Head Starters

“It’s the best time to be an entrepreneur in India.” Bet everyone is tired of hearing this statement, but then even cynical old-timers who have seen many a bubble insist this time it’s different. Indeed, it sounds fashionable to be an entrepreneur in India. The presumably free will of a twe­nty-something founder wins him admiration and dollars. It beats working in a large corporate. Taking a larger perspective, there’s a sense of achievement about getting rid of the backoffice tag.

The average age of start-up founders is decreasing (a little more than half of the 3,100 start-ups that have sprung up since 2010 were founded by people aged 26-35) which would suggest that many aren’t really familiar with a workplace. But as you get reminded from time to time, these people are all very fast learners. Besides, there’s a whole support system you can tap into.

Experts say there are a few hurdles (some pertain to regulations that affect early-stage financing, transactions and exits) which restrict India’s start-up scenario, besides the fact that the investor community in India still needs to mature. Now and again, someone will pop the question of whether a bubble is building up. Nevertheless, the fact remains that many of the people negotiating deals, devising strategy and offering jobs to seasoned hands are no longer greying honchos in sharp suits.

Graphic by Prashant Chaudhary

So, what are the rules that matter when you are founding a company? How do you get the abc of entrepreneurship right? Why do founders falter? After speaking to a cross-section of people, here are 10 commandments (in plainspeak English) for setting up and running a start-up:

1 This seems too basic, but you need to solve a real problem

When the light bulb in your head starts flashing, you always, nearly always, still need a circuit-breaker. Fact is, you think you have a great product. But have you asked the big question: what was the problem I set out to solve and is there a customer waiting for that? Most business ideas change shape several times—the operative jargon is ‘pivot’—before they are worth trying.

“Did you identify the problem by sitting in a coffee shop and thinking, or have you met real, potential customers,” is a question VentureNursery’s Ravi Kiran often finds himself asking young founders (one of his mentees who was ready with a product to sell has now spent nearly two months meeting 50-60 customers and Ravi reckons he’s just beginning to see the contours of a proper problem). And, no, ‘Uber of X’—the term for start-ups that try to clone the taxi-hailing app’s model in other sectors—doesn’t really qualify. K. Kumar, who is chair professor, family business and entrepreneurship, at the N.S. Raghavan Centre for Entrepreneu­rial Learning (NSRCEL) at IIM Bangalore can count three easy presumptions people make: “I have the perfect product. I have no competition. There is huge potential market.”

Photograph by Soumik Kar

Haresh Chawla
on the pressures entrepreneurs face

“The core thing is: are your co-founders compatible? You should not try and do it alone, so you should find the right set of co-founders because you have to go through a lot of pressures together. And, are they complementary? That’s the starting point. My sense is that you have to be ready to give up and you can’t expect an easy ride. You should be prepared to be bootstrapped for a long, long time. My suggestion is build your own minimum viable product with money from friends and family because you can spend a lot of time trying to raise money and not even do some basic product tests. There is no lack of money available; there is a lack of good ideas. The bigger focus has to be on the idea. First, perfect your business model and your product-market fit before you start expanding and scaling up.”

(Chawla is partner at India Value Fund Advisors and former Group CEO, Network18.)

2 Even if everyone swears by its power, it’s never just the idea

Every founder (one with ideas, produ­cts and customers) who crosses your path will dole out this bit of common sense: “Business is all about execution.” Add to that: it’s all the more difficult in India. So how you’re wired matters as much as your idea, and that’s something your backers bet on. “A good angel (in the non-business world, a patron) is trying to project how the entrepreneur will turn out to be,” says investor and mentor Shankar Maruwada, who recen­tly tea­med up with Nandan and Rohini Nilekani to start EkStep, a not-for-profit initiative to improve literacy among children via a technology platform.

