my beautifully articulated vision statement for my company, startups

my friend vasanth, sent me this quote from Aldous Huxley which he found in 'small is beautiful'. i have shamelessly borrowed it as the vision statement for my company, startups. thank you vasanth.

the quote is : startups is involved with 'ordinary people doing profitable and intrinsically significant work, of helping men and women to achieve independence from bosses, so that they may become their own employers...'

many people have asked me what is my biz model, and i say my biz model is to facilitate your biz model. youngsters come to me saying they have a damn good idea, they want to be mentored into building a biz around it but they have no resources to pay me for mentoring. and i tell them i dont take any fee. because at this stage of my life i have the luxury of working with entrepreneurs of all shapes, sizes, and hues, without worrying about money because my driving force is to create a mass movement in entrepreneurship in india. with 1.2 billion people, our hedgehog concept is that every indian should be an entrepreneur, creating his own microsoft, britannia, body shop, landmark, zee and disney, as opposed to being employed in them.

so when potential entrepreneurs want me to mentor them in cleaning up their idea, writing a biz plan, structuring their company, evolving an understanding of who they are and where they want to go, if my involvement is episodic, i dont charge at all. if they want me to work with their teams on a sustained basis, commiting x no of hours of physical presence per week, then i charge my fee as a 2.5% -5% stake in the company. never so far have i taken cash upfront as a consulting fee. i work with 24 clients today in different verticals, different stages of incubation, different capex requirement, and the only thing common to all of them is i am available as a resource for them in whatever manner they need my help.

my dream is to make india become that famous 'land of opportunity'.

biz plan contd

Section VI financials :
many entrepreneurs tell me that this is where they come to a grinding halt. the problems they face are two fold: one they are not finance guys, hence have no clue how to put this section together ; two, even if they have a smattering of finance, they find it difficult to project sales, costs and bottomline over a five year period.

Gone are the days when banks insisted on a 1+2 year projection; most funding agencies like to see five year projections of P&L, cash flow, capital deployment and return on capital deployed. their reasoning is very simple. all of them, without exception, like to exit within 3 years with minimum 30% return. very rarely do VC's hold on to their investment beyond three years. There has to be an overwhelming reason for them to do so.

if you have a clear idea of your biz concept, especially if you know for sure what is your target segment, extrapolating that from the universe is not a big deal. there are any number of MR agencies that have conducted demographic surveys and that data is available.

if you have clarity on how you want to go about creating your biz product and reaching it to the market place, then working out production and operational costs should not be rocket science.

if you have estimated your resources correctly, it should be easy to identify what your total capital outlay is, out of that how much are you bringing to the table and the balance that you need to raise. it is absolutely imperative in today's context that a certain percentage of the capital required is brought by the promoter himself. gone are the days of only 'sweat equity' that the promoter brought to the table either by virtue of his experience or knowledge. he cannot hope to attract external funding unless he has invested a sizeable amount himself.

the size of your biz determines whether you are going the debt route or the equity route. interestingly, if your capital requirement is large, VC's are your best bet as VC's will not look at anything less than a $50 million requirement. Larger the cap required, better your chances are in attracting VC's into your biz.

Irrespective of who is the funding agency, what everyone looks for in the biz plan are :
the biz idea
the management
the financials
and the logic in the thought and implementation process.

i have seen biz plans where the capex required is about 200000 INR, but the financials project breakeven after 2 years! i have seen biz plans which inflate topline so irrationally that even the promoter has a hard time lying consistently about it! I have seen biz plans which list risks so perfunctorily, it is almost as if they are listing them becasue they have to fill up the risks column!
the logical flow in the biz plan, from concept to implementation, is its biggest asset and nowhere else does it reflect so blatantly as in the financials.

Section V contd

Particularly since the dotcom bust, funding agencies have started to scrutinise the management team. The first to come under the scanner are the promoters. If the company is promoted by a single entrepreneur, the upside of that is that the first round of due diligence has to be around him, his socio-cultural-economic background, the reasons for which he is planning to embark on this entrepreneurial journey, what are his psychological and economic drivers, and most important, is he planning to become an entreprenuer for the right reasons (there are people who become entrepreneurs when they are pink-slipped by their organizations, do not get suitable job offers post leaving and then take on something temporarily till such time a job of their liking comes their way. these are the wrong reasons).

the downside of a single promoter is that he has to hire the variety of skill-sets that are required to build the organization. and as we have seen earlier, most entrepreneurs make mistakes in this. they hire people who are available, not because they are the right people. when CEO's tell me that people are their biggest assets, i tell them: you are wrong; right people are your biggest assets, wrong people are your epitaph.

when there are plural promoters, the upside is that amongst the promoters themselves there is a variety of skill-sets that could be complementary and augur well for the organization. but i must caution all of you on one aspect. sometimes people come together to found companies because they are good friends or they worked well together in their previous company, or because they were all fired together and they became partners in adversity. whilst being good friends or knowing each other may be good, it does not guarantee a good bench-mark in co-founding. i have known companies that were promoted by best buddies and fell by the wayside within one year of operation because they discovered that being friends and being co-founders were two separate ball-games and the presence of one did not underwrite success in the other.

irrespective of whether it is one promoter or multiple promoters, one unassailable fact is that when you start putting the management team together, it is very important to get it right. the first who... and then what prinicple has to be followed religiously. you need people on board who are powered by the biz idea, who are energised by the other members of the team, who are invigorated by the thought of building a biz, brick by brick.

