Startup success tips for heroes in the making- By a noob

You might not agree with all of this, but I’m contrarian by nature

If you’re an entrepreneur, and looking to raise funds, and like a number of other young founders, are keen to get on the startup dance floor while the music is still playing, this guide is for you.

Note that if you have already started a company, are producing positive cash flow and need money to scale, this guide isn’t for you. The only pointer I can give is that you’re doing it all wrong, because the best of the best raise money well before they even dream of getting to break even.

I briefly cover some business models that Indian VCs can’t seem to get enough of, and then give some expert pointers for the noobs.

Model 1

Back of business card description: ‘Hunger warriors serving the needs of the hungry everywhere’

Sector: Food Tech

Model: Deliver food from A to B, by taking a cut out of every successful delivery. USPs to offer include real time tracking (of the guy delivering the food, not the food itself), delivery within 45 minutes, and cash backs.

End game: Raise a lot of money soon after launch and subsequently squander it in double quick time to grab headlines like ‘X Food Delivery Startup pulls out of 18 cities, lays off 250 employees’. If you’re really good, you might get to the dizzy heights of ‘Founder of X Food Delivery Startup held hostage by employees for 18 hours after announcing lay offs’.

If you fail: Say ‘we were building a logistics company, which we marketed as a food delivery startup. India is in dire need of sound logistics’.

Number of competitors: Approximately 2,700 {and increasing exponentially}

Model 2

Back of business card description: ‘Bringing the corner store home’

Sector: Grocery delivery

Model: Build an app which doesn’t accurately portray what your partner stores have to offer, and then sell everything they don’t have via the app. USPs include ‘free’ delivery for the first 6 months, providing a bill on payment and cash back offers.

End game: The real opportunity is in discounting goods which already sell at wafer thin margins, to the point where you will have to pay buyers to buy them. But investors will love you because you are ‘asset light’ and don’t hold inventory. The point is that if you can scale to the level of selling a quadrillion products per month, you will end up making a little bit of money. But your Gross Merchandise Value (GMV) will be sky high, which is the one metric your investors will be tracking.

If you fail: Say ‘the customers in the Tier 2 cities weren’t sophisticated enough. The opportunity is huge though’.

Number of competitors: Approximately 1,300

Model 3

Back of business card description: ‘Putting an end to Amazon’s supremacy in E-commerce’

Sector: E-commerce

Model: Build an e-commerce portal which truly really does suck in terms of user experience, to the point where people are driven away from your site out of sheer exasperation. But, this will be built by the ‘top’ engineers and B-School grads (IIT and IIM exclusively), who are on salaries which are greater than the revenue earned by the average small company in the country. Strategically, move from a web and app model to an app only model. Then reverse decision 6 months later. Also, given you will be assessed on GMV, sell as many mobile phones as possible, at prices which prompt local store owners to buy from you to sell to consumers (store owners usually buy directly from the device manufacturers). It’s OK if you weren’t expecting this reverse arbitrage.

End game: Keep playing the game until investors can support you. Consider selling to Amazon at a poor valuation vis a vis the last funding round. As a last resort, consider selling to Amazon at any valuation.

End game 2: You will be in it for the long haul, and so with a salary of 15 lacs per month over 7 years, you will have built up enough cash reserves to start investing in other startups. You will become an angel, in more than one sense of the word.

If you fail: Fail? What fail? ‘We are the poster boys of Indian e-commerce. We’ve shown the young people of the country there there really is no bound to what you can achieve with easy money, zero margins and an entire ecosystem hoping that you don’t screw up’.

P.S: If you go into this sector, history shows that you are more than likely to be funded by a consortia of Japanese investors, who by the way, seem to be happy with a 3% ROI, because it is 3.5% higher than what they get on bank deposits back home. [They don’t invest in their own equity market, which has returned 10% less than 0% in the last 12 months, and exactly 0% on average over the last 20 years. But that’s still 0.5% better than their rate on bank deposits.]

Number of competitors: 5 real ones, and 300 smaller ones which will become insignificant over time

Model 4

Back of business card description: ‘Solving Indian real estate’

Sector: Real Estate

Model: In all honesty, the model is still to be determined. You will start off doing one thing, and then have to ‘pivot’ because the brokers, scammers and developers will have ensured that the information on your website is utterly nonsensical, inaccurate and untimely. For example, you will start by calling yourself a ‘no broker’ site, only to find yourself on the cusp of collapse because the majority of listings on your site are by brokers. After you get funded, you will also spend $20 million on advertising in the space of 10 months, because that is the way to show your investors that you are solving Indian real estate.

End game: Well, obviously, the end game is to solve Indian real estate. The experience of the Indian real estate market is that the phrase means different things to different people.

If you fail: Well, this one is particularly attractive because you won’t know what to do with the umpteen options that will present themselves to you. You can hack your own company’s website and post a hate message, before being escorted out of your own office by security guards. After this unceremonious exit, you will be better known than anybody else in the startup world. Better known than Marc Andreessen even. You will be worthy of standing ovations by the media at every talk that you are invited to. You can then wax nostalgic about your experiences as a startup warrior who people failed to understand. You will still only be 27 years old. The world is your oyster.

Model 5

Back of business card description: ‘Revolutionizing [insert any fancy finance term here]

Sector: Fin Tech

Model: Given how inefficient, corrupt, and behind the times most financial institutions in the country are, you can do just about anything that the RBI will allow you to. But it doesn’t allow you to do much. So you will look for models which are working in the West, and Control + V onto the Indian market.

End game: Disintermediate all the disintermediators, utilizing technology.

If you fail: Don’t worry, nobody will even know. Fin Tech has to date been so far under the radar that most people don’t even know about this Colossus in the making.

While the opportunities described above no doubt have you licking your lips, there are a few things you need to be wary about:

The moment you announce you have started up, a reporter from The Economic Times will call you up to get details of your revenue, cash flow, burn rate and names of notable investors. So best to have your answers ready.

You may want to educate yourselves on the metrics which will determine how successful you are. In eras gone by, these used to be ‘profit’ and ‘cash flow’, but those are well past their use by date. Investopedia, the world leader in financial education, has officially replaced ‘profit’ with ‘users’ in their tutorials as the bottom line in a profit and loss statement. They are also urging the IFRS, the international accounting standard setter, to remove the cash flow statement entirely from annual reports of startup companies, given the rarity of cash flow in these companies. Now, you have to rack up the ‘users’, ‘views’, ‘shares’, ‘likes’, ‘swipes’, ‘orders’, ‘order velocity’ and ‘utilization’, depending on the sector you are in. How these metrics actually determine whether you make money will become clear to you over time.

The days of trying to build a business through sheer grunt work, hustle, innovation, risk taking and customer delight are gone. You will give yourself the best chance of success by applying to an incubator, accelerator or similar startup launcher. Because you’d rather spend 6 months being mentored, than building your business. Right?

Bootstrapping (using your own funds to grow your business) is also on its way out. Have you ever heard of a bootstrapped startup? Me neither. Do Tech Crunch and Your Story cover such companies? Go figure…

If you do in fact submit to the urge and find yourself updating your Linkedin Profile with your new role as ‘Founder’, you need to mentally prep yourself to grow your company like cancer cells on steroids. Like, 3000% a week for 53 weeks a year. Any less and your company will be in danger of being called an ‘SME’, which is not half as sexy as ‘startup’.

Well, that’s it from this side of the fence.

Over and out.

Keep building, keep raising!