Entrepreneur July 2011 by Infomedia18

JULY 2011  VOLUME 2  ISSUE 11  Rs 100

ath and Renuka Ramn rore PE Fund Her Rs 2,000 c Up Your Steps to Clean Company

P A R T S T O O B

five others AJAI CHOWDHRY and ring and turned it st oe sh a on L C H d te star e behemoth into a Rs.27,000 cror

YOUR S S E N I S U B lan 6 Steps to a Smart B-P it Flipkart- How We Did all Sm 5 Secrets of Starting Money Making Good with no

INSIDE

trepreneur The Mobile En

table of contents 24

THE SIX SAMURAI: The HCL saga is all about how you can successfully bootstrap your way to the top.

INSIGHTS 17 WINNING CUSTOMERS’ TRUST

Richard Branson on having a disaster plan ready and winning the trust of customers even when things go seriously wrong.

18 FINANCIAL PLANNING

FOR YOUNG COUPLES Ranjeet S. Mudholkar on why people should start investing early and take the help of a financial planner.

20 WHO IS AN ENTREPRENEUR?

Nandini Vaidyanathan goes on to define an entrepreneur. Is it an attitude or state of mind. read on to find out.

BOOTSTRAP YOUR STARTUP

44 BOOTS ON FIRE

How the HCL behemoth was started by six individuals in a corner of Delhi the hard way, the bootstrap way. By Pranbihanga Borpuzari

48 A TALE OF TWO STARTUPS

56 SECRETS OF BOOTSTRAPPING

One of the toughest challenges to overcome when you’re starting a new biz is to get your name out there. Creative ways to shave bucks off those startup costs. By Pankaj Arora

Two companies. Two sets of founders. Similar struggles? Flipkart and MadRat Games maybe at the two distant ends of what is the startup journey, but their early days hold lessons for all bootstrappers.

58 COMPONENTS OF A BOOTSTRAP

52 SECRETS OF A LOW-COST STARTUP

60 CASH SHY? TRY BOOTSTRAPPING

No, you don’t need investors to start your dream business. Here’s how to make it happen with your own money. By David Worrell

6 Entrepreneur + July 2011

B-PLAN

A business plan for a self-funded startup can be stripped down, but that makes it no less important. By Tim Berry

Try these tips for building a successful business with little capital. By Bob Reiss

22 THE ART OF ENCHANTMENT Guy Kawasaki, the business guru shares his views on how to be really winning. 23 SEE YOU ON THE OTHER SIDE

Jenna Schnuer tells how business buyers can plan for a successful transition.

24 FINALLY, SOMEONE WANTS TO GIVE YOU MONEY Asheesh Advani on why it is time to take a relook at micro loans if you have ignored those in the past.

25 FROM SERVICES TO THE CLOUD Sahil Parikh agrees the switch is not easy but the benefits are manifold. 26 COLLABORATIVE COMPETITION Bharat Banka goes on to question if this just an oxymoron or a possibility? 28 SUSTAINABILITY NEEDS ENTREPRENEURIAL ENERGY P.G. Ganapathy tells there are a number of business opportunities in the sustainability domain today.

EDUCATION SPECIAL 30 INDIA'S BEST B-SCHOOLS An insight into India’s best B-school programs for entrepreneurs.

IN CONVERSATION 40 ‘I TOLD MYSELF TO THINK LIKE

A STARTUP ENTREPRENEUR.’ Nearly two years after she left ICICI Ventures, Renuka Ramnath’s Multiples Alternate Asset Management (MAAS) PE fund is all set to announce its ﬁrst deal.. By Pranbihanga Borpuzari

OFF BEAT 42

62 IT'S ALL IN THE MIND And sometimes, not quite. But how can entrepreneurs keep negative traits and emotions at bay? By Prerna Raturi

SOCIAL ENTREPRENEUR 42 STEERING SOCIAL ENTREPRENEURSHIP Ashoka, as an organization, has been steering social entrepreneurship across the globe for the last 30 years. By Shonali Advani

IN FOCUS 66

66 DESTINATION RAK If you thought Dubai is the only place worth doing business in the U.A.E., you thought wrong. By Ankush Chibber

