Category Archives: Tips

Angel investing, Entrepreneurship, India, Learning, Tips, Venture Capital

What does a series A funding strategy and plan look like?

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This post is the first in a series that I am planning to do on fund raising. I have successfully raised money 3 times (to a total of $29 Million – series A, B and C) and failed twice (once trying to raise $2 Million series A and second time $3-$5 Million series B).

As a background please read Elizabeth’s great post on “Behind the scenes of a seed round”.

Fund raising is one of the most difficult parts of a founder’s job. Getting money from investors of any type is hard. Dont be fooled by stories of entrepreneurs talking to investors and getting checks in 10 minutes. Those are truly black swan events.

The first thing you have to realize is that you need to develop an comprehensive plan and strategy to raise your series A. Think of it as an effort that’s similar to the launch your product. For purposes of this discussion lets call series A, as your first institutional round. I am also making the assumption that you have a working product, paying customers and are targeting a very large market (>$1 B for US, >$250M in India). If any of those criteria are not met, dont bother trying to raise money in this environment.

What are the 3 most important elements of your funding plan?

1. The pitch deck – a 15 slide PowerPoint presentation which summarizes the market, problem, traction and investment requirements. This is needed only for the face-to-face meetings.

2. The target list of potential investors – a Excel spreadsheet which has investor’s firm, name of partner, list of 2-3 recent investments (in the same general space as yours), email addresses, phone numbers, admin assistant’s name & email address, investor connection (people who can give you warm introductions to the investors), status and notes fields. You could use a CRM tool like Zoho if you like, but its overkill for this purpose is what my experience tells me.

3. An email introduction (40 – 100 words) and a one page summary. A simple text file with no images or graphs (something that the investor can read on their mobile phone (most have blackberry, although that’s changing). This can be sent to your connections to introduce you to investors or directly to known investors.

What should your strategy be?

1. Who should you target by role?: Investment firms have partners (decision makers) and associate / principals (decision enablers). Partners make decisions so if you can, get a introduction to a partner. If you cant, its not all doom and gloom, since many partners rely on their associates and principals to source deals for them.

2. Who should you target by investment thesis: Every investment firm has an investment thesis (how they will deploy funds to get best returns for their investors). This should guide you as to whether you’d be a good fit for the firm. Example: An investment firm might say we believe India’s broadband access and huge number of consumers with high disposable incomes is a great target for Indian eCommerce companies. So, they will deploy a certain % of their funds in eCommerce companies. Similar theses exists for big data, SaaS, etc.

Example: if you are an education startup focusing on India, Lightspeed (thanks to their success with TutorVista) should be on the top of your list. If you are a SaaS firm targeting US, Accel (thanks to Freshdesk) should be on your list. If you are a travel technology startup, Helion & Saif (thanks to Make My Trip) should be obvious targets.

A word of caution: If a firm has invested in a company in your sector, they will very likely ask you to speak to the CEO of their portfolio company to perform cursory due diligence. You may decide that company might be competitive and likely to execute your idea better since they have more resources. So proceed with caution and dont reveal any thing during your due diligence that might hurt you later.

Many investors invest in a sector because they “need one of those in their portfolio”. Example: Every firm has a baby products eCommerce company. So, I also recommend the “herd rule”. Which means, you should talk to other investors if your competitor has been funded by your first choice investor.

3. Who should you target by investment stage: Although every Indian investor claims to be sector agnostic and stage agnostic, there are a few early adopter VC’s. If you are the “first” in a new space, then consider an early adopter investor, else any investor who has not made an investment in the sector will suffice.

In a next post I will outline what the series A funding process should look like. This post will include information about whether you should follow a “back-to-back” process, or do a “listen and tweak” process.

If you like this post, please consider submitting to Hacker News.

Focus, Learning, Tips

The power of active observation for entrepreneurs

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There’s an awesome stand up act that Jerry Seinfeld does in his “I’m telling you for the last time”. In that he tells the audience a secret about men.

