Common problems startups face – A Design thinking outlook
I have been directly associated with startups since 2006. That’s when I started my career as a member of a venture capital investment team. All the way to my recent years consulting them and young businesses, I have heard a multitude of problems that startups face. Problems that can largely be categorized under two main causes.
The first one of course, being investments.
The second, being the lack of traction, or growth in business.
With regard the problem of funds, you could further break it up in to funds you must have, and funds that are good to have.
Literally all of us are, more often than not, influenced by awe-inspiring startup stories. About those startups in the world that seem to be on a blistering growth path. With people and funds literally queuing up for an opportunity to invest in them.
Watched the movie ‘The Incredible Hulk’? The Hulk and the Abomination in that are like those few startups that receive disproportionately high amounts of funding.
Everyone is not like them. And even in their case, of the two, only Hulk was relatively stable with the superpower. The Abomination, as the name goes, became that way because of his lust for super-strength to beat the Hulk.
Similarly, even if all startups could be funded like that, or like Uber and PayTM and Zomato and others have been, there is no guarantee they will succeed. Because making a business stable takes managing a lot more variables than merely the investment one.
Which brings us back to the other alternative – funds you must have.
This is the basic minimum investment that you would need to get your startup rolling. It isn’t too tough to calculate it. Just make sure you have sufficient buffer. And keep checking those levels so you don’t realize it’s bad only once you’re broke. The advantage of this mindset, is that even if external investments never come, your startup will be built on a solid foundation and a sound business model. That, as opposed to one of hyper-experimenting, as is sometimes the case with super-funded startups. Take the case of TinyOwl hiring and almost immediately firing hundreds of enthusiastic freshers back in the day. Or Ola paying USD 31.7 million for FoodPanda a year and a half ago, only to fire a lot of the staff and suspend its operations recently.
While such news pieces might be good to hear, they are often not something to be proud of.
A bootstrapped startup will have its share of proud moments too. And they will be far more grounded and not the kind that could be easily taken away, unlike the case with some over-funded ventures.
Now let’s look at the other main problem area of startups. The lack of traction or growth.
In my book, Design the Future, I mention what is to me, a wonderful example from both an investment angle and a strategic one that depended solely on the understanding of customer needs.
One portfolio company whose growth my boss and I used to oversee, was in the car rental space. Around 2009, it was on its way to be the largest player in India, right on the heels of Meru. Meru was then leading the pack in terms of size of fleet.
However, what was interesting, was that Meru’s business had been built largely on debt. Ours had been built on equity. Which meant we were profitable sooner, and could scale much faster. Meru had just turned profitable around 2009-10, if I remember correctly.
And back then, our portfolio company was already onto the model of partnered fleet. That is what Uber is all about now. Our company was collaborating with small tourist vehicle operators to add their fleet and drivers to their own, in a revenue-sharing model.
Now think about this. A company founded in 2006, which was already employing a model that we in recent times popularly know of as Uber, what as of today, has a market capitalization of USD 69 Billion! And Uber was founded only in March of 2009 (conceptualized in 2008).
So what prevented our portfolio company from being the one valued at USD 69 billion?
In hindsight, a lack of better understanding of the stakeholders in the ecosystem, is my guess.
Our portfolio company and other players back then were perhaps used to a certain customer price level and profitability that they enjoyed in a tried-and-tested pan-India market.
However, perhaps we failed to see that we could considerably reduce the margins and incentivize the partner ecosystem, in an effort to gain massive scale.
And with customers, it is only in very select areas that if we offer something at a lower price, they won’t take it. But certainly not with transport.
So, Uber carpeted several countries with the initial attractive pricing, and more than encouraging partner revenue-sharing and incentives.
And companies like ours, that didn’t think huge enough, shrunk into insignificance in that particular space at least, which they had ruled for some years till then.
Putting investments and a better understanding of the stakeholder ecosystem together, it is not necessary that every business and every idea has to be Uber-sized!
You can as well remain small, exclusive and yet thriving in a small or select few areas or geographies, if that is your business vision. Or, as is the case with Uber, you can be the most recognized brand in ground transport.
What is most important, is to first decide where on that spectrum you want to be. Then you need to find out (not in meeting rooms, but by spending time with stakeholders), what their likes and dislikes are. What drives them, what their profit expectations are? And how flexible are they on pricing; or, is there a better way you can offer them what you do? Something that might completely be poles apart from how you offer it right now.
Scenarios in the startup ecosystem are limitless. And so are the possibilities.
Originally written for NODD app and posted here: link
If you own, manage or work at a company, and are grappling with a complex challenge or are in need of innovation for growth, get in touch. More here.