STRATEGY 68 FACE LIFT Facebook is proving itself a smallbusiness marketing force. Here are three examples of how it’s working. By Jason Ankeny 76 HOW TO CLEAN UP YOUR BUSINESS

Get rid of people and situations that drain time, money and energy from your business. Eight productivity pitfalls to cart to the curb. By Gwen Moran Entrepreneur + July 2011 7

table of contents MONEY

122

96 VENTURE CAPITAL IN REVERSE A Kansas City ďŹ rm turns the traditional VC funding model on its head and captures new opportunities. By Gwen Moran 97 STAFF WITHOUT PAYROLL

Hereâ&#x20AC;&#x2122;s what your business needs to know about volunteers and paying in barter. By Gwen Moran

99 LIFE AFTER BUSINESS Retirement day, a common refrain among ambitious entrepreneurs. But someday you have to decide to hang your boots. Here's how to plan for it. By J.D. Roth

TECH DEPARTMENT 80 PRO TYPE

The second WP7 phone we reviewed turned out to be as good as the last one. Little chinks here and there, but Dell should seriously consider making more phones. By Ankush Chibber

â&#x20AC;&#x2DC;HOW TOâ&#x20AC;&#x2122; 120 Negotiate with investor 122 Cope with success

82 YOUR OFFICE ON THE GO

We take a look at apps, phones and the tablet that will help you on the go, all the time. A true mobile entrepreneur! By Team Entrepreneur

89 LINKS TO THE GREATER GOOD

Craigslist Founder Craig Newmarkâ&#x20AC;&#x2122;s new site is designed to bring together a worldâ&#x20AC;&#x2122;s worth of helping hands. By Gwen Moran

90 THIS SPACE FOR RENT

A new app can help you ďŹ nd a place to work on the road. By Dan Oâ&#x20AC;&#x2122;Shea

93 POCKET HERCULES A new smartphone from Motorola redeďŹ nes mobile computing. By Jonathan Blum

124 Create an event 126 Start a playschool

SPECIAL REPORTS

SPEND IT

100 E&Y REPORT

128 DRIVING THE Q-CLASS Etios is the ďŹ rst Q-class Toyota sedan especially designed keeping India in mind. By Pranbihanga Borpuzari

Business leaders across the world gathered in Mumbai to address the needs and challenges of the fast-growth companies. By Pranbihanga Borpuzari

104 IBI AWARDS Men and women redeďŹ ning India's future in their own terms with style were awarded at India Business Icons Awards at ITC Grand Central. By Team Entrepreneur

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BOOTSTRAP

five others AJAI CHOWDHRY and and turned it started HCL on a shoestring behemoth into a Rs.27,000 crore

YOUR BUSINESS 6 Steps to a Smart B-Plan it Flipkart- How We Did Small 5 Secrets of Starting Money Making Good with no

8 Entrepreneur + July 2011

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INSIGHTS WOMENXXXX IN CONTROL

Who is an Entrepreneur? Is the term easily deﬁnable, or are there many layers to it? By Nandini Vaidyanathan

ho is an entrepreneur? I can hear all of you saying, Duh! That’s easy! Really? Go on, tell me, who is an entrepreneur? Well, an entrepreneur is someone who is his own boss. Is that right? A plumber who works for himself, is he an entrepreneur? No! Well, an entrepreneur takes risks. Participants on Fear Factor, the reality show on AXN, also take many risks. Are they entrepreneurs? No! An entrepreneur is the owner of his business. Steve Ballmer does not own Microsoft. Would you say he is not an entrepreneur? No! An entrepreneur cannot be fired from his job. Steve Jobs was fired from Apple, no? An entrepreneur becomes a millionaire. Anand Kumar, who runs the highly successful Super 30 in Patna, is nowhere near being a millionaire. Is he not an entrepreneur? Now, it’s my turn to say duh! This brings us back to my question. Who is an entrepreneur? Well, an entrepreneur is a new species. Wait, maybe not. Darwin spoke of him when he said the fittest survive. Entrepreneurs are the fittest. They survive negative bank balances, peer pressure, family opposition, opportunity loss when they give up cushy jobs, and failure. And, like the proverbial phoenix, they rise from the ashes, dusting themselves up, smile on their lips, steely resolve in their eyes, and song in their heart. Being an entrepreneur is a state of mind. Which means you are a ‘differently-abled’ thinker. Does this mean Einstein was an entrepreneur? No, because he only ‘thought’. He did not do anything to take his ‘thoughts’ to the market. So, an entrepreneur is one who is a thinker-doer. A mentee of ours figured that when people want to buy laptops, smartphones, digicams, there is no ‘go to’ place that facilitates an informed buying decision. So he not only ‘thought’ a portal like his was a good idea; he also went ahead, created the product, and took it to

