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How much equity should a startup give advisors?

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I believe advisors (mentors) want to be involved with a company because of the following 3 reasons:

  1. They believe it will help them professionally (who does not want to brag that they were an advisor to the next Google)
  2. They believe it be a financial benefit (it is good to get a return for the time spent)
  3. They like the entrepreneurs or /and the idea or the space and want to help (either as a way to give back or to make a difference)

So what does an advisor bring to the table that warrants an entrepreneur to give up their precious stock? Advisors typically add value to a startup in the following 5 ways.

  1. They have industry knowledge (domain expertise), startup experience (help you avoid making simple mistakes)
  2. They can open doors to potential customers (contracts, connections, introductions, etc.)
  3. They can help hire potential recruits or vendors (hiring, consultant connections, vendor connections, etc.)
  4. They help introduce you to potential financing connections (for funding, equity or debt)
  5. They have gravitas (their association with your company, lends it credibility)

There are a couple of ways I have tried up come up with equity to give advisors in my previous companies.

One is to understand the value they bring – reputation, contacts – hence introductions, customers, follow-on financing, etc. and appropriately provide percentages of stock to them on that value.

Other is to treat them as a consultant (a very highly paid one) and put together the requirements of their time and deliverables, then understand their per hour rate, and finally give them equity that’s somewhat more than what they would get in cash at a big company, in equity, because of the risk.

In both scenarios, you have to account for the stage of the company (idea stage, you give more, growth stage, less).

There are some India specific issues that change the equation for equity to advisors, from the Founder Institute recommendations on TC a few months ago. The recommendations go from 0.25% to 1% at Idea stage to 0.1 to 0.6% at the growth stage. Please review the table on this post.

My personal “rule of thumb” for Indian companies, is to take Founder Institute percentages and bump them by 50%. Here’s why I make that recommendation:

First, there’s a dearth of quality advisors (or mentors) who have “been-there-done-that” (btdt) in India. Either because the ones that have BTDT don’t have time, or are unwilling to share their knowledge. So although the demand for quality advisors is high, the supply is very limited.

Second, exits are not as frequent or ones with very high valuations for Indian companies (purely anecdotal, I don’t have hard data to back this up) compared to those in US.

Third, the requirements of most Indian companies (in terms of time spent) are a lot more than ones abroad. This commitment and the expectation of time spent (or number connections made) is what I have heard most, as the reason many quality advisors are shying away from helping young entrepreneurs.

So, my suggestion is first understand what stage your company is at. Idea stage is obvious, startup stage is typically when you have raised a seed round and have a product, and finally growth stage is when you have significant revenues and have raised a series A (or B).

Then depending on what (all) you want the advisor to do, offer them 18 month or 24 month vesting on the stock at percentages that motivates them to do all it takes to get you to the next level. My recommendation is to give 0.4% to 1.5% at idea stage and 0.2% to 1% at growth stage.

Thanks to Ravi Trivedi for helping me think through this post.

Entrepreneurship, Sales

5 tips on filtering sales resumes for a startup

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This post first appeared in pluggd.in this morning.

Most entrepreneurs & founders will admit that hiring for startups tends to be among the top 3 most challenging tasks. The problem of hiring sales people is more acute in India given that “startup ready” and “risk ready” employees are far and few between. In the initial stages of most startups you tend to hire people with some experience or connections, because they need to get up and running quickly.

The most difficult part of the hiring process I have personally seen in India is the resume (CV) screening process.

Our process at Jivity is similar to most companies. We aggressively try to hire from our network, but that’s often insufficient. I personally believe that most (if not all) resumes are written by only one person in India. After that they are all “copy and paste” or “R&D” – rob and duplicate.

The most important part of the resume filtering process first is to understand the type of sales person you want to hire. Depending on the stage of your company, hire the right person for the role.

There are 3 types of sales people according to me: hustlers, relationship sellers, and process junkies.

Hustlers will get you deals, but not necessarily ones that fit your product or service 100%.

Relationship sales professionals have a good rolodex, but will need a “technical sales consultant” to explain the “details”.

Process junkies are best when you have figured out your sales process, but not great at coming up with new types of customers or new uses of your solution for adjacent markets.

Most companies need to hire hustlers early, then hire relationship sellers and finally at a more mature level, hire process folks.

