Month: February 2013

Why Do Start-ups Need Investment?

Continuing from the previous post on market opportunities for start-ups, this post will focus on the funding aspect of it. There are various schools of thought in the start-up world when it comes to funding. There are some who believe that investment only ruins companies, while others think of them as enablers and as necessary evil. The key to understanding your need for funding is often found in the opportunity you’re trying to target, so let us figure it out from that point of view.
Before I get going on the four opportunities, the one thing I’ll be very clear about is that there is no golden rule to all of this. Business and funding environments change regularly and every major player in the ecosystem (companies, funds, public markets) all respond to changes in the larger economic climate. So, if anyone shows you the rulebook, pointing out the One True Way™ to grow your company (with or without raising money), feel free throw throw away that book.
Why Do you need investment?
To De-risk: You can always build flying cars using your own money, if you have enough in the first place, or you can attempt to get that money from someone who is better positioned to absorb the losses should flying cars fail.
To Build: You have to put together the first version of the flying car. This involves buying tools, fabricating parts and a thousand other things. Sometimes you may not have the money on yourself to do this without financial help from the outside.
To Validate: A car once built has to find buyers in the market. Even the best built car, kept as a secret in your garage, won’t sell. If it won’t sell, you don’t have a business.
To Grow: The cars are selling well, but you can’t meet the rising demand with your existing infrastructure. You also want to expand into a different geography because you’ve saturated the market for flying cars in your current geography. This involves hopping up through the stages I had mentioned in a previous post.
To Diversify/Consolidate: The flying cars are flying off the shelf, you’re thinking big now and you have hit the limits of efficiency with the current set up. Growth has to come from elsewhere and M&A becomes a viable option within and outside the car industry.
You also realize that you are spending a lot of money in marketing and discounting the prices (thus adversely affecting the margins) to compete with the New Flying Car Inc. A quick look at the balance sheets says that as a combined entity you can be more efficient and improve the margins by an extent that justifies the risks involved in the merger.
The case for not needing investment!
You can build companies through all the four stages listed above without taking on any investment. There are a lot of profitable businesses that were built and continue to run successfully in this manner. These vary from companies of a substantial size to  mom-and-pop stores.
But these are also companies that tend to grow slowly and the odds are, you won’t find much sought-after hockey stick growth in companies that did not take investment. Exceptions are there to this story, but the norm tends to be that to get into the hyper growth stage, companies need some form of a force multiplier in place and the most obvious and organized one available there is capital.
Risks in taking investment & hyper growth
Investors rarely put money into companies for charitable or altruistic reasons. It is important to understand that they’re also running a type of a business that has a substantially high rate of failure. Funds are raised often for a 5-10 year window and to be successful they need to handsomely beat any other investment class out there.
Trouble is that organic growth companies rarely get massive in a 5-10 year window. This is the reason why the hockey stick growth curve is much sought-after by the investors.
The risk with hockey stick growth, though, is that it compress a lot of events and factors into a very very short window. This is similar to human being going from an infant to a full grown adult in an extremely short period of time. Even in companies, you have both Macaulay  Culkins and Dakota Fannings.

Filed under: Business, Start-ups

On Market Opportunities For Start-ups

‘Disruptive’ is a much-abused word in the start-up world and it is a flawed measure that can be used to determine if an opportunity is worth chasing after. Disruption is an outcome and not a starting point; thus it is best left for glowing testimonials in history books than in business plans.
A better measure ascertain a product’s viability, longer term capital requirements and other key metrics in a business plan is to look at things through the prism of market opportunity. Opportunities can be of the following types:
Greenfield Opportunities: These are products and services that break new ground, building and doing things that have never been done before at any reasonable scale. Example: A car that flies.
Innovation Opportunities: These are products and services that take an existing product or service and approach it from an innovative new angle. Example: A car that costs as same as a regular car, but runs on water.
Execution Opportunities: These are products and services that don’t do anything new, but they do what is already being done in a much better manner. Example: A car that does really nothing new, but it is well put-together and everything feels just right about it.
Pricing Opportunity: These are products and services that are offered at a price point less than what the customer is used paying for a similar service. Example A car that costs half the price of a similar specification model in the market.
Any new start-up or a product has to be very clear within themselves which of the four opportunities do they address, before they hit the market. It also makes things easier for investors to understand your product if you are clear about the opportunity you are after.