The question on many women’s mind is “What are men thinking about?” is his premise. He goes on to say “Let me clue you on to the secret women. Here’s what men are thinking.”

Nothing.

We are just walking around, looking at stuff.

Its pretty funny and mostly true. Its also true of most people, not just men. Most of our “thinking time” is spent thinking about nothing.

Nothing.

That’s such a waste of time.

What I think it really means is its not worth sharing what we are thinking about.

We are “constant dreaming” about mundane useless stuff and our thoughts wander to more useless stuff.

While we go about some daily routines, we are still thinking and less “observing”.

Most successful entrepreneurs I know have a heightened sense of observation.

They watch everything. I mean they observe at least 50-80% more than the average person.

Most non-entrepreneurs people see the same things an entrepreneur does, but they dont observe.

A technique I use is active observation. It is seeing, then asking questions. As you know, questions are the root of solving interesting problems.

To discipline yourself to constantly keep observing, you have to train your mind to look, then ask. Not keep looking and neither keep thinking.

There is a downside to active observation. Its that you are not in the “present”. Critics will point to the mind-rest that your brain needs which helps it recuperate and rejuvenate. They might also say you should go with the flow to generate great results.

I prefer active observation when I am thinking about ideas and problems to come up with which need solving.

P.S. Post a few comments on facebook, I wanted to clarify that active observation is observing then doing. By default I assume most entrepreneurs are doers. Many though confuse doing (action) for progress.

India, Sales, Tips

In India, a customer does not buy a product, they buy a phone number

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There are over 800 products listed in the productsmade.in database (out of 2149) that cater to the SMB market in India. Many of them sell only to the Indian market, and a few also try to target International markets.

The amazing part of selling in India is the ease of access to founders (promoters, they are called here) and Managing directors (CEO). Most have their cell phones listed on their website and many may have it listed on their ads.

Throughout the last few years when I ran relatively small (<20) person sales team, targeting companies with less than $2 Million revenue we found that getting appointments with CEO’s at small companies was extremely easy. A conversion rate of 50% from cold call to face-to-face appointment was not unheard of.

At a price-point which was less than a full-time resource to manage marketing, they found our solution relatively easy to adopt, but they were focused on quick ROI – meaning if they put $1 now, they expected $5 within the first month and an increase every month.

During the first few months, we spent an inordinate amount of time trying to simplify our product. We realized most decision makers & users at these companies were the CEO’s so we wanted to make sure they found our product easy to use. We did 4 sets of focus groups and removed a lot of features from the product, making it so that just one of two options were provided on each page. Navigation was made simple as well, with large buttons and primary colors.

After 2 months, we had an interesting problem. None of the CEO’s actually used the product. Every time they wanted data from our system, they’d just call the sales rep and ask him for information. We showed them how easy it was for them to look up the information on their cell phone, but they’d still call and “chat up” the rep, share more information about their business, their issues, etc.

We then provided a customer service team who would answer these questions so our sales person would be more productive. The sales person still got calls. One sales person left to join an MBA program. Even a year after he’d left, the CEO’s he sold to would call him to ask him for information.

That’s when we realized that Indian customers dont buy a product or a service. They just buy a phone number – a person’s mobile phone which is their user interface to the product.

Then I got to know about a central number system. Basically its a number that you can give and you can change it to any set of numbers by “routing” the call based on the number. We did not implement it fully, but the first few weeks of using it were a lifesaver for our sales productivity.

Entrepreneurship, SaaS, Tips

Startup Idea: Shopify for SaaS companies

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There are over 20,000 SaaS companies in the world and growing (source). They are the new “software ISV” of the 1990’s. Growing like weeds. Getting users, building niche applications and growing revenue.

Every SaaS company builds a “specific application” for a “specific user”. They are the domain experts on that application.

Every SaaS company development team though, needs to pay a 15-25% tax upfront. Sometimes more.

