One particular story my father had told me numerous times when I was a teenager, was about his encounter with a money lender. This was the first and only time I had ever heard my father use an expletive – a gaali – as they’d say in Benaras. The story stuck with me initially because of the unvarying way he’d narrate it, and also the way he’d point out his own outrage at being called names.
Later as an entrepreneur, when I was borrowing money (and yet again borrowing some more) and seemed to have my hand out perennially either to Angels or prospective VCs, this story really hit home.
Very early in his career, my father joined the firm that he’d spend the next 37 years at. Founded as a trading company, the firm was as cash strapped as only a growing firm could be. As my father put it in the early days of their business, they “boldly and often baldly borrowed money.” Not infrequently these were at usurious rates from local moneylenders. As the young company’s accountant, my dad usually was the pointed end of this borrowing thrust. The borrowing was done in the name of the proprietor (my dad’s boss) but almost always singly handled by my dad.
One day they found that there were yet again in need of cash and approached a money lender from whom they had borrowed before. In fact, they were yet to pay off their previous loan. Even as they were warming up to their pitch for borrowing more money, the Shylock began abusing my dad’s boss – calling his mother names. My dad was livid and about to jump on the Shylock’s throat, when he felt a warning tug on his hand – his boss was practically pinching my dad’s palm off. My dad got the message and kept his counsel. Soon enough, after lumping the name-calling, they had pried some money out of the curmudgeon and headed back to their office.
Soon as they were out of earshot, his boss asked him,
“Did you borrow money from him?”
“Yes,” my dad replied dutifully
“Well did you return his money?”
“No of course not!”
“Then what the hell were you getting all worked up for when he abused me?“
Many a times I have felt quite sanctimonious, even outraged, at the behavior of prospective customers, partners and of course VCs. Whilst this was truer when I could be called young and hot-blooded, it’s not something I have completely lost. So when that familiar feeling swells up in a meeting, I recall my father’s story and his advice to be humble!
My father always waited till we got to the railway station or the airport, before he’d have the TALK with me. I never figured out why he waited till one of us was getting ready to leave town. It somehow made it a whole lot easier for him to have this conversation. The gist of many of these eve-of-departure conversations, when I was in college and then graduate school, was, “Be considerate.”
I appreciate my father all the more, given the number of different ways he has tried to get me to understand this. “Don’t be self absorbed – think of others; show that you are thinking of others. It’s not enough to say I love you and not demonstrate that love in any other way. Be it with flowers, chocolate or that diamond necklace (okay, he didn’t say that last one, but I don’t think my wife would have minded, if he had).
My own reaction to my father’s advice ranged from non-comprehension (“What are you talking about Dad?”) to mild irritation (“Why did you wait till I was leaving to have this talk”) to sometimes outright combativeness (“Did you not tell me money is not important?”). The day this lesson really hit home was when he commented “If you were a fool, it would be a lot easier for me to accept your behavior; unfortunately I know you are not a fool – which makes me all the more sad. Your being inconsiderate is then either a choice you are making or worse.”
As the father of two not-so-little girls, I know that it’s not easy for a father to say this. Of course knowing how I feel with my own kids at times, it’s a miracle my dad did not kill me or at the very least slap some sense into me.
I realize this as I work every day with very smart people and see not so smart behavior, especially when it comes to being considerate. It’s as if being successful or at least ambitious, means you can’t be considerate. Luckily for me, I am surrounding by people who are neither shy nor retiring. So they don’t hesitate to give feedback and keep me honest.
In my own case, on more than one occasion, I have had a senior colleague ask me, “Could you not have asked me to hand out the recognition awards? At the very least you could have asked me to be present, when you handed them out?” Having worked with my team for the better part of decade I realized (often all too late) that this was not about who did the handing out, as much as being inclusive and more importantly, not excluding even by omission.
This morning, as I set out for a short visit with my dad and a new week at work, I still hear him say, “Be considerate!”
It was only when I turned forty a few years back, that several new synapses fired for the first time in my brain. I realized that over the years, my father while narrating stories – often incidents or vignettes from work – had been imparting some serious wisdom to me. After 20 years of listening to these, sometimes grudgingly it finally dawned on me that much of what I’ve learnt and continue to practice as a professional stems from these stories of my dad. Starting this month, I hope to blog about some of them. Fred Wilson’s post yesterday about thoughts on this 20th wedding anniversary on building a long term relationship finally got this post off the ground.
You’ve finally taken the plunge. Quit that steady paying job, roped in a couple of friends and started your own business. You’ve even squirrelled away some money to pay the rent and keep the wolves from your door, at least for a year. If you are smart, you are still working out of a coffee shop or your father-in-law’s basement (or attic) and keeping your burn rate low. And all this before the market imploded and the economy slid from being merely slow in to a full-blown recession. You’ve even managed to line up the first customer and then it hits you — you are going to need money to buy hardware, software and pay those two programmers you plan to bring on board. The capital you and your partners had pooled together no longer looks like it will stretch as far as it needs to.
Barack Obama might have been talking about your business in his inaugural speech when he said: “The challenges we face are real, they are serious and they are many. They will not be met easily or in a short span of time.” Alas, because you are not a Wall Street firm or even a regular old bank, the Government is unlikely to step in and bail you out. You realise you are on your own.
A friend asked me recently, “How is an entrepreneur going to find funding in times such as these? Even with a compelling idea, I suspect it would be difficult to get people to fork out money. And even if you do get start-up capital, managing working capital will be difficult, won’t it?” This was right after my waxing passionately in an earlier column as to why the right time to start a business is always ‘now’, carpe diem and all that! So if indeed the best time to start a business is ‘now’ — in a downturn — what should an entrepreneur do for money? Even if you figure out a way to find money, is there such a thing as good money or bad, for that matter? And don’t even the smartest of boot-strappers need working capital?
