Search Results for: money

Startups are like heat seeking missiles, except they seek profit and live in a multidimensional world where one mistake means missing the target by a mile.

Startups are hard because they require several things to go right simultaneously. It’s not sufficient to get one thing right, an entrepreneur must solve this multidimensional puzzle perfectly.

There are many smaller but important dimensions, but here are the biggest ones that need to be just right for a business to succeed:

• Is the problem you’re solving a real one, or is it just in your head?
• Even if the problem is real, are people actively looking to solve it? There are many problems that are merely inconveniences that not many people bother to solve. Is your problem one of that? 
• Even if the problem has a high enough priority and that people are looking to solve it, are they willing to pay for it? There are many problems which people want a solution for, but they’d not pay anything or much for it because they’re habituated to expect a solution for free. For example, news and information is valuable to people, but people have come to expect to get it for free on the Internet.
• Even if the problem is real and people are willing to pay for it, do you have the required capabilities to develop a solution? Some problems may have challenging solutions that are not easy to execute.
• Even if you’re able to solve a problem that people are willing to pay for it, is there a way you can profitably market your offering to them? Marketing costs money, and often potential customers may not be aggregated at one place for you to profitably market to them.
• Even if you’ve found a distribution channel, does your business have any lasting competitive advantage that will prevent a bigger competitor or another startup from snatching your customers?
• Lastly, assuming you do everything right, will you deliver positive unit economics? Your business will struggle unless you’re predictably generating cash flow.

Remember: because so many things have to go right, most successful entrepreneurs either get lucky on all these aspects or they have a unique insight or expertise about one of the above aspects that others don’t have. ...  Read the entire post →

Most entrepreneurs believe that they’re good leaders because their team does what they ask them to do.

But that’s not leadership – that’s simply people working because you’re paying them money to work. There’s a big difference between compliance and commitment. Entrepreneurs often get compliance with their decisions, but they end up thinking they’re getting commitment.

Leadership is difficult because human nature is complex. Humans are capable of simultaneously admiring and despising people who have a higher status, more money or better prospects than them. This makes the job of a leader tricky because she has to focus on the quality of work and get the job done, despite who did it (an admirer or a hater). The leader has to somehow navigate people’s widely different emotions, desires, and personalities and make them work together to deliver an organization’s goals.  ...  Read the entire post →

It’s a common way of saying that so and so has left a particular company to join another company. Actually, a company is an abstraction for the group of people who comprise it. So, often, what people exit from is not the company but their interactions with their team in the company.

Most people would stick around as long as they’re treated with respect, paid fairly, instructed clearly and given work that usually falls within their abilities but sometimes challenges it, giving them opportunities to grow. Good bosses ensure that they create such conditions for people. ...  Read the entire post →

A startup is like a hypothesis inside an entrepreneur’s head and the entire point of the startup journey is to know whether it’s true or false (besides being able to make money).

Entrepreneurs thrive on feedback from users. Every bit of feedback – even if it is negative – gives them an orientation. In fact, negative feedback is a clear indicator that the entrepreneur has identified the right problem, but perhaps the specific solution that she came up with is lacking.

As an entrepreneur, you should embrace negative feedback because it shows that customers are at least paying attention. What you should fear is silence. If no feedback is coming your way, prospects are not replying to emails, or users are dropping off from the product without telling you why then there’s simply no way for you to iterate. ...  Read the entire post →

We have seen our beloved companies transform into greedy and heartless entities over a period of time. Why does it happen?

It’s usually not because founders have had a change of heart and they start loving money more than anything else. What typically happens is that incentives in an organization gradually start exclusively prioritizing profits.

This process typically begins when a company raises investment from professional financers like banks or VCs. The number one job of investment professionals is to get a return on their investment. It’s not that investment professionals don’t care about anything else, but if their job exists to make more money from money, that’s what they’ll do. With professional investors onboard, whatever a company does then is seen from the lens of the return that investors can get.  ...  Read the entire post →

Investors like talking about what makes a good business. You’ll find angels and VCs on Twitter constantly talking about what makes a good team, how to get product-market fit, and many other such aspects of startups.

Given the amount of preaching that the investor community does, it is understandable then that many first-time entrepreneurs end up believing that the VC community invests in companies in order to make them better.

There’s some truth to it as investors are incentivized to see their companies improve. But investors invest in a company to get a good financial return in the company. This is a trivial observation but it can be easily overshadowed by the apparent we-exist-to-help-entrepreneurs gyan that is ever pervasive in the VC land. Perhaps the world would be a better place if most VCs openly talk about their own incentives rather than talking about what businesses should be doing. ...  Read the entire post →

The financial purpose of a business is to generate over its lifetime a higher return for its shareholders than what they would have gotten by investing in risk-free options (such as government bonds).

Imagine there is an entrepreneur with a business proposal and she requires $100 as the initial investment. She reaches out to you and pitches her idea to seek your investment. To make a decision, you’ll probably analyze and estimate how much return you’d get in return for the money you give to her. If you usually get 6% interest annually in a savings bank account (which happens in India), you would expect a higher return than that from the entrepreneur (especially since there’s a risk of losing your entire $100 while your money in the bank is virtually risk-free).  ...  Read the entire post →

It’s easy to get bewildered by the billion-dollar valuations of startups that are operating under heavy losses. If you’ve ever wondered why would anyone pay for a company that’s not making any money, you’re not alone.

Early in a company’s life when there is much uncertainty about its future, the valuation process is more of an art than a science. However, it’s not a blind science. No venture capitalist will just hand over money to you because they like you.

Valuation, even when it’s an art, is grounded on a very simple financial principle that an asset is worth discounted profits it is expected to produce over its lifetime. The term discounted means that the cash in the near term is more valuable than the cash in the long term. It’s easy to can find the exact formula for calculating the discounted cashflow.  ...  Read the entire post →