Secondly, look for a co-founder. Friends and family, husband and wife, well...there’s no rulebook on what combo works as long as it doesn’t hobble the venture. But going solo isn’t a good idea because a partner with complementary skills helps. And, think 10 years of working together at least. Says Shampa Gan­guly, who teamed up with husband Pritam to develop Pparke, a mobile app for motorists to reserve parking space at public places like malls, “The mindset that a husband-wife duo is a family bus­iness has gone. The vision is clear bet­ween us and we distribute the work.” The duo, who met in college, worked with different mncs for over a decade before deciding to start a venture.

3 Ditch the smugness: funding does not mean success

Read it again. It’s an easy mistake to make, by most accounts. Start-up founders who have raised millions of dollars in VC funding are today’s rock stars. Deservedly so, because it is quite a feat to convince people to part with cash. But the money merely means you have to work harder to prove that your business model works.

“Funding is not equal to success at all,” says veteran investor Haresh Chawla. “That’s the single biggest mistake people are making. They are assuming it valida­tes your business model. It doesn’t. Funding just means investors are saying go ahead and try it out a bit.” For that matter, a discount scheme doesn’t mean your model is working either. “You can stand on the road and give away Rs 100, and people might take it. Let’s see if they will come and talk to you even if you are not giving out that Rs 100.”

So when do you go looking for funds? Experts say the ideal way to start would be to build a minimum product with your own money (prize money, savings etc) before you go meet your first investor. “When money starts becoming a bottleneck for the growth and execution of your company, that is the right time to raise funds,” says Rishabh Gupta, CEO, Housing.com. “Selecting an investor is a complicated journey, similar to choosing a spouse.” More about Housing.com’s founder Rahul Yadav later.

Photograph by Tribhuvan Tiwari

Raman Roy
on validating the needs of consumers

“Even a decade ago, starting one’s own business was considered a sign of failure unless you came from a business family. Most young entrepreneurs I meet today are passionate about what they want to do. Even better, there are now incubators which help and support these people. Investments in the country today are not hard to find but in order to get them it is extremely important for a start-up to validate the needs of the consumers they are targeting. Another important thing to focus on while setting up a business is roping in the right kind of people. Cash inflow is not a driver for business any more. Long-term cash flows become a composition of value of the business and therefore investors support businesses that are losing money even five years into starting.”

(A pioneer of India’s BPO industry, Roy is a founder of Indian Angel Network.)

4 Don’t be shy now, seek out experts, ask for help

Sometime last year, when 22-year-old Harshit Shrivastava decided to drop out of his IIT Kharagpur course and landed up in Bangalore chasing a business idea, he wasn’t entirely on his own. He shacked up with some seniors (who were building their own start-ups) till he could move his venture, Intugine, into a rented house. The IIT network can be quite a formidable ally (in fact, one of Harshit’s four early backers, Harsh Chitale, the South Asia head of Philips Lighting Solutions, is an IIT Delhi alumnus). It isn’t just the solo founders who need help and who tap into the support system. Inmobi, which is now one of India’s most-keenly watched start-ups, counts Nandan Nilekani as one of its mentors. The start-up would approach him once in a while to brainstorm ideas.

Just five years ago, many of India’s biggest start-ups were still finding their feet. Today, however, Flipkart’s Sachin Bansal, Snapdeal’s Kunal Bahl, Paytm’s Vijay Shekhar Sharma and Zomato’s Deepinder Goyal are mentors themselves. The rule, therefore, is to meet people. “Be shameless about asking,” is the general advice. At last count, there were over 80 start-up incubators across the country and some 550 angel investors. Spread the word and spread the risk—reach out to many people and cover all angles. So a typical line-up of experts could include entrepreneurs, financiers, marketing men, media experts (yes, they matter too), and an occasional old hand who has seen it all. Experience counts.

5 Chase your start-up dream, not venture capital

Don’t chase the money. Perfect your idea instead, goes sage advice. But if you are talking about start-ups, people presume that you need to raise money from a professional investor, says Prof Kumar of NSRCEL. Not having money when you need it can choke a business, but you may not always need capital to prove a business model.

Recently, market regulator SEBI relaxed some regulations to make it easier for start-ups to list on stock exchanges and raise funds. But experts are only calling it a first step towards helping start-ups and expect other measures to be put in place as well.

