Early this year we needed to hire good engineering talent for our new startup. Unlike larger Indian companies who hire by the thousands and train by the hundreds we needed 3 people. A lead developer (backend: python, php or Ruby), a front end engineer (Javascript mostly) and a junior backend and database developer.

I had a 3 month goal for 3 people. I also decided not to hire any recruiters (I had used recruiters before), not for the money, but I had been warned about perverse incentives, aggressive, pushy people who try to close on sub-par candidates and poaching of your existing staff. A story that I learned about (turned out to be true), was that a recruiter was helping a company hire 2 developers and after those 2 were hired, the hiring team of 3 folks were placed by the recruiter in another company within 3 months.

I started at earnest looking primarily for people in my network. I have a reasonably large network in the entrepreneur community and was convinced by many that it was the best way to hire developers. I also avoided hiring from larger Indian companies (for developers) since many of them dont enjoy startups after they learn about the longer hours and pressures of shipping product.

This is not a blot against the individuals, but more the reality that many of these large companies have a very low bar set by their customers. Product release cycles for most IT organizations (that outsource work to India) ranges from 6-9 months. Multiple conference calls to “nail down requirements”, a process which takes 3 months, are normal.

The “network” included emails, twitter & facebook posts and linkedin status updates with the job description, the perks of the role and our company’s culture. A week later I got 3 resumes, and none of them were even a close fit.

I did get spam messages from Sutralite, Naurki and a freelance recruiter.

Plan B was to attend many developer events and network to meet qualified candidates. I got more people pitching me to invest in their company than possible candidates. I attended 3 events and the total number of people at those events was close to 300+.

Plan C was to post the job on some technical, developer friendly forums. I started with hasgeek. I have been a fan of their events and a couple of entrepreneurs mentioned their job board as a good one, so I posted my first job description.

I was fairly pleased with the results. I got 11 resumes in total, 7 were good quality and fit the JD reasonably well, 1 was over qualified (and expensive), and 3 were not a fit.

I did get a spam message from Sutralite again.

Plan D was to post on Pluggd.in. It was not a featured job listing. I got 1 resume for a totally unrelated position (marketing) that we were not hiring for.

I did get a spam message from Sutralite again. Different person. I emailed back and asked the individual to stop spamming me. Got no response back.

I also got another resume from a person who was a recruiter for a mid-sized company offering to “help” me recruit from her database for a “fee”. She claimed to have access to a large database of good quality developers (obviously rejects from that company’s database). She did not send me her email from her company ID, but a simple google search revealed who she was.

What I learned:

1. Recruiting from your network is hit or miss. If you need to hire a specific set of people by a particular time, there’s no choice but to spend money either to buy a database, hire a recruiter or to pay a lot of money for referring candidates. The other approach is to pay-it-forward. Build your networks way before you need them.

2. There are a lot of startups that claim that they exclusively hire from their network. Many also claim they “attract” very high quality candidates because of their unique culture or work environment. I have visited those companies and met their people. I did not find anything different or unique and also found that most people hired there were recruited by consultants. Dont believe that myth.

3. If you are a startup and you dont have an aggressive hiring strategy – which includes spending money on multiple means to recruit, then dont plan on scaling or growing fast. There’s value in growing slow and steady, so your culture assimilates everyone, giving room for hiring mistakes.

Next post – how to word that job description so you can increase your chances of success.

Related post & ht to Elaine for triggering the thought – The recruiter honeypot.

There are two types of decisions – big life altering ones and innocuous ones. The tough part is I dont know which decisions fall into either category. Like Steve Jobs said, you can only connect the dots in hindsight. The amazing part is these decisions are to be taken in every aspect of your startup – engineering, marketing, sales, finance etc.

Let me give some examples:

For BuzzGain, I had a good friend recommend a lawyer who he had worked with. Jim (Cooley) was a smart, very well connected and personable individual. Daniel and he helped me put together our initial structure, complete my 83B election. Being a tech and a sales guy I did not care too much about the 83B election. I was loathe to spend too much money speaking to Jim and Daniel (they are good, but charge by the hour) so I dismissed the paperwork as needless “waste of time”. 3 days after sending me the paperwork, Daniel called me to remind me to send it in. There was a decision I had to make – spend a few thousand dollars today or punt to a later day. Since I was bootstrapping, I was inclined to punt. A couple of days later, Daniels’ paralegal called me and reminded me again to file the paperwork. I did it and it turned out to be the best decision I made on exit.

