angel Pad, etc.

First, the definition of a seed accelerator, so we can understand the scope of the program:

A fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo-day.

While there is no reliable data on how many of these accelerators are doing well, graduating great companies and surviving, there is some data on how they are managing to stay afloat and “keep the lights on”.

Most accelerators, raise some money to invest in the startups they fund. Many (over 61%) offer some form of space to their startups to operate in during the cohort. Accelerators also have a staff of 1-5 people (some even more, but the average is 1.8) to manage the program, support the startups and recruit, select and engage the local community and ecosystem of entrepreneurs.

All this costs money. In the US, that’s usually upwards of $400K (that’s the low bar) and in other countries, more than $250K per year.

Typically the cost of the space and maintenance is about 30% to 40% of the budget, the cost of people about 40% – 45% and finally the cost of programs, marketing, etc. tends to be about 20%. This excludes the investment in the startups.

While investors in the accelerator are willing to fund the startups (and take a % stake in them), most are unwilling to pay a “management fee” for running the program.

Having interviewed and talked to many accelerator programs, over the last year, I have a list of 9 different ways programs have tried to raise the operating costs of the accelerator. I thought I’d document these so it would be useful.

  1. Sponsorship: The most frequently used means to raise operating funds, is to have large corporate sponsor. Some local government organizations also sponsor these accelerator as a means to be connected to the community. Many accelerators also raise sponsorship from local legal, accounting and real estate firms who benefit from the startup community or wish to target entrepreneurs and startup talent with their products and services. Nearly 60% of companies and 30% of all operating budget funding is sponsor driven for the 15 accelerators I know.
  2. Events: Many accelerators run events that aid future entrepreneurs, community participants and local businesses. These events are typically networking opportunities and charge attendees a nominal amount of money to cover the costs, enable marketing for the accelerator and pay for the “marketing resource” at the accelerator. Some accelerator programs also put together hackathons and still others run large industry events to generate operating cash. Typically the problems with running these events is that they take up resources and time, but if you can generate enough cash from these events, you can support 1-2 resources who can help with other activities at the accelerator during the non-event days.
  3. Entrepreneur-in-residence programs: A relatively newer program is the EIR, where employees at large companies or those at smaller ones who want to learn how to be more entrepreneurial, end up spending time at the accelerator in exchange for a fee. Typical fees are between $25K to $50K in the US. These EIR programs are full immersion programs and last 6-12 months or 1-2 cohorts. During the program, the EIR is going through the entire process from start to finish and “learning on the job”. Many of the participants end up becoming investors or entrepreneurs at the end of the program and return to their companies, learning about lean methodologies, innovation approaches and how to build on an idea and bring it to market.
  4. Grants: Both government and private donors typically give grants (no strings attached usually) to accelerators to support entrepreneurship, which promotes local jobs, makes a city more attractive to larger companies and also helps the local economy.
  5. Rentals: Many accelerators charge a portion of their investment as a fee for the space during the program per seat. So, if the accelerator invests $100,000, and the startup has 3 founders and employees, then $5000 might be charged per month of the startup for the 3-4 months they are in the accelerator space. This is more of the domain of co-working spaces, but many accelerators are starting to do this as well.
  6. Research Reports: Few accelerators I know write research reports based on their startup data for larger companies. These companies pay for the syndicated research reports so they can use them in their internal presentations. These research reports tend to be focused on a particular area of expertise and also a market domain. It is not unusual to see companies pay $50K for a syndicated report for the year about the startups within a specific area of their interest.
  7. Code Academies and Hacker schools: Many accelerators have also joined with coding schools, which teach programming to new and interested talent. This serves two purposes. First, the accelerator can raise cash by conducting training and second the graduates become good source of talent for the accelerator startups, who pay a fee to recruit the talent.
  8. Innovation scouting for larger companies: Many larger companies are also looking to recruit talent, acquire companies and learn about new disruptions and innovations. These companies are willing to pay a little money to scouts who can help track, recruit and manage a startup pool of entrepreneurial talent. Many accelerators provide this as a service to larger companies.
  9. Distribution, Sales, Design and Marketing consulting: A few early stage accelerator are also providing the equivalent of the “coding” school for non developers by running marketing and sales training programs. The difference is that the graduates are employed by the accelerator program and they end up being consultants to the startups who charge a fee for their services.

