All posts by Mukund Mohan

My discipline will beat your intellect

Essays on the Indian mind – Why the sales person gains no respect in India

Disclaimer: This is an essay for me and my kids (who I am hoping read this). If you have been in India for long, you probaby know everything about the Indian buyer, and why they behave a certain way, you wont get much from this post.

For the longest time, even after India’s independence, the focus was on “self sustained growth”. To a large extent there was mistrust and fear of having to depend on other countries for anything. So importing was largely relegated to “must haves”. Consumption was limited to the bare minimum. India for large parts is a “supply driven economy“, which means supply was of limited constraint. The  “customer” had to do whatever it takes to buy, instead of the “vendor” to do whatever it takes to sell. So selling is a largely undervalued skill.

Side note: It still bothers me to no end that most retailers turn customers away if they dont have exact change or if they want to pay by credit card. 

Even after the liberalization efforts in the 90’s large parts of the economy still remain supply-constrained. There are exceptions – mobile telecom, spas (yes there’s an over supply here), etc.

Then in the late 90’s the IT boom hit. Demand from abroad (largely US) was terrific for outsourced resources, so Infosys, TCS, Wipro, etc. had to focus on securing constant supply of good-enough engineers. Their efforts went on training them, transporting them, feeding them etc. not building sales talent to sell. That’s changed dramatically over the last few years, which is uncomfortable for all the IT outsourcers, except Cognizant.

So the Indian business owner (sweeping generalization alert) looks at most places where demand exists in plentiful so there’s very little effort or energy required to market or sell. (Side joke: The average Indian businessman thinks marketing means going to the market and buying stuff). So they never really gained the knowledge or expertise in marketing, wooing and selling to the customer. There were exceptions – largely in the CPG – consumer product goods (FMCG – fast moving consumer goods) segment.

So, the sales person is largely undervalued. Its very typical to have sales people paid less than 1/2 of delivery heads, or technically savvy operations people. They are literally treated as lower class citizens.

The smartest of the people hence tend to focus on being engineers, doctors, etc. leaving people that “like to talk a lot” focus on selling. The smart ones also picked up MBA’s from top Indian management schools and either end up in financial services or FMCG, but that’s changing too.

That’s the primary reason India does not have a sales culture. Its rare and there are a few exceptions. Those companies tend to be viewed not very positively by most Indians, which explains why they dont attract top talent.

Will that change it the future? I think it has to. The global market for products and technology is forcing most Indian entrepreneurs to start to sell in US, UK, etc. They are now trying to attract top talent for sales and *gasp* pay them top money.

An early trend that I am noticing in B2B startups in India

Something interesting is starting to happen among the B2B companies that are starting / getting funded in India. Companies that have a larger price point (> $1000 per month for e.g.) are all either a) moving to the US (company founder, key employee) or b) they are hiring larger inside sales (telesales) teams and teaching them how to sell outside India. There are exceptions (Visual Website Optimizer) but I am seeing more companies moving to US to seek faster adoption in the early stages.

By B2B (Business to Business) I mean companies that sell to other businesses, either small or large. There are enough documented issues selling in India to businesses, some of which include:

1. An extreme focus on cost by Indian businesses, which results in much lower (or non-existent) profit margins.

2. The inability to find good, trained sales professionals

3. The “request” by many “decision makers” to be paid a kickback, which if not paid, results in unpredictable sales cycles

There have been many company founders (OrangeScape, InterviewStreet, Mobstac, etc.), who all started in India, sold to their first few business customers here in India, but have now either moved to the US or are focusing on the US market alone.

Besides the fact that early adopter companies are largely there in the US, many or all of the issues listed above tend to go away bringing mostly issues of upfront investment on sales resources as the primary barrier to a US only distribution strategy.

So what does this mean for new entrepreneurs looking to start B2B ventures in India?

1. Dont. Seriously. Find easier and more fun things to do than sell to Indian businesses (This is a personal opinion alone).

2. If you still insist on doing that, get an awesome sales director / manager from a kick-ass company to head up your sales efforts sooner rather than later and help create a detailed training plan to hire, train and manage new sales professionals.

3. Look to partner and ride an existing distribution channel that exists. Tally has an excellent list of re-sellers / partners who you might want to talk with.

One last thought – Entrepreneurship is hard. Dont make it harder by choosing a distribution strategy that’s even harder.

 

The maturity of startups and why the bar has been raised for seed funding

In the 1990’s if you had an idea, a great team (two engineers, one sales person) and 2-3 prospective customers (I know this because I got a term sheet from a large VC firm with this set of requirements) you would get funded (either by an angel investor or a VC).

