View the image in a new window for better readability.

Notes:

1. This post is written keeping the market conditions of India in mind and may not apply to other geographies.

2. The table shows somewhat ideal scenarios just for understanding, in real world there are many more variations.

3. Don’t mistake table as set of fixed rules, these are just some possible combinations to enable you to create your own scenarios

4. Most of the times these things are function of the main investors subjective opinion, competition for the deal

5. This is not description of what my firm The Morpheus follows. Methods followed by The Morpheus could be different depending on the exact scenario

Update: (answers to the questions that have come on the post)

What percent of equity that will be diluted to the investors at each step?

This can be calculated fairly easily

• Equity given to the investors =  Total money invested / Post-money valuation of the company
• Post money valuation = Pre-money valuation + Total money invested
• Pre-money valution = Valution of your company before taking the investment
• Example:
  • Pre-money valuation = 1 Cr
  • Money being invested = 15 L
  • Post-money valuation = 1Cr + 15 L = 1.15 Cr
  • Equity given to the investors = 15 L / 1.15 Cr = 13.04 %

How did you come up with the pre-money calculations?

• Startup valuations are essentially an art, end of the day valuation of a company  on which both the startup and the investor agree on
• I have based these numbers on my observations and understanding of the preferences of Indian startups and Indian investors operating at different stages
  • I have been directly / indirectly involved in a good number of funding deals  / discussions
  • Also there are deals in which I was not involved but i have the information about them
• I have a personal bias towards revenue generating / cash flow positive startups

Most founders start companies to achieve things like : financial freedom, creative freedom, change the world, make a difference, do something different, be the master of their own fate, be known for their work, be respected by friends & family, lead people, create jobs and the list goes on.

A surprisingly a large number of folks who start companies expect these glamorous  things to start happening automatically the day they leave their job and become entrepreneurs. And since the reality is very different, very soon they start complaining and eventually quit. Here is a little secret you should know:

“Things don’t happen automatically, u have to make them happen. You have to endure and enjoy the pain. Successful entrepreneurs know it instinctively & that’s what makes them tick.”

First 2 years (or more) of a startup are extremely demanding on you as the founder of the startup. You have to endure a lot of pain before you can even get a glimpse of some of these nice things. And there is always a high probability of not making it. Its kind of being pregnant for 2 years while knowing that probability of giving birth to a healthy child at the end of it is a mere 10-15%.  People who go through this period of pregnancy and deliver successfully are the ones who enjoy the journey and the pain more than the outcomes; ones who are prepared to do what ever it takes. You should ask the same question of yourself – are you ready to endure the pain? Or are you better off in your job?

Here is the list of some the things that you should be prepared to go through at a personal/ emotional level during your entrepreneurial journey.