the market. Being an entrepreneur is an attitude. It is an attitude that says: I don’t like the way things are in my world, I have the power to change them, so I will change them to make my world a better place! A mentee of ours said, I don’t like the way my family treats me, just because I’m illiterate. I want to see respect for me in their eyes, so I will become an entrepreneur! In the last three years, she has built a business which has a turnover of Rs.20 crore! Do her family members respect her now? You bet! So, if being an entrepreneur is a state of mind, an attitude, is it necessary to be the owner of business? Not at all. You could be working for a Microsoft or an Oracle and still think entrepreneurially. You may not have brought capital to the table, hence you don’t own the business but if you think and behave as if you do, in the sense that you take ownership of the road map, you can proudly wear a dog-tag that says ‘world’s best employee’! Now, let me answer my own question. Who is an entrepreneur? An entrepreneur is a person who wants to leave a footprint in society. He wants to transform lives. He wants to create meaning such that even people who don’t know him will shed a tear when’s he’s gone. He is so focused on the meaning that nothing fazes him, not the mundane rigor of getting the idea off the drawing board into the marketplace. The only thing that drives him is the goal and the goal lays the road he makes. An entrepreneur is someone who invented the phrase: I can.

“An entrepreneur is a person who wants to leave a footprint in society.”

20 Entrepreneur + July 2011

NANDINI VAIDYANATHAN teaches entrepreneurship in biz schools around the world and has co-founded two companies, Startups (forstartups.blogspot.com) and CARMa (www.carmagroup.in), both of which mentor entrepreneurs.

Photo© Sanjay Ramchandran

in conversation

‘I told myself to think like a startup entrepreneur’ Nearly two years after she left ICICI Ventures, Renuka Ramnath’s Multiples Alternate Asset Management (MAAS) PE fund is all set to announce its ﬁrst deal. By Pranbihanga Borpuzari

ENTREPRENEUR (E): How has the transition been from a high profile job at ICICI Ventures to your own PE fund? RENUKA RAMNATH (RR): Surprisingly smooth. It has been a smooth and steady process of creating Multiples. I never felt I was merely doing a job at ICICI and probably will forever relate myself to ICICI. As far as whether the market will believe me as an individual, separate from ICICI, well, I think I will be given the benefit of doubt. It has indeed been a very delightful journey so far.

E: How difficult has it been for you to get away from the comfortable settings of a corporate job to being an entrepreneur? RR: It would be called a difficult change if I start counting the comforts that I had: the luxuries and the big brand name that I carried with me. My previous job profile gave me the comfort of a capital and a paycheck every month. But if I look at this new step as a clean break, then the change has been very easy because when it all began, I told myself to start thinking like a startup entrepreneur. I had to set goals for myself, create milestones and timeframes to measure my success. Being realistic in terms of timeframe, getting comfortable in getting a ‘no’ for an answer from your best acquaintances, not getting put off by someone saying no to investing, needs getting used to.