In the 2000’s the bar was raised to a working prototype and customers actually using product, with a great founding team, not just idea – even for angel investors. You needed to have a great idea, prototype product, some customer usage and a great team.

In this decade (2010 – 2019) the funding bar has been raised even further. With incubators putting in seed money, angel and venture investors are coming much later than 2 guys and a prototype (product-market fit). There are exceptions of course, but they are rare.

E.g. When YCombinator puts $20-30k you get to prototype and maybe some traction. Then you get another $150K from Ron Conway and Yuri Milner that could last you one more year to 18 months to not only build product, but show some momentum (Customers, repeat usage, maybe even some revenue, etc).

So when entrepreneurs hear that there’s a startup frenzy in the bay area, with very high valuations and insane amounts of funding, they think its for idea and prototype. Many complain to me that they have a prototype (not just idea) and have been building their company with the Steve Blank’s customer development methodology, and are still not getting funded.

Most have even their profile put together on Angel List, but are still not getting any interest.

The bar has been raised and its possibly forever.

The other issue many have is they believe they are past the “YCombinator threshold”. “I have a prototype already and we have been working on this for 1 year”, is what I hear.

There’s no threshold for “Ycombinator” that you have possibly crossed.

I believe even if you have been funded (Interview street was funded before they were accepted by YC) there’s a good reason to apply to an incubator.

How to choose the right incubator to fuel your entrepreneurship goals?

A big trend I have noticed in the last few months is that almost every Venture Capital (VC) company in India is looking to either invest in or build an “incubator”, which can help early stage entrepreneurs. There are already several of them in India, including Morpheus, The Startup Center, CIIE at Ahmedabad and others. I would imagine that by December of 2012, we will have at least 10 very well funded incubators all looking to guide, mentor and help young entrepreneurs through their initial stages.  This will go a long way to help the startup ecosystem in India.

The flip side to this is the amount of choice that startup entrepreneurs will now have. I can easily see many entrepreneurs spending days and months trying to figure out which incubator is the best for them. The answer to the “right one” depends on multiple criteria including your background, what space you wish to build a company in, how big do you wish to build your company into and other related factors. Outside of these criteria, there are others that are dependent on the incubator itself.

Most Indian incubators offer a combination of some cash and mentorship in exchange for 8%- 12% of your company. Some incubators require you go to their office location and spend 3-6 months with them, yet others will prefer you stay at your own office / location. Some do offer design talent, technical resources, and others offer a bevy of informal advisors.

So how does an entrepreneur evaluate incubators? I decided to put together a simple (not comprehensive, initial cut) spreadsheet of the list of things to consider before you decide on your incubator. I would imagine an entrepreneur would use this sheet to write down things that are important to them in an incubator by and then rank their choices by their evaluation of each incubator.

While I personally believe the top 3 criteria are (a) ability for the incubator to help your company gain momentum (customers, hiring, resources, etc), (b) ability for the incubator to help you raise money and (c) quality of the network the incubator possesses which provides you access to other entrepreneurs, venture capitalists and resources that you might need to scale.

Here is a simple spreadsheet I put together and if you believe you need to add more criteria, feel free to drop me a comment on my blog.

 

# Criteria Notes Importance Incubator 1

1

Background of the incubator founders This is the most critical factor. If you have incubator founders, who have not successfully built and sold companies before, then it’s a warning signal.
Do they have an entrepreneurial background that’s proven?

2

Amount of capital the incubator has raised Not very relevant, but it gives you a sense of how many companies they might fund

3

Number of companies in each batch Fewer companies in each batch is usually better because each company gets more mentorship and time with the incubator executives

4

How many companies have they funded so far? This gives you a sense of their track record as an incubator.

5

How many of their companies got follow on investment? This is another critical metric for most founders. You are going to an incubator for experience and help with funding. If most of their companies do not get follow on funding, that’s not a good sign

6

How deep is their network of venture and angel investors? You want to understand the relationships the incubator has with follow-on investors so it makes it easy for you to raise the next round

7

How good is their existing portfolio of companies and their founders? The existing cofounders of their portfolio company will be great resources to network and advice

8

How much time do they provide to each company per batch At the early stage you need a lot of time with the mentors on all aspects of the business. If their time is unavailable then the value of the incubation is limited

9

Have they successfully helped a company grow in your space? Its important to see if they have a portfolio company in the same broad space as yours. For e.g if you are an eCommerce company, look for others they have funded so they know the issues and can help you early to avoid obvious mistakes

10

What is the deal offered? How much money will they give you, what % of your company will they take from you are important parts of the structure

11

How long is the program? Most incubators have 3-6 month programs, which should give you enough time to get your company to a seed / series A stage of investment

12

Can you work out of your office or do you have to relocate to the incubator’s city / office? Some of the incubators require that you move to the city where they HQ are located so you have access to their resources, others will let you work from your own office

 

How hard can it be? Underestimating the problems your startup really solves

I had a good friend who was deploring the state of payment gateways in India. As someone that has dealt with Times of Money (DirecPay), EBS, CCAvenue, HDFC Bank, ICICI, Citibank and Axis Bank, I can attest to that pain. Its amazing that the state of payment processing is so arcane and filled with issues.