• Unless you plan to live with  your parents, be prepared to move out of your comfortable flat in Versova  with rent of 20k a month and  move to Dahisar to maintain the size of the flat but reduce the rental bill to 10k a month.
• Flights won’t be the default mode of travel between cities (surely not kingfisher).  Every time you’ll travel you will evaluate train vs flight, usually the trains win and mostly sleeper class fare.
• Cabs are no more allowed for travel within the cities. You gotta be using auto rickshaws,  ride buses / trains / metros or even hop on the shared cabs (yeah I have done that)
• No staying in hotels, not even budget hotels. Make a list of friends / relatives in all cities and starting piling on. Or checkout  www.couchsurfing.org
• Can not eat in any fancy restaurant – get a list of affordable but clean food joints – McD is a great option. Cooking at home is even better.
• No more drinking out in pubs. If you wanna drink bring it home.
• No movies in multiplexes. In fact no time to watch TV.
• No phone upgrades / No laptop upgrades. Manage with what ever you have.
• No bank will give you loan. Not even a credit card.
• When we were doing our first venture madhouse – did not buy new clothes for 3 years. Only bought when an investor asked me come to the next meeting in formals.
• There is nothing called a work-life balance in first 2 years of a startup. It’s only work, work and more work. So get used to it and tell your family also.
• You are doing to work (or should I say slog) 18-20 hrs a day everyday for the whole 2 years. And in your 4-6 hrs sleep you will keep dreaming about work anyways
• And a lot of your work time will be spent doing small things, which are not exactly intellectually stimulating  - kinda stuff you always took for granted – cleaning the loo, mopping the floor, making tea, opening your office, buying food, going to banks, dealing with govt officials, starting the generator
• You won’t have much time with family or friends. You will regularly face – angry parents, angry wife, angry kids and angry girlfriends/ boy friends.
• No going to family functions or weddings. Even if they drag you to the function – you will be sitting a corner on your laptop or iPhone and that would leave your relatives angry with you.
• No holidays. No weekends. And if you really want a vacation - Use Google earth to enjoy your imaginary vacations. Feel happy when google earth has higher resolution imagery for your vacation spots. They have recently added high imagery for Kashmir region, especially gulmarg and Amarnath.
• No time to take care of your health. Running, exercises, gyms – all go for a toss
• Don’t expect any recognition for your efforts from friends and relatives – they wont get it – for them you are still a moron – who quit his fancy job with a big company and fat paycheck to do some thing as mundane as SELLING DVDS
• Be prepared to a lot negative talk – all most all people around you will keeping tell you how big a looser you are and many more things.
• Totally get used to failing. Infact failing is not bad – that’s the way to make progress. If you are building anything from scratch – you have to fail 20-50-100 times before you get it right. That’s how evolution works. That’s what happens when you try to solve hard problems.
• Be ready, most people will reject you : customers, investors, employees you try to hire, organizers of startup showcases. You have to keep looking for the ones who will accept you.
• Employee retention will be a pain. You will spend a lot of time finding and training freshers to find they have been poached by biggies with just 1.5x or 2x the salary as soon as training is completed.
• Your girlfriend’s / boyfriend’s parents may tell you that they are not too keen to marry their son/ daughter to an entrepreneur
• And if you plan to close an arrange marriage deal you can forget about it. Entrepreneurs are a total flop in arranged marriage scenarios
• Your co-founder will chicken out and will create a bitter scene. People who seem super committed and ready to give their life for the cause would suddenly find out reality and bail on you.
• Be ready to max your cards / pledge your Personal Assets/Share certificates to give fuel to your Business.

Lot of startups fail / shutdown, just because founders were expecting too much too soon and were not prepared for some of the hard things. I believe being aware of what is in store; can help you prepare for it. If you are prepared for the pain, it will not come as a surprise and I promise at the end of it – all the nice things that you started out for are eagerly awaiting you.

Thanks to Ashutosh Upadhyay , Ankit Maheshwari, Robin Moses, Indus Khaitan, Pankaj Guglani, Sahil Parikh and Nandini Hirianniah for reviewing the draft of the article.

As a startup, specially if you are in the B2B domain, you need to write a lot of Business proposals and send them to potential clients (mostly big companies) . These proposals play a very critical role when you are dealing with big companies, they are used to old way of doing things.  Here are some thoughts on proposal documents.

• Good proposal documents are like paintings
  • Writing a good proposal document is an art
  • It has to come from within, you need a deep understanding of “what does the proposal document stand for, what is it trying to accomplish, who is my audience, what do I need to communicate”
  • Once thats done just let your self loose and a good document will emerge
  • Review the document a couple of times to De-text and make it crisp and professional
  • Identify a few folks whose proposal reviewing skills are good and get them to give you critical feedback
  • Don’t ignore the feedback or parts of the feedback. Work on each point meticulously
• Overall Goals
  • Clearly document the goals of the proposal
  • What are you trying to achieve via this proposal ?
    • Make sure every word & every sentence in the proposal contributes to that
    • Dont get carried away and write stuff which is not directly related to the goal
  • Example Goals
    • Convince Westside to do a pilot in mumbai
    • Pilot should start in next 1-2 months
    • Get Westside to purchase stock against advance payment
• Communication goals
  • Document what are you trying to communicate through the proposal and ensure that of it (and not more than that) is communicated
    • Example communication goals
      • Who are we
      • What do we make
      • What are we selling to the customer and why should the customer buy it
      • What is a simple initial pilot we can get started with (initially try to get into a pilot which is simple and easy to get started with for both sides, you can get into deeper more elaborate partnerships later)
      • What are the mechanics of the initial pilot
        