Get customers to pay your way The best way, in my mind, to run a business is to get your customers to pay for it, preferably up-front. At first glance it may seem outrageous, but getting customers to pay you is not merely about money but about validation — of your business, the value you bring and yourself. If it can work for lawyers, accountants and other service providers (all of whom you encountered when you began your business), there is no reason why it shouldn’t work for you.
I don’t intend to trivialise the raising of money. Unlike trying to get venture capitalists (VCs) to invest in your business or your wife’s uncle to cough up cash, getting customers to pay your way may actually be worth all the time and energy you pour into it. It is hard, but not impossible. Whilst getting money from your customers is easiest done in professional service businesses, it can be done for virtually any service offering, and with some imagination, for product businesses as well.
In my first start-up, $5,000 advanced by a customer was used to buy our first computer, develop software and to deliver it. Many an entrepreneur, freelancing for the first time, has tapped their previous employer to be their first customer and source of (micro) capital!
Beg, borrow or… Bills unfortunately have a mind of their own and so they reproduce and pile up. Telephone calls, printing paper, Internet access — all generate bills even as you look to land that customer who will pay you in advance. So you will need some money before you can get customers to pay your way. In an ideal world, this is the capital the other founders and you would have brought into the business. As most of us discover this is never enough and even the visits to angel investors or VCs take up not just time, but money for travel and expenses such as a decent outfit to wear to those meetings. So let’s just admit it, we need more money than we thought we did.
If Sumerian clay tablets are to be believed, entrepreneurs have been borrowing from their relatives forever. So family, beginning with your parents and siblings, are your lenders of first resort. For those brave enough, in-laws and friends form the next round of prospective lenders. Only spouses of the founders should be exempt from this global scan of relatives, by blood or marriage, as a source of loans or working capital.
An alternate way to borrow from family or relatives is to have them guarantee a loan you take with the bank; this way they are not directly lending you the money, you get access to capital that you otherwise will not have and you are liable to the bank directly. While the relative who co-signs the loan is taking comparable risk whether they write you a cheque or co-sign at the bank, they don’t have the same near-term cash flow implications nor will they have to explain to their spouse why they are giving you money.
Even when you are successful in raising debt by having family or friends lend to your company, don’t lose sight of the fact that you want customers to be paying you and continue to pursue that.
Conserve what you have It may no longer be in vogue to be told “A penny saved is a penny earned,” but it never was truer. A good entrepreneur is a penny pincher extraordinaire! Extraordinaire, because he can pinch ’em unseen without making a show of it, without giving his team a sense of being deprived or thinking that he is penny wise and pound foolish. Now might be a good time to learn the true meaning of the term ‘fiscal conservative’.
Question every expense, anything that would involve the outflow of money from your business, including advances such as rental deposits. Rethink salaries, always the hardest thing to do, first. Don’t get yourself a new or fancy office. Look at every dollar or rupee you spend — do you really need to do that? Your borrowing from family need not be confined to just money, it could be work tables and storage units. Bring in your own lunch, reuse both sides of the printer paper, manage your mobile phone bills and see if you can take the train rather than the plane. Every little bit adds up and fiscal prudence is best learnt in tough times and can be practised subsequently in good times.
If you practise all three strategies for raising money — getting your customers to underwrite you, borrowing from trusted sources and conserving what you already have — you will be in pretty good shape. And it is always the best time, when you are feeling safe and don’t need money desperately, to try and raise it from more angel investors, banks or VCs. Most importantly, you will be equipped to outlast the recession.
Talking about firing a customer sounds blasphemous in the present climate of economic slowdown. Nevertheless talk about it we must , if only to get acquainted with the idea well before we actually have to do it. The idea of having to fire an employee, while unpleasant, has definitely crossed the minds of most entrepreneurs. Even the notion of letting go of a founder, for various reasons, is within the realm of possibility once the reality of an impending business divorce stares us in the face. But firing a customer seems suicidal or at the very least worth a close examination of someone’s head. Even in the best of economic times, it is hard to part with customers who contribute a significant amount of revenue. So, can there be a good reason to do so in hard times?
Five years after we began our software product business we had our first break-even year. The following year we made a real but nominal profit which, after one day of feeling good, made us face the fact that we would have to work even harder to grow or stay profitable. This, I will admit, was disheartening.
A close examination of where we were revealed that we had grown excessively dependent on one customer. This customer was taking us in a completely different direction from what we set had out. While the customer’s contribution had grown year-on-year (and was paying the bills), it would soon become non-scaleable, leaving us with little to spare for developing new products or alternate sources of revenue.
After much soul searching, Microsoft Excel crunching and internal debate, we decided to let go of this customer — not scale back — but truly let go. It was not easy; the customer was Japanese, we had spent five years cultivating the relationship, their CEO had practically adopted our CTO and their projects were technologically challenging and highly profitable. Over 18 months they went from nearly 60 per cent of our business to zero. And hard as it was, it turned out to be the right decision. In this instance, the relationship and our company survived the break and we were able to focus and execute in a scaleable manner elsewhere, which resulted in our subsequent acquisition.
So how do you know when to let go of a customer? What is the right way to go about it? How do you handle the fallout of such an action with your own employees and other stakeholders?
The deadbeat
If letting go of a customer could be easy at all, it would likely be letting go of the category of customers who are deadbeat — customers that don’t pay or those that pay many months later, act as though they are bestowing a favour on you and, in the interim, run up a bigger bill yet.
Most start-ups find firing deadbeat customers difficult for two reasons. First, an entrepreneur’s innate and at times unreal optimism that militates against terming a receivable as bad debt and the customer as delinquent. It is hard to separate the deadbeat from the merely late, particularly in India where we have a business culture of paying our suppliers late, if not last. Things get worse when a particular customer contributes significant revenue (at least on the P&L) but is a drain on your cash flow. Adding insult to injury, most such customers tend to be far bigger than the start-up and have greater resources available to them.
