Ideas|Products|Startups|VCs

Start up killers are those said statements that may lose the funding for the entrepreneur. When pitching to investors about the new product and business proposition, there is some moment when you know that you have lost your listener. One misspoken comment and everyone wants to leave as soon as possible. Lets look at few turn offs

No Competition

There is always competition. In some way customers are fulfilling their needs today. Competition can be as simple as continuing to do things as they are doing them today. Never ever say there is no competition. Investors look for proven and tested market which is growing. Investors may not be keen to invest in saturated markets like OTAs in India because they often require too much capital to overcome the incumbents, not because they are not viable.

Being Conservative

Majority of the Indian entrepreneurs i have met seem to believe that VCs want to hear that their numbers and estimates are conservative.  As an entrepreneur you should know Investors know that backing a start up is a very risky business, and conservative isn’t what they are interested in, nor is it what they expect.  There are plenty of conservative, less risky investment vehicles like Post Office schemes, MF available to investors.

Missing the Detailing

If you are entering entering into a market and not understanding the nuances of the business will cause failure. Do your homework and establish a process to get all the details and nitty-gritty of an industry and customer that make a product successful. For instance if you want to start an e-commerce company make sure you have detailed out all of flows/vendor relationship involved in it. Investors want to know the startup has experience in the market.

Break Through Technology

Seriously! as an entrepreneur if you say to investor you have developed a break through technology, then be prepared to say immediately why. Most investors will not believe you and it is generally considered as Myth.

Negative Attitude

Remember Investors invests on Entrepreneur and not on idea, they would like to see, assess entrepreneur attitude. So appear coach able, Every time an investor asks a question, they are impacting valuable information.  Not listening or addressing their concerns is a start-up killer. Becoming defensive when they ask questions is negative as well.

Disregard for Investor Money

Having an apparent disregard for the investors money will often sink a deal or make investors wary of what is to come of the startup in the future.  Recently i came across a pitch where two co-founders presented to angel investors and when one investor asked what if the start up encountered problems and hit the roadblock, they immediately replied they would just go back to their old jobs.

-Hitesh, vcBytes.com

If you are starting up a venture and you are not very competent in terms of writing code, should you outsource the development work or set up a tech team to do it. I am often asked by business entrepreneurs if they should outsource the development of their initial prototype. Outsourcing is considered cool as it can be a relatively inexpensive and fast way to create a product.  Though cost savings are real but there is level of risk associated with it. There could be scenarios where entrepreneurs can find themselves with a product that needs to be rebuilt, often from scratch. The cost and time savings can go for a toss completely and all your plans of initial launch will be blacked out .  But having said that I know many entrepreneurs that successfully outsourced development.

So question arises how do you decide whether to outsource the early development of your technology?

There is no simple and straight answer for it, there are a few considerations which could help you make that decision. If your technology is an original technology or depends on complicated logic or algorithms you may want to avoid outsourcing at least that portion of the project. The vision for the product is always partially lost in translation when a business team tries to communicate with a tech team. This dynamic, however, is further amplified when describing the product via video chat and even more challenging when there is a middle man or a development team with a limited mastery of your native tongue. While these challenges can be mitigated by robust product specifications and wireframes, an already challenging process is even more challenging.

This isn’t to say, however, that you can’t get a great product from an outsourced shop. You can. The key is to outsource elements or even entire projects that are more limited in their logic or algorithmic complexity, to over-communicate your specifications, and to practice careful, diligent project management.

Your sensitivity to this risk should be heightened if you don’t have a technical lead inside your company. If you consider your outsourced provider to be your CTO, you’ll have a difficult time vetting the progress of their work and may find that they’re off course too late in the development cycle. Furthermore, evaluating the product will likely be challenging without an engineer on your side, making it even riskier to completely handoff the development of complex logic.

To summarize, if you are planning to build a very simple technology, outsourcing development work can be a great strategy. If your venture requires a great deal of technical work you may be better off building it in-house.

-This is a guest post by Nitin Yadav, Nitin held various senior engineering positions in companies like Microsoft, PiCorp and lastly he was CTO of Seventymm

The Morpheus,  has closed their third round of funding ‘The Morpheus Tritiya”, and this time is bigger and way better in terms of size and LPs. The Morpheus Tritiya should close around Rs 4-5Cr . Morpheus is India’s leading Startup Accelerator, helping over 30 startups at various stages of their adolescence, for the last 3.5 years. As per Nandini, Cofounder of The Morpheus “The Morpheus Tritiya”, which brings an amazing set of LP’s on board & gives us the ability to micro fund 60-70 startups for the next 3-4years.

All of the existing LPs have participated in this round and interestingly there are new LPs like Vijay Shekar Sharma, founder & MD of One97 Communication; Pallav Nadhani – Founder & CEO of fusion charts. These new LPs are successful entrepreneurs and have built their companies from scratch. Besides capital they bring extensive experience on the table in running a startup which is priceless.