      • What are the commercials
      • Other terms & conditions
        
      • How can we get started
• Audience
  • Define who is the audience, who will read it?
  • Step into heads of your audience and think what do they want to see so that they will make decision that you want them to make
• Overall structure and format
  • Create a document structure to accomplish goals listed above with the stated audience in mind
  • Fill in the content in the structure
• De-text
  • De-texting means going through the written text and removing unnecessary words / sentences that don’t all value to the content or don’t contribute towards the goals of the document / section
  • De-texting is an art and it takes patience to do it but once you practice enough you will become good at it
• Have just enough
  • You should have “just enough” content in the document
  • Every word / sentence / section in the document competes for attention of the reader
  • Hence every extra sentence takes away attention from existing sentences
  • So be careful and sure about every word / sentence / section – that its required to complete the document
  • Removal of every unwanted less wanted section will increase the chances of rest of the document being understand better by the reader

Please share your experiences / views in comments about the proposals. I plan to update the post based on feedback from readers.

PS: After reading this post again I realized that its equally applicable to other forms of written communications like presentations, agreements, e-mails, requirement documents etc .

Once the investor sees the right signals, the process of attraction starts. He will come closer to you and your business. That’s when he will look for further details about products , domain, detailed financials etc. He will also spend efforts to learn more about the domain and may involve some domain experts.

He further validates the same thing:

• Whats are the odds of getting 10-20 X Return on Investment in 5-7 years
• Whats are the odds of getting 5-10 X Return on Investment in 5-7 years

Once he is reasonably convinced about the RoI.  Next stage for him is to look for all reasons to say NO.  He looks for things about the team / market / product / competition / legal issues – which may put the odds of RoI at a big risk.

• And if he finds anything which can seriously risk the RoI – he will back out
• If not, things move forward

Previous post in the WWWN series : Extreme Marketing

(WWWN = Whats working whats not)

Creating Business Presentations and pitching your venture to people is an essential part of a startup founder’s job. The audience can be angel investors, VCs, potential partners, potential employees, potential acquirers, bar-campers, OCC guys etc. I have looked through quite a lot of presentations, have worked on a number of presentation / pitches with start-up founders and of course did more than 30 versions of the business presentation and 80+ pitches for madhouse. Here are some points that are good to know while working on presentations & pitches.

Creating the Business presentation / pitch:

• Present only 10-15 slides, nothing more than that
• Consider tailoring the presentation a little bit; keeping the target audience in mind
• Suggested slides (see example presentation below)
  • Title slide
  • Summary / Highlights (4-6 bullets, high level business summary)
  • Market size / market opportunity
  • Business Overview / Business Metrics (these are not financials)
    • Current Numbers and Projected Numbers 6 or 12 months from now
    • Numbers that represent your business the best and  show the audience that you are running and presenting a real business
    • Example: Visitors, users, registered users, active users, revenues, products released, customer acquisition cost, number of outlets, employees etc
  • Team
  • Problem the venture is solving
  • Service / Product (how it is different than other available alternatives)
  • Sales and marketing strategy
  • Key Challenges
  • Competition
  • Financial Projections (optional for very early stage ventures)
  • Closing slide
• Exit Strategy
  • Don’t have this as a slide. Just talk about it towards the end while presenting or when asked
  • Don’t promise exits in 2-3 years, any good business takes 5-7 years, that the horizon for angel investors
• Team slide
  • Have it as 3 or 4th slide, not later than that
• Financials
  • Dont show projections beyond 1 year in your presentation.
  • For young startups, no one really knows what will happen beyond even 6 months.
  • Claiming you know what will happen beyond one year is not a smart idea
  • Have 3-5 year projections ready if people ask for it but do not claim accuracy of these, say that there are based on our current assumptions. We believe things will change significantly over the next 6-12 months and we will rework these accordingly.
• Create an appendix section to include additional details of slides
  • Org structure
  • Product screen shots (too many screen shots right now, need to reduce and show clear flow)
  • Details of market size etc, graphs etc
• Don’t use “colorful” backgrounds. Keep a white background : simple, clean and readable
• Use uniform font size and color:
  • Arial is one of the most readable fonts
  • Choose a font color for “Slide title”, go for the dominant color from your logo
  • Maintain the same color and size in all slides. Font size between 36-44 is good for slide title
  • Use black color for all the body text in the presentation
  • Use same font size for all body text. Font size between 14-18 is good for body text
• Once you do an initial version of the presentation, there will surely be too much TEXT in the presentation, now you need to “DETEXT” – that means edit and cut off all unnecessary text, remove all words that don’t add any value
• Have small and crisp points. Most bullet points should be one line or max 1.5 line long. Don’t have any para type of bullets. Split longer points into smaller bullets
• Vary the presentation of content : break the monotony , give visual breaks and create interest
  • Use different content layouts – dont have only “bullet lists” in each slide
  • Try one column bullet slide, two column bullet, 1/2/3 tabular formats
  • Be be careful not to over do it, use the most suitable format to present the content and do not use something because you have to use it
• Don’t use language that is too “Domain specific” . Use language that is simple and can be understood by people who are not “Domain experts”
• Not everything needs to be written on the slides, many-a-times we tend to pack each slide with all that we want to say and making the slide text heavy. Human attention span is very low and no one reads all of the information-loaded slides. Hi-light the important points and keep the rest for oral / spoken presentation. This will prevent the main/important points from getting lost.
• Keep the size of presentation less than 1 MB, many mail servers block 1MB and more attachments and anyways they take more time to load/view.
• Presentations become large due to use of heavy images, use the compress images feature of MS Powerpoint to reduce the presentation size. Choose web/email resolution for images.