As an entrepreneur, hard as it might be, the moment you admit that you — a cash-strapped start-up — are financing the cash flow of a much larger company, is the moment you decide to let go of that customer. Having made the decision, you should pick the when and how with care. As with an employee or a founder, the assiduous application of common sense is critical to the termination of a relationship with a customer. Also, not every customer who pays late, occasionally or otherwise, may need to be terminated. Payment terms in your industry, your own reserves and cash flow planning should be factored into your decision. However, do not shy away from a quarterly review of your customers’ and your own receivables history to see if any of them are deadbeat; you may even be making some of them deadbeat by accepting such behaviour on their part.
The divergent
This group of customers is the hardest to let go of. They are a good source of revenue and profit for you, they pay on reasonable terms and promise continued growth. However, where they are headed and want you to go is very different from where you want to go. The good news is that if planned and executed well, such disengagement could be the win-win situation that business books talk about. This calls for honest self-assessment of where you want to go and regardless of how good the money or the relationship, if this customer will not take you there, then, the ability to disengage.
Such disengagement is best done by meeting the customer, explaining your assessment of the situation and your concerns. The customer may surprise you or at the very least agree and appreciate your quandary and be prepared to work with you for a transition. The longer you put off such a discussion and decision, the more difficult and messy it will get.
The difficult
With deadbeat or divergent customers you can at least put your finger on a cause. While this may not make it any easier to fire or disengage from them, the rationale for action will be clear. You can state and defend your reasons, even if they are unacceptable to the customers and sometimes to your own team members. There will, however, be times when you encounter customers who are neither deadbeat nor divergent and yet cause you no end of grief by being difficult. Such difficulty could range from the interpersonal — they don’t treat your staff or even their own staff well, to ethical issues — they expect you to do things that you feel are not correct. Again, these could be as simple as pre- or post-dating invoices or shipping documents going all the way to kickbacks. Others may merely be inconsiderate, wasting your staff’s time, nitpicking on every occasion or bad mouthing you.
In other words, customers can act just as any individuals could, in an insensitive, rude or inappropriate manner. As with friends or acquaintances, you are likely to overlook the first or the rare transgression.
However, many start-ups and entrepreneurs who would never put up with protracted abuse in their personal lives, tend to be tolerant or even masochistic with difficult customers. The toll this takes in the long-term is the primary reason you should fire such difficult customers. All too often, the brunt of such abuse will be felt by the front-line staff.
Unlike deadbeat and divergent customers whose impact is largely felt on your business first, the difficult ones will undermine the entrepreneur’s or the management’s credibility which is far more damaging. The need to act decisively with such difficult customers cannot be overstated.
Twice a year, review your customer list and their behavioural scorecard with your team.
Those customers who repeatedly behave in a difficult, divergent or deadbeat manner should be flagged and dealt with appropriately. This will allow your organisation to thrive like a garden that’s well weeded!
This article appeared originally in my Start Up Logic column in the Hindu Businessline
We’ve all read of horror stories of VCs forcing actions leading founders to leave their companies. But are there reasons for a founder to leave voluntarily or being asked to leave by other founders or the management team? Many a times, the answer is yes.
When people set out to start a business, a few jump in with little planning. Most though, do so after much forethought. Even when a good deal of planning has gone into starting a company, it is the rare entrepreneur who has actually thought about a scenario in which the founder leaves.
I realise that the very thought may sound nihilistic to some readers — can there be a start-up without the founder or can start-ups that survive without the founder do well or at the very least exist meaningfully?
The answer to both questions fortunately is yes. Apple is probably the best illustration of this, with Steve Wozniak leaving to pursue other interests and Steve Jobs being ousted by John Sculley – so not one, but both founders left (or had to leave). Of course Jobs’ return and subsequent success is a matter for another article altogether.
So what should a founder or founding team consider about the possibility of one or more founders leaving, voluntarily or otherwise, the company they founded? Is this inevitable? Can this be avoided? Or should this be planned for and if so how?
Before we examine these questions, it’s worth reflecting that few companies — Microsoft under Bill Gates or Dell Computer under Michael Dell being the exceptions — survive, grow and actually thrive under the same helmsman from founding to widely acclaimed success. Change at the top is more the norm than the exception. However start-ups, particularly in their early days, are so closely identified with their founders — and founders with their companies — the change, of a founder leaving or being asked to leave, can be traumatic. So it is best planned for and, hopefully, never actually encountered.
Leaving voluntarily
I remember the day when one of my partners informed me that another of our founding team (there were five of us founders) wanted to quit. We had not been at it for a year and the fire of a new adventure still burned in our heart and flushed our cheeks — so it came as a shock!
In this instance, the issue was one of personal belief regarding religion in the workplace. I am not sure, to that day, we had even thought about religion (or its absence in my view and excessive presence in the departing partner’s view). This is an instance where a founder wanted to leave voluntarily as he felt there was an irreconcilable difference in personal beliefs.
There can be numerous reasons for a founder to leave voluntarily, many of which may have nothing to do with the business itself — family commitments (wife wants to relocate) or health reasons (allergies in Bangalore) are examples.
Of course, there could be several other reasons — loss of faith in business partners; the gradual realisation that a start-up is not for him or her; or the thought of a Web-based cobbler service no longer exciting them — there are as many reasons for a founder to leave as there are people.
Having an inter se — Latin for “between or amongst themselves” — agreement amongst the founding team members is the best way to prepare for this eventuality. While the heartache that follows the departure of a founder may take time to dissipate, such an agreement will minimise the business impact. Also, the fact that such an agreement is in place prepares the concerned parties to consider the possibility of a founder leaving and address the potential causes up-front.
A good inter se agreement would at the least cover issues pertaining to shareholding: Do insiders or the company get first right of refusal? Will the leaving partner be permitted to still hold some or all of his or her shares? If so, will he or she retain voting rights? If the company bought the shares, how would these be valued? What would the payment terms be? How would the death (strictly speaking this would be an involuntary departure) of a partner be handled?
A good corporate lawyer would be able to pull together a reasonably well thought out inter se agreement. Most people are comfortable having health insurance and don’t blame it as the cause when they fall sick. However, many folk balk at having an inter se agreement believing this may sow the seeds for the undesirable to happen.