Here are some of my quick tips for filtering sales resumes if you are hiring for technology startups:

  1. I look for specific and measurable achievements, not a list of activities in a sales resume. That means I will put aside all resumes that say generic things like “generated leads”, “was responsible for many customers”, etc. Instead I look for 3-5 metrics – how much was their target, (you can ask them what was the average selling price of the products they sold during the phone interview if you want to get a sense of their productivity), how many customer (actual number) they sold to over what period of time, what was the level (title) of the person they sold to, in which industries, etc.
  2. Hustlers don’t write professional resumes that are easy to read. They are typically first to find you at events and are willing to introduce themselves. Typically hustlers will stay at a company for 1-2 years max. After that either the company gets too boring for them or they are looking for a more challenging sales position. If you find sentences that say – “was the only sales person at the company”, or “the first BD (business development) resource at the company” or “started a new office in the region” or “landed the first 5 customers” then you are most likely looking at a hustler resume.
  3. Relationship seller resumes will typically have a long tenure in one industry or a location, and (in my experience) will typically have worked at minimum of 2 direct competitors. If the resume includes names of specific accounts (customer names) and specific titles they sold to, then you are looking at a relationship sales person’s resume. Typically the tenure at the company along with the combination of the title of their customer will give you a sense of their breadth and depth of relationship. These people will typically have built a relationship for long enough to help them sell to multiple levels and functional organizations (IT, business, finance, procurement, etc.)
  4. A process-oriented sales person’s resume will typically have a couple of switches from selling to one function (selling to IT vs. business) or type of solution (product vs. services) or ticket size (few big vs. many small). If you find achievements such as “responsible for 3 existing customers and added 4 new customers” you are looking at a process person’s resume. Other things that you will find in a process person’s resume include a listing of many sales methodologies – Spin selling, Target account selling or Complex sale process and a list of courses on negotiation or other management programs they have attended.
  5. Here’s a trick that eliminates many bad sales people. Don’t go by resumes alone. Give them an assignment during the screening call. Ask them to come prepared to present their first 30 day activity plan and their first 15 target customers, customer’s title and make them go over the list of steps and throw a few objections that you believe you have heard from customers which they might have to respond to.

Most companies tend to hire from competitors directly first (if you are in a mature market) or from larger companies in the industry (if you are a disruptive company in an existing space). I personally look for neither. For good sales people in India, I have preferred to hire from smaller companies from other industries where there the value proposition of working for a technology startup is more appealing.

Other

For entrepreneurs: How to balance the productivity rush (Adrenalin) versus the fun rush (Endorphins)

According to Wikipedia:

“The term endorphin rush has been adopted in popular speech to refer to feelings of exhilaration brought on by pain, danger, or other forms of stress”

An adrenaline rush is … one’s body releases dopamine which can act as a natural pain killer.

I am a card carrying member of the productivity p0rn cult. I am always looking for ways to be more productive. I know most of the keyboard shortcuts on applications I use daily. Cut a minute here, a minute there and it all adds up.

To give me a lot more time – to waste.

Thankfully we don’t have a television at home, which was my biggest time waster, but that time is being quickly consumed by Facebook and Twitter. I gave up reading physical print a long while ago, primarily because of the inconvenience of recycling them. But then I found techmeme and hacker news. They now consume 50% more time than pre-1995 when I used to read printed news and paperbacks.

I do like to get a lot of things done. I generally have a list of 1-3 things I want to get done daily, which I work on, early in the day. Post-lunch, when I am more likely to fall asleep, I try to schedule most of my meetings.

I know that doing fun things like reading the 2 millionth post on Steve Jobs does not make me more productive (which I correlate to an adrenaline rush), but I get happy – at which point the Endorphins kick in.

So as an entrepreneur, I am constantly fighting the battle between having moments of fun throughout the day (let’s say 5-10 min every hour) or having lots of fun for an extended period (say 30 min every evening).

For most of my working life as an entrepreneur I have vacillated between the two. I can imagine that at big companies, the bosses want you to be productive so they cut off Internet access or access to things that are fun (I don’t mean that kind of fun, I mean PG13 fun), like facebook.

I realize now that for me (and I suspect most people in technology) periods of intense focus and concentration cannot last many hours. I suspect this is the main reason for the origin of the 1 hour meeting.

So I have followed the method to get small bouts of endorphins (Facebook for 2-3 min every 2 hours) with a good adrenalin rush (getting work done).

