“Measure twice and cut once” is an aphorism that reminds us to “plan and prepare in a careful and thorough manner before acting. [wiktionary]” The origin of the saying lies in carpentry where if you cut a piece of wood too short, it is wasted and if too long, you’d have to cut again! This week as my class worked on figuring out who their target customers and which markets they should go after, the discussion of measurement and choices came up. Of course the class began by arguing that we should go after the biggest markets and then a few voices piped up that it might be better to focus narrower.
Even as the discussion went back and forth, my mind turned to my father who’d have turned 93 earlier this week. Whenever I was faced with a choice, he’d ask me to figure out, “Are you plain Srikrishna, or Lord Srikrishna?” By that he meant know yourself, be realistic as to scale you want to act upon and focus on what needs to be accomplished.
As my class and I watched a video of Professor John Mullins of the London Business School , talking about how to size and go after a market. He recommends in the video that it might be better to go after a smaller market that you can dominate than a seek a tiny share of a large market (a common fallacy most of do in computing top-down market size). Certainly true especially when we are getting started.
As entrepreneurs it is critical to dream big, but it is even more important to have a good measure of ourselves, before we act. Thanks Dad for the faith, support and evergreen advice. I miss you!
Two weeks ago, my class and I embarked on a discussion around co-founders. Do we need co-founders? If so how many? What should we look for in them? Where do we find them? Each of these can be entire blog posts. To me one of the interesting questions that came up was “How do we overcome our own biases when selecting a co-founder?” Students in two different classes posed a version of this question.
Reflecting upon the mistakes I’ve made and the ones I’ve avoided or overcome I see three key steps to minimizing biases whether in finding co-founders or other decisions we make.
self awareness Become and stay aware of the types of biases you are prone to, so you can recognize them and account for them even if you don’t overcome them. Here’s a useful summary of 20 common cognitive biases we encounter, based on a that BusinessInsider infographic [paywall].
accountability partners Ensure you have good people around—coaches, mentors, team mates or partners. They can question or challenge you and point out issues – be they assumptions, biases or other gaps in your thinking. This has been the biggest help to me (thanks Bikash & Rajagopal!)
test & validate Despite #1 and #2, you will still make errors or have issues. These are best dealt with by explicit communication. Articulate your assumptions, and ask questions of prospective partners and yourself. Treat this as you’d any experiment—build hypothesis, test and validate.
It is best to work on self awareness and accountability partners first, so that you don’t want to waste your time or the others and needlessly burn bridges.
This morning as I read Margaret Renkl op-ed titled “I just turned 60, but I still feel 22” it struck me how similar our thoughts were even if our origins and lived experiences were utterly dissimilar. Of course in my case for several years I’ve been telling my wife that I still feel 28! And this year the first year that I’ve begun teaching college freshman (and with both my own kids graduating from grad school), I realize I’m only a year behind Ms. Renkl.
Over the last several years I’ve attempted to move away from treating milestones be they birthdays or specific dates in the Gregorian calendar as [the only] special days. Yet its unavoidable when the whole world marks a day or date to not notice. Much is made of new year resolutions people make, the gym memberships they sign up for and the stocktaking that happens. Yet stocktaking whether done annually or weekly can be misleading.
Most people overestimate what they can do in one year and underestimate what they can do in ten years.
bill gates
As Bill Gates famously put it “Most people overestimate what they can do in one year and underestimate what they can do in ten years.” I’ve found setting goals for year or longer takes the pressure off and helps a general direction or vector to my life and planning and tracking on a weekly basis provides just enough motivation and balance between being stressed and making progress. It also ensures that the wife and I continue to keep the harmony at home.
As Ms. Renkl makes the point in her article, “I have lived long enough to have learned, too, that what is beautiful and joyful is almost always fleeting and must never be squandered.” This is the reason I urge young to-be entrepreneurs to start their businesses today or my friends to start writing that novel or book or hug their mom or say “I love you” to their kid. Today is always the best day to do whatever you plan to do!
Bea Wolper was the person who introduced me to the term monthly nut.