“The moment you use the word ent­repreneurship interchangeably with start-up, people think it means VC funds and funding as milestones,” says VentureNursery’s Ravi Kiran. “There is a massive amount of confusion I have seen, particularly among young people in India, in not differentiating between a start-up and a small business. And, between venture capital and customer money,” he says, adding more businesses worldwide have been built on plain old cash flow.

Photograph by Jitender Gupta

Sumant Sinha
on the lack of magic bullets in funding

“One needs to choose the right sector and know that you have a capability in that sector. There are certain basic business truths in every sector and if you understand those, you are in good shape to start a business. Once you start a business, the understanding that you develop and the way the sector shapes up, partly because you are dealing with it, could be quite different than what you had expected. You have to keep evolving the business as you go further. Make plans for only one or two years into the future and then execute those plans instead of forming very long-term goals. When it comes to investment, there is no magic bullet. One simply needs to knock at as many doors as possible. It is important that your investors understand your idea and give you space to execute them. Getting aggressive in a business or overcommitting oneself is one of the biggest follies an entrepreneur can make. It is also extremely important to always be in tune with everything that is happening in the industry.”

(Sinha is the founder and CEO of ReNew Power Ltd.)

6 Oldest trick: be careful, look before you leap and scale up

Everybody agrees that a start-up’s call on when to expand operations depends on the response it gets from customers, and its cash pile. But everybody will also warn that this is tricky. Do you get into more cities at one go or expand your reach within a single city first, how do you hire fast enough, can your technology infrastructure handle it? Studies globally point to 70 per cent of companies failing because of premature scaling up.

Aprameya Radhakrishna, co-founder of TaxiforSure (Radhakrishna and partner G. Raghunandan sold the taxi aggregator to rival Ola for $200 million in March) reckons sometimes there’s no choice but to grow. “In the three-and-a-half years we ran TaxiforSure, there were times we were ahead of the competition. We could have been a lot more aggressive, but we weren’t. We learnt from that mistake. So, the next time we got the opportunity, we stepped on the gas when we had to.”

Says Housing’s Gupta, “In India, execution is the biggest challenge, and everything around will deter you from it. Aggressively executing your ideas is a foolproof way to ensure constant growth.” He goes on to say that companies need to execute thoroughly to the last detail and do it quickly. “Once our ‘Verified Listings’ concept was proving to be a big hit for our customers, we decided to expand geographically, we scaled to 10 Tier-1 cities in less than three months.” (In May, Housing.com’s 26-year-old founder Rahul Yadav, who has been variously described as a genius, eccentric and immature, made an abrupt exit from the Mumbai-based real estate start-up. A start-up celebrity of sorts, one of Rahul’s disagreements with investors was apparently over how to scale up operations.)

7 Find the right set of employees

Hiring for a start-up isn’t the same as recruiting for a big, established company. Many cash-strapped start-ups have tro­uble finding the right fit. But so do those hiring in large numbers even if they have the money. Says Sumant Sinha, founder and CEO of ReNew Power, which owns and operates wind farms in 10 sta­tes and has got close to $500 million in funding so far. “When we started off, we had a very different work culture as we were a much smaller company. And the level of attrition was much less. But as we grew fast, a lot of the people we hired earlier were not the right fit in the company and so attrition began to pick up as well. People coming and going doesn’t lead to a very good work culture.”

So what are the watchwords when hiring? “We had this model at InMobi which we called the Kick-ASS hiring model,” says Atul Satija, former Chief Revenue Officer at the Bangalore-based mobile advertising technology start-up. It stood for Attitude, Smarts and Ski­lls, necessarily in that order. “Which means you should always hire for att­itude first,” he says, explaining that placing skills first is a common mistake entrepreneurs make. “It sudde­nly reduces your pool to a very small set of people and they come in jaded,” he says. Satija, who worked in Google for several years, says he learnt more during his five years at InMobi.