Pallav Nadhani says “I decided to invest in Morpheus because I like the way it operates. Hand-holding the aspiring entrepreneurs in what they call the “treacherous phase” is invaluable. Giving them little cash up-front teaches them how to stay lean, bootstrap and get money from the most important source – customers. Being a bootstrapped entrepreneur myself, I find this approach highly effective.”

In terms of engagement and investment nothing changes in the model with closure of new fund. Morpheus will still follow the same accelerator model, select teams once in 6 months via call for applications and provide them with: 4 months of intensive engagement, induction into the exclusive Morpheus Gang (a community of 70+ portfolio founders, investors & partners), 5 L INR funding per startup & life long support. We run 2 Batches each year & can accommodate upto 10 startups per batch.

Some of popular companies from Morpheus earlier batches are – Instamedia, Deskaway, Commonfloor, InterviewStreet, Practo.

-Hitesh, vcBytes

Startups are high risk high gain game and more often startups fail, 98% of startups fail and close down. But why do they fail, lets look at the prominent reasons behind its failure -:

1. The idea is poorly executed. Sometimes the idea is great but the execution process makes it fail.

2. A lot of ideas fail to cover a market size. Sometimes there is no market at all. Such ideas are bound to fail. It is important to make the product or the service useful to the consumers.

3. Leveraging costs could do the damage. It is better to keep most of the costs in the variable mode.

4. Making profit or breaking even immediately after the start should not be the goal. Making a good foundation should be. Moreover, making profit could wait at least for a year.

5. Sometimes the idea is already in the market. If there is no innovative or competitive advantage, the startups could face severe challenge.

6. At times, too much passion or enthusiasm could mean downfall. Without scale, it is not prudent to compete with industry leaders.

7. Sometimes the idea does not have space to grow-it suffocates itself when the matter of scaling up comes up. So, entrepreneurs need to make sure that they do not pick up a niche that has no or very little growth potential.

8. Pricing strategy is very important. As mentioned earlier, at the beginning, entrepreneurs should try to limit the profit that they are looking to earn from products or services. Making a trusting customer-base is more important for startups.

9. As the idea moves forward, sometimes the founding team breaks up. This is a terrible time for any startup-make sure that the founding team remains intact.

10. Sometimes, with initial success, a rapid growth is achieved. Entrepreneurs should remember that with growth, scenario could change very widely and this could mean blockage and lot of pressure on the founders. Controlled growth should be the idea approach.

- Hitesh, vcBytes.com

Startups are generally founded by technology/ product management guys and face challenges when they go out in the market to sell the product. Its a very common scenario every startup faces and it simply points to a question – who to hire for their first sales position.

How do you decided who to hire, startups prefer hiring people from close references but again question arises would you hire a VP sales guy from a similar space who is good in closing deals or hire a young but promising guy who is raring to go and will come on board at far less remuneration.

First and foremost step for startups to do is understand what they really need. Most startups have several specific needs that your first sales hire must fulfill. Hiring a wrong salesperson at the first stage can really make a big dent in company’s growth plan, literally can make or break the company. Best thing to do is chalk out the specification for the position, management team should agree on that specifications and then hire accordingly. Some of the questions you can ask while interviewing your first sales guy –

1. How to build sales momentum
Every startup simply needs to begin making sales. Look for someone who has sold a similar product successfully in your space. Hiring a successful corporate salesman into a startup can be a disaster. You need someone who shows evidence of self-sufficiency. Has the candidate launched a product in new geography? Have they set up any channel sales partners in new territory.  Ask your candidate to cite examples of creating momentum in their past jobs.

2. Test Sales Pitch
Resumes can be deceptive so just don’t blindly trust resumes, make the candidate demonstrate their sales technique. Ask the candidate to formally present tentative sales pitch/strategy to the entire management team of your startup, sales pitch can be either for their current product or a rough version of the pitch they would use for your product. Question him on why he chose that approach. That management team should be able to get a sense of candidate selling abilities.

3. Reference Check Your first sales hire is going to bring back critical market feedback on your product as he sells. The right salesperson will be a very important member of your product development team.Check their abilities by talking to past or current clients. Does candidate listen well to potential clients? Has the candidate gone out of the way to sell the product as per the clients need? Talk to at least 2 clients and find out.

-Hitesh, vcBytes.com

If you are an entrepreneur, there is high probability of you meeting a VC and discussing about your venture and business plan. VCs, you must remember is a group of individuals that are seeking to make profitable investments in fast growing companies.

Beside focusing your attention on the unique qualities of your business, spend some time and work on the anticipated return on investment. VC firms often want to see companies that will produce returns in excess of 30% per year on a compounded annualized basis.

Lets look at the common questions VC asks an entrepreneur -

How much capital do you need? – This is one of the most imperative questions asked by a venture capital firm. They want to know how much of their capital will be needed to bring your business to profitability (if it isn’t profitable already). They will also want to know how these investment funds will be used, and if additional rounds of capital will be required.