As someone who’s been there more than once, I would say that you are better of thinking and planning for all eventualities and this will never be the cause of a partner leaving. And you will be glad it is in place, when they do actually leave.
Forced to Leave
There are primarily two different stakeholders — the Board of Directors and the management team — who may force a founder to leave.
In venture-funded companies — most of which have active boards — the board could be the primary driver for change, particularly if a founder is the CEO of the company. This could arise for good reason — if the company is growing faster than the CEO/founder is, someone else should be brought in as a replacement.
The founder, in this instance, could then focus on other areas such as key technology, marketing or other contributions.But if he is not prepared for the shift, he may be asked to leave.
Alternately, a founder may be asked to leave for not-so-good reasons such as having rubbed powerful board members the wrong way.
For such founder/CEOs of venture-backed companies, having an explicit employment agreement could avert dismissal under unfavourable terms or without cause.
The other founders or management team, particularly in closely held start-ups, can also force a founder to leave.
Again, the reasons could range from the appropriate, namely incompetence, unethical behaviour or sexual harassment, to the inappropriate — politicking with other members of the founding or senior team in the company.
The best way to address this is to have a clearly spelt out code of conduct, periodic performance reviews (including peer feedback) and open communication so that there are no surprises.
The inter se agreement is once again a good safety net for all parties in this instance.
Asked to leave
This is the hardest thing to both plan for and execute. While asking a founder to leave may not sound that different from forcing them to leave, it is not trivial and is the most likely of the three situations an entrepreneur will be faced with.
When a founder is caught stealing, for instance, the decision can be black-and-white and he can be terminated or forced to leave.
However, it is much harder to confront and tackle issues that have to do with cultural mismatch or personal behaviour that, while legal, show poor judgment or the more common issue of self aggrandisement at the cost of the company or its employees.
The best way to address this situation is to ask ourselves the question, if the person doing this was an employee or anyone other than a founder, would they be asked to leave. If the answer is ‘yes’ for an employee, it ought to be ‘yes’ for a founder.
This is, of course, easier said than done — for founders have great emotive appeal — to the rest of the company, the community and, of course, to themselves!
However, as our mothers taught us, a stitch in time, does indeed, save nine!
Here experience and my scuffed knees speak — all those start-ups that avoid confronting this sooner, end up regretting it later.
(This article was published in the Business Line print edition dated December 15, 2008)
Life has a nasty way of springing surprises on you. The only certainty, it would appear, is that you will encounter a lot of uncertainty. Being an entrepreneur is no different. If you are like me, you might have thought you made your hardest decision when you chose to become an entrepreneur.
Wrong! Before you know it, the business, customers, employees and the world at large are bringing problems that require you to make decisions. There also seem to be few easy decisions. Why didn’t anyone tell you about this? Well, you heard it here first — much of your productive time as an entrepreneur will go to making, hopefully, good decisions.
“Effective executives do not make a great many decisions. They concentrate on the important ones,” says Peter Drucker in his book The Effective Executive. Simple as Drucker’s assertion sounds, it is hard in the fog of entrepreneurial battle to focus on the important few. So how do you identify the important from the merely urgent or routine problems? Having identified these, how can you make good or effective decisions?
Is this your decision? The best way to make good decisions is to first determine if it is even your decision to make. Entrepreneurs — and here I speak with some experience — love to be in the thick of things. “The equipment is stuck in Customs. We won’t be able to ship our product on time. What do we do?” “He won’t accept our offer without a joining bonus. Should we offer him one?” “The customer will not issue a purchase order without a penalty clause. Do we agree to one?”
Issues like these will keep popping up all the time. While you may love playing Captain Crunch, the one everyone goes to for decisions, you would be mistaken to offer one for every question posed. If you want your business to grow and, importantly, if you want to have a personal life, it is critical that most decisions be made by other people. That is the first decision you have to make every time, answering the question: Is this a decision someone else should be making?
So how do you determine which decisions are yours to make? I’d recommend that you use the following simple guideline — if a year from now it would still matter what decision you make now, then it is probably something you want to be involved in. For instance, agreeing to a penalty clause in a multi-year contract with the Government will matter. Similarly, anything that involves the culture of your organisation or shareholding or capitalisation would make the cut. Most other decisions can probably be made by someone else. Which of course brings up the question: How do you ensure that the decisions others make do not drown your business?
Decision mechanics Having a well thought out and tested process for decision making will not only help you but your entire team make the right decisions. Here again, I refer to the work of Peter Drucker who spells out a five-step decision-making process. They are:
Comprehending the nature of the problem or decision — is it generic or an exception?
Understanding the boundary conditions of the problem.
Figuring out the right solution without considering real world compromises that might be needed.
The action required to execute the decision.
Validating the appropriateness of the decision once taken.
At first glance, it may seem tough to figure out what to do if your product won’t ship on time. Most operational issues do not require executive decision making. As in the example of agreeing to a penalty clause in your Government order or deciding to do business with the Government or setting up an overseas distributor — issues that will have a long-term impact on your business — a well thought out process helps. Further, it allows your senior staff or other partners to use the same methods and yardsticks to make their decisions. This way your direct presence or involvement is not needed in each time.
Drucker makes the point that one rarely encounters truly exceptional cases. Most situations you encounter, even if new to your business, are generic and would require a rule to be fashioned. “We don’t sign penalty clauses in our contracts or any penalty or liability clause cannot exceed the value of the contract itself,” is a rule you can formulate. “We may offer discounts or walk away but no penalty clauses,” is another. It is critical to define the problem before you attempt to make a decision. This requires the first three steps to be followed rigorously. Subsequently, dealing in the real world rather than in some ideal scenario, it is important to ensure that the solution is effective. And this should not merely be faith-based but data-driven; such validation after a decision is made will ensure you continue to make good decisions or learn from bad ones.