E: When you went on to start Multiples, what were the objectives behind it? And have the objectives changed with the progress of your company? RR: My real long-term idea is very simple: how to channelise long-term capital from serious long-term providers which is largely endow40 Entrepreneur + July 2011

Photos© Neha Mithbawkar

ment funds, pension funds and others. Over a long period of time, MAAS would like to look beyond India. This is my real excitement about PE: it brings appropriate capital to deserving entrepreneurs to create valuable enterprises, to see companies which were not there five years become valuable companies, to see individuals who were not known earlier go through their endeavor of achieving great success. The aspiration of how big will we become, how quickly we will reach there, is not my real objective. We have put together our first fund, we have a very good team in place and as a team we want to go out and grab the best deals and generate high returns. We want the companies to be proud of us for whatever we have done for them, for making them a success.

effort, ambiguity, risks that our entrepreneurs take, I have to salute them everyday for it. The conviction they have in what they are trying to do, the commitment they have for their cause, is highly commendable, keeping in mind that the external environment is not a very facilitative one. It is a highly challenging one. There is much more coping to do in India. This results in different beliefs and values as compared to the ones that appear in western markets. Some industries are less-affected, some are more affected. If we let free our entrepreneurs’ mandate from dealing with such structural issues, I think we can get them to do wonders with the abilities they possess.

E: What is your first fund size? Who are your investors and which sectors would you primarily be looking to invest in? RR: Our first fund is a Rs.2,025 crore account.

E: You are likely to be a key Indian PE player. Do you think you will have a different perspective to the Indian investors/entrepreneurs as compared to the rest of the PE players from around the world who invest in India? RR: I will have to give due credit to my interna-

We want to invest Rs.90 crore to Rs.135 crore as our average ticket size and would like to do few Rs.225 crore transactions as well, preferably asset-like businesses. It has to be specialized manufacturing/control transactions too.

E: What stage do you want the companies to be in and what would your typical investment period be? RR: I would prefer our investment companies to be in mid to late stage. We would not be looking at startups because we don’t have a mandate to invest in new companies. Our typical investment period would be five to seven years but in some cases, we may look at an early exit.

E: When can we expect the first return investment announcement? Have you set a benchmark on the number of investments you would be looking at doing each year? RR: We should be able to complete three investments by early or mid July. Typically the first fund will last for three-four years.

E: What is your viewpoint about entrepreneurs in India? RR: I feel the process of building a company in India should be more systematic and more transparent, which would require a lot of structural change in the prerequisites for creating a company by an entrepreneur. The amount of

“OUR TYPICAL INVESTMENT PERIOD WOULD BE FIVE TO SEVEN YEARS.”

tional peers. The situations in which they get comfortable and the situations in which Indian players get comfortable could be different. International players understand India pretty well nowadays.

E: Has the journey from the CEO and MD of ICICI Venture to an entrepreneur who created MAAS PE changed you, and how has it been enriching for you? RR: At ICICI Ventures I went thorough the process of raising money for the fund which was in itself a transformational experience. That had already made me live the life of an entrepreneur. But I still had the comforts of being linked to the entire ICICI brand. Whereas here, it is a do-or-die situation. I cannot switch departments like I could have in case I failed at ICICI Ventures. One has to appreciate the life of an entrepreneur, how one deals with ambiguity, has to think about investors, the conditions under which one has to raise money, how one has to work around a team and lead it. I now have a better understanding of an entrepreneur’s psyche.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

social entrepreneur

Social STEERING

ENTREPRENEURSHIP Ashoka, as an organization, has been steering social entrepreneurship across the globe for the last 30 years. By Shonali Advani