Every one of them has to develop a sign up process, a user cancellation process, a payment process, a refund process, a login process, a password retrieval process, etc.

Trust me, we are going through this and its an absolute PAIN. It gets in the way of building useful benefits and capabilities for the user.

Its plumbing and it should be standard and out of the box for 90% of startups.

What if you provided a “Shopify” like sandbox for SaaS companies? Provide all these capabilities out of the box. Let SaaS developers focus on building their app. Not do plumbing.

Please dont tell me AWS is one, they are an infrastructure provider. You will still have to code a bunch of processes on top of AWS.

Requirements:

1. This platform has to be “developer friendly” – but not like Magento. That’s too steep a learning curve. Think like Mixpanel or Stripe “developer friendly”.

2. It has to provide simple API (hooks) to the developer’s own application.

3. It has to (obviously) be hosted.

Is it a billion dollar opportunity?

I dont know.But I will put my money where my mouth is. Show me a good team, and show me how you will do this and I will put angel money into this.

This is Heroku 2.0 (they got bought for $212 million). Go beyond platform and infrastructure and actually build application plumbing.

No one is doing it.

Entrepreneurship, Hiring, Learning, Tips

How to A/B test your job description and hack your way to hiring success

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The last post on hiring for startups touched a nerve with many recruiters, many who emailed me on why I was negative about their profession. I did not intend to throw them under the bus, but the post came off reading that way. So, to my recruiter friends, apologies. I could have been more judicious with my choice of words. I assure you though that my words are not worth their weight in gold, so many startup entrepreneurs will still call you to help them with their recruiting. To those that claim spamming is helping, please stop.

Onward and upward.

This post is about hacking your job description. Or in the new age way of putting it – A/B testing it.

I had to hire 3 engineers for our new startup. The first step I took was to send an email to a few good fellow entrepreneurs and friends.

Version 1.0 < or bachelor #1>

I told them:

“Ideal candidate will have 3+ years experience in web or mobile technologies. Should be a hands on developer (PHP, Ruby, MySQL, Java or Python)”.

After 2 weeks and 30+ emails later I got 4 resumes from friends of friends. They were “technically sound” according to my network and within my budget but were mostly out-of-towners.

I phone screened two of them to find them fairly challenged in terms of their communication skills, and the remaining two wanted me to assure them a job before they made the trip to Bangalore (I was willing to pay for their trip, but not assure a job until I met them and interviewed them).

Version 2.0 <or bachelor #2>

I added “Good communication skills required. Position is in Bangalore.” And posted it on my twitter profile, LinkedIn and facebook account.

3 more resumes landed on my inbox, but none of them were even a close fit. One person said in their email, he was a test engineer and wanted to move into development and the second was a ASP/.NET developer who “could learn PHP quickly”, but had been in Windows development for the last 3 years. The third sent me an email, saying ” I am currently 25K salary, looking for 40% hike”, in his 3rd sentence, without any questions about either the job, the company or the technology.

Version 3.0 <or bachelor #3>

I decided the simple useless job description I wrote was just that – useless. I had forgotten the cardinal rule – Sell yourself, sell the job, sell your company.

So I did a ginormous makeover. I posted version 3 on hasgeek – I titled the role “developer in residence” not tech lead.

Worked like a charm. I got 4 very high quality candidates asking for what a “developer in residence” meant. Two were very qualified, professional and very good fit for the role.

I did not stop at version 3, but went to a refined “pitch the value, not the features” version.

Version 4.0 or <bachelor #4>

I added the following and posted version 4 on hasgeek.

“We have a complete 12 quarter hands-on program outline for you to feel ready to start your own company, which we will invest in to get you best prepared for entrepreneurship.

Job perks

  • Catered lunch every friday.
  • Ability to network and meet venture investors and angel investors in special invite-only events each month
  • A working 12-quarter program to give you all the experience necessary to be an entrepreneur”

Worked even better. The posting intrigued enough people to deliver even higher quality resumes. I thought I was overreaching because and got 2-3 over-qualified folks for a “lead developer position” re marketed as “developer in residence”.