Filed under: Business, Start-ups

What Am I Building?

When 2013 rolled into view I had already completed four-years of working on my own. In shifting to a line of work that is more research and strategy-oriented I figured out that there was tremendous duplication of work and numerous switching of contexts to collect, organize and leverage information.
By then I had tried various approaches — using a variety of tools — to address this problem, but each attempt at it only frustrated me more. To explain the problem, think of your brain as a machine with limited volatile memory and processing power. All the tools only act as physical storage. The pitfalls are rather obvious with this approach.
What I’m building is a framework that approaches this problem from a different angle. What is the approach — I will write more in it as I build more of it. As of now, it is just a set of tacky looking pages and interfaces for entering and managing data. The code has already grown into few thousands of lines and I have only started to scratch the surface with it.
It is fascinating to build something for your own consumption. Most of my development work before this has focussed on getting things built for my clients and building something for myself feels so different. The key thing to watch out for is to not to take any shortcuts and build the system properly. The amount of technical debt that can be acquired at this stage is tremendous.
Focus
In a build of this kind, where the end result often can be a moving (almost unattainable) target, the ability to focus is key. The good part about various tools to build things for the web is that there are endless options available to get the same thing done. If you don’t keep simple, bite-sized goals and validate it regularly you can easily lose your way and give up.
Adaptability
When building against a moving target, assumptions, algorithms, logic and outcomes will change. If you don’t validate quickly and adapt to changes that is deemed necessary by the results, the product will become lesser and lesser useful over time. At every stage, what the product does has to match the desired outcome to a great degree.
Dual Vision
In the early stages it is very hard to see how the gap between what-is and what-it-has-to-be can be bridged. There will be days when you’ll crank out a complicated feature in a better-than-expected manner in the first go. There will be days when a small simple bug will keep everything held up for a day or days.
Building a product on your own can be both gut-wrenching and unbelievably exhilarating at different times. The key thing is to quickly overcome setbacks and triumphs and keep the longer term goal clearly in mind.

Filed under: Frontiernxt, Start-ups

Data On The Move: Lava W150 + Tata Indicom 32GB Plan

If you move around a lot, being able to access data on your phone alone won’t cut it for long. There is the option of tethering your phone for that, but it eats up your phone battery pretty quickly if you are dependent on the phone for things other than using it as an access point.
After trying out various approaches — dongles, tethering — I have figured that the optimal solution is to carry one of those pocket wifi routers. They cost little and tend to be stabler than tethering your phone and saves you the trouble of installing drivers and horrible dialer software that data dongles usually require you to do.
I had picked up the Lava W150 in November 2012 along with a Tata Indicom (Docomo for the rest of India) dongle. The device is Huawei-made and branded as Lava (as it is the case with most of the cheap Indian phone devices these days) and runs embedded Linux.
The Web admin UI is powered by the GoAhead Web Server and it provides for a advanced options. It is not the most user-friendly experience that you can have, but it does its job quite well, even if it has a bad habit of restarting everything for major configuration changes.
The device is only one part of the data-on-the-move equation, the other (and the more important part) is finding a data plan that won’t ruin you. I have a preference here for pre-paid plans as my usage is erratic and I don’t want to pay a fixed high amount for capacity that I’ll rarely use.
The golden rule with pre-paid data plan pricing  is that you have to hit the road and find out from the vendors what is the best available plan. The ones that companies advertise online is not often the best ones out there and I went looking for 30 GB for Rs 5000 plan and found one that gave me 32 GB instead.
The other issue with picking a provider is knowing your travel pattern well. The overall coverage and quality of coverage differs from state-to-state and provider-to-provider. My strategy is to use Airtel on the phone (2G plan that has a quota of 2GB of transfer every month at Rs 149), Indicom on the pocket router and a backup on the Micromax A73 with a 1.1GB 3G plan on MTNL.
It has been a good experience overall and with controlled usage I have finished only 8 GB of data of the 32 GB that I am allowed. The good thing about the Indicom plan is that it has a validity for a year, so I can probably use it all year at the current burn rate that I have.