lobal organization Ashoka defines better,” says Manoj Chandran, Director, Ashoka social entrepreneurs as ‘individuals Innovators for the Public, India. Today, it has a with innovative solutions to society’s presence in 72 countries with 350 fellows. most pressing social problems.’ The organizaA bigger value is an access to a network of tion was founded by Bill Drayton in 1981, who fellows, through its centralized knowledge hub. realized that the career graph of social entreAt an organizational level, this has helped it preneurs and the trajectory of their ventures is identify groups within its own network, be it similar to a business entrepreneur, except for regional or sector-based, to work closely with the objective. With a mission to support these and study new, emerging trends. “Social entreindividuals, Ashoka initiated its efforts by idenpreneurs can now discuss issues and collaborate tifying such leading social entrepreneurs who with each other, as Ashoka has the strength of have found and implemented knowledge capture,” he notes. innovative solutions to social Its model runs on a proDEEP IMPACT situations. “Ashoka identifies cess-driven exercise to select and shows India and the world final fellows. Ashoka’s criteria Launch date: who a social entrepreneur judges an idea to be unique, 1981 actually is,” explains Soloman innovative and game-changTotal staff strength: Prakash, India Country ing, the creative capability of 300 across 72 countries Representative, Ashoka a person, social impact of idea Funded by: Innovators for the Public. and lastly the ethical backBill & Melinda Gates Its first five fellows were ground and entrepreneurial Foundation, Ford elected in 1982 and, since quality of person. “Even if an Foundation (among then, this has been its flagidea has been tried by one others) ship program. Ashoka gives other person in the world, we selected fellows a monthly reject it,” points out Chandran. No. of Ashoka fellows: stipend for three years, the Once a pool of candidates is 350 amount of which varies identified, they are shortlisted Partners providing pro bono depending on specific needs. over the next two rounds. At service: It doesn’t invest in the venthe first level, Ashoka filters KPMG, McKinsey ture per se. “We believe that these candidates internally. & Company, Hill & if a person has everything for 10-12 short-listed candidates Knowlton, Latham & his/her livelihood, then he/ are invited to Bengaluru for Watkins she can focus on the venture a 10-day event where each 42 Entrepreneur + July 2011

Photos© Shrikant S.Y.

“THIS WILL BE THE DECADE OF CHANGE-MAKERS AND SOCIAL ENTREPRENEURS.” FACING CHALLENGES: (l. to r.) Vishnu Swaminathan, Manoj Chandran and Soloman Prakash

one is interviewed by a senior Ashoka fellow [called second opinion] from outside India. Observations made are noted to enhance the profile of candidates and then presented to a panel of three-four people made up of Ashoka fellows, experts in the field and the second opinion interviewer. “In India we conduct three panels a year and have elected 15 fellows in the last three years, each year,” he mentions. They aim to increase this number to 20 in 2011. Ayyappa Masagi, Ashoka Fellow from 2004, has been working on water management in rural, urban and industrial areas. “Ashoka’s grant of Rs.22,000 a month helped me cover living expenses for three years and enabled me to start Water Literacy Foundation in 2005,” he mentions. This was in addition to other benefits Ashoka brought him, such as linking him to volunteers, funding agencies and others in similar space. Today, Masagi’s work spans 11 states covering a total of 4,733 locations. Looking at the future of this segment Chandran says, “The next wave will happen when social entrepreneurs collaborate not just with each other but with business entrepreneurs as well.” For India specifically it has identified four verticals—Rural Development, Youth & Children, Full Economic Citizenship, and Rights & Inclusion to run as full-fledged programs with specific heads for each. Subsequently it has been on the lookout for partners and funds from foundations to bring them on board as co-creators of programs. The Full Economic Citizenship Program envisages a world where every citizen has access to minimum economic products and services required to live. It launched ‘Affordable Housing Project’ in 2009 which brings together

real estate developers, architects, citizen sector organizations (CSO) and housing financial institutions to create a proof of concept and cross leverage on benefits. According to India’s 2001 census, the need for affordable housing stood roughly at 26 million and Ashoka speculates this figure to be 40 million at the next census. “In India, there is a group of people in the low income population who have capacity to buy land, but there is no supply,” highlights Vishnu Swaminathan, Director, Full Economic Citizenship. The program’s principals include building affordable housing in tier A1, II and III cities (except Mumbai, Delhi) in sub-Rs.10 lakh category. Ashoka feels that larger the role a CSO plays, better the control it has on a project. “The relationship between developers and customers is important as is the rapport between a CSO and customer. The needs of low-income people are different and unique, and this has to be understood by designers,” adds Swaminathan. Some years back, the organization revisited the reason for its existence. “We want to prepare a world which is ready for all challenges,” points out Chandran. “Every citizen must be aware of his/her role as a change-maker.” This deduction propelled them to create opportunities for citizens to go through change-making experiences. Ashoka has noticed an increasing trend where ventures bring in a for-profit element, as sustainability is now an equal concern as money made is pulled back into the venture. “Today there are enough people just out of college who look at a problem and say we should do something about it,” says Prakash. “This will be the decade of change-makers.”