Kavil Ramachandran
on entrepreneurship education in B-schools

“There has to be much more attention to entrepreneurship education in India. Many of the new crop of entrepreneurs are not path-breakers. We are getting into the high-thinking, high-growth mode but Facebook type ventures are not happening in India. Most IITs-IIMs do not have high-end accelerat­ors. Most B-Schools do not have an entrepreneurship faculty with hands-on experience. The long-term approach has to have entrepreneurial thinking right from school. With that, there should be support from family. Big companies should come forward and create a fund and bring in technology to encourage entrepreneurial element in students.”

(Prof Ramachandran teaches at ISB.)

8 Ignore this at your peril: learn how to prioritise

Running a start-up could mean juggling a hundred issues at any point of time. Often, it becomes difficult for entrepreneurs to prioritise the issues in a manner that best serves the company’s objective. But how does one prioritise on issues, especially in a company that is so new? Foodpanda, the three-year-old food delivery platform, was recently the focus of an investigation in business daily Mint which suggested there were a number of discrepancies in its operations through which it was losing cash. Notably, the expose pointed out glitches which some customers apparently made use of to order food online for free. There were also allegations about fake orders­—that many restaurants on Foodpanda’s listings didn’t exist and that its recording of transactions wasn’t robust enough.

Saurabh Kochhar, CEO, Foodpanda, told Outlook the start-up was addressing sev­eral issues, though he didn’t discuss the specific allegations. “There are still certain problems with the system and we are trying to solve them. We are prioritising them and deciding which gets attention first,” says Kochhar. Unlike most start-ups, Food­panda was started by professional foun­ders who were approached by investors with the idea as well as the investment to start the business. “A model such as this starts one-off initially. Rather than figuring things out and asking for money, you have monetary backing from the word go. You can do a variety of experiments,” he says.

Quite often, prioritisation also means delegation of responsibility, something most founders are wary of. “As the company grows, one begins to understand that you can’t keep an eye on everything. The need to have a hand in everything mostly leads to inadequate work,” says Sinha of ReNew Power. Delegation of responsibilities frees up time to address the bigger, often pressing, issues.

9 This one bears repeating: be transparent, open and clear

Facebook founder Mark Zuckerberg recently had this to say when he posted a video of the firm’s new office building at Menlo Park, California: “At Facebook, no one has offices. Everyone has a desk, even the people running the company, because the idea was to create an open and transparent culture where ‘every­one could see what everyone was working on’.” Start-ups go through numerous shifts. Often, you need to tweak the plan a bit. Then, there are numerous ways money can be spent. It pays to be open about things, within the team and also with partners. “From the beginning, ensure you have a transparent system,” advises Ravi Narayan, director of Microsoft Ventures India. “Your stakeholders should be aware of where things stand business-wise, so that there will be no unpleasant surprises in the future,” he says.

One of the companies he’s mentoring, Uninstall.io, has hit all the right notes on this as its founders have been open about product roadmap changes as they acquired more customers, he says. The start-up helps developers figure out why users stop using their mobile apps, and thereby reduce the uninstall rates. “It is important for investors to see the honesty of purpose and integrity the entrepreneur has,” says Sumant Sinha. “They have invested in the company and have as much of a say in its decision-making so we are transparent with them.”

10 Failure isn’t a bad thing

If there’s one telling change India’s start-up boom symbolises, it’s the willingness of a large number of youngsters to try a hand at entrepreneurship despite the risks involved. Driving this is the confidence that you can always find a job if things don’t work out. “An entrepreneur whose venture has failed will be a better bet when you are looking to employ someone,” says Shankar Maruwada.

It isn’t just the founders. Often, the members of their core team are those who quit large firms at senior positions. Says Aprameya Radhakrishna, “There are people who want extreme passion wherever they are working and want a larger impact on the society. Those are kind of people who love working with start-ups. I’ve seen a lot of people who used to work for larger corporations, who, once they started working with a start-up, have never wanted to go back.” May their tribe increase.

By Ajay Sukumaran in Bangalore with Arushi Bedi in Delhi