When our alpha version was out in Sep, I had 15 pre-release customers who were trying out the initial version. The feedback from most was to continue to build the initial database of key reporters and bloggers with a focus on specific markets. I.e. to continue on our original vision and value proposition. Paul though was the only person with an alternative opinion. He asked me to look at his most recent blog posts and compare them to his posts from 6 months before. His focus had dramatically changed from finding and building blogger relationships to engaging on social media. He mentioned that although it would be a dramatic change in our product, it was where things were headed. The decision was rather scary at that point – continue down our path (based on 14 folks feedback) or change course (based on 1 person’s feedback). We chose the latter. Again, the best decision I have ever made.

Now, these decisions were not made in a vacuum. Both alternatives to the decisions had a ton of pros and cons. I needed to build a framework to think about how to think.

My first piece of learning was its always better to see the options and decision criteria in writing. Somehow I have found that writing it in paper (or on your computer) and hence being able to see it (with your eyes) brings a level of clarity that doing it in your mind (hence being unable to see it) does not.

My second piece of learning was that my framework was a tree. The depth of the tree would be the level that was needed to get to two states – Worst case situation and Best case situation. The rest were if-then-else statements.

The third part of my learning was to map out how to undo my decision if I figured out later I had made the wrong decision. If I spent as much time figuring out how to recover from a bad decision as opposed feeling good about a well made decision, I’d be okay.

Try it out. Let me know if it works. If you have learned something else, drop me a note.

After seeing many open letters, I have a few questions of open letter writers (including me).

1. If you did not publish it on your blog, was your intent to send your communication via a handwritten Inland letter?

2. Has anyone ever responded to the open letter? If so, has anyone ever sent a closed reply to an open letter?

3. At what point did you decide to name the title “An open letter to …”? Before or after you wrote the letter?

4. When did you come to the realization that its was harder to come up with a more catchy title?

5. If closed letter’s became a meme would you jump on that bandwagon as well?

Links.

1. one

2. two

3. three

Before the usual flame throwers barge in, yes this is my attempt at humor.

I dont buy into the prevailing wisdom that eCommerce in India is dying (dead). For venture investors the eCommerce category might be “been there, done that”, but smart entrepreneurs always see opportunity in being contrarian.

There are some very interesting eCommerce companies doing good work (growing revenues, making margin and excelling in service)  in India. While the mainstream companies are spending money on advertising, acquiring customers expensively and offering deep discounts, many niche sites are building their reputations with an excessive focus on service and unique (relatively) products.

While there are 1.4 million Internet retailers in the US, there are about 2000 in India (ones that are doing more than 5 transactions daily). Most of the smaller ones that are doing a good job in the US are focused on either niche segments or markets. That I believe is a key trick that most niche eCommerce sites in India are executing the best on.

I wanted to highlight a few that I consider are doing a good job.

1. Shopo: I wanted to invest in this company before they took a seed round from a few investors. They are a good example of focus on fairly unique products and a good team executing well.

2. Allthingscustomized Another fairly crowded market, but the marketing techniques have been tweaked to make a margin on every customer order in this very competitive market segment.

3. Greendust: Looks and feels like yet another ecommerce site, but sells refurbished goods, with a good markup.

If you have an eCommerce site and are doing well, your best strategy is to keep your head down, focus on metrics and operations and ignore all the news and pundit’s opinions.

Zig, when everyone else Zags.

If facebook, Amazon and Barnes and Nobel are building their own tablets and “cell” phones, why is there not a cell carrier who only offers a data plan?

What about all those internet devices that are going to come on the grid in a few years. The Internet of things only need data, not voice.

No minutes for talking.

No SMS plan to send unlimited text messages.

Just a data plan.

Apparently I am not the only one who thought of this.

There’s a operator in Bangladesh who only offers a data plan. But besides that the market is wide open.

There’s a huge market potential for this I believe. Okay, maybe a large one. Or a relatively smaller one, but there’s one for sure.

Its a well known fact that the infrastructure costs of building a software / Internet startup have dramatically reduced. Although the costs of developers have dramatically gone up by the same percentage, the productivity per employee hired has also gone up dramatically. Given that a developer can now manage instances, push to production etc., the need for DevOps is moved to a much later day, lowering the number of people needed at a startup.