What I learned:

1. The most important part of your job description is the Job Title. Its obvious, but I see far too many “PHP developer needed” or “Web hacker wanted” and “Javascript Ninja Hatori” titles, which gets you a certain type of person. Usually that person is not the first 25 developer hires in your company. Be creative, but dont overreach.

2. Your job description is the first impression for 90% of your potential candidates. The next impression is a Google search with your company’s name. You control the first a lot more than you control the next impression. Realize that people will read your job description and decided quickly if its worth Googling your company. What you say and how you word it says a lot about your culture. Does it have many typos? Are you using cliche’s like Ninja, hacker, Superman, etc. because you cant really describe the person with a simple engineer title, etc.

3. Dont say too much, because people dont read too much. Most job seekers I found, only read keywords like PHP and sent me their resume. They did not read anything else. I mentioned “should have worked in a product company (not services company)” before in a branch version of the JD, but I ended up getting many resumes from folks who worked only at services companies.

4. Each version of the JD attracts a different crowd from a different job board. If you are posting on hackerstreet, or hasgeek – think and focus on being a little more creative. If you are looking for technical marketers, pluggd.in is pretty good and for fresh grads, yourstory worked best for me.

5. Describe the perks of the job. If possible please make it human by adding a P.S. at the bottom. People read the P.S. More people read the P.S. than you think. Make the P.S. memorable, or make it sound like a prize given for the one that had the patience to read the entire posting which you spent hours writing (or a few minutes copying and pasting from some other JD).

Next post – how I phone screened and what worked, what did not.

P.S. I do read and reply to every email, and I do like getting email, but I always prefer comments on this blog.

Entrepreneurship, Focus, Tips

The art of disciplined experimentation

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Being a hobbyist is an awesome way to keep learning and test “theories” you have. Most cases, when I have a theory I’d like to prove or disprove, I’ve found the best way is to just try it out. That applies to a new product idea, new marketing technique or a new sales strategy that I have either a hunch for or have overheard from someone else.

The key part that I have learned from my experiments, is that you need a framework (or a model) to clearly outline what you intend to learn from it, what assumptions you made, what steps you took and what you learned from the experiment.

If you dont have a framework, you end up with a lot of experiments whose results might suit you at a later date, but you “forget” about those experiments.

The thing about experiments is you have to understand clearly why they succeeded or failed. 

If you do that and internalize the learning, it becomes a part of your decision making for the future. Experiments without learning is just wasting time – which is also a valid reason to experiment in itself, but you have to be clear about that upfront.

To be disciplined in my experimenting, I have found that doing one at a time suits me best. I found out from a expert in SEO about a much simpler way to track the keywords you want to rank for and a quicker ethical way (than the usual 2-3 months) to appear on the first search engine results page.

My immediate thought process was “that’s just not right” and “wont work all the time”. But it was right and it works, and the only way I would be convinced of it, was if I did it myself.

I also put a time frame for my experiment, to determine if its worth the result. Many of these experiments take several months, so doing nothing but that one experiment during that time, is hard. The results from that learning better make up for more than the time and effort.

Which is why I developed for myself a list of questions so I can be disciplined about my experimenting. These questions are fairly straightforward, but my lens for the questions is based on three criteria:

a) Will it be fun?

b) Will I learn something I dont already know?

c) What new things will I learn and where can I use the learning from the experiment?

Entrepreneurship, Learning, Tips

What makes a product “fit” a market? Or how to achieve product-market fit?

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A relatively young term in an entrepreneur’s vocabulary is “product-market fit” (PMF). Attributed to Marc Andreessen in 2009, this term, has a relatively simple meaning but one that’s hard to really get a sense of:

Product/market fit means being in a good market with a product that can satisfy that market.