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

cover story

FIRE BOOTS ON

In almost four decades of existence, few companies have been able to shape the business ecosystem of a country like HCL has done. That is the known story. But what is not known is that this behemoth was started by six individuals in a corner of Delhi the hard way, the bootstrap way. By Pranbihanga Borpuzari

is nothing short of a fairytale. We have all heard inspirational stories of how a company started from a small garage, someone’s house, a small office or a barsati and went on to become one of the greatest companies in the world. The start and rise of HCL was just that. Born in 1950, Ajai Chowdhry spent much of his childhood days studying in Hindi medium schools. Struggling to find his footing in English during his higher education days, Chowdhry completed his graduation in Engineering in 1972 with an electronics and telecommunication degree from Jabbalpur Engineering College. As getting a job in Jabbalpur was not easy, Chowdhry moved to Delhi in search of employment. Talking up a job in DCM Group’s Data Products division, where he was interviewed by two individuals —Shiv Nadar and Arjun Malhotra—Chowdhry suddenly found himself being shipped to Mumbai to start the company’s division in the city in 1972-’73. Chowdhry established the services in Mumbai and in 1975 was approached by Nadar and Malhotra with a proposal to join their startup. “It was Shiv’s idea to start a computer company. They were keen that 8-10 of us from DCM join them as partners. Microprocessors

44 Entrepreneur + July 2011

were taking off in a big way and our dream at that time was to take the microprocessor and change the world. Instead of the 10 originally approached, only Subhash Arora, Yogesh Vaidya and D.S. Puri decided to start the company along with me, Shiv and Arjun,” recalls Chowdhry.

TRADING AND MAKING MONEY The six came together in Delhi and pooled in whatever money they had. Chowdhry put in about Rs.12,000 and based on whoever put what, the ratio of share was divided. “We put together Rs.1.86 lakh but since those days you needed a license to start manufacturing, it was not so simple. Also Rs.1.86 lakh was too little money to start a computer business. To augment the situation, we started trading. We bought calculators on 60 days’ credit and would immediately sell them off and make money. This was the pre-operations period. We called the company Microcomp, which started from a barsati at 143, Golf Links, New Delhi,” says Chowdhry. When some money was made in the trading business, the co-founders trained their eyes on the real objective—of making computers. Hiring talent was not a problem since all of them were able to sell the HCL story well in most of the IIMs and IITs and gave out attractive

BOOTSTRAP YOUR BUSINESS

“THERE WERE TIMES WHEN PAYING THE ATTRACTIVE SALARY OF Rs. 2,000 WAS DIFFICULT. BUT WE KNEW HOW TO MOVE CASH.”

STANDING TALL: Ajai Chowdhry Photo© Dileep Prakash

To read more, grab theJuly issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

BOOTSTRAP YOUR BUSINESS

Startup SECRETS OF A

LOW-COST

No, you don’t need investors to start your dream business. Here’s how to make it happen with your own money. By David Worrell

Illustration© Chaitanya Surpur

Entrepreneur + July 2011 49

cover story BUSINESS OVERVIEW Some businesses are built by venture capitalists. Dearly departed Pets.com comes to mind. Other businesses are built by entrepreneurs— Dell Computers and Microsoft are a couple of good examples. Despite the dream of some entrepreneurs to meet a VC with deep pockets, the fact is that 99.9 percent of business owners will struggle alone, pulling themselves up by their bootstraps. And that’s not necessarily a bad thing. With a little luck and a lot of pluck, bootstrapping a business can be both financially and emotionally rewarding. There are no guarantees of success when self-financing a business, of course, but there are some guidelines that will make the game go more smoothly.