The five steps could take a few minutes in some instances and a few weeks in others. Either way, it will help you make measured decisions. Needless to say no process is infallible and good leaders trust their instincts. Of course, great leaders know when not to rely on their instincts but to get the data first.
Not making a decision is a decision The former Indian Prime Minister P. V. Narasimha Rao epitomised the art of non-decision making or so it seemed. Legend has it that he’d avoid making difficult decisions and in time, the problem would disappear or resolve itself. As an entrepreneur you will rarely have the luxury of ignoring decision making. That is not to say you will not do it. I have avoided the hard decision to let go of some difficult employees, as my staff keep reminding me frequently. Such avoidance of decision making is the classical ostrich-sticking-its-head-in-the-sand syndrome.
It is critical to recognise that it is a legitimate decision when you decide to not make a decision. It’s worth reading the previous sentence more than once — it is not intended as a play on words. Choosing to not make a decision is completely different from avoiding a decision. The difference is that you have made an explicit choice, one with consequences that you understand and are prepared to live with. Such a choice is particularly appropriate when it is evident that the situation will take care of itself. More importantly, it is of little importance, even if annoying, and is unlikely to have any material impact. In such circumstances, it is worth keeping in mind the Roman edict, “De minimis non curat praetor”or “the magistrate does not consider trifles!”
This article was published in the Business Line print edition dated November 17, 2008
“As soon as I get enough experience, I will start my own business,” is a common refrain of many prospective, usually young, entrepreneurs. “I need to understand how the value chain in retail works,” or “I will work in a small/large firm to learn this, that or the other,” are all reasons that I hear soon-to-be entrepreneurs give to put off getting started. I would assert that there is never going to be a better time to start your business than now, particularly with the current financial troubles that are roiling global markets and making everyone in business antsy. Even if it gets worse before it gets better, a downturn such as this is the best time to start a business.
The reason a downturn is a good time to start a business is three-fold in my view. First, prospective customers, though not always willing to part with money, will be prepared to give their time. Their time, which would be hard to come by in good times, will help you build meaningful relationships for the future. Even more importantly, it will help you comprehend what issues your customers truly care about and fold that into your product or service offerings. Finally, bad times are good times to learn how to make your dollar, pound or rupee go much further. Once you have learnt this lesson, it will serve you well through the rest of your business life. That being said, you don’t have to wait for a downturn to start your business. The sooner you get started, the sooner you will realise that you know even less than you thought you did and the sooner you will begin learning what you need to, and you will be far too busy to wonder if you have timed it right!
Build relationships
Lest I have not said it enough, businesses are about relationships. And relationships take time; often much longer than your business can afford and far more time than your customers can afford to give you. In that regard, the sooner you begin building relationships, the better off you are. Ideally you’d have embarked on this way before you started your enterprise. It’s worth pausing for a second here to comprehend what ‘building a relationship’ constitutes. Most of us intuitively understand the word relationship in the context of families, even though we may grimace or smile at the thought; friends; and social acquaintances, folks we know such as neighbours, friends of friends and relatives of friends. So what does it mean in the context of a business?
In my view, simply put, a relationship in a business context, much like in the rest of our life can range from casual acquaintances all the way to life-long friends or occasionally a spouse. A relationship moves from being one of merely dealing with one another (cold calling in sales or collecting a purchase order or payment from finance) to a more meaningful one, when both parties are prepared to share and give of their knowledge, time and energy. This could be sharing thoughts on the marketplace in general, what other companies or folks are doing, all the way to each others’ key care-abouts, concerns and plans.
Meetings over coffee, attending a trade show or seminar together, playing together (from billiards to white-water rafting) or dinner followed by karaoke all help build a relationship. Not all relationship building need be done face-to-face — SMS or texting breaking news or a thought for the week, e-mailing interesting items of business or personal interest, newsletters, telephone calls or even the occasional instant message (IM or chat) can all help build relationships. Of course, be sensitive to the needs of the other party; you don’t want to be seen as a spammer or worse yet, a stalker! When in doubt, err on the side of less not more.
Notice most methods of building relationships are not transactional and even when interacting for a transaction, doing what your mother advised you to do — making small talk, being polite, saying thank you, all go to building a better relationship. And there is no better time to build relationships than now, so get started.
Validate market needs
One of the sheer joys of being an entrepreneur is the number of times you get turned down for appointments, let alone capital, loans or purchase orders. The fact that we persist and actually thrive despite this speaks of our faith in what we are doing. While such faith is good and even necessary, it can be just plain wrong. A good way to ensure that you don’t expend all your cash, emotion and energy barking up the wrong tree is to validate what the market needs. Such validation is a lot easier said than done.
Most consumers or customers don’t know if they really need something, especially if it is not something they have encountered before. Prior to Hotmail or more recently FaceBook people were not clamouring that their lives were incomplete; nor did the absence of mini-vans or flat panel plasma displays or soap in Re 1 sachets lead to consumer revolts. As Badri Seshadri, founder of New Horizon Media, a leading publisher of non-fiction in Tamil stated, “Supply has to lead demand, sometimes.” It is here that having built relationships with others in the business, you can seek to have your ideas reviewed, critiqued and if lucky validated.
As with New Horizon, sometimes there is no alternative but to get your product out there, but even then, you can validate the market need through calibrated testing be it pricing, and in their case distribution channels and different book titles. The market not being a static entity will require you to continuously measure it and tweak your response. Downturns are again good times for this for customers and the marketplace will be willing to provide you more time and greater feedback. However, given the ongoing need for testing the market, the sooner you embark on it the better. So once again, there is no better time to validate market needs than now.
Learn frugality
One of the biggest mistakes I made when I first considered starting a business was to blow nearly $200 (yes, two hundred dollars) on fancy business cards. Granted this was 12 years ago, when I was a callow youth and some credit must go to my printer who up-sold me on the expenditure. Besides never doing business again with that printer, I learnt the hard lesson that money is better spent (or not) on so many other things than fancy business cards. But it is never too early to learn the lesson of frugality.