Changing User Behaviour
I am currently reading the book Hooked, and happened to read something very important. I shared the excerpt with a design thinking group I am administrator of. The snippet read:
John Gourville, a professor of marketing at Harvard Business School, stipulates that “many innovations fail because consumers irrationally overvalue the old while companies irrationally overvalue the new.”Nir Eyal
A recent member of the group asked if I could share examples of this.
I said any attempt by a company to break a customers habit toward a competitors product/service, is an example.
This concept needs to be looked at in context of a larger concept of value.
The book says that a product/service attempting to break an existing customer habit must offer 9-times more value than what the customer currently derives from something existing that he/she is habituated with.
One of my favourite examples, that I used in my book, is about keyboards. Interestingly, I found the same example cited in Hooked. This is about the QWERTY keyboard almost all of us are hugely familiar with. And the example of another product that attempted to replace it.
The QWERTY is a very old design. Early 1870s to be exact!
Along the way, a psychologist invented a keyboard called the Dvorak keyboard. After studying usage, he rearranged keys on his keyboard to increase typing speed. What was different, was that the most frequently used keys were put closer together and in the center. A user would spend less time moving to frequently used keys, which were now closer together. Thus Dvorak rightly claimed a significant improvement in typing speeds for anyone who used this new keyboard.
Want something that helps us improve our typing speed?
Sounds like a no-brainer, right?
Learning to use a differently-arranged device should not be too tough for humans from an ability point of view. Surprisingly, the Dvorak keyboard never really took off.
Look at the Dvorak keyboard in context of the above 9x benefit. Perhaps the benefit it offered was not high enough for users to leave an old habit (Qwerty). And learn a new one.
To wrap it up… The new guys are like Dr. Dvorak and team. They assume a better product that needs users to do things differently will be an instant success. What they don’t realize, is that users need to see a disproportionately high benefit first. It takes a hugely great product solving a pressing problem, to make customers learn a new way to do something. Little else incentivizes them enough. And in context of more recent startups, it takes astronomical amounts in funding to tempt users to change a behaviour. And that too with no guarantee they will still be around when the offers and freebies stop.
If you own, manage or work at a company, and are grappling with a complex challenge or are in need of innovation for growth, get in touch. More here.
Venture Capital Elevator Pitches
I left my job at a venture capital (VC) firm in 2010. After freelancing for a bit I then worked with a high-technology company in the robotics space. I then started my own strategy consulting practice, which over the years has matured into an interesting blend of design thinking, management strategy and human behaviour. Three fields I am keenly interested in, and which I use to help companies. I help them understand their customers and customer needs better. I also help companies tackle complex problems or pursue opportunities and grow.
VC funding, business plans and elevator pitches however, are areas a lot of clients associate me with. My initial list of consulting services didn’t even factor business plans or elevator pitches. However, along the way, by heavy demand, it became a prominent service. I continue to get a lot of inquiries for elevator pitches. There probably will never be a shortage of companies aspiring to get their entrepreneurial dreams equity funded.
However, I have observed one common aspect across a lot of clients and prospective clients. It is in their view of what an elevator pitch is. Or should be. Given the overly enthusiastic, almost orgasmic effect that venture capitalists have on a lot of business folk and new entrepreneurs, they tend to assume that that’s what an elevator pitch is about too. That the brief time the pitch gets in front of the investor, with or without the entrepreneur actually being present, should blow their mind. And to achieve this, they start thinking like advertisers. They think loud. Or blingy. Or just outright abstract.
They assume the pitch needs to be all glitsy and filled with high quality images, video, and graphs! That’s it! And on occasion, it has been tough convincing them otherwise. Reasoning with them that having been an investor, I might probably have a better sense of what might bring out the core essence of a venture. And what might be outright distracting, or worse, confusing. But it doesn’t work often. They are so enamoured by a faceless and nameless investor who probably frequents their dreams, to reason.
Sometime last year, someone made Uber’s first elevator pitch public. For those working on their elevator pitches to seek investment, and if you haven’t seen this already, UberCab – Dec 2008. How many captivating images do you see? They seem to me like just random pictures pulled off a Google search. A few phones, a few cars. No plot, no sub-plot, no theme, nothing. Just a vision and a compelling business proposition and a plan on how to make it happen! Nothing else matters.
I have been quite blunt with clients when it comes to delivering a no-nonsense pitch. However, I have had my pitches go to design folk, artists, and even sent to experts in digital and web design to give them a ‘makeover’. And I’ve had others turn my pitches upside down to present what they believe is a better way to ‘pitch’. Only to then come back and use one previously made by me.