Pitching the Startup

• Be humble. Remember – Humility disarms.
• Be calm, composed and confident.
• Always, always be on time. Never miss an appointment. For god’s sake put the appointments on all your calenders, start early, keep a buffer of 30-60 minutes. Keep people informed if you are about to get delayed.  In more than 50% meetings founders show up late or don’t show up at all. This is a serious damage to the reputation of the startup.
• Show up clean and presentable. I am not advocating a formal look, be causal if you like so, be formal if you like so. But keep your self clean and presentable. Don’t look PUNK.
• Crack a joke, tell an anecdote, make general conversation, figure out a connection. Before jumping into the presentation, create a comfort level, break the ice.
• Weave a story. Don’t just show a stand-alone slide, weave a story around the venture, create interest, tell how you came up with the idea, etc. Engage the audience.
• The passion, commitment, involvement, confidence and energy needs of the team to come thru. So turn it on, talk enough about the team, its all about people.
• Don’t look cold or unconcerned.
• Focus on now and may be next 3-12 months. Spend most time on plans / features/ revenues etc of now and of next 12 months at max, dont keep talking about things that will happen beyond that – people are interested in your immediate future – beyond that no one really knows what will happen.
• Multiple people presenting is always very tricky and can be problematic. Its best if you can choose one person from the team to present. In case you decide on multiple presenters, work very hard on the hand-overs. Try to just have two sections, presenter 1 does section and presented 2 does section 2 – No back and forth.
• Product demo: jump into the product demo as soon as possible. Show the real stuff and the impact will be 10-20x as compared to “prepared slides”
• Listen! Listen! Listen! Many times folks who you are presenting to will say stuff. Be very patient in listening to them. Give them respect and let them complete, before you talk. Don’t be overtly defensive, be open to suggestions/feedback. Give your response and answers in a structured manner. Many presenters start answering before the person talking has finished.
• If you are asked a question whose answer you dont know or are not sure about, its totlaly cool to say “I dont know the answer, but let me try or I will get back to you “.  Dont try any BS, if you dont know the answer.
• Make note of action items (mostly stuff to get back on ) which come out of the presentation and make sure you do get back 100% on or before the promised due date. Again here more than 70% founders will miss promised deadlines or not get back at all, just by doing this you can get into the top 30%.
• Have your set of questions as well, which you would like to ask the audiences of investors, partners, bar campers etc.
• Practice! Practice! Practice! – you can never do it enough. Practice in front of people  – take feedback and improve.

Couple of bonus TIPs from Ankit

If your audience is a potential investor:

• Be very clear what you need money for. You can skip it from the slides. This is a question, which surely is going to be asked, if investors are showing even a little interest in your startup.
• This part has to be extremely clear in your mind. You should be ready to tell how do you plan to spend the money.
• One thing common to most of the VCs is that they are good with numbers, that is their core area.
• Testimonials can provide good customer validation.