A decade ago most companies were focused on building a business – long term focus, building processes to scale and grow.

5 years ago companies started to focus on building a good product.

The new law of the valley startup (2012) is build a feature.

See if there’s any traction.

Build next feature.

See if traction has increased.

<Rinse & Repeat>

Why has this happened?

1. MVP: Most people are taking the Minimum viable product to its extreme (or bare minimum) and valuing a shipping feature over a feature rich product delivered later.

2. Try your idea out: Most of us have a idea (we think) is going to change the world. The world though, has other plans. It does not like change. Small, incremental changes are acceptable (maybe) but large ones, take time. So lets push a simple small change to the user (customer) and see their reaction.

3. Too small to fail. If all a feature takes is 3-4 weeks to build, the cost of the development is low. Amazingly low. And at that point, failure (or lack of traction) does not matter. Its okay for the product to not fit the market, because the product  was not built anyway. Its just a feature that was built.

4. It helps with prioritizing features of your product. If all you build is one feature, the next one is customer driven (mostly). If a feature does not get traction, it does not matter. Remove it to add another.

5.There’s no long term without short term. I heard PG say this from another friend. If you dont get some short term traction or wins, there’s no point in thinking what the world would look like when you are dominating it.

So my fellow entrepreneurs, build a feature.

Ship. See if it gets traction. Build more. Keep shipping.

I was at the Citrix Synergy conference (San Francisco) last week presenting Hey Maya.We were one of 5 companies presenting from a pool of 80 that applied to the Citrix Startup accelerator. Each company was given 6 minutes to present and 2 minutes Q&A by the judging panel.

The judging panel was a few VC’s (Ignition, Azure, Andreessen-Horowitz), and Jason Calacanis.

Besides these guys there were 6 others from Citrix.

We did not win. Script Rock did an awesome job and they deserved to win.

Jason did his best Simon Cowell impersonation and was thoughtful, constructive in his criticism and very specific in his feedback. The rest of the guys did not have much time to ask questions or provide feedback or did not really think much of our pitch – either ways, it was okay.

The surprising part is how many people just echoed his exact comments back to me, in fact using the same words he did and a good measure of cliche’s thrown in.

Either they all thought of the exact same thing, (which I doubt) or they all just followed his lead.

Every time you make your company’s pitch as an entrepreneur to VC’s realize that they are in the selection business. They see over 1000’s of pitches each year and are bound to notice patterns. Some of them are personable and thoughtful, but many are just pulling cliche’s from the bag.

“Its not a big market”, “You need to focus”, “Its not differentiated enough”.

While these high level pointers are largely useless, and most VC’s wont have more time to tell you any thing more, a few folks I have met actually offer solutions and not just problems.

If the market your targeting is small, are there other ways to position it such that you go after a big market?

If there are too many “features” you are looking to develop is there one that really sticks out to them as “something that has legs”?

If the product is not differentiated enough, are there 1-2 things that might make it different?

I would highly advice you to ask questions of the VC and put them on the spot to really offer “constructive criticism” and not just banalities.

You’ll then really know the good investors from the herd.

If you are like me, I would like to get more data from potential customers before I launch my product. Usually I need answers to question like:

1. What are the top 3 features you are willing to pay for?

2. At what price point would this become a must have product to you?

3. Where do customers go to look for information about my product?

I have tried Google Consumer Survey and its working out well so far.

If you are a startup I’d highly recommend the Rs.5 / response initiative ($0.10) and its a very small amount of money to spend as insurance to get live feedback from many customers.

If you want to learn about how to do it, here’s a simple tutorial.

I have always operated under the assumption that being open and transparent is good for me. It reduces unnecessary clarifications and confusion at a later day. As I have more experience dealing with investors now, I understand the shades of grey that exist in the startup world. This post is based on my experiences of raising funds from institutional funds and is valid for those entrepreneurs who wish to raise money from a VC or an angel network.

Most technology entrepreneurs would know chess, but many may not know poker. Both games are largely strategy driven and there’s relatively more luck involved in poker than chess.

When it comes to fund raising is it more like a game of chess – your opponent can see all your pieces and is aware of your moves but not your strategy OR is it more like poker –  the winner is determined by the ranks and combinations of their cards, some of which remain hidden until the end of the game.

Lets focus just on the initial rounds of funding (after series B, fundraising is more like craps :).