“What’s your monthly nut?” was the first question she asks any entrepreneur who approached her expressing a desire to sell their company.
‘Monthly nut’ is the effective income that you need to bring home each month to maintain your present (and perceived future) lifestyle.
‘Most people don’t know what their monthly nut is,’ Bea says. ‘You’d be surprised how many of them, successful businessmen who’ve been at it for decades, don’t have a ready answer.’ So if you plan to sell your business and intend to be happy you should start with trying to achieve clarity on two financial facts
Do you have a realistic sense of what your business is worth?
How much money do you need and want to address your post-sale life?
This is one of the questions that I addressed in my Q&A session with Dr. Annurag Batra of BusinessWorld. The full interview is available here.
Yesterday after I spoke to a group of Rotarians in Bangalore, the first question that was posed to me, was “How does an entrepreneur get the valuation they seek?” A few weeks ago, an entrepreneur who was still part way through my book posed the same question to me as in “How do I get the valuation I want?” The short answer is you build it. But how does one do that? Through careful planning, execution and a spot of luck!
In both these cases the entrepreneurs had been running their businesses for a considerable length of time. It was when they began considering exiting or selling their businesses that they found there might be a gap between their expectations and the valuations potential buyers might offer them. So how does one bridge this?
There are three steps to getting the valuation you seek. Understanding valuations, preparation and running a good process.
Understand how valuations work in your industry. Typically for a business in a mature industry, this works as a multiple of earnings (EBIDTA) or even revenue. A simple place to start is to look at others in your industry or sector who have been recently, say within the last 6-24 months, been acquired. Informal conversations with investment bankers can also help get a sense for this. Now do a reality check of this number against how your company would measure and what you seek. If you are lucky you are already there. Of course in fast growth or emerging industries, often technology-based, these numbers may not matter. For instance, my first company Impulsesoft had barely broken even and had revenues in the single-digit millions yet was able to attract both a top-tier investment banker and global buyers based on the industry (wireless technology) and technological innovation. So get a sense of what valuations are likely and where your own business falls.
Plan and work on bridging the gap between typical valuations and the one you seek – this requires you to first understand what you seek not just the valuation or $$ but also your own role, if any, post acquisition. Tim McCarthy founder of Workplace Impact hired a consulting firm and tasked them with the job of finding what sort of buyer he should look for, and what within his company would cause such a buyer to pay less than they deserve. They came back with a set of five specific things, not all of them financial that Tim’s company would have to address—things such as customer concentration, client size and EBIDTA. Over the next five years Tim and his team set about fixing these and sold his business for $45M in cash!
Run a good process One of my mentors Chandrasekaran was fond of saying “It’s a matter of their need and your greed, or vice-versa.” So understanding the potential buyers’ motivations and hence value perception is critical. Assuming you’ve clarity on the outcome you seek and done your prep, one of best ways to maximize value is to have more than one buyer, ideally several, at the table prepared to bid against one another.
Luck of course plays a bigger role than any of us is prepared to admit. However the more you plan, prepare and persevere the luckier you are likely to get.
Last night a friend whom I hadn’t seen in nearly 25 years came home for dinner. This was significant for several reasons, not the least of which was that this was the first time we’d had someone over since the pandemic began. Of course when you see someone after such a long time, there is some inevitable story swapping of “Remember when..” But thanks to our grown children a lot more of the talk was about where we are.
We also connected over FaceTime with a third friend who’d originally introduced the two of us and boy did we have a roaring time! So while we worry about our own parents coping alone with the pandemic, the fear of a third wave in India, all the young people we know who’ve graduated and still looking for that right job, its easy to lose sight of how fortunate we are at so many levels.
Then this morning I saw this blog post by Jason Lemkin at Saastr. He founded EchoSign that was acquired by Adobe back in July 2011 to become Adobe Sign. He reminds founders that it is easy (even without the pandemic) to get pulled down by all that running a startup entails. It is best said in his own words.
“Remember — These Are the Best of Times. You probably don’t see it, not totally. You might even think the grass is greener as a VC, or a COO, or Something Else. Deep down you might think that.