Who is your competition? – This is also a highly asked question from VC firms. Every business has some form of competition. Discuss the competitors in your industry, how their product/service is similar to yours, and how your product is intrinsically better or more usable than that of the competition. Present the SWOT analysis.

Entry Barer ? – VCs are not keen in venture which have low entry barer which implies that this business model can be replicated easily. So as an entrepreneur you should be in full command to highlight why your business model is not easily be copied and how much time it would take for a newcomer to do so. VCs are keen to know if you can have patent protection on your product or your business process.

What is the current state of venture? – VCs are keen to know the current state of your venture to understand better the progress of the venture and also where funds will be utilized. Gone are the days, simply having a great idea does not cut it anymore. Venture capital firms want to see that you have something tangible to offer rather than just a good business plan or business concept. Prior to raising venture capital, you should try to move the business along as far as possible.

Do you currently have paying customers? – Paying customers definitely brings credibility to your product since VCs perceive it as a validation for the product and would like to talk to your customer to understand their viewpoint about the product.

Founding Team Experience? – VCs look for dynamic and extra ordinary founders to back them, a great leader can develop a very good business from an ordinary idea. They will want to know if you have the proper educational background, experience, and contacts within your field to make your venture successful and profitable.  Keep your biography and your senior management team profile handy.

How will i Exit? - Lets get this very straight VC never do charity, they are business folks and would like to see a hefty return of their investment, nothing less than 7x. They would like to exit the venture either by company’s IPO or strategic sale of their equity to a large company or a PE firm.

-Hitesh, vcBytes.com

Do startups have time to carry out Root cause analysis (RCA)? It is assumed that Root cause analysis and preventive maintenance are concepts used in big setups which have ample man power.  Start-ups supposedly don’t have time and resources for detailed processes and procedures. Root Cause Analysis is a reactive method of problem detection and solving which implies that the analysis is done after an incident has occurred. One of the benefit for adopting Root Cause Analysis in your startup is you are able to forecast the possibility of an incident even before it could occur.

For a startup to be successful and keep up with the pace they need to maintain a disciplined approach to testing and evaluating new products, features, and ideas. As start-ups scale, there is a high probability of loosing this agility unless the founders maintain a consistent investment in that discipline. Lean startups can be part of innovation culture.

One such technique is called Five Whys, which has its origins in the Toyota Production System, and states that human problem is actually behind every technical problem. Following is the scenario when applied on startup:

1. A new release broke a key feature for customers. Why? Because a particular server failed.
2. Why did the server fail? Because an obscure subsystem was used in the wrong way.
3. Why was it used in the wrong way? The engineer who used it didn’t know how to use it properly.
4. Why didn’t he know? Because he was never trained.
5. Why wasn’t he trained? Because his manager is too busy to train and believes that in a startup one has to learn on its own.

VC Pitch is a very important activity of fund raising process, its the first step towards raising money. A great product/business entity can loose on the opportunity if its not pitched properly, I have personally seen great products have failed to catch the VCs attention since entrepreneurs messed up with their pitch. A bad pitch of a good product can ruin the investment opportunity while good pitch for a so-so product can attract investments.

VC pitch is no rocket science but its easier said than done. Entrepreneur has to worn multiple hats, he/she has to be a salesperson, dreamer, visionary, technologist, operations guru.

Key elements of a Pitch are -:

1. The problem/gap in the market
2. Solution
3. Business model/revenue model
4. Underlying magic/technology,
5. Marketing and sales,
6. Competition,
7. Founding Team,
8. Projections and milestones,
9. Status and timelines.
10. Summary – Investment required, Exit route to VCs

These are the basic guidelines, obviously some business requires further detailing but these elements are good enough for an impressive VC pitch.

-Hitesh, vcBytes.com

As a product manager/developer how many times you have been surprised by how user uses your system. From my own product management experience, I have noticed that users sometimes use products in scenarios that product managers hadn’t necessarily considered as primary use case and users are hooked to your secondary or not so relevant use case in your product.

India’s leading Seed Accelerator – The Morpheus, is looking for 10 early stage startups to be part of its fifth Batch of Startups. Morpheus is a 3 yr old firm with a portfolio of 27 young exciting startups. They focus on working with super early stage startups , provide 5 L of funding & 4 months of intensive (& insane) support as a limited co-founder and more. Does that fit what you are looking for?

So why you should enroll your startup for their batch?

• First and foremost reason is The Morpheus is run by 3 experienced & passionate entrepreneurs – Sameer Guglani, Nandini Hirianniah &  Indus Khaitan.
• They understand the ups and downs in a startup, They will work with you side-by-side on building your business and provide you access their large and growing network.
• 7-8 Morpheus portfolio companies have raises further capital from VCs, angels and corporate investors. Very recently Instamedia (Batch 1 2008) raised 4 million dollars from Times of India Group. More than 10 companies from the portfolio have reached annual revenue run rates of 50 L – 1 Cr INR.