No company, however big, can afford to not watch its spending and particularly its cash position — this was true even before Lehman Brothers filed for bankruptcy. While there is a fine line between being frugal and being a miser, it is best learnt by constant practice. Yes, money has to be spent in order to build and grow a business, but how much and when is always a matter of debate. Most folks entreat employees to spend the company’s money as if it is their own, but then again most folks don’t manage their own money too well. It’s best to ask yourself ‘why’ three times — Why am I spending this money? Why now? Why this much? Bad economic times are good times to learn about frugality for you see so many people around you — your customers, partners and suppliers — practising it. Don’t be a laggard and don’t wait for bad times to practise it.
As with most advice, take this entreaty to be frugal as a good thumb rule, but use your own judgment on each occasion for there will be good times, particularly in downturns, to invest for the future.
Trust your instincts and if you have built relationships and continuously validated the market needs you’d have good reason to back your instincts.
This article first appeared in the Hindu BusinessLine in November 3, 2008.
“Remember that time is money,” said Benjamin Franklin, statesman, philosopher and one of the founding fathers of the US. Maybe it’s because he made this statement nearly three centuries ago in 1748 that many of us don’t remember it. Capital, people and even technology can be obtained by debt or equity, hiring or licensing. However, the one thing that no entrepreneur can get more of is time. Yet most of us treat our own time as a fungible commodity available in endless supply. Bankruptcies, broken marriages, debt traps and nervous breakdowns have not cured many of this fallacy. To be successful as entrepreneurs, it is critical that we recognise time is a perishable commodity.
Just as our favourite foods are probably the least healthy, we will discover that many of our favourite activities as founders and entrepreneurs are the biggest waste of time. Even as crash diets don’t work, and diets have to be combined with exercise, using our time effectively calls for both a balancing of our activities with objectives and a good deal of self-discipline. Self-discipline, in particular, is not a strength of many of us entrepreneurs. At times, we even wear our lack of it as a badge of honour, mistaking ad hoc behaviour for freedom and lack of discipline for being creative and unfettered.
At the other end of the spectrum, young or first-time entrepreneurs and particularly Indian entrepreneurs are loathe to appear rude to elders, be they advisors, board members, customers or suppliers. Neither of these behaviours contributes to success at work.
If time is indeed our most precious resource, how do we save and deploy it better? And how do we find the time for this new “time-saving” project? Much like brushing your teeth, make planning your day a daily habit, done before you embark on anything else. And here is one way to go about it.
Measure it
Even when I have walked for just one day, I find myself checking my weight. (Okay I admit, more than once a day). And the reason I do that (and am pretty sure I am not the only one) is we can only change what we measure. If your plan is to save time (or lose weight, or make money) if you don’t measure it, you cannot address it, let alone fix it. So right after reading this article, take a piece of paper and once every hour write down what you did. You don’t need software or a PDA — a pencil and a sheet of paper are sufficient. Begin with your workday — say 9 am to 5 pm and do this for the next five working days.
Be honest with yourself — write down “read the newspaper” if that is what you did, or “idled in the cafeteria,” “worked on Jameson proposal,” “weekly staff meeting,” or “browsing the Internet”. Even this exercise will show how much time is unaccounted for. As with taking antibiotics, if you miss one dose (or hour), continue with the subsequent dose (next hour) and write down your hourly activities for 40 hours.
As with exercise, let a colleague or an administrative assistant or if you are bold enough your spouse, know about the little project you are doing and they will ensure that you follow through.
Once you have a week’s worth of data, analyse it. This again does not require college math — just break it down into simple categories relevant to your business. For instance, it could be simply high-level categories of what you deem are value-added activities — customer contact time, employee contact time, planning, product development and activities such as lunch, entertainment, travel, other phone calls and meetings. Alternately, if you are analytical, you could break this down into greater detail. Either way, the idea is to first identify where your time goes and what activities cumulatively consume how much of your time. Most people report that meetings and interruptions are the biggest thieves of time. Depending on your business and your personal style, you may find other categories of activities to be your largest time sinks.
Prioritise it
Assuming that you have not keeled over in surprise to see where your time truly goes, you are ready to take charge of your time budget. Stephen Covey, author of First Things First, narrates the story of a speaker who walks his audience through the process of filling an empty bucket, first with rocks, then with gravel, sand and finally water. When he first fills the bucket with rocks, the audience responds positively to his question whether the bucket is full. But watching him pour gravel into the rock-filled bucket, they realise the bucket can take more. Only when he finally fills it with water and states that the bucket is full, do they agree it truly is. The insight from this exercise, Stephen Covey narrates, is that if they had tried to fill the bucket in any other order, not as many of the large rocks would have been accommodated. In this story, your day/time is the bucket and the truly important things that you want to get accomplished, the big rocks. All the other stuff — browsing the Internet, reading the newspaper, tea breaks — are all water and sand taking up space that should have rightly gone for your important tasks.
So having analysed how your time is being spent, you need to prioritise what is important — for the week and for the day. Begin by doing those that are of the highest priority first. Then move on to lower priority items. This is harder than it sounds as all too often something of a lower priority will be (or at least seem) a whole lot easier to get done — make that phone call, pay that bill. So it takes self-discipline (there’s that word again) and focus to ensure that time does not get away from you. But once you make it a habit to work on the high-priority items first, you will find it easier and the time you save will be reward enough to continue the practice.
Value it
If all of us worked by ourselves, measuring and prioritising would be sufficient to deliver significant time-saving and productivity gain. However, few of us have that luxury (in my case punishment, if I had to work by myself) and this brings us to a large source of time wastage — meetings and interactions with other people. Contrary to popular belief, it is not others who cause us to waste our time but ourselves. How often have we communicated how valuable that new iPhone is or how precious that autographed book? Yet, we rarely assert that time is precious.
So this source of wasted time can only be tamed by us valuing our time and demonstrating that we value our time. This begins with being punctual, staying on schedule and demonstrating through our actions that we value our (and others’) time. This is the hardest of the three steps I have outlined. If not done right, you will at best come across as insensitive or at worst insufferable and self-important. In that event, it might not hurt to have a bucket, some rocks, and sand handy or at least a copy of this article.
