Ideas|Products|Startups|VCs

Are you one of the entrepreneur who has developed or in the process of developing product without assessing market needs. Recently i came across an entrepreneur who is developed a product targeted at children aged between 5-12years and without doing any marketing study and customer analysis. This kind of entrepreneur can be classified as gutsy or fool

Customer Analysis is one of the critical component of an MRD (Market Requirement document), it assesses the customer segments that the company plans to serve

Things to do by company before working on the product -

1) identifying the  target customers,

2) List  the needs of these customers, and

3) highlight how this product can satisfy the needs of target customers.

First and foremost step in Customer Analysis is precise definition of customers the company plans to serve,  Its not enough to say the company is targeting small businesses, for example, because there are several million of these types of customers.

The next step after identifying target customers is to explain the demographics of these customers. Bring forth questions and search for answers and Questions are – 1) how many potential customers fit the given definition? is this customer base growing or decreasing? 2) what is the average revenues/income of these customers? and 3) where are these customers geographically based?

The next step in the business plan is to detail out the drivers of customer decision making.  Sample Questions are: 1) Do customers find price to be more important than the quality of the product or service? and 2) are customers looking for the highest level of reliability?

It is essential to truly understand customers to develop a successful business and marketing strategy. By spending the time to research and analyze your target customers, you will develop both enhance your business strategy and funding success.

-Hitesh, vcBytes.com

Off late i have been meeting lot of entrepreneurs and thought of sharing reality checks that may be useful to become successful

Time is Money -

Last week i met a founder of a startup and was quite upset to find they took 2 years to develop the product and still not released in the market. They wanted to make so called “Perfect Product” which unfortunately doesn’t exist. They lost enormous time, opportunity to cash in from the product and end result is way beyond their perfect product definition.

So in order to succeed company needs to launch the product soon and keep on building features, workflows on top of it based on user feedback and business demand. Probability of success is much higher since you are closer to market and assessing the market need and addressing it via rapid release cycle. If you wait and watch for Perfect Product you are up for a big surprise since you will never be able to please everyone and run into stuff which you didn’t anticipate.

Numerous Sacrifices-

As a startup guy you to sacrifice a lot, in terms of money (made while working for a company), you won’t be able to spend quality time with your family and friends so make sure they have been taken into confidence while starting off. As a startup you may have to bear losses to build customer trust. PopaBook recently offered 25% flat discount on their entire inventory just to attract customers, I am sure there would be some losses for the company but its worth taking if it can help in building trust with end users.

Are you Solving a Problem - Make sure you are able to convince user that your product is addressing their pain point and will solve it. No point in making and developing another Me2 product. I met a startup guys few weeks back, they’ve developed a social networking product which lets user segregate groups depending on relationship. I liked their product but question is can it compete with Facebook and with only one distinguishing feature. So as a business i have serious doubts they can gain traction.

Start Making money - If you are developing a product to do business which means you are serious about making money. Generating revenue is a very critical component for startup to succeed since it keeps them in healthy stage – can manage their monthly expenses and plus its a big brownie point while raising Venture Capital. Don’t just create product thinking to be acquired by big firms without any revenue model, its totally suicidal. Before you put in a lot of time and effort into a business idea, ask yourself how are you going to make money. If you don’t have a solid answer, don’t get into that business.

Herculean task to run a company – You as a founder of a startup may be the boss of company but its a big task to run the company.  Its not a fixed timing job and there is always a deficit in spite howmuch ever time you invest in your startup. To be successful you should consider customers as your bosses which can go into 100s. Have discipline and formulate and adopt processes which will be adhered at any cost.

-Hitesh, vcBytes.com

You have founded a startup, prototype is done, some beta users paying some or no money and you approach a VC for series A fund. VC would be interested in knowing your product, market size and also the pre-money Valuation.

So What is pre-money valuation and and how do you determine the pre-money valuation set on the company.Pre-money refers to the valuation of a company or asset prior to an investment or financing. Where does it come from? It mainly depends on the space/industry the company is trying to foray and also into the stage of the company. There is no rocket science in calculating the pre-money valuation and it is generally discussed between entrepreneur and investor.

Pre-money valuation can be simplified and easy way is to determine the equity percentage the investor would receive for their investment.

For instance a VC invests $2M in a startup with a pre-money valuation of $3M, it implies the VC expects to own 40% of the company. In simple words the post-money valuation is the pre-money valuation plus the amount invested. Thus on raising $2M, the investor intends to own 40% of the company after the investment the pre-money valuation must be $3M.