Filed under: India, Mobile Data, Technology

The Next Big Mobile Wave

The popular history of the evolution of mobile phones is something on the lines of pre-iPhone and post-iPhone, which is, admittedly, quite a convenient way to look at things. The actual history, though, is a far more nuanced (or, complicated, should you prefer that) affair. The evolution of the mobile phones has gone through various phases like full QWERTY keyboards, colour screens, touch screens, WAP browsers, ability to record and handle videos — the list is endless. Reducing that to a pre and post iPhone world does a lot of injustice to pretty much everyone but Apple.
While Apple deservedly gets a lot of credit for changing our idea of what a smartphone is and how we interact with it, what they don’t get enough credit for how they also changed the way we think of how to use data on a smartphone. If you used a smartphone in the pre-iPhone era the one thing that stood out was that packet data was a second class citizen on the phone. The devices were phone-frist and data access devices second, or later. More than the iOS interface or the physical experience of using an iPhone what is seldom spoken about is this drastic change Apple bought to the market – it was a data access device first, while the phone functionality was a secondary issue.
Always On Data
Data being always-on was a game changer. Phones prior to that would ask you which connection you wanted to use to access packet data and if it should ask you again should the need to use data arise again. Taking data connectivity for granted has changed the way we use these devices. More than faster processors or wider and longer screens, always-on-data is the critical path that has led to the state of affairs today in the mobile domain. Pretty much all of our interactions on a smartphone now takes it for granted that it will be able to access packet data. If it was not for that we’d still be largely relying on text messaging and closed access methods like Blackberry Internet Services.
Momentum, Implications
If you look at the winners and losers in the smartphone game, you will see a clear pattern. The players, like iOS and Android, who adapted quickly to the always-on-data paradigm have moved rapidly ahead of the competition. The ones who failed to adapt that quickly, like Nokia, Palm and RIM, have struggled and continue to struggle. Rapidly growing and evolving markets like smartphones place a premium on momentum and you’ll always find that on the winner’s side. Without momentum, the best of platforms will struggle. And smartphones, being one of those rare objects that potentially can belong to every human being, is a ruthless market where you cannot blink for even a second.
Cycling is a brilliant analogy in this case, especially some of the stages of the Tour de France. The best riders always look to stay in the front group — called the peloton — at all times. This is due to two factors. 1) Momentum: The guys at the front have a much better average momentum through any stage than the rest of the others 2) Safety: In the case of unforeseen eventualities like crashes and crazy headwinds, being at the front gives the riders a better chance of working around problems. Always-on-data was a headwind that was unforeseen by the industry.
The Next Big Wave
Changes in these domains can easily make or break companies depending on whether they ride or miss out on the important waves. Even established big companies can die or go through near-death experiences if they can’t ride these waves quickly. If the last big wave was the switch from seldom-on-data to always-on-data (the one that made Apple), the next big wave in mobile could be anything from a multitude of devices using the same OS to devices that are embedded within/on us than being actual handhelds.
Crystal ball gazing, though, is not an easy task here as products in the domain are not often ruled by simple value choices either to the consumer or to the companies that are involved in the game. There is considerable regulatory interference that stands in the way of services and there’s considerable commoditization at the hardware end. For the skeptics, this is the reason why Apple is very touchy about keeping a cash hoard, the size of which confounds everyone. You don’t take anything in this market for granted and ease off, Nokia is a classic example of that.
 

Filed under: Business, Mobile