If you go after an awesome market – growing fast, has excellent demand and a great growth curve, then you’ve got 90% product-market fit, even though technically 50% of the challenge in any startup is coming up with a good product.

Lets assume you are going after a great market.

How do you know its a great market? Besides the fact that its large (obvious) the speed of adoption is tremendous.

What then makes a product “fit” a market?

First there are 3 important assumptions I make:

1. The best team does not necessarily create the best product.

2. The best product does not necessarily win in the market.

3. It is rare for startups or entrepreneurs to create markets.

A product “fits” a market when

1. Your metrics for adoption of your product exceed adoption of all your “competitors” combined (Instagram had more downloads in 1 week than other competitors did in 6 months)

2. There are so many missing features in your product but its still being sought after (HotorNot had no other features except an upvote and downvote)

3. The problem you solve for the user is such a big one that they are willing to forgive the lack of “nice to have” capabilities (during its early days, Twitter kept crashing daily)

The first point (metric) answers the question – What should I measure to know when I have achieved PMF?

The second point (features) answers – How can I tell?

The third point is the most important. To know about problems that are painful and large there’s one thing you need to learn:

Learn how to ask the right questions.

—–

Relevant links that I would highly recommend you read:

1. Jeff Bussgang on why early in the product cycle entrepreneurs should be hunch and not data driven.

2. Andrew Chen on “When” has a product-market fit been achieved?

3. Ash Maurya on the 3 stages of a startup and why problem-solution fit comes before product-market fit

4. Patrick’s perspectives on steps to product-market fit.

P.S. Thanks to my good friend Dorai who asked me to write about this.

Marketing, SaaS, Tips

Dont remind me that I am “stup*d”. I know that already. SaaS Application User Experience

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I had a teacher in 6th grade who disliked me. Not sure why. He was both our class teacher and taught us English literature. I was the new kid in town and new to the school and (worse) I was from Bombay (Mumbai to you younger folks). That automatically meant my Hindi was way better than my English.

He’d point out every mistake I’d make in front of the entire class for the first few weeks. Grammatical errors, misplaced pronouns, adjective modifiers, were all mentioned in every essay, every book report and composition for everyone in the class to mock. Seemed to me he liked picking on me. In fact since this was the ’80’s even calling my “stup*d” was par for the course.

What’s he got to do with SaaS applications?

Many of the applications I use are like that teacher. I hate them. I have to use them, but I hate using them.

I make mistakes. Every user makes mistakes. As humans we are all prone to making mistakes.

Your application does not have to make me feel stup*d each time I make a mistake. We all have significant others who perform that role very well thank you.

Your application has to help me recover from that error. 

Let me give you an example:

I was trying to setup an account with a new SaaS app.

Username, password (twice) and 3 seconds later:

“That username is taken already” in BOLD RED.

10 seconds later, new user name, password (twice again) and again:

“That username is taken already” in SCREAMING BOLD RED.

15 seconds later, new user name, password (twice) and:

“Your passwords dont match” in BLOOD (mine) RED.

I gave up with the signup.

What you could do?

1. Give me username suggestions that you believe dont exist in your database already.

2. Check after I have typed the password the first time and give me some responsive feedback before I submit the 2nd time so you can see if the passwords match.

3. Use my email address as a user name.

But dont remind me that I am “stup*d”. I know that  already.

P.S. That teacher from the 6th grade. Turned out to be my champion by 8th. The trick – my mom’s bisi bele bath. Two days a month I’d get mom to cook rich, flavorful and finger-licking BBB and suddenly he was my “protector”. The way to a man’s heart is absolutely through his stomach.

Entrepreneurship, Tips

Being a tough negotiator is overrated, be articulate at convincing instead

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Early in my entrepreneurial journey I would hear a lot of Silicon Valley folklore about certain founding CEO’s (Larry Ellison and Scott McNealy’s name would come up a lot) who were “tough as nails negotiators”.