Being a founder makes you alive. Fewer things are harder, … Nothing will be more consuming. It will change you. A lot. But you’ll remember every minute.
Nancy JOHNSON, (1795-1890) invented the hand-cranked ice cream freezing machine in 1843
One of the challenges of teaching lies in helping students identify, confront and hopefully overcome their implicit assumptions and biases. When it comes to teaching innovation, this ranges from asking and answering questions such as
What is innovation? Is it different from invention or creativity?
Who is an innovator? Are they born or made?
In part to answer the second question, we do an exercise. Each student has to name two innovators of their choice and try to identify what attributes they’ve demonstrated as innovators. Much to my chagrin, year after year Steve Jobs and Elon Musk (more recently) are the first choices of most 19-year-olds that I teach. Thanks to my colleague Stephen Golden, later in the same class, we make them do an exercise around naming women or minority entrepreneurs. The exercise invariably results in both the students and I being surprised with the number of innovators that we should be aware of but aren’t.
In her book Mother of Invention: How Good Ideas Get Ignored in an Economy Built for Men Katrine Marçal brings up a related point. Not only do women entrepreneurs not get the visibility, but often inventions that seem to benefit primarily women do not easily gain traction. The particular example she cites is the matter of a wheeled suitcase.
The rolling suitcase is far from the only example. When electric cars first emerged in the 1800s they came to be seen as “feminine” simply because they were slower and less dangerous. This held back the size of the electric car market, especially in the US, and contributed to us building a world for petrol-driven cars. When electric starters for petrol-driven cars were developed they were also considered to be something for the ladies. The assumption was that only women were demanding the type of safety measures that meant being able to start your car without having to crank it at risk of injury. Ideas about gender similarly delayed our efforts to meet the technological challenges of producing closed cars because it was seen as “unmanly” to have a roof on your car.
As with any problem that afflicts our communities or organization, the solutions have to begin with us. The first step is to educate ourselves and to begin conversations with others to both acknowledge the problem and to seek solutions. This post is a baby step and in future posts I’ll share both innovators who need to be known and what we can possibly do to address these inequities.
As I interviewed a variety of founders, lawyers and venture capitalists for The Art of a Happy Exit, the term coachability kept popping up. Tim McCarthy, who’d founded a marketing agency that helped chain restaurants improve their worst outlets was the person who first brought this up to me.
Tim, who sold his business in an all-cash transaction for 9-times EBITA, went on to start a non-profit as well work with young entrepreneurs. As most of entrepreneurs do, he jumped into both these activities feet first.
Tim who’s directly coached hundreds of entrepreneurs, learned the hard way about coachability. In his own words, “I wasted hundreds and hundreds of hours.” By that he meant he took every person or call that he came to him before realizing that most were coming to him for money but few were really prepared to listen. So he came up with a two simple questions that he must have an answer to before he’s prepared to spend serious time with someone seeking his inputs or help.
Do they have listening skills?
Are they determined to change?
But answering even these questions require significant time. So he devised a simple process. They need to write, yep provide written answers to a template. Tim won’t commit to anyone who won’t write. This in many ways leads to self-selection with only 10% of those seeking help willing to do the writing work. Tim has also begun gathering them in peer groups, along with other folks seeking help. As Tim wryly puts it “They quickly tire of hearing me speak!”
One of my pet peeves is how common the perception of a “hero entrepreneur” is. Steve Jobs or Elon Musk are amongst the two most common responses my students give when asked to name an entrepreneur. While these two men have accomplished much and altered the lives of millions, this continued veneration by much of the media (whether newspapers, television or the ocean of writing that’s out there) swamps the truth that entrepreneurship (like innovation) is a TEAM sport.
As anyone who’s stayed on at the end of a movie (I’m one of those chaps) to watch the entire credits roll knows, movie making involves hundreds of people at the very least. Startups and entrepreneurship is no different, a cast of thousands usually are toiling to make an enterprise successful. Of particular note amongst these are the co-founders and early employees many of whom not only buy into the vision but take what’s fuzzy and shape it into reality. In most cases, including in my own, they keep the founders honest and focused, not getting distracted by the next shiny thing all too often unacknowledged and at times at significant emotional and professional cost.