ENTREPRENEUR KNOW THYSELF Each business and each entrepreneur is unique. It’s important for the business owner to understand the risk that he or she can withstand. A recent college grad may have a high tolerance to risk because she probably doesn’t have much to lose. But the equation looks a lot different for a 30-year old single parent. Throw in a couple of obligations for a mortgage and a car, and mom or dad may be reluctant to give up the day job to venture into the unknown. Shep and Ian Murray knew they had a high tolerance for risk when they decided to launch Vineyard Vines LLC, their Greenwich, Connecticut, necktie company. Shep, 31, and Ian, 27, had barely entered the workforce when the entrepreneurial bug bit them. “We had a vision and we just went for it,” says Shep. During the early days, the brothers racked up more than Rs.18 lakh in credit card debt, “but we knew that someday when we were making all those millions, that would seem like a trivial amount.” Bart Snow, 35, was a little further along the career curve, but still had little to loose when he and his wife started Rainbow Express Inc., a courier service in Columbus, Ohio. “We had a very small house payment and no kids. We knew that if we were going to do it, it had to be now.” Still, the couple agreed that Bart should keep his job until the fledgling company could afford to replace at least some of his income. Understanding personal economics upfront will make future finance decisions easier. How 50 Entrepreneur + July 2011

much capital will each partner be willing to put into a business? How much debt are they willing to assume? Set the ground rules upfront which will make the tough financial decisions easier in the long run.

LOOK BEFORE YOU LEAP At the concept stage, a business is like an egg that has not yet hatched—and the incubation process can be expensive. Doing research, making phone calls and buying supplies can eat through thousands of rupees before the business is really even born. Many entrepreneurs limit their risk and expense by keeping their day job and letting the idea percolate during evenings and weekends. The Murray brothers took several months to decide on all the details that shaped their first foray into the world of fashion neckties. “We didn’t have a penny to our names, but we had an idea. While we were still working, we used as many [free] resources as we could. We even took advantage of the studio at the agency where I was working for design resources,” says younger brother Ian. Meanwhile, Shep’s employer had a fashion division that introduced the brothers to the suppliers they needed. They had lined up both the designs and the production of their first line of neckties before ever quitting their jobs. Of course, not all employers will so generously support the moonlighting activities of employees. But keeping a steady income during the planning phases of a business is the best start to bootstrapping any new venture. Think you’re ready to bootstrap your way to success? Here are five tips that will help you to get started.

1. START WITH A SALE Wouldn’t it be nice to know that your business could be profitable from day one? Many successful companies began with a purchase order. Since having customers is really what business is all about, having at least one customer is a good place to start. One customer was all it took to get Rainbow Express moving. The nightly courier route that launched the company allowed the founding partners to build even more sales during the day. Bart Snow continued to work the business around his day job, but he adds, “Within a year, the company reached the point that it could

BOOTSTRAP BOOTSTRAP YOUR YOUR BUSINESS BUSINESS

replace most of my salary, so I left my job.” The difference between a business with no customers and a business with one customer is night and day. That first customer serves as far more than a source of income. They are a reference for prospects and a source of insight into the needs of the market. For the very early-stage business, one customer can also provide an important psychological advantage—a paying customer is strong reassurance that the work has value.

precious little left for extras—even salaries for the pair were not a given during the first year. But it’s this devotion to spending only on the core business that accounts for the success of the company’s Rs.2,925 ties today. Likewise, Snow and his wife operated out of the basement of their home until the business could well afford a small office. Using contract labor to match expenses with income was another easy way to grow the business without adding overhead.

2. MAKE A MAP

4. CONSERVE CASH

Mapping out a finance strategy is a vital—and often overlooked—part of the business plan. It’s easy to project growth in sales and staff, but until those sales are made and paid, where will the cash come from to buy raw materials, pay salaries and provide overhead? This is an important lesson to learn early on. “Cash flow is always an issue,” groans Snow, “unless you’ve been able to bank a lot of money or you are in a really high-margin business.” Since it often takes weeks or months to collect money from sales, financing a business from only sales revenues is really an exercise in advance planning. The savvy entrepreneur should know not only how to pay for today’s expenses, but also know how to pay for the next three to six months of overhead. While Snow believes in the benefits of cash flow planning, he’s quick to point out that “cash flow plans don’t help if your customers aren’t paying you. You have to be really diligent, or people will string you out as long as you let them.” Forecasting and collecting accounts receivable are two sides of the same coin.