This week, though I am trying the alternative, delayed gratification strategy. This equates to 1 hour a day of reading news, blogs, facebook, twitter. My phone is on silent, so I am not disturbed during the day. I am returning phone calls that I missed 3 times a day only and checking email 3 times daily.

While it’s too early to tell (this is day 1) I get a sense that the endorphin rush all day in small bouts is more suited towards my style. I intend to watch this all week and then decide if parts or all of the new approach is better.

Entrepreneurship

Entrepreneurship is underrated

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This post originally appeared at VCCircle on Sep 25h.

Speaking at student entrepreneurship event this week, I got a chance to talk to a few investors on the sidelines. They were observing that entrepreneurship is the “cool thing now among students” and they were skeptical that it would last. They also mentioned that they were disturbed by the hype generated by the press and media on the few successes versus the swathes of companies that were the walking dead. I was thinking to myself that they have a valid point but then realized I was buying into the spin myself.

Entrepreneurship is vastly underrated – everywhere in the world, including in Silicon Valley.

I don’t say this because entrepreneurs create jobs – employees at bigger companies create jobs as well. Neither do I think entrepreneurs necessarily create a lot more value than their counterparts at larger companies (there are exceptions). I also don’t believe entrepreneurs create a lot more wealth than their counterparts at bigger companies. In fact entrepreneurs create wealth for a limited few (venture investors) than employees at larger companies (retail investors).

I say this because entrepreneurs are optimists. Employees’ at large companies are realists.

Realists know that they have constraints (student loan, aging parents, mortgage, etc) and work to optimize their constraints. It’s a much needed skill and a hugely valuable one.

The world needs more optimists at this point.

An entrepreneur’s optimism is infectious. She envelopes you with her obsession for the problem she’s trying to solve. She speaks with the eloquence of a seasoned televangelist and the passion of Russian gym coach trying to urge her prized student to over perform.

The entrepreneur’s optimism is all encompassing. The hurdles she faces daily including lack of connections, lack of credibility or even the inability to meet payroll don’t deter her. Her optimism overwhelms her outlook towards the daunting problems we mortals face daily.

The entrepreneur’s optimism is never ending. She knows (possibly) at the back of her mind that the odds are stacked against her. That’s what makes her admirable – she does not care. As far as she’s concerned, she’s not giving up, either today, tomorrow or when gas prices hit $200 per gallon.

P.S: I always use She instead of He in my posts – its interchangeable for all practical purposes

Entrepreneurship

Essays on the Indian psyche: The “Value for money” conundrum or “More is more”

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I met an entrepreneur over breakfast the other day, who is trying to address the luxury needs of the Indian consumer. His company offers high-end metal (not gold or silver) based gifts. The luxury market in India is a very strange one. It’s always the bridesmaid, never the bride. Every year is the “year of luxury” and the beginning of the “inflection point” in luxury goods. Although many luxury vendors are starting to show interest in the Indian local market, they realize most luxury bought by Indians is purchased abroad. It’s not uncommon to hear the intense preference for “value for money” in all products and services, even in the high-end of the market, and I could relate to his experiences. I have seen this consistently in our engagement with senior leaders at various organizations.

I was talking to a fairly large multi-national marketing executive whose bank recently inaugurated their new 50,000 sq. ft. campus. To commemorate the building they decided to make mini-replicas of the building and give it away to every one of their employees at the new facility. They had done a similar piece at their US office, and it was apparently well received by their employees. The cost per piece was about Rs. 2000. The piece would retain nearly 70% of its value if made from the metal that we proposed from our partner. So we recommended that option.

After weeks of deliberation and many discussions with their facilities team and employees, they decided to look at alternative options. The main reason was their Indian employees were not appreciative of the “free” gift they were going to receive.

I had the opportunity also to talk to their senior HR executive who was trying to put together the alternative giveaway for about 2500 employees. This is a typical offshore unit of any large company, with average salaries in the 4L – 6L per year range. Many of their executives consistently make over 20L per year, and there are about 200 of them. The main feedback she got from her employees, was that they felt preferred many inexpensive gifts rather than one expensive one.

After a few weeks they finally settled: Quantity versus quality was the way to go. They decided that they got enough feedback from employees to purchase a T-shirt for Rs. 500 (printed with the façade of the building on the front).  They also hosted a catered lunch over a Friday evening (which would cost them about Rs. 500 per employee). Finally the employees were given a gift voucher to spend at a local mall for Rs. 1000.