If your audience is barcampers:

• Try not to pitch your company directly. Start explaining some concept, and then plug in your company as a case study.
• For example, a few years ago, Rashmi Sinha used to give presentation on Taxonomy, tagging etc and then she used to plug in Slideshare as a case study.

(Thanks to Ankit, Indus and Nandini for reviewing the post and giving valuable inputs)

(This post was born out of internal discussion that took place in MVP forums. Its jointly written by : Sameer, Ankit, Nandini and Indus)

Bharat Matrimony

Bharat Matrimony (BM) has launched its facial search feature that enables you to upload celebrity (you can also upload your ex-girlfriend’s pics) pictures and BM will find a look-alike. Check it out here

Though the technology is imperfect the idea is so perfect on so many levels:

1. Viral nature
2. Engagement of users
3. Stickiness of the site
4. Differentiator from other sites
5. Users having fun, part of so many jokes

It totally rocks and its great to see an Indian company leading its way in innovation. On the other hand its disappointing to see so less buzz created by them in the Startup media.

AdaptiveAds

Glam Snaps Up AdaptiveAds. Mumbai based startup AdaptiveAds was acquired by Glam, a leading ad network based in US. This news was covered very well by Techcrunch and and other leading tech blogs of US about a month back, but again coverage in Indian Startup media left a lot wanted.

Adaptiveads, a mumbai based startup, clearly demonstrated that an Indian startup can target the global market very well and it makes a lot of sense for other Indian Companies to tap into borderless economy. When we can serve millions of western companies by being an outsourcing hub, by developing the core technology for them, why cant we guys put together our collectible brains to bring Indian products to whole world.

Startup Media

The current Startup Media in India consists of the leading startup blogs, some newspaper / magazine columns, couple of dedicated magazines and little bit of TV coverage. The main credit for creating the “Startup Media” goes out to the leading startup blogs, they have been at it for few years now and have done quite a good job of covering the news, sharing good practices, aggregating discussions around startups. They have built a strong and sticky community of readers / contributors around them.

Shout ‘em out louder

Though a lot has been done, there is a need to increase and provide regular coverage “towards celebrating / highlighting / sharing the Indian startup ecosystem triumphs”. This post is a request to Startup media to shout louder about the successes. Indian ecosystem is evolving and it definitely requires much needed boosts from media to encourage them. There are quite a few successful Indian startups, may not be to the tune of 10-100 million USD, but still doing pretty good. But, every mention will only encourage and boost the morale of the others to push the bar & succeed!

Some suggestions to the Indian Startup Media:

• Add regular weekly features that bring out startup success stories, backed by research. Bring out the reasons for the success and help others learn and get inspired. This can also be done with some guest writers contributing.
• Missed out on covering the news in time? – not a problem – write enough juice and they’ll quote you on their blog!
• Dig into the development of the startups you have already covered, ask them to keep you updated, monitor their blog feeds for news of successes – followup stories is always a welcome for a reader!
• A lot can happen over coffee – spend more time with startup founders (new & old), listen to their stories – can make for a good copy!

Communication channels are the most important for development of any eco-system (Even Hitler banked on it) – you have the power to influence and help startups imbibe good practices – make the most of it! This will go a long way to also help dispel India’s image “as only copycats, service-based companies and outsourcing hub”.  It will encourage the ones who are on the edge and are evaluating doing a startup. Current and potential investors will see the successes and increase the financial participation towards Indian startups.

The day is not far when people will be bringing Garam chai and Samosas to your home (riff from people bringing donuts/coffee to Arrington to get covered) . While you make them the stars, they will make you the celebrity!

(This article was written for IT magazine and was published in Feb 2009 issue. Original article can be founder here)

These thoughts about quality crystallized in my mind while I was reading Robert Pirsig’s “Zen and the Art of Motorcycle Maintenance: An Inquiry into Values”. There was such a rush of thoughts in my head that I had to keep the book away and start writing down my thoughts.

Pirsig offers this definition for Quality:

“Quality is a characteristic of thought and statement that is recognized by a non thinking process. Because definitions are a product of rigid, formal thinking, quality cannot be defined.”