These are the various programs I have seen, and I’d love your input on if I have missed any that you have seen.

Funding

Sometimes all you need is someone to give you an opportunity @DaveMcClure #IamAnEngineer #MyDaughter

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We are a pretty nerdy family and sometimes to a fault. In fact some days we will be at home with the kids and we are texting each other, since we are in different rooms. My older kids do code. Thrisha (13) does mostly front-end – Javascript and HTML/CSS and Rishab (11) does decent SQL. My youngest girls are 9, so I am hoping they will start to code, soon, as well.

I was in San Francisco a few weeks ago talking to Dave McClure during the #preMoney conference, about my daughter, who has been coding for a while, and he suggested she should come and do an internship at 500 Startups. I am was not sure, but I mentioned it to my wife, who was a little worried about where she’d stay, how she’d commute etc.

IAmAnEngineer
IAmAnEngineer

We have a ton of family and friends in the bay area, so one of our good friends, Sachin, offered to host her for the 1 and 1/2 months of the internship. Thrisha was keen to do an internship, and 2 of the startups at our Seattle accelerator offered to have her over during the summer in LA and NYC.

She was constantly talking to these 2 companies and was pushing us to send her to those cities. I was not too keen about LA, because we dont have folks we know there, and so both staying there and commuting were going to be a problem. And she is only 13, so I was a little concerned about she being out on her own.

Over the last 5 weeks, thanks to Dave and #500Strong, my daughter has been in Mountain View, coding and working on a project that they use to monitor their investments. She has been very happy and is learning a ton.

The first day I went to drop her at work, she got on a call with the lead – Santiago, who has been very helpful and supportive. During that call, I was suggesting to Thrisha that she should spend more time brushing up on her Javascript and take 1-2 weeks to do that.

Santigo jumped in and said, “No, just go to github, download the repo and get started”. I was not too sure about Thrisha going in and checking code into production, but I let my fears stay in my own mind.

Turns out Santiago was right. Thrisha got the repo, and picked up the language and the requirements completely by just looking at the code and learning.

I am still amazed that a 13 year old (let me brag for a little bit) is able to understand and work on code that gets used, but that’s I guess the scary part as well. If, a 13 year old, who is heading to 9th grade can do it, what stops my 11 year old or 9 year old?

At what age should we support programming with our kids? Should we just expose them to technology and programming and let them pick up stuff on the go?

Another question is about women in technology. I dont think this problem is going to go away anytime soon and it does require a concentrated effort for a long period of time, but you have to hand it to folks like Dave and others at 500 Startups.

Sometimes, all you need is someone to give a 13 year old, an opportunity. I know Thrisha’s very happy and thankful to the #500Strong team for the chance to work at the fund.

My daughter’s 13. She can code. She is an engineer. #IcantBeMoreHappy #IamAnEngineer

Entrepreneurship

Why some apps and websites have never changed their user interface #DontFixWhatsBroken

The Google search “user interface” has been the same for over 17 years now. The simple text search box with a button for Google search and “I’m feeling lucky”. That’s it. Nothing has changed at all.

Feeling Lucky
Feeling Lucky

Same for iOS and similarly for Instagram, etc.

Media properties go through several changes every 12 to 18 months. Some even undergo changes more frequently than that.

Why do some websites and apps – Facebook, etc. change so often and have the users go through the pain of learning the new experience?

And why do some services NEVER change at all even after user feedback about their experience.

The basic user interface theory suggests that once your user / customer knows how to make something work, they like it and get used to it. After that it is hard for them to change. Many of your users may not even like the change, since it forces them to learn new things and be productive at the same time.

I have a theory of User interfaces, which is just a theory, but I’d love contrasting opinions on this. I believe that most users dont care about the User interface. They care about the experience and want it to be seamless, easy to understand and simple.

Which means, they expect the complexity to be hidden.