I could understand, since most of their employees were young, their preference for a “memento” was lower than those that they perceived to be fun. But the HR executive mentioned in our discussion that most of the rank-and-file employees were not asked for feedback. This was the request from their senior leadership team. The leadership team even shot down the idea of putting together a commemorative trophy for the Rs. 1000 and instead opted for the gift voucher from the mall. She knew it would not necessarily bring long-term-loyalty for the company, but the leadership team felt that long term loyalty was overrated. None of the employees, they felt would feel any different or have more engagement with either the company or the building thanks to the trophy.

Other

The best thing an advisor can do to help an entrepreneur is to give her confidence

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This post is cross-posted from pluggd.in.

Over the last few months I have met with several startups looking for mentors and advisors. Many were either looking to startup or had just recently ventured on their own. I had a discussion with a few of them on what they were looking for. Most of these folks were first time entrepreneurs who had not been at a startup before.

My informal survey of a few people from that group indicated the following things they wanted from an advisor:

1. Help fund the company – 30%

2. Open doors to VC’s, angel investors or potential customers – 40%

3. Provide industry knowledge and expertise – 10%

4. Product direction / market knowledge / hiring – 20%

Most of these actually seem like “tasks” or “activities”. This seems to indicate that most potential entrepreneurs want an “consultant” or “connector” on board but they really cannot afford to hire someone full time – or they dont need a full time person.

In my capacity as advisor, I think the only thing that I focus on is to give the entrepreneur confidence:

1. Confidence that they can be a good entrepreneur.

2. Confidence that they can raise money even if they have not done it before.

3. Confidence that they can hire people much smarter than themselves.

4. Confidence to take on a significant project from a large customer and deliver.

5. Confidence that they are ready to launch on their own even if they are fresh out of college.

The advisor’s networks, money, connections and knowledge are incidental.

P.S: I am not actively taking any more advisory positions and in fact am resigning from a few I am on currently.

Other

Which startup technology awards should you focus on?

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There are many startup awards that companies and entrepreneurs are vying for these days. There are many benefits to winning an award, with the 3 most valuable being:

1. Recognition among potential customers and partners who could potentially be interested in your company thanks to all the press coverage and awareness.

2. Potential introductions to investment and funding from venture capitalists and other potential investors.

3. The award might carry some cash payments which certainly helps (large or small).

That said the effort to fill out lengthy application forms, preparing a custom demo and the costs to travel and spend precious time deters many entrepreneurs from participating in these awards.

I made a quick list of the awards that I track and some of which my company is very keen to participate and win. There are over 100+ awards in the Technology startup space alone – each country, many large cities and every blog and event have one. I have tried to list them based on the amount of twitter mentions associated with the award over the last year. Also the top awards are based on their value and the “prestige” associated with the award, not the award payout.

Please let me know your thoughts in the comments section

  1. Inc 500  http://www.inc.com/inc5000/welcome: One of the most prestigious. Fastest growing company across multiple industries.
  2. Crunchies http://crunchies.techcrunch.com/ : Very coveted by web application and mobile startups mostly. Companies that win tend to get funding fairly easily.
  3. Red Herring http://www.redherring.com/RHA/2011.html : They were the benchmark a few years ago, and still are a very respected award.
  4. Webby Awards http://www.webbyawards.com/about/ I dont really know much about the value, but Webby award winners get a tremendous amount of press coverage.
  5. DEMO http://www.demo.com/ Before the Crunchies, this was the gold standard event
  6. Deloitte Technology Fast 50 http://www.deloitte.com/view/en_IN/in/industries/technology-media-telecommunications/the-deloitte-technology-fast-50 Well respected, well screened and very valuable.
  7. TechCrunch Disrupt http://disrupt.techcrunch.com/SF2011/ Quick, 2-3 day application startups tend to be the ones that participate. Since they are fairly new, still limited knowledge about their value exists.
Other awards of note.
  1. Launch Conference awards http://www.launch.is/
  2. Mashable Awards http://mashable.com/awards/pages/about
  3. SeedCamp http://www.seedcamp.com/
  4. GetJar Gettie Awards http://www.gettieawards.com/
  5. NEN http://www.hotteststartups.in/
  6. NASSCOM Product Conclave http://emerge.nasscom.in/2011/08/nasscom-emerge-50-awards-nominations-extended-till-10th-september-2011/
  7. TIE 50 http://www.tie50.net/TiE50Awards/
  8. Mobile World Congress (App Challenge) award http://www.mobileappchallenge.com/
  9. UK Startup 100 http://www.telegraph.co.uk/technology/technology-startup100/
  10. Proto http://www.proto.in/
  11. BOSSIE (Open Source Software) Awards http://www.infoworld.com/d/open-source-software/bossie-awards-2011-the-best-open-source-desktop-and-mobile-software-171722-0
  12. TechSparks YourStory.in http://yourstory.in/
  13. Unpluggd Awards http://www.unpluggd.org/
  14. Seattle 2.0 http://www.seattle20.com/awards/startup-demo.aspx
  15. Startup 2.0 http://www.startup2.eu/
  16. Mobile App World Awards http://www.mobileappsworld.net/awards/index.html
  17. Startup Warsaw http://warsaw.startupweekend.org/2011/05/16/warsaw-startup-weeekend-awards/
  18. Startups UK http://www.startups.co.uk/startups-awards
  19. Dutch Startup Rally http://dsa.thenextweb.com/?lang=nl
  20. Silicon India Startup City http://www.siliconindia.com/events-overview/startup-city-Mumbai-StartupcityMUMBAI2011.html
  21. Microsoft BizSparks Award http://www.microsoft.com/bizspark/
  22. Indonesia SparxUP http://www.sparxup.com/about
  23. Miami Technology Summit Awards http://www.miamitechnologysummit.com/
  24. Philadelphia Alliance for Capital and Technologies Enterprise Awards http://philadelphiapact.com/programs-events/enterprise-awards/
  25. Sydney Tech23 Awards http://www.tech23.com.au/
  26. The Europas http://eu.techcrunch.com/tag/europas/
Other