The other thing I head from the guy I bought my first car from (yes, I would take advice from anyone) was a pithy “You never earn what you deserve, you only get what you negotiate”.

I resolved to be a bad-a** negotiator and wanted to cultivate a fearless reputation as being difficult to crack under pressure.

I even signed up for one of those negotiation training seminars, which you see in the center-fold of airline magazines.

Boy was I ever more wrong. (Actually I have been more wrong consistently, but that’s another series of blog posts).

Here’s the deal. As an entrepreneur you rarely have the position to have the “upper hand in any negotiation”. Realize that quickly and you’ll be more humble and have less chutzpah.

There are 3 main constituents you have to deal with to negotiate frequently – customers, investors and employees. Realize that when you are small and new they have all the leverage and you have, well, your vision, energy and some potential stock which may or may not be valuable.

When I founded my first company, I had a prospect we were chasing for several months. Eventually after a lot of effort we got to the “negotiating table” after the technical team had given us the go ahead, and asked us to “hammer out the details” with their finance and procurement team.

I was adamant on price, which we believed we deserved a premium for, because we were “proven”, so there were 4-5 clauses we were negotiating. One of them was being a reference, second was payment terms and some others were inclusion of maintenance and support for the first year (it was 19% of the license sale).

After multiple phone calls and getting nowhere, they and I realized we were stuck and I pulled the “I am going back to the technical champion and tell him we cant work out a deal”. I was seriously under the assumption that they had no alternative solution so I could “throw my weight around”. I was willing to give on some parts of the negotiations, but was deemed as inflexible by the procurement guy at the other end.

Well I did go back to the technical champion and he asked me to go back to the procurement person else they would “build it in house”.

This time the procurement person was even more inflexible and suggested a 15% discount on top of our negotiated price. I stuck to the price and focused on the other terms, only to find that the entire deal was up for renegotiation. Every term and clause was up in the air.

My intention to be a “hard negotiator” lost us 6 weeks of payment and cost us 8% discount on prices.

After the deal, the procurement person (a much older and smart individual) gave me a tip on the “Japanese way of negotiating”. He said, first admit that you have little negotiating leverage (this is totally opposite to what most entrepreneurs in the valley will tell you) and then have them work with to give you want they want and you have the ability to give them what they want. Then mention to them that here are the 3-4 things they need and ask them for the 3-4 things they need from the deal. Then it becomes more of a convincing opportunity as to why you need those 3-4 things as opposed to a confrontational hard negotiation.

Its a different technique (and there are several I admit) that works very well for the party that does not have much leverage in a negotiation.

Entrepreneurship, Tips

The counter intuitive approach to achieving your goals (AKA Opposite of Zynga)

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I have an confession. I really did care a lot about the number of comments on my blog, the number of my twitter followers, facebook friends etc. I say I did because a year ago I gave that all up. I even dont review the google analytics dashboard for my blog any more.

Why?

I found that when I did that they went nowhere. Meaning I would target 1500 views per post and found I was consistently below 1000. It was frustrating.

So I gave up (meaning admitted failure) and found out that it was the most liberating thing that I could even have done.

I changed my outlook for a self defined “happiness index” for myself. If I was / am happy writing a post then I am satisfied. No longer was I looking to get multiple comments, get it RT on twitter etc.

That’s very counter intuitive to the Zynga approach. They measure everything and no decisions are made unless there’s data to back it up.

I wonder if that’s the way to run a company? I know that the Amazon long term approach is widely criticized, but it seems like it works for a certain set of people. I am sure they measure everything as well since “if you cant measure it, you cant manage it”.

I am not talking about the chase excellence vs. chasing success approach.

I am talking about liberating yourself from the daily metrics that are “head fake”. They tell you go one way, but you’re not really sure if after you keep doing what they tell you, the position you end up at is the right place for you.

Try it, and see if it works. First, you’ll probably stress a lot less. Second, you’ll be happy (which is different from being successful) and finally you might end up overachieving anyway.