you need people who board the bus because they are attracted to the people already on the bus. where the bus is going is irrelevant, who is on the bus is most important. if people board the bus because they are attracted by the destination, mid-way through, because of changes in the eco-system if the direction has to be changed, they will not only be most unhappy, they will not let you change the direction. which could mean the death knell for the organization.

sorry for the break!

i have been traveling, on work, for pleasure, i have been in the midst of writing a learn-it-yourself-guide to entrepreneurship, so blogging has taken a back seat. many of my students have been entreating me to resume, so here i am. we will continue with how to write the biz plan, watch out for the blog by the end of the day.cheers.

biz plan contd

Section V Management team

it is very important to put together a good management team in place, right from the word go. most entrepreneurs tend to hire people with lesser competencies simply because they are available at a lesser price. what then happens is that when the organization grows and the people who have been hired cannot grow with it, two scenarios are likely :-
either they have to be left by the wayside in which case all the time, money and knowledge invested in them by the entrepreneur simply goes waste; or the fact that they fail to grow with the organization can actually stop the organization itself from growing. both are unhappy scenarios for the entrepreneur.

the second show stopper is when the entrepreneur refuses to delegate to people with better competencies than himself. most entrepreneurs tend to be very possessive about their ideas and their biggest failing is that they believe that firstly they are as good at implementing as they are at ideating, which of course is a big blunder. secondly they believe that since it is their idea, nobody can do it better than them. which is an even bigger blunder.

successful entrepreneurs recognise early on that they cannot be good at everything, understand what they are good at and stick to doing only those jobs they are good at, and hire competent people to execute those jobs that they are good at.

this is how an entrepreneur build his team. i have heard entrepreneurs lament often enough that they cannot attract talent as startups dont have brand equity. this is true. but what is also true is startups, more than others, need evangelists in the team, people who believe in the biz as much as the entrepreneur does. obviously in a startup you cannot attract talent by paying more because in any case you are strapped for cash; nor can you attract on account of your name or credibilty, because those are yet to be built. so the only way you can entice people to work with you is to look for such people who are moved by ideas, who are willing to give up conventional comfort for the sake of a tremendous idea. ideas should not only move businesses, they should move people too, all stakeholders infact, customers, employees and investors.

as i keep saying, ideas are the starting point of all businesses.

biz plan, contd

Section IV Operations
in this section, it is important to describe in detail how you propose to create the product and reach it to your customer. if it has to be manufactured, you will have to mention location of factory, why you chose that location over other locations, - eg, is it cost beneficial or is it convenient from raw material perspective,- whatever your reason for choosing that particular location.

Eg George Lucas made Star Wars a profitable enterprise because he shot only a small part of the film in the US and bulk of the shooting was in UK, using local crew. at that time it was standard practice for Holloywood to move its entire crew from US to locations where they were shooting. and that used to add to the humungous cost of production.

Lucas did a number of inventive things to keep costs low because he was forced to. after nearly every Hollywood studio had turned him down, at the Cannes festival, Lucas had approached 20th century fox who agreed to fund the venture provided Lucas shot within the prescribed budget. Lucas agreed as he was desperate to make Star Wars because knew it in his bones that the entire series would be a runaway hit.

for instance, after the day's shooting Lucas would courier videocasettes back to Hollywood everyday for processing. even in movie distribution, they were very innovative. eg in Haiti and Mali, distributors were encouraged to sell movie tickets for vegetables as currency and then convert it to dollars! such out-of-the-box thinking led to almost 40% of revenue to come from outside US markets.

the movies were huge successes in Japan and Germany because Lucas saw to it that there was good quality dubbing. his logic was that the themes of the series were universal and were not culture-specific.

they went all out to convert to all home-viewing standards as there was no single international standard.

big time property licensing was initiated, eg Darth Maul, Princess Amidala, Jar Jar Brinks.

Pepsi printed the characters on its cans.

Tricon distributed the merchandise in its restaurants.

The Phantom Menace, which was a prequel to the trilogy was the first ever movie that was globally released in 1999. and by the year end, it had grossed $417 million in ticket sales, second only to Titanic.

all of these initiatives put together brought down the per viewer cost.

the choice of location could also be influenced by taxation laws, proximity to markets, availability of labour, government subsidy, etc. Eg the SEPZ may become the location of choice for the myriad benefits it offers to software exporters.

bio-diesel manufacturers may choose locations based on transportation access, warehouse convenience etc that may have a huge impact on the costs of operation and therefore their competitive edge.

in this section, you may also describe the entire logistics of reaching the product to the consumer. and this in turn is based on the sales channel that your company has identified for it, the length of this channel and access to the end user.eg Samsung sells its washing machines through dealer network which in turn sells it to the end user. Bingo snacks are shipped to distributors who in turn despatch them to retailers who in turn sell them to end customer. Dell sells its computers directly to customers on line.

this section basically deals with the entire process of obtaining raw material, manufacturing the product, and reaching it to the customer.

in my next blog,we will discuss Section V which is about management structure of the organization

a comment

someone has left a comment that one area that has to be de-mystified is how to write a fool-proof biz plan. all i can say is, nothing in life is fool-proof, so why expect a biz plan to be?!! a biz plan mitigates the risks, from the unknown, the unpredictable and the unforeseeable. nowhere does it aspire to eliminate the risks completely. sometimes the best laid plans bomb in the market place due to the most innocuous reason. new coke bombed not because there was anything wrong with the taste or the marketing effort, but simply because the coke customers were inexplicably possessive about its original taste. sometimes products run away with the market for no apparent reason at all. in late 90's the success of stencil brand shirts is a good example of this. biz plan is a blue print, not a warranty for success.