What if Domino’s ran hospitals?

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If Dominos ran hospitals, ambulances would be at your home in 30 min or your operation would be free.

If Apple ran local municipalities, each city would be beautifully designed and well planned.

If Amazon ran an airline, there would be amazing customer service, at low prices, not just low prices.

If Google ran a public transport system it would be optimized for speed and efficiency, not cluttered and haphazard.

If Starbucks offered insurance, their agents would be courteous, professional & experts, not charlatans.

 

How I wish the best companies, changed more things in this world.

Other

A 9/11 perspective: The thing that makes America, well America

I was supposed to be on a plane to New Orleans on the day of 9/11/2001. It was a scheduled client visit and my flight was to leave at about 11 am from San Jose. My parents were home with us in the Bay area, since we were expecting my daughter (their first grand daughter) in a few weeks. I was woken up by dad at about 7 or 8 am and he asked me to see the news on TV.

Just a few minutes later, a second plane hit the WTC. It was surreal. I did not comprehend the events, neither did the words “terrorist strike” cross my mind. We switched between CNN, ABC and NBC to see if there’s something else they were missing about the story. Then in a few more minutes, we heard another plane crashed into the Pentagon. That’s when it really sunk in. The emotions were raw and went from disbelief, to shock, to intense sadness and finally anger. All flights were cancelled and I stayed at home, pretty much glued to the TV and trying to call folks I knew in NYC all day.

Two days later I flew on SouthWest airlines to Houston then New Orleans.Since this was our first child, my wife and I would religiously take walks in the evening so she could get her exercise. I was not at home, so my dad escorted her for her evening walk. Ours was a typically bedroom community in the Bay area, a school about 400 meters from home and a park about 300 meters from there.

They both started in earnest, walking around the neighborhood. My wife was wearing a typical Indian “Salwar Kameez” and dad was in a T-shirt and Jeans. Towards the end of our cul-de-sac at the intersection where it met a feeder into the Boulevard, they slowed down to cross the street. It was not a crowded street by any means, but it was rare to see cops in our neighborhood. After waiting patiently for a couple of minutes they ventured to the cross-walk and saw a policeman coming towards them in a motorbike. Having crossed over to the other side, they walked again towards the smaller road, when a few minutes later, the policeman came towards my dad and asked if things were ok. My dad pretty much said yes, there was’nt an issue. He then offered to escort them while they walked, if they felt they needed it.

My dad’s been to the US over 50 times in the last 30 years, so this was a new one for him. He asked the policeman if there was an issue, to which he got response “Well, she’s wearing a traditional outfit (of my wife) and I want to make sure people here dont bother you both”.

When my wife recounted that story to me later that week, it pretty much summed up America – Strong and protective.

Thoughts and prayers with all those who lost loved ones on 9/11.

The personal blog of Mukund Mohan