As an example the search input for Google has not changed, but the response pages have dramatically changed over the years.

From a simple list of blue links, now, Google provides contextual and relevant information.

That means the search engine has changed a lot (in the back end), but the complexity is largely hidden from the user.

Which is the reason why most apps in the future wont have a User Interface is my belief.

The user interfaces we know of are mostly there or will be there soon. Learning new interfaces will take us a long time.

A combination of micro services and service based apps, will result in the death of mobile apps and pretty much most apps.

 

The input elements for apps will likely be questions (business apps) or statements (communications) via voice, gestures, etc.

The output elements will have multiple levels of detail (overview, specifics and detail) and while I think they will evolve, they will start to coalesce around the known.

I’d love to know if you think I am wrong.

Entrepreneurship

Granular Pricing and Event based Pricing as a Service – (Praas) #NapkinStage #WillFund

One of the things I’d like to do every week from now is to talk about problems that I know about. I am hoping I can get entrepreneurs interested in working on these problems. Of course, most of these will not be fully vetted or even viable. That’s where customer development comes in. Honing in on the specific problem set will be something that needs work.

The problem I want to talk about today, is pricing. As more software companies offer their products on the cloud, and more companies are becoming “full stack“, there is a big need to help them optimize pricing to capture value instead of usage alone. Pay for performance instead of pay for usage is not a new concept.

Pricing by usage means that as people use more, you will charge them or they will pay more. That’s typical of mobile phone plans for example, the more data you consume, the more you will pay. That’s consumption pricing.

Pricing by value or pricing by outcome are two other means. As companies get more “full stack”, it is becoming more clear that they intend to not price on standard known means. For example Uber’s surge pricing is “value” pricing based on demand. GE has started to price its jet engines on availability and uptime instead of a maintenance fee, which increases its ability to execute differential pricing. If the engine is available more, GE benefits as does the airline, which leads to lesser downtime and hence more profits for the airline. This extra profit is what GE wants a part of.

More specifically, in terms of software defined pricing, it is becoming clear to me that granular pricing, the associated billing is equally important.

The solution is “Pricing as a Service” or PraaS.

I can envision an API driven offering, which is used by the developers of any SaaS company. The offering will manage the pricing pages and the billing for the company (different from recurring billing and transaction that’s done by Recurly, Chargebee, etc.)

The API’s will also be available to customers who want to bill granular components of their product. It should provide the ability to manage pricing tiers or create “packages” and also allow for multiple SKU’s to be created from base offerings by segment of customer.

I think this is a sketch of the idea, and there needs to be a lot of work done to talk to SaaS companies to understand their problems with pricing their products.

The other part of the pricing problem is metering and billing. I know of many SaaS companies who are looking to expand their customer footprint by offering their products via public clouds (AWS, Microsoft Azure) to large customers. For these companies, new metering and billing by components, or value based is a lot more profitable than plain usage or user based pricing.

I think Pricing as a Service is an important solution, so if you have a background (been an entrepreneur – failed or succeeded before) in a SaaS company, and a team of 1 or 2 cofounder who can build large scale API based systems and have the desire to build a company, you should reach out to me. I’d love to learn more and if your team fits the bill, I’d be willing to fund this idea. If you are a solo entrepreneur, I’d not be interested. If you have not been an entrepreneur before, again, it would not fit my criteria.

Entrepreneurship

Lessons from 3 founders on surviving the “near death” of your #startup

Startups were largely meant to be an experiment. An attempt to solve a problem (that may or may not exist), or to bring to bear an idea whose time “has arrived”.

Experiments, though unlike many startups, have a hypothesis, are conducted largely in test environments and have the ability to come to a logical conclusion after their period of testing.

Most founders I know have survived at least 3-4 “near death” experiences at their startup. Most of the near death experiences come within the first 18 months of forming the company. Surprisingly, they dont come in the first 3-6 months, but after that.