A common misunderstanding and practice which is followed while calculating pre money valuation is derived from company’s potential earnings, with a discounted cash flow analysis (DCF) of the unleveraged cash flows. There is high probability that these projections will prove wrong and it will be determined by the financial numbers and not by the investors.

A mix and match of under mentioned three factors should be considered to derive a pre-money valuation.

1. The negotiation between entrepreneur and investor and percentage ownership described above.
2. The investor’s experience with previous investments of similarly staged companies.
3. Serial Entrepreneurs have a tendency to demand a higher valuation as compared to 1st time entrepreneur.

- Hitesh

At various stages of the company’s growth and development you as founder will attract different kind of investors and they will have different expectations.

Strong ROI

• To begin with generally founders raise money from 3Fs (friends, family and fools). 3Fs have sole intent in helping the founders and have faith in their capability.  Then comes the angel investor who is taking on the most risk by investing when the company is in early stage and has yet to generate much revenue but prototype is made or and have beta users or few paying customers.Angel investor looks to make 10-20x for their investments and its justified since they take major chunk of risk. In general angel investor will sell out during one of the subsequent financing periods. Very rarely does an angel investor stay on board until the company reaches maturity.

• Venture capitalists come in later but still before the company is cash flow positive or about to breakeven. Therefore, they typically want returns of 5x for a period of 5-7years. Mezzanine financiers provide a mixture of debt and equity to more stable and established businesses so they expect blended returns of 30-40%.

2. Pay off time –

• Very few investors wish to wait indefinitely for their money. They are investing not to make you feel good but because they believe in you and your business and the ability of the business under your management (and sometimes with their additional efforts) to generate enough revenue and cash flow and/or grow large enough in value to return them their investment and their expected return within a specific time frame.

• This varies based on the investor. Angel investors prefer a shorter period of time (3 years). Private equity funds typically expect 3-4 years. VCs tend to  derive a number of benefits, so their investment are longest with a period of 5-7years.

3. Management Team

• Investor looks for great team and founder who can spearhead the vision. There are many great ideas out there. It’s not so much the idea that counts but the ability of the management team to capitalize on that idea.  The management team is the most important component. A great management team can make a good idea or a so-so company into a great company. But a great idea may never make it off the ground with poor management and a great company can go rapidly downhill with mediocre management.

4. Company Valuation

• You shouldn’t look like a fool while approaching investors without knowing the worth of your company. Spend some time do some homework, check with your fellow entrepreneurs or hire a finance consultant to evaluate the base valuation of your company. Would you know if the investor is proposing a good price for the portion of their investment? Sometimes angel investors aren’t highly financial savvy and can’t do their own valuations. You need to demonstrate how their investment will help move your business to the next level and they will be keen to know how  requested investment amount was deduced. VC firms will do their own valuation but you should be ready with yours and this will facilitate your negotiations with these firms.

5. Business Plan

• Business Plan is a critical component and investors look into it quite seriously. Good business plan should cover an overview of the market, Gap/Paint points in the market, your proposed solution to address the gap, background on the business, industry and competitor assessment, management overview, sales and marketing plan, risks, financial snapshot, goals, and the strategy to accomplish these goals. Some investors only want to see an Executive Summary – 3-5 pages – to determine if they’re interested. Then, once they’ve expressed full interest, they’d like to see the complete business plan.

If you have a fetish for military adventure gears and merchandise and not been able to find in the stores, here is the good news for you, OlivePlanet will take care of this need. Olive is an e-commerce portal that sells only these premuim military merchandise and gears.

Products are categorized quite neatly under various categories like – Apparel, footwear, electronics, camping etc, user can browse the entire product lists by clicking on desired product category. User can derive detailed information of the product on clicking it in product listing page.

Search functionality isn’t that great, it could have been implemented in much better way. For simplicity Oliveplanet should implement a generic search instead of categorized search, at present each product is mapped to a category. If a user searches for ‘Torch’ under electronics there will be zero result, it will give result if ‘Lighting’ category is selected while searching.

One distinct feature Olive planet has adopted is variable pricing in shipping depending on courier service unlike majority of e-commerce stores which charges flat fee. User needs to specify the pincode and then he can generate multiple shipping cost. Great feature and really suits the need of a user.

Do checkout OlivePlanet and share your feedback.

-Hitesh, vcBytes.com

What is there in a name? Googol transformed into Google after receiving their first cheque with later name, Yahoo! is Yet Another Hierarchical Of Officious Oracle.  From the exterior view a set of startup founders spend lot of time in naming their company or product. It is one of the most difficult decision they indulge in since naming a company is largely subjective and need to understand the rational behind each choice of name. For this reason, the process often becomes one that antagonizes the company for too long and it shouldn’t be that way.