But then below the definition on the blackboard, he wrote,

“But even though Quality cannot be defined, you know what Quality is”

Startups are essentially units of passionate, committed, and somewhat foolish people trying to accomplish things which would normally be considered far out of reach for them. The only way for the startups to make it across to the other side is by ‘practicing superior quality’, quality in all aspects of the startup:

• Quality of the founding team
• Quality of the idea
• Quality of the execution
• Quality of the product design
• Quality of everything else being done in the startup…

Now the question really is, if ‘quality’ can not be defined, how does the startup practice it? The short simple answer is that Quality at a startup directly proportional to the:

• Sense of quality of founder(s)
• The discipline with which they follow it
• The amount of pain they are ready to bear to ensure quality is practiced

The ’sense of quality’ is not something one is born with, its something that comes with ‘care’.

Though the Google founders were not UI experts, they came up with a high quality search page design, because they deeply cared about the users experiences. They cared about keeping it simplistic and natural to how people would want to look for information. As a founder you must first of all ‘care deeply’ about all things that your company is doing. This ‘care’ will turn into the ’sense of quality’, which will give you the ability to tell good quality from bad.

Evan Williams; the founder of blogger cared so deeply about the users of blogger, that he stayed on with the company as a single employee running servers, teaching himself stuff, writing code, talking to users, fixing bugs even when all other employees moved on, when the company had almost no money. He did not leave, he stayed on continuing to ensure quality experience to the users whom he cared about and prevailed. Blogger became Google’s first acquisition.

Similarly, the guys who designed the first spreadsheet ‘VisiCalc’ spent less time coding but a lot more time thinking to make it easy for people to use, to ‘make it natural’. They knew they were competing with ‘back of the envelope’. They cared about the users, cared about minimizing the number of clicks and steps that a user needs to go through for performing a function. And if that was not the case, they would have designed a product which would have sunk without a trace, like many other ‘low quality’ products.

Once the founders reach a point where they care about everything that matters, the next most important thing is they have to get ‘quality’ people onboard. They have to instill ‘care’ and teach the ‘quality’ to each of these guys.

How can founders/leaders teach quality?

Some of the points to keep in mind would be:

• Understand that you are also learning the subject which you are teaching, so be open to questioning and changing your existing ideas and beliefs
• Unless its science or math, never give rules to be followed
• Provide a broad framework to help the guy get started, but make it clear that these are not rules, its just one representative framework. It can be wrong, can be changed, challenged and improved ( mental model )
• Use real-life examples and case studies to understand and learn from the examples along with the person your are discussing it with
• Evolve and further understand the model as you proceed
• Also establish that learning for everyone is a continuous process, everyone is learning
• Don’t try to arrive at rules / rigid patterns from past data or information
• Finally, create adaptable mental models – which can handle randomness

Tim Brady, the first employee of Yahoo after David and Yang was obviously given the quality training by the founders, though he was a business guy and these guys where geeks, they managed to convey their care and sense of quality about various things.

Always remember, there is no single or fixed number of routes. There are as many routes as there are individual startups. So don’t follow rules. Make your own rules. ‘Care’ about every damn thing and ‘ensure highest level of quality’ in every task undertaken, every person hired, every product feature designed, every sales call made. Just be paranoid about quality and not let it go. It’s a tough thing to ask and that’s perhaps why there have been so far and few who have made it through.

Just read the couple of articles written by Paul Graham : Y Combinator (answers what exactly does YC do?  or  Seedcamp, Techstars, MVP etc ) and Equity (explains why should you give 5-6% equity to a program like YC)

The thoughts expressed got me thinking about how should First Time Entrepreneurs (FTEs) go about building businesses in India. While a lot is in common between the approaches of YC, SC and MVP there are a bunch of things unique to the Indian Ecosystem which FTEs should consider.

Uniqueness of India

First things first, only during the last 10 years India has started seeing bootstrapped or garage startups by talented, educated, experienced and passionate folks who dont have access to a lot of capital but have the skills, will to solve problems and the staying power. The number of successes out of these have been limited and have not been really publicized for folks to get inspired by or learn from.

