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A Wise advice to a Wise Startup

Recently I received a set of 8 questions from an early stage aspiring entrepreneur, I started writing reply to him which turned out to be more then one page. I am putting the  questions and answer in blog so that someone else might also get some possible help and inspiration from it. I am glad that the sender S J (name concealed) approved that I could publish the question and answer in my blog.

Advice to Saurabh

On 02/15/13 10:31 AM, S J wrote:

——————–

Respected Sir,

I, on behalf of our start up need your valuable advice in several areas of starting up !!!
I’ve listed down some queries/doubts/questions that are in our mind, Please help us by giving your suggestion/opinion on these.

 

1) Suggest a person or group of people who would be interested in being a mentor/advisor in a tech start-up?

Answer You can find mentors from

  1. Mentor Edge – http://mentoredge.com/,
  2. NEN – http://nenonline.org/
  3. CIIE – http://www.ciieindia.org/
  4. TIE – https://mumbai.tie.org/
  5. Rodinhood – http://therodinhoods.com/ Join their forum, rodinhooders are very supportive
  6. Headstart – http://headstart.in/ for Headstart Join the Google group (headstart-network@googlegroups.com) there are 12K + entrepreneurs who are supportive and will help you.

There might be few who will charge or would like you to share small percentage of equity, and there might be few who would give you free advice and time if possible with them.

 

 2) As being from engineering background, we are good at technology and several other aspects of start up like marketing, advertising etc, but we are lagging in finance. Will you please suggest a solution for the same?

Answer

By lagging in finance do you mean raising funds or maintaining the finances.
1. For raising funds – You will need to do it yourself, or get help of accelerators but joining their accelerator programs which are for approx 2 to 3 months, but there is no guarantee that you get the funding.
2. For Maintaining finances – You need not worry, at the beginning you can start with maintaining and sharing excel spreadsheet, later on migrate on tally s/w and hire an auditor later. For maintaining accounts and creating invoice there are many low price SAS based applications available which are easy to use.

 

3) What percentage investments should be divided into? (VCs,seed investors,bank loans,Co-founders share)

Answer

You should think of this question only when have say
1. 10 paying customer, who will vouch for you or
2. You are cash-flow positive and are selling the product/service

Sequence of reaching to investors

  1. Family
  2. Friends
  3. Relatives
  4. Idiots
  5. Accelerators
  6. Angel Investors
  7. Private Equity Investments
  8. VCs
  9. Bank

Few note points to note

1. Investors will like if you have your ‘skin in the game’ this is the favorite phrase which means, you should have put your savings, jewellery or property on you business, which goes to show your commitment, seriousness, and unstoppable attitude. The reason they think like this is because they are putting their hard earned money. (It’s not their extra money or easy money)

2. As an entrepreneur you will want money as much as possible, your individual appetite is infinite. But you have to ask ‘Business’ (as a person) this question- How much do you really need?, and take that much only, better give back money to investor if you don’t need it. Don’t splurge necessary on yourself or on business.

 

4) How much equity can be given to investors for investing at seed,angel,VC,scale up stages?

Answer

Funding will happen in rounds

You will raise
1st Round of funding – Early Investor (Angel), they will like to have equity in range of 10 to 40%
2nd Round of funding – Mid Investor they will like to have equity in range of 10 to 20%
3rd Round of funding – Investment giants will like to have equity in range of 5 to 15%
4th – IPO or Sell Company for huge sum – Exit

Investors are interested in one thing – Making exit with good profits.

I have an excel sheet which explains funding round nicely.

 

5) What are the key features for perfect entry to market, scalability and sustainability?

Answer

This is an MBAish question; don’t think straight from the marketing book.

Your product/service will be of 2 type either it is
1. Product that makes a dent in the universe or
2. it’s just another similar product in the market

Good news is there is money in both types.
Key question is if you reach to 1000 random people (not your friends, family & relatives), and tell them about your product, How many will get their hands to the pocket to get the wallet to buy it (It’s not to like it, but to buy it.) – If the no. of people buying is good you have got your market, scalability & sustainability.

 

6) How to approach third party for outsourcing?

Answer

Jot down your all the essential requirements in word document in detail and completely clear covering all the aspect, functional requirements, technical requirements, performance requirements, user easy for navigation, design requirements, etc. You also need to think from marketing angle, financial etc. If there are process diagrams etc, supplement more files wherever needed.

Send your requirements to 3 to 5 parties, and get there free quotes, you can get your outsourcing done from
1. Companies – Bit high in price
2. Freelancers – Possibly low in price, but risk on being non-committed or providing inferior quality work (better stick with a known and trusted vendor)
3. Crowd sourcing platform
For Design – www.jademagnet.com/
For Testing – www.99tests.com/
For Development – www.Guru.com & rentacoder

Do the payment in parts, with major payment at final, after acceptance criteria is met.
I prefer that, my outsourcing vendor is from same city, so that we can discuss across the table and meet as much as needed. Better that he works from my office.

 

7) What kind of organization structure is best suitable for a tech start up?

Answer

Since you want to be tech start up, don’t outsource development of your system. Better do it all by yourself or your team. You would like to retain it as you startups core strength.

Follow 3X rule, as your startup grows in folds of 3, change the designations and roles.
Early on you will need
1. Tech (Development)
2. Marketing + Social Media Expert + Sales
3. Finance + Raising Funds + System testing + product delivery

In Early period of Org Structure will be flat for any startup, you need to think of who are decision makers for each areas or segment and how will you have a tie-breaker. Democratic style of 1 vote count works best.

 

8) Should a start-up have CEO? If yes, How to decide a CEO for our start up?

Answer

It is not mandatory to have a CEO? CEO is 1st prime position, CFO 2nd Prime, CTO 3 Prime etc. if your team is comfortable with this you can assign yourself these designations amicably. Else there have been startups without these designation or tags, and just plain co-founders. Everyone in the core team can be a co-founder in respective areas or handling.

Many companies after initial few year of running, hire CEO outside of core team, as an employee to run the company and do the tough and dirty tasks so that core team is relaxed a bit and their headache is reduce as you have a professional to manage the show.

In my honest opinion if there is even a tinge of doubt or bitterness with the question of who would be CEO go for all Co-founder no CEO plan.
If you have to have CEO you can do vote or you can check out these questions given at http://foundrs.com/ to find it out (I don’t recommend to use foundrs site as it might bring dissatisfaction in team)

Looking forward for your positive reply,
Thanking you,

S J

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2 Awesome Comments So Far

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  1. mohan kamath
    February 28, 2013 at 5:06 pm #

    Fantastic idea Sir, putting all the questions alongwith answers on the blog. This will certainly be helpful for other entrepreneurs like me.

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