At the friends and family round, it does not matter which game it is more like. Since your F&F are betting on you, they don’t like to play regular games, only mind games – “I was saving this money for your sister’s / niece’s wedding, but since you are starting a business, I know  you will return the money many-fold in 2 years”. (Cue: forced laughter, but quickly realize this is true).

At the seed round (lets say this stage comes after the F&F round), most entrepreneurs are going to angels, angel networks or venture capitalists (those who invest in seed stage). With most individual angels the game is boring. They either like you & your space and invest or not.

With angel networks and VC’s, it gets interesting.

There are very few investors who you are going to play chess with. The large majority are keenly aware that the game is one of poker.

Industry executives and analysts often mistakenly talk about strategy as if it were some kind of chess match. But in chess, you have just two opponents, each with identical resources, and with luck playing a minimal role. The real world is much more like a poker game, with multiple players trying to make the best of whatever hand fortune has dealt them. In our industry, Bill Gates owns the table until someone proves otherwise. ~ David Moschella

Am I suggesting you hide information from your potential investors? That might be what you take away from this post, but that’s not what I am implying.

Most investors will tell you they like transparency, but it only applies to you (there are some exceptions to the rule, and Shekhar Kirani & other Accel folks are ones that comes to mind as upfront folks) and your data. They need not disclose the other 4 investments they are considering in the same space, nor that they are merely kicking the tires with no real intent to invest in this area.

So what are the things you need not disclose upfront:

1. Who are the other investors you are talking to? This needs to be treated as your confidential, proprietary information.

2. What are the criteria you would chose an investment from them versus other competing firms? You can put a wish list, but its really not going to change things much.

3. What stage are you at in your fund-raising process? Have to talked to many folks or a few? Do you have term sheets from anyone else? This is largely for these investors to understand the “level of competition” for this deal. I would not advice you share this information with them.

P.S. As with any game, (s)he who cheats is asking for trouble. They may win a round or two, but in the small world of startups, everyone knows who the cheats and unethical folks are. So, don’t lie and certainly don’t withhold any material information such as customer losses, co-founder issues, etc. You will open yourself up for unnecessary legal trouble if you don’t disclose those.

Be a force of good.

There is a self perpetuating myth in the Indian startup ecosystem that too much money is chasing too few opportunities. There are variations of this myth including there are “too few quality entrepreneurs” and “too few good deals to be had”.

I admit, even I was convinced about this myth until recently, so I decided to do some digging.

Since 2007 there’s been between $3 Billion and $5 Billion  (till 2011) in seed, early and growth stage (I know its a large band, but there’s really no other dependable source. (source, and another source). The number of  “deals” in these stages for the 4 years is about 400. This money does not include friends & family rounds.

The total money in all stages (PIPE, PE, included) is 4-5 times that number.

IT and ITES has been growing part of the early and growth stage, currently at about 16% – 23% of the early stage.

The total number of companies that are being started annually according to the MCA numbers is 20,000 of which technology (its a broader term than IT and ITES) is about 2800 (source). There’s a 10-20% variance unfortunately, but I am confident I am in the range.

Lets say 2500 per year, so 4 years totals 10,000 companies.

In India over the last 4 years out of 10,000 companies, about 500 got funded by an institutional investor, or about 4%.

Yes at the high level that seems high. Very high.

Especially given that US has seen between 600 to 1500 companies get funded EACH year in IT and ITES from 2007 to 2011. Out of a total of of 3800+ companies each year in IT or ITES. (source).

Lets say 3500 per year, so 4 years totals 14,000 companies.

In the last 4 years, out of 14,000 companies, 3000 got funded by an institutional investor or about 20%.

Lets assume the numbers are inflated 50% (I doubt it, but hey we are doing some mental mas*r*b*tion anyway. Still 10% or twice the % of companies get funded in US than India.

Lets say that’s typical of India – same numbers probably hold true for IIT and also Harvard University. Its a lot more competitive in India.

I can attribute this to the fact that markets in India are not a large or mature. Which is why I suggest Indian entrepreneurs should disrupt US markets.

The second myth is that Indian entrepreneurs are not of high quality OR that Indian entrepreneurs in India are not of high quality since when they go abroad they do very well. I plan to dispel this with more data in my next post.

Dont buy the myth. Either as an entrepreneur or as an investor.

Above all, be a force of good.