A near death experience is categorized, as a point where the founders believe there’s no point in continuing to build the company any more and they would like to shut down. Most times it is because they ran out of money. A few times, even when they have the money, they decide to shut the startup down since what the founders signed up for is now different from reality.

statistics-on-failure
statistics-on-failure Credit: http://www.statisticsbrain.com

I had a chance to work with many founders over the last 10 years, and the thing I have noticed about founders who survive the journey is that there are 3 things they all seem to have in common:

1. A bias for action, not deliberation. It is not as if you wake up one day and suddenly feel like your startup is going nowhere. The buildup to your closure is usually a series of events and feedback that points to inconsistencies with the assumptions you made when you started your venture. The best entrepreneurs have a very strong bias to take action on the data and quickly put new experiments in place to validate the new ideas and tactics.

2. They take an extremely short term (hours, day) view of their survival needs. There is an old saying in cricket, paraphrased – “When faced with a daunting score or a large total, instead of trying to focus on the target, focus on the next ball. Leave the rest to time. If you focus on the next ball and surviving the next ball it is likely you will worry less about the many other distractions that come with figuring out scale and other “to be solved later” problems.

3. They focus only on revenue generation activities, after cutting costs to nothing. I notice that many entrepreneurs say they cut costs to “bare minimum”. Which, in my opinion is still high. If you are spending any money at all (for development, marketing, etc.) you should cut them to zero until you have your revenue plan in place. They remove their “small office” space, eliminate “web hosting charges” but looking at creative ways to use free resources to “keep the lights on” without spending money.

 

Entrepreneurship

Why has someone not disrupted the Indian Grocery store in the US

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There are over 4 million Indians in the United States and this includes those who are on business, work and other visas, besides American citizens of Indian origin.

Over 50% of Indians in the US are in the top 5 states: California, New York, Texas, New Jersey, and Washington.

There are over 750 Indian grocery stores in the US as well.

The typical Indian grocery store is about 700 Sq. Ft, located in the suburb (not the major cities) and tends to operate on 21% net margins, with some items (biscuits, Indian vegetables) topping over 50%.

It is not unusual to see 100% markup on items such as masalas, basmati rice etc.

The stores are small, cramped, usually not in the best shape, in highly trafficked neighborhoods, and offer pretty poor customer services.

They all thrive though. The average ethnic grocer will experience a 29% closing ratio in the first 18 months, whereas Indian grocers experience < 10%.

The average Indian grocery store also makes about $350K to $1 Million (Sunnyvale, Santa Clara) in profits.

Most of the produce and the packaged food is rather old, some way past their sell by date and many products are rarely replenished quickly enough to categorize them “fresh”.

Indian Grocery Store
Indian Grocery Store

They all make money though, and are pretty profitable.

So why have they not been disrupted?

There are some attempts: Increasingly Wal Mart and Costco are offering Rice, some Dal and some packaged foods such as Ready to eat meals (MTR, Gits). The “Asian Foods” aisle at your local Safeway and QFC is also a good source of some spices and masalas.

There has been no large scale attempt to cut out the expensive Indian Grocery store. I can easily imagine the 100% monthly subscription model online store doing well, but of course, I am neither a supply chain expert, nor an expert in Groceries.

I am curious though, to learn why none of the ethnic stores have been replaced or are being threatened by Internet distribution and discovery.

Entrepreneurship

Android ecosystem vs. the Windows ecosystem

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Android as an operating system for mobile can be likened to the Windows operating system for PC’s. There are so many differences and similarities that it is worth comparing and contrasting them instead of comparing PC’s to smartphones.

While we cant call the smartphone market at its “peak” yet, there are over a billion Android users right now. If you look at the PC market, there are a billion PC users as well.

At its peak, there were 195 Windows PC manufacturers and 1400+ models of PCs.

There are 400 manufacturers (known) and 4000 models of phones and over 500 carriers in the Android ecosystem.

What’s different in the PC world vs. the phone world is the carrier.

Few of them (primarily in the US) subsidize the phone with an ongoing payment for usage of the network.

The carriers ensure that you will continue to use the phone and pay a “subscription” fee monthly for usage. In the PC world, without the “Internet” the system was pretty useful.

Without the carrier the phone is pretty much useless. You can possibly use it as a MP3 player or a screen, but trying being productive without a mobile plan.