The issue is not just one of payments BTW. I constantly hear people complain about lack of a very good “X” in India. X could be a angel investors, incubators, bloggers, engineers, <fill-the-blanks>.

Problem is most people actually underestimate the effort required to build quality and consistency. What you see in the payment gateway is a simple set of forms that accept a number, check if its valid, authorize it and return an accept / reject status message.

The “behind the scenes” is painful. The multiple layers of the onion that you have to peel are the ones that really  are painful. So most superficial jingoism that starts at the front-end of the startup fades when the real pains come to the front. Which happens in the first few months.

Which is the main reason most startups fail within the first year.

Thoughts on Flipkart acquisition of LetsBuy

In case you missed it, Flipkart acquired Letsbuy for ~$20 Million in stock and cash.

I think its a very smart move by Flipkart and the investors (Accel and Tiger Global in particular).

Flipkart is doing about 50 Cr (About $10 Million) per month in sales (approximate, from multiple sources).

Letsbuy was doing about 15 Cr (About $3 Million) per month in sales (also approx).

Flipkart can already do an IPO (I think) in NASDAQ by 2012. But with $150 Million run rate (rather than $120 million), they have accelerated that by about 3 months – 6 months.

So flipkart’s good. They got a good price, they bought some revenues and have a few folks who are category experts (or better experts than their in house ones).

The two companies share 2 investors (Accel and Tiger Global) – who just yesterday announced an investment in Myntra.

So I can easily see a discussion at Accel and Tiger where both Letsbuy and Myntra come up for follow on rounds. They would first have asked Letsbuy to get funding from other VC’s – they apparently did try Sequoia and Matrix, but could not get the deal done.

Letsbuy goes back to Accel and Tiger who realize that Myntra is in a category (apparel, which is a lot more complicated than electronics) which Flipkart will take a long time to get to, but in electronics, Flipkart is mostly there.

So they chose to fund Myntra and consolidate their position with a “clear winner” by getting Flipkart to buy LetsBuy.

I consider Hitesh of Letsbuy a friend, so I may be biased on this one, but I think this is a good outcome for them too. Better to have tried to reach for the stars and climb Kilimanjaro than aim to climb Vindhyas and end up at Nandi Hills.

5 traits of a great angel investor

Over a startup event Bangalore a few weeks ago, I had the chance to talk to over 50 budding entrepreneurs about the seed funding scenario in India. It is well known that there is a lot more demand for investments at the seed stage than there is supply. The number of angel investors in India is estimated around 500 (informal estimate) and the number of active investors is less than 50. The number of new technology companies alone in India (software & services) total over 500 every year. I have personally talked to several high net-worth individuals (HNI) about looking at investing in new entrepreneurs and believe it will be only a matter of time (2-4 years) before investing at the seed stage becomes more prevalent.

The top 3 reasons for not investing, I hear from most HNI is the lack of exits, better or equal returns at lower risk with other asset classes or their desire to “invest in their own business than someone else’s”.

What will increase the number of angel investors in India is simple – more people making big money (I can easily see another 15-20 employees of Flipkart, Snapdeal and InMobi becoming angel investors in 2-3 years) and specifically more entrepreneurs themselves having exists.

So if you are a HNI and are looking to help young entrepreneurs become successful, what else would make you an ideal angel investor that entrepreneurs seek out for money?