The reason being, at the end of the day, even if some people don’t agree, venture capitalists are humans too. They have similar attention spans. They aren’t fools not to spot a great opportunity, even if it is scribbled clearly on a restaurant napkin. And they certainly aren’t fools to accept a mediocre vision or action plan just because it was in a ‘beautified pitch’.
This is the third of a series I’ve written regarding entrepreneurs and VCs. In case you missed the first two, they’re here: 1. What’s Your Profession and 2. The Entrepreneur in a Venture Capital World
Hope you found these useful.
My attempt at sketching a puzzled investor.
Way to go, Alok! The Venture Capital Differentiators
A few years ago, I came across this interview with Alok Mittal on the internet. Alok is the Managing Director at Canaan Partners, one of the leading VCs in the technology and healthcare businesses, the world over. And in that interview, Alok was talking about their investment in techTribe a few years earlier. techTribe, by the way, happens to have a job referral service offering, similar to the incentive based job referral business model of the company I wrote about earlier.
Alok had publicly agreed that the incentive driving referrals was not going as expected. And that they have been planning to sell the company as the business model didn’t seem to work. I did feel a sense of pride and satisfaction that my gut feel and reasoning was in a way being backed by someone, who is to me, something of an authority in the field.
Then, something struck me. Here was a world where everything that everyone spoke about publicly was, like the Americans popularized, “good”. And amongst them was someone as knowledgeable, intelligent, and capable as Alok Mittal. It took someone humble, grounded, and true to his work, to openly talk about his mistakes. Literally in Rudyard Kipling’s words, he could ‘meet Triumph and Disaster, and treat those two imposters just the same‘.
Hats off to your humility and honesty towards your work, Alok.!
Models that Puzzle Me
If you came here expecting some scoop on Gisele Bundchen or Miranda Kerr, I suggest you hit the ‘Back’ button. This one’s more about the ‘less figure, more strategy’ business models. I’ll work on a post on real models sometime soon though, I promise.
A few years ago, on a random day at office, I received a call about an investment opportunity. At the time, I used to take an average 2.5 inquiry calls per day, speaking to a wide assortment of people. From second and third generation businessmen to entrepreneurs working on their second or third successful venture. And even some final year students who had budding dreams about what could as well be the next big thing. And every once in a way, I’d get a venture who’s business model was confusing. Here’s one of a few business models that puzzle me.
Anyway, so this call, Mr. Promoter of a company that was into the job portal business that was based on referrals. Simply put, the usual job portals work on the model that companies that hire from a particular site would have to pay them certain fees which would give them access to a filtered set of numerous candidates, and perhaps if some of them were hired, the portal would get another x amount of money per candidate hired.
Now that model, as we know, perhaps works just about fine, as demonstrated by the popularity of naukri.com, monster.com, timesjobs.com, and several thousand others.
This particular business model Mr. Promoter told me about, seemed to be based on a reward system. How it works, is as follows. You are a good friend of mine. I know you’re looking for a job, so I get in touch with this company, and give them your cell number or perhaps your mail id. They get in touch with you, tell you that they’ll help you with getting a job. They ask you for your resume, and for the particulars of the kind of job you’re looking for, etc.
Now suppose they find a suitable opening for you. They put you across to the company, and in case you’re hired, obviously this firm would get their fee for helping them find a suitable candidate. Of that fee they receive, I would get a small percentage for the lead. Thus incentivizing me to refer more friends of mine for more requirements.
I tried discussing with Mr. Promoter, almost to the point of arguing. I just couldn’t see the future of such a business, and I wanted to make sure he saw my perspective. It appeared simple to me. I could of course, be totally wrong. I mean, that’s what the VC business, just like anything else, is about. It’s about perspective. I could have my views, Mr. Promoter would have his. The market and success or failure of the company would prove one of us wrong.
Anyway, so my points of argument were, that the higher the post, the higher the pay the firm, and in turn the person referring someone would receive. But, in the real world, you don’t really find a VP or CEO of a company referring someone to a firm. Right? I mean, who would have the time or the inclination for something like this. And at that level, one would have bigger things to worry about that trying to find people in order to make some quick bucks by way of referral.
So that leaves us with entry-level all the way to perhaps lower or mid-management candidates. Now most of them would anyway be registered on all the top job sites, where many if not most companies, would be tapping into, as one of their many sources for finding candidates. So that being the case, we can’t really expect a group of students from a college to refer each other to this firm in the hope of supplementing their pocket-money, eh?
So, anyway, I turned down Mr. Promoter’s investment proposal and even called him later to try to reason out that somehow, the business model didn’t seem to hold. He however, seemed convinced.
So much for one of the business models that puzzled me. The promoter and I have not been in touch since. And while I do hope he’s doing well, I am curious to know how his business worked out for him.