Best way is to have couple of people generating and filtering out the options, once the list of names is ready it should be discussed with different user group like advisors, marketing folks, investors etc and better to have debate for each choice of name. Situation is further greatly annoyed  limitations of .com domain names available these days or the willingness of everyone to pay up for one that’s blocked.

Thumb rules for naming a startup/product -

• Name should evoke  what company does
• Name should have four to seven letters for simplicity sake
• It should be simple to pronounce and no mistake user should do while typing the URL

Ever wondered why your excellent idea/product failed to attract the attention of VC, even though your product is witnessing good traction but VCs are unmoved or they wait n watch for few quarters before showing interest I had a long discussion with a VC today in this topic.

VC likes to invest in startups which are driven by supermans or guy who is capable of exectuing things smartly. Serial entrepreneurs are one category of people who are well sought by VCs and there are instances serial entrepreneur have raised Venture capital without presenting any business plan, case studies, excel sheet.

These breed of entrepreneurs are capable of creating something out nothing, they somehow manage to stitch together product, customer and partnership out of thin air. They are always ready with their alternate plans, if plan A fails or doesn’t meet the expectation Plan B would be up and running in no time. They also have uncanny ability to foresee things or envision the future.

in short VCs look for a key man insurance in a startup which can assure them that their investments are in safe hands and 5X return is guaranteed.

-Hitesh, vcBytes.com

MeraCareerGuide in partnership with Mospay has developed an mobile app called mInterview. mInterview is an interview centric application which you can download in an airtel phones . The interview application is designed in such a way that it would help the user to prepare for the interview. User can get tips in soft skills, technology related topics.

Airtel has selected mInterview as one of their best apps out of 70k apps in Airtel Appstore.

It’s a one-time download process and will cost you only Rs.25. Once it has been downloaded, you can use it any number of times to refer to the tips and steps to a successfulinterview. SMS app to 54321to receive the URL.

-Hitesh, vcBytes.com

Generally so much is written about the founders/cofounders of a startup and growth stage companies including this blog and founders gets all the recognition for their vision and endeavour but there are set of people which goes unnoticed every time and they are first keys in that company.

I always believe more than the management and executive team company culture and work style, product mojo is set by these key early employees. No doubt Management has an impact in the organization, they drive the vision but execution is the key which is taken care by the first key hires.

Few bunch of people can really lift the team spirit and is so fascinating to see how well product development happens thanks to seamless coordination between teams. Those first three to six non-management hires in a startup help set the tone for how things get done and how people behave while they are doing it.  One super charged bloke in those key hires can really energize the office environment. First employees also should understand that they going to make a profound impact in the company’s growth and they also should get the feeling of ownership rather than thinking just a job. Also founders and management team should give due credit to the first hires at appropriate time.

I was one of the first hires in a Indian startup which has raised $21M so far.

-Hitesh, vcBytes.com

Are you looking to raise seed fund and not able to fool your family and friends to provide you seedfund, no need to dishearten since SBI is there to back you. Yes finally India’s biggest bank has turned Venture Capitalist.

State Bank of India (SBI) will provide interest-free seed capital of up to Rs 10 lakh to aspiring entreprenuers under a new scheme, SBI SMILE, which is specially targeted to encourage small and medium enterprises in the country.

The scheme will be in place initially for one year, after which the bank could extend it, if the situation warrants. “Given the economic downturn, some entrepreneurs have not been unable to raise any capital. The scheme will provide them a platform to kick-start their businesses,” said BS Bhasin, chief general manager, SME, at the country’s largest lender.

Currently, banks give loans to the entrepreneurs, only if they have a substantial capital to invest. The loan amount is around 70-80% of the total project cost. Under the new scheme, SBI will provide the seed capital and entrepreneur will also be able to seek a loan. Loan terms and interest rates will be determined as per the existing guidelines. “There will be no interest on the seed capital.

You can pay that amount after you’ve serviced your loan,” Mr Bhasin said. The bank will offer a five-year moratorium on paying the seed capital amount.

The bank, however, has not set any target for the amount it will disburse under the scheme. Already, SBI has SME loans of Rs 1,00,000 crore outstanding on its account books.

As per the central bank guidelines, a bank can give up to Rs 10 crore as loan to a medium enterprises for investment in plant and machinery.

-Hitesh, vcBytes.com