If I had a dollar for every prospective employee who said he loves what he’s seen and heard at our company but his father/spouse/friends feel more comfortable if he joins ‘Giant Co Ltd’ next door, I’d be a rich man. And every one of those prospects was honest enough to admit that their father/spouse/friends felt far more comfortable with the safety, reputation and BRAND of ‘Giant Co Ltd’.
Brand, the very word seems to connote a variety of images. Advertisements, billboards and neon signs, models and Bollywood stars are what many people associate with the word. If you probe further, you may hear AirTel, Britannia, Disney, Coca-Cola and Pepsi or Sony and Samsung as companies that people think of as brands.
People in the trade, be it marketers or financiers, talk of brand equity, brand loyalty, and brand names. When you talk to entrepreneurs about brands and what it means to them, they, particularly those in the early stages of their business, admit that brand is important and something that they aspire to build one of these days. However, right now they have to run and take care of this cash flow matter or woo that key hire, so they will get back to it when they have more time and when it’s more appropriate!
So what is a brand and how much should entrepreneurs care about it? And when should they care about it? Doesn’t it cost a lot of money to build a brand? Is it a luxury for a struggling start-up? These are a few questions worth considering and answering even as you embark on your business.
Brands, simply put, are what people think they are. In other words, when people associate Amul with butter, Kissan with jam, Disney with TV (if you are an Indian child) or with Mickey (if you are a 40-year-old American) that is what those brands are. Beyond word association, they often denote something specific — what marketers such as Al Ries, co-author of Positioning: The Battle for Your Mind call the brand promise. For instance, among cars BMW promises performance, Mercedes luxury, Toyota reliability, and Volvo safety.
The key point that Al Ries has been making for the better part of three decades is that a brand’s positioning or promise is determined by how it is perceived by the consumer and not what you as the product or service’s maker believe or state it to be. In the simplest sense, as a start-up or an entrepreneur, if you comprehend and internalise this, you are already on the road to building a differentiated brand.
Know yourself
You have already persuaded some friends and a few former colleagues to join your start-up and are now trying to hire a few more key people. “I am quite happy where I am right now. I am not really looking for a change,” is what you’d usually hear from really good people, the kind you’d want to hire for your start-up. One of the key factors in their decision-making will be your brand and what it’s perceived as. At this stage, when you have just started or have not even become operational, it may seem counter-intuitive to talk about your ‘brand’ — don’t be fooled, the day you began dealing with people other than the founders, you began building your brand.
The reality is that your candidate is thinking about the pros and cons of staying at his present job and the alternative opportunities he may have elsewhere . In other words, he is positioning this opportunity against others and the moment he does that, he is associating a brand such as ‘risky’ or ‘unique opportunity’ or ‘great technology’ with your company. If you want to participate in this mental conversation and persuade him to indeed make the leap to your organisation, having clarity about your brand and what it connotes is critical.
The best way to build your brand is to have clarity — namely knowing yourself — as in what does your business stand for, what do you promise your employees, your customers, and other stakeholders. Once you have the clarity, state it and act on it each day. The day you open shop, your brand matters, and if you don’t state it and shape it yourself, the other guys will be they competitors or prospective employees and, most importantly, the spouses of your current employees.
Be yourself
As Anthony J. D’Angelo, creator of The Inspiration Book Series put it: “If you talk the talk, you damn well better walk the walk.” If you thought knowing yourself and stating it succinctly for others was hard, being yourself consistently is harder still. At this point, particularly in the context of start-ups and entrepreneurs, it’s worth pointing out that ‘brand’ is not something people associate with your product alone, but with your company and many times with your employees and you.
Southwest Airlines is one of the best examples of such brand value and perception permeating not merely the flights and on-board service, but also the founder and first CEO Herb Kelleher and all employees of Southwest from gate agents to in-flight staff be they pilots or cabin crew. So if your image is one of love and fun (as it is with Southwest), you had better exhibit it every day and everywhere.
Nearer home, the Tata brand as personified most recently in the Nano announcement or how Ratan Tata himself is perceived or how an entire earlier generation views the Tata Administrative Service, speaks of knowing and being oneself.
Just as it is a good idea to get a friend signed up when you embark on any new and often difficult activity (running three miles a day or yoga), walking your talk as an entrepreneur is easier if you get your team signed up. They are with you every day and will be (much like your spouse) the first to point out when you stray from the path of walking your talk. So if you make that guy who has come to interview with you wait interminably while you finish something, you are not walking your talk of “individuals matter” (if that is your position). Similarly, if you say “Ship it so that we can make the billing and we can fix it afterwards,” you are not walking the talk of “quality at affordable prices”. As any married person will vouch, telling the truth is always the less expensive option (regardless of near-term consequences). Similarly, being true to who you say you are as a business is the best way to building a brand. Who said it would be easy?
Sell yourself
Jack Stack, founder and CEO of Springfield ReManufacturing Corp (SRC) in his book A Stake in the Outcome states: “The company is the product.” For an entrepreneur and a start-up, there is no truer statement of their raison d’etre. It is easy to ascribe a brand or positioning to your products or services, but much harder to both conceive of and work on your company itself as the product. Great entrepreneurs, be it Dhirubhai Ambani or Richard Branson, have known this intuitively and Reliance and Virgin are a direct result of this ‘company is the product’ philosophy.
From day one, it is this vision of what your company is (or will be) that you need to sell, starting with your team all the way to your customers and their customers (the reason Intel advertises its products to consumers, who are its customers’ customers). Some of you may feel uncomfortable with the idea of ‘selling’, be it your products, your company or yourself. The lesson you need to draw from good sales people is that selling is less about talking and all about listening!
So listen to what the world is telling you and be consistent and true to yourself, and the brand will take care of itself.
This article was first published in the Business Line print edition dated September 8, 2008
“Maybe you can tell your team about your desire to partner with us.”