Once an individual has been exalted to hero status by the general public, there is an implicit level of responsibility we place on them, whether they want it or not. We end up projecting our loftiest ideals of character onto these people and forget that whether its Mahatma Gandhi or MLK, they were always just human beings.
The very attributes that can make a founder successful—perseverance in the face of great odds, repeated missteps or even failures (that don’t quite kill the startup) can make them pig-headed (boy, do I know!) So the hero myth only makes it worse as they drink their Kool-Aid and believe in their own infallibility. Surprisingly many founders who ultimately exit their business find out it’s hard to be ‘happy’ despite their ‘success’ financially or otherwise, if their co-founders or employees don’t get what they want. And it is easy to imagine that this is unlikely to be the case when those employees or co-founders get a good or even great payoff.
As I learned in my own startups, while making money (or the thought of it) makes people happy (for a few minutes to months), everything from the trivial (“What do you mean I’ve got to pay taxes?”) to important (“What is my role going to be?”) all the way to the sublime (“What’s going to happen to our company culture?”) can muddy things at best or make them unhappy at worst. And of course as humans we are all to likely to succumb being happy with the $250K we made till we find out the next chappie made $255K! So what should founders do?
Here are three simple steps to begin with
Recognize that entrepreneurship is a team sport and acknowledge your team mates publicly and repeatedly
Ask and listen what their expectations beyond money are and be prepared that they might not be the same as yours
Factor their needs and expectations by discussing and if needed educating them in how you run and exit your business
One of the topics that we don’t talk a whole lot about in entrepreneurship is the role of luck. Luck of course can mean very different things to each of us. While commonly people tend to think of luck as good fortune, something over which we have no control, others view it as a matter of being open and responsive when new opportunities present themselves.
“Always say Yes!” I heard Andy Billman, the former president of Worthington Cylinder say this to my class at the Ohio State University back in 2017. Since then I’ve heard him repeat, even exhort folks to say yes, when an opportunity presents itself, such as a promotion or a move to a new location.
Two weeks ago I had a guest speaker Ellen Desmarais come in to speak to my Advanced Concepts in Entrepreneurial Studies class. Ellen in recounting her professional journey recalled that in her first job at a large credit card company an opportunity arose for her to move to a new business being set up in London. She jumped at the opportunity (as though she’d heard Andy Billman’s voice encouraging voice) and found herself at a ‘startup’ with all the freedom to experiment and but with the safety of a large organization backing it. As the years passed and new opportunities, jobs and roles arose, the lessons from that era of a rapidly growing new business continue to serve her.
“It’s a great example of how luck at some point will factor in your life.”
In my own career, luck has figured in a multiplicity of ways. The common one was often of poor timing—such as when we conceived and built an Apple Watch equivalent in 2004 (battery life, interoperability were not ready for wearables), pitched a GPS-powered game scenarios in 2007 (which eventually we saw Pokemon Go make happen).
Other times we’ve had the good fortune of customers sharing with us creative ways in which they’d put our technology to use. A customer from Korea, played Desert Rose by Sting on wireless headphones they’d built around our Bluetooth technology. This was an idea my engineers had pitched repeatedly to an non-receptive me. That chance encounter in a San Jose hotel persuaded me to finally agreeing to focus our entire company on wireless stereo music the led to the eventual acquisition of our company. Of course a great deal of smart people had to put in an enormous amount of effort, yet if that chance encounter hadn’t happened or I hadn’t said Yes, as Andy would have surely told me, I wonder how many other dead ends we’d have run down.
Thank you, Ellen for sharing your journey and insights.
Here are some other interesting takes on the role luck plays in entrepreneurship.
Over the last several years, I have written about startups, entrepreneurship and business in general in the Hindu BizLine and Wall St. Journal. I have compiled these for easy access in the column below.
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