  1. Relevant experience and knowledge of the space that entrepreneurs are looking to build companies in. This is the biggest value add you can provide, more than the money. If you have built a company in the same space, the value that you bring to the table is a lot more than any “dumb” money. In fact one could argue that your experiences are nearly worth twice the money you put into the startup.
  2. Network and connections. Great angel investors don’t just write a check and disappear. Once you put your money in, there’s a responsibility to commit to the success of the company. The bevy of lawyers, accountants, bankers, marketers and other connections you have made in your career are worth their weight in gold. That’s an amazingly attractive incentive for any entrepreneur to rather take money from you than other investors.
  3. Willingness to learn as much as you are willing to teach. Being an angel investor is more a lesson in learning than in teaching. I am pleasantly surprised with the insights I hear on hiring techniques, investor / board management and online marketing from young startup founders.
  4. Ability to provide time and empathy during the tough times. Every startup goes through a sine-curve of emotions. In fact if you have been an entrepreneur you know the experience well. Besides requiring a flash report on sales, hiring plan, product strategy and other company related metrics, the angel investor has to be available to his entrepreneurs. This does not mean having to spend 10 hours a week on the startup, but being available for that call or having a cup of coffee with the entrepreneur when you have a moment helps go a long way.
  5. Long range thinking. Angel investing is certainly not for the faint of heart. Market timing rarely works so most good investors I know invest the same amount every year for 5-10 years before they are able to spot patterns and obtain exits. The thrills of helping young entrepreneurs succeed though, more than makes up for the short term uncertainty.

How can a hacker ask for startup advice so they get the most value?

The last few weeks I had the opportunity to talk and chat with several (engineer) entrepreneurs who were in various stages of their company. While most entrepreneurs are fairly clear and specific on the problems they are facing, a few are unable to clearly articulate where they could use help or advice. There are several “categories” of  questions and issues that an entrepreneur has. Some questions are procedural – “how do I do this”, others are “introduction”, still others are “transaction-al”.

The most difficult ones for both parties are the “What should I do?”.

Any mentor / advisor will not have enough context (regardless of how much time they spend with your company) to help you by giving the “right answer”.

For these class of questions there is really no right answer.

The right answer does not exist because it comes down to what the entrepreneur wants to do. What she is comfortable with, what her biases are and what her motivation is.

The only thing a good advisor can do is to provide a “framework” for your question.

The only other thing an advisor can do is to give the entrepreneur confidence in herself so she can best utilize the framework to her benefit.

A simple way to think about the “framework” is a set /series of “if-then-else” statements, with <then> and <else> colored with the advisor’s experiences.

E.g. When faced with this issue like <a>, I responded with <b>, but the alternative is <c>.

So, if <you believe “a” is true> and <you also think “b” will happen> then <you should do “c”> else <the other thing you can do is “d”>

The framework is not just one if-then-else. Its a series of them.

Can it be that simplistic you ask?

Yes. That’s it.

The best advisors / mentors listen and ask a lot of questions, with each answer leading to more questions. The questions are to help the entrepreneur think, not for the advisor to assess.

So the next time, as a hacker you are looking for some advice on a question “What do I do?”, then remember to keep a note of the conditional construct.

P.S. For those that know me as a hard-core sales guy and nothing else, I did study DES based cryptography algorithms under Dr. Sherman, who I am sure is absolutely disappointed that I ended up a sales guy in a tech company.

Facebook open graph API and new apps

After facebook timeline we now have apps on the timeline, which leverage open graph API to post actions that you performed on other websites to your profile. Here is a complete list of apps (60) that are participating in the facebook timeline capability.

“Once you’ve added an app, you can begin updating your timeline with your activities as they happen.”

I personally have 6 apps that I have used / authorized and most of them post to facebook (twitter, wordpress, etc.)

I dont really use any of the other apps. Dont see a need yet. But this might just make me change my mind. (Deep sarcasm).

Do you use any apps? I am curious which apps are really used by other entrepreneurs.

When there’s so much conflicting startup advice, why even bother reading?

For every piece of startup advice I have read, I have also read a counterpoint.

Mark Cuban says dont hire a PR firm. Paul Graham says hiring a PR firm was good.

Naval says find a passion market fit. HBR says passion is overrated.

Raise money from VC’s. Only bootstrap.

And I could go on.

So if you are looking for an “answer” you are going to be disappointed.

The best you can do is treat these posts and advice as a guideline or a recommendation.

No one knows your situation as well as you do. No one understand the intricacies of your business, challenges and customers as you will. So, the best advice I have ever heard (I unfortunately forget who told me this) was to develop a set of filters.

1. People filter – This filter applies to who you think is your “role model” or “ideal advisor” or mentor. This filter applies to both people you want to listen to and those you dont. So if you are looking for a mentor or advisor, apply this filter first and get people who you think you can take advice from without second-guessing their intent. You can get second opinions on their advice, but questioning their advice at every step will be counter-productive.

2. Expertise filter – This filter is for specific advice on topics – legal, finance, fund raising, etc. Get advice on these items from “experts”.

3. Context filter: This filter applies to how to apply which advice based on your context or situation. This is best done with folks within your company.

Most advice though, however well meaning is specific to the situation and a guideline. After all if you dont apply your own expertise, know-how or values to them, what good is that advice?