As soon as these words left my mouth, I realised that I had made a major faux pas. The words were addressed to the visiting CEO of one of our major prospects; one we had been trying to get interested in our products and services for nearly a year.
I was young and probably viewed myself as the hotshot marketing guy and the words had rushed out due to my frustration at dealing with the lack of coherence within their company.
Our chairman, who had put his personal credibility on the line to bring this gentleman in, was still reeling from the shock and the look on the face of our CEO made his desire to eviscerate me amply clear. In this instance, except for some ruffled egos, no permanent damage resulted from my inopportune directness. It could have been a lot worse.
It is through such avoidable mistakes that many of us learn the nuances and subtleties of doing business. In this particular instance, our chairman — luckily — did not confine himself to dressing me down (in private), but counselled me on what I had done wrong and how it could have been handled better, even while getting my message across.
I wish I could say such specific feedback and mentoring happens all the time in companies, let alone start-ups, but this seems to be the exception rather than the rule.
A common excuse in most start-ups is that “We are running at a hundred miles an hour, you just have to dive in and swim.”
So training, if at all, is mostly confined to a quick orientation session: “This is where the bathrooms are, here is where the hardware team sits and finance is over in that corner and oh, here’s your team and your desk. Good luck!” But it is in start-ups that we need to pay attention to mentoring.
The very word with its connotations of ongoing and consistent, if not continuous, investment of an already overworked person’s time seems such a luxury — which explains why most of us fail to give mentoring its due. Big mistake! Particularly since start-ups, with a small group of people, try to hire the best, and that Linux guru or penny pinching accountant we hired are often worth their weight in gold for their technical skills, but are often just not fit for normal human company.
When you have taken the trouble to hire the best, you often find they have come with as large a set of challenges to overcome as they have key skills.
And if they happen to be fresh graduates, then you have your work cut out!
Who mentors whom? You have resolved that mentoring is the way to go to take your company to the next level. Now all you have to figure out is who needs to be mentored. This may not always be an easy thing to figure out. A simple rule of thumb I’d suggest is that anyone who has moved into a new role, particularly if he or she is being promoted, needs to be mentored. While this is true even for lateral moves such as the engineer who moves into marketing or the finance guy who wants to move into sales, all individuals you hope to grow into a leadership role have to be mentored. Lest you groan loudly or at the very least roll your eyes at the thought of all that overhead, mentoring, while very important, if done right need not be a major time drain.
Who should do the mentoring? Conventional wisdom (or if we are to believe Hollywood) paints a mentor as middle-aged guy, greying if not balding, teaching the young buck a thing or two. Experience matters, not just to be knowledgeable, but for credibility as well. Such experience could reside in a young but proven manufacturing supervisor who has managed a unionised workforce, just as easily it could in a white collar vice-president of engineering. So knowledge that stems from direct experience, a willingness to share and patience are key attributes that a mentor should possess for the whole mentoring programme to work. It certainly helps if the mentor is well thought of in the organisation and experienced in multiple domains if not in multiple departments. Many a time, a mentor may come from outside the organisation — for instance, an up and coming woman manager may only find a mentor who has both the experience and empathy outside her company. An executive staff member may look to a member of the board for guidance and mentoring. The key to successfully mentoring your future stars is for such mentoring to be sought by the employee rather than it being prescribed like medicine! Of course, your actions and culture will have a good deal to do with whether people seek such mentoring.
How do you mentor? In one word, gingerly. Mentoring has far too much in common with parenting, most of all in that there are many ways to mess it up, calling for therapy for all concerned! As this has not stopped us from having children, clearly it is not sufficient cause to avoid mentoring.
Albert J. Bernstein and Sydney Craft Rozen in their book Dinosaur Brains – Dealing with All Those Impossible People at Work talk about the rules of a mentoring relationship. They advise prospective mentors to think in terms of a contract and ask “What would you like me to do,” so that a mentoring relationship doesn’t fall into a parent-child role or a courtship role in the case of people of opposite genders. As a mentor, they warn, if you don’t consciously think and state your expectations, you may end up with vague emotional ties that result in anger or guilt from unmet expectations.
Once all the parties have stated their expectations, mentoring can be a very enlightening, fulfilling and rewarding experience. For practical reasons, it is important to have some regularity (monthly, quarterly) to your interactions and sustain these meetings, whether in person or on the phone, even when there seems to be “nothing” to discuss. Being available in times of crises certainly helps, but there is a fine line between being helpful and becoming a crutch, that you should not cross and must monitor to keep both of you honest. Asking questions, open-ended ones at that, is a sure fire way to do this, rather than providing the solutions that you know will work.
Mentoring Successfully If mentoring at times seems like crossing a minefield, you need only to talk to parents of adolescents to know you have the easier job. With all the energy and emotions that need to be expended, mentoring, when done well, pays off in spades. Otherwise, every one of your promising employees is learning all the lessons the hard way. Mentoring with its real life coaching, the occasional nudge and shove will make it a lot less painful and a lot more productive. The hard part of mentoring is resisting the urge to act yourself when decisive action is called for; for the person being mentored, these are the best opportunities to learn, so allow them to do so by cajoling, pleading or where required threatening if plain old reasoning doesn’t work. The harder part is knowing when the bird is ready to leave the nest and providing the autonomy and respect for them to do just that. Mentors who can do that are the ones who are truly successful.
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.
“Remember that time is money,” said Benjamin Franklin, statesman, philosopher and one of the founding fathers of the US. Maybe it’s because he made this statement nearly three centuries ago in 1748 that many of us don’t remember it. Capital, people and even technology can be obtained by debt or equity, hiring or licensing. However, the one thing that no entrepreneur can get more of is time. Yet most of us treat our own time as a fungible commodity available in endless supply. Bankruptcies, broken marriages, debt traps and nervous breakdowns have not cured many of this fallacy. To be successful as entrepreneurs, it is critical that we recognise time is a perishable commodity.
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