The VC industry is just about 8-10 years old in India as compared to 50-60 years in US and Europe; among them majority of the funds in India are under 5 years old. VC being a long gestation industry we are a good 5-10 years away from seeing major VC success in India. Most of the firms are focusing on the existing pipeline deals in the market and there are quite of few of these available – companies by serial entrepreneurs, companies started by Executives (CXO, VPs) from large companies, some of FTE companies where the traction is fairly significant, also since PE sector has performed very well and the bigger funds are shifting time and money to PE  deals. Clearly all of the above are the right things to do for the Indian VC firms, since the firms need to perform for their investors. None of this directly supports the FTEs, which is where the gap that needs to be filled in.  We need to create new pipeline of deals that will become successful startups and will feed into the VC pipeline 1-2 years later. That’s the role folks like MVP, iAccelerator, Upstart.in and others are attempting to play.

Another dimension of difference is IT / internet. The penetration of Internet and PCs in India is quite limited (9 computer for every 1000 people, as compared to 700 for every 1000 in USA). On the other hand the awareness and usage of IT in companies, specially SMEs is limited as well. There are a lot of other fundamental needs to be fulfilled in India (remember we are a developing country).

FTEs in India: What to focus on ?

First thing to ensure is to build a cash flow positive business within the initial capital that you have managed to raise (self, friends, family, fools). Keep lowest possible costs and create early revenues. Expenses should ideally be below 50,000 INR and in no circumstances higher than 1,00,000 INR a month.

Dont think of funding as a validation for your venture. Be prepared to wait longer, to build your business to the 50-100 crore revenues in 7-10 years, with VC funding coming after 2-3 years of being in business or no VC funding at all. If this does not appeal – don’t do a startup.

Internet only business models targetting indian market are not going to viable for atleast 2 years ( or more). View internet as a cheap way to build products and get the initial users with zero marketing budgets. From day one build alternate channels : mobile, call center, SMS, kiosks , shops , sales team into your model. Use technology as a enabler to drive costs down and to drive quaity upwards, but do not depend on customers using it directly via internet.

If your idea only lends itself to internet, think about doing it for developed markets like US and Europe.  India still has lower costs and we are very bullish on build here – sell to the developed world model.

So while you take into consideration the universal wisdom of building businesses, paying attention to the uniqueness of India can make an big impact on the outcome of your venture.

Its almost 7 months since the official launch of MVP and 13 months since MVP was started as a stealth initiative. Its been a great ride working (non-stop) with the passionate and extremely intelligent startup founders.  We have been working closely with the portfolio companies and at the same time have also had the privilege of spending time with 50-60 other startups, we call “Friends of Morpheus”.  With most of these startups we got to know the founders, understand the business model, approach of the team and saw very closely whats working and whats not. I thought it will be a good idea to do a series of posts called “Whats working, Whats not”.

This is  the first post in the series.

Extreme marketing

Now that you have built the most useful app for people to find their next holiday destination or the site with most amazing t-shirts designs or the healthiest organic drink. The next and “the most important” thing you need is people to come see your site/ product, so that some of them can start buying. That’s where ‘marketing’ comes in.  Startups almost never have any marketing budget, but does that mean they wont get anyone in to see / buy their product. Not at all.

Creative startups are coming up with amazing and zero expense ways to spread the word about the cool stuff which they have built. Thats called “extreme marketing” and its working

Examples:

• Tringme’s guerilla marketing with source code on business cards
• Lifemojo launched a GTalk buddy who can answer all your questions about calories  (about 300 people signed up in the first week itself)
• mGinger’s viral MLM campaign (this was way before they got funded) promising 10 paise for every SMS ad you receive and a cut of money that your friends may be making
• Sutra just today has launched Kaamsutra.info. Check here to see what is the twitter community saying and here for the coverage on pluggd.in
• Picsquare’s tieup with Tata Indicom, which meant whenever a tata indicom subscriber connected to internet “Picsquare” was right in front.

Takeaways

• All of these campaigns have been executed on almost a “zero marketing budget” but on a mindset of exterme innovation and risk taking
• Most of these have been done in less than a week’s effort.
• Most of the ideas were shot down / ridiculed by the people who initially heard the idea
• The teams had the courage to go out and do “extreme stuff”. They were ready to face the backfire as well
• They play on basic natural needs of human’s from porn to free money to calorie consciousness and more
• Successful campaigns have a inbuilt characteristic to spread from people to people (network effect) and they make it easy for people to spread it. Specially via twitter, blogs, social networks, mails, SMS.

Let us know comments about your views and the examples of extreme marketing that you have seen..