While there were other operating systems (MacOS and linux) in the PC world, (iOS and Windows) in the phone world, the similarity is that the “winner” has a dominant market share or profit share, rarely both. Similar to Google in search, they dominated the market share and profit share for the PC OS.

Another key is is profit share.

In the PC world, the closed Windows operating system made the majority of profits, and in the mobile OS world, as well, the closed iOS operating system has made the majority of the profits.

The difference is the the “open” operating system in the PC world – Unix did not fare as well as the “open” one in the mobile world – Android.

Which leads us to some questions – What matters for the health of the ecosystem? What matters for the health of an individual company? If you were to project what happens in the Internet of Things world – which “OS” might win?

For a healthy ecosystem, I think both open and “closed” systems matter. The closed system tends to make most of the profits. The open one, either gets no traction at all, or tends to dominate marketshare but not margin share.

For the health of an individual company, being there first to get developer traction matters most. Developers go where the consumers spend good money, not where they use the product as a utility.

Finally in the IoT world the “operating system” will likely be the cloud. The likelihood of a dominant operating system taking both marketshare and profit share seems very high.

So I were a betting person, I would go long on AWS (Amazon Web Services) and Microsoft Azure. If there were to be a dominant system, it is likely they would be the contenders.

Most “Internet of Things” are focused right now on the Things,not on the Internet. That will change, resulting in more data driven models for IoT than device models.

What do you think?

Sales

Standing on the shoulder of giants – how startups get distribution done faster

The whale shark is an unusual fish. It travels an incredible 5000 miles off the cost of Caribbean each year. It does though help a lot more fish when it makes this journey. Many small fish and other sea animals live on its back and travel with it.

Intellectual pursuits have been similar. Issac Newton is quoted saying:

If I have seen further than others, it is by standing upon the shoulders of giants.

That’s one of the key items I have learned about distribution and growth hacking over the years. If there is a large “installed based” of practically any product, it is possible to jumpstart your new startup idea on its back.

Startups cannot help other startups. Except for giving advice, which is practical and practitioner-led, there’s not much a small startup can do to help other smaller startups.

The new “large” installed based in technology lead themselves to help new startups more than previous ones. While SDKs (Software Development Kit) and API’s have existed for a long time, the new age companies are helping bring their installed based to new innovations lot quicker by exposing their customers to new technologies via 3rd party solutions built on their solution. Some of them are doing so with the intent of being a “platform”, but many dont have a choice but to grow and build relationships via API’s.

I was talking to an entrepreneur yesterday about how they can improve discovery and distribution for their SaaS application.

The first part of the problem is just discovery – people getting to know about their product.

The second part of the problem is distribution – people trying their product.

The last and most challenging part of the problem is engagement – people using their product frequently.

Discovery Distribution and Engagement
Discovery Distribution and Engagement

The 3 problems are distinct enough to have different people responsible for them at your startup. Typically, the discovery is a “marketing” effort, distribution is a “sales” effort and engagement is a “product” effort.

New startups, especially consumer (eCommerce) are finding that being on the app store alone is only solving the distribution effort, not the discovery or the engagement problems.

SaaS companies are finding that discovery can be solved by SEO and SEM, and distribution with “freemium” pricing, but engagement is their toughest challenge.

Finally games have always found that engagement is their biggest challenge.

Depending on your company, and the market, there are some criteria to keep in mind when you are trying to decided where to “spend” your time and energy. Then using a large company in the space to solve that problem is the best way to grow fast.

So, if discovery is a problem, then I’d suggest listing on multiple marketplaces and directories and getting the word out via customers. If there is a large company in the space and they have an API or marketplace, list your product on both. The rising tide of customers will lift your boat as well.

If distribution, however is the problem, then ensuring easy “provisioning” on the larger company’s platform will help the most.

Finally, to solve the engagement issues, making API tie-ins to a larger company’s product – e.g. using Line’s API for new stickers or in app purchases will help.

If you have examples of how you have leveraged a larger company to make it easier to discover, distribute or get user engagement, I’d love to hear from you.