Regardless of how much money you’re spending, the real trick is to conserve cash. Cash really is king, as they say, because companies have some expenses that simply can’t be delayed and can’t be put on a credit card. Payroll is the first that comes to mind. Rent and utilities are two other biggies. If there’s no cash left to keep the lights on and the employees around, nothing else really matters. In order to conserve cash, make a concerted effort to use it only when it’s absolutely necessary. Barter is an excellent start. (There are several websites that help facilitate barter exchanges, and even large vendors are sometimes willing to arrange a swap.) Snow advises disciplined use of credit cards. He credits plastic with helping to lay the foundation of his company, but also believes that the best use for a credit card is simply to help a company float expenses for awhile. “Floating your cash using an American Express card—where they give you 30 days to pay—is a great tool. It’s not really debt because you’re paying the full balance, but it helps smooth the cash flow.”

3. DON’T SPEND

5. ENJOY THE REWARDS

Beware of success. “People tend to make a little money and then think they can spend on this and that but it’s a huge trap,” warns Snow. “Buy only what you absolutely need.” That means no lavish spending on swanky offices, excessive travel and employee perks. There is really no room for excess of any kind in a young business. Shep and Ian Murray lived with their parents while selling their first batch of neckties out of their car. “We put every penny we had into the highest-quality materials and, later, the best people we could find,” explains Shep. There was

No matter what your industry, going it alone can be a huge challenge. But when the struggle is over and the business is running smoothly, you’ll have the incomparable pleasure of knowing that you did it yourself. Those feelings of control, ownership and accomplishment are often worth more than all the VC rupees in the world. ©Entrepreneur Media, Inc. All rights reserved. DAVID WORRELL has bootstrapped two businesses, and would do it all over again in an instant.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

cover story

O W T F O E L A AT

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mes rt and MadRat Ga ka ip Fl s? le gg ru st founders. Similar

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KART, CO-FOUNDER, FLIPan & O CE L, SA N BA IN CH SA mes d a lot more oks, electronic goods, ga an online retailer of bo

HOW IT ALL BEGAN We started with Rs.4 lakh from personal savings. Binny [Bansal, no relation to me!] and I were working, so we had saved money from previous jobs. Our initial target was to see if we could make it profitable from that amount of money, we also didn’t know how much money we would need. We were living and working in a shared apartment. We knew a few things were required to get a website up and running. Because we had a small amount of money we had no option but to go for a freely available domain name, which we got for Rs.45. Secondly we had to rent servers, started with shared hosting. Started with Rs.1,000 a month but that was shared by 500 people and so we had to soon move to an independent server, which cost us about Rs.50,000 a month. Apart from that, there were a few costs around packaging materials, computers to work on. To cut costs, we used only open source software.

THE STARTUP “STAFF” For the first six months, it was just the two of us. Convincing people to join us was tough. People used to come and go back without talking to us because we had a shoddy office. We also couldn’t really choose who we would hire too. Tapas came in looking for a job, basically told us he had his own laptop, no salary and was willing to do any work. He started handling customer support and now is doing a lot more. Now he’s grown to become product and marketing strategist. Luckily our business grew pretty fast. In March 2008, we started to hire employees, and the next struggle was to pay them. These were operations guys, packing, office boys and customer support staff. Many times we tried online job sites, we also posted requirements online, but with low success. It was mainly through word-of-mouth.

THE VENDOR CONUNDRUM Vendors were only in Bengaluru at this stage. India Book Distributor was the first one we used. We started dealing with vendors with advance payment. At that time we didn’t have the 52 Entrepreneur + July 2011

cash-on-delivery option so we were getting advance payment through credit/debit card option. So we paid vendors beforehand. So that’s how we managed cash, and never required working capital. This was our strategy to mange vendor payments. This

BOOTSTRAP BOOTSTRAP YOUR YOUR BUSINESS BUSINESS

S S P P U U T T R O SSTTAAR

ers.ers. rapp stpp otst otra bol bo alrl al r fo s fo s on on ss le ss le ld ld ho y rlda days ho y ys ear rl ea thr ei y, y, tbuthtei nebu urjone jo ur p p tu tu ar ar st e st e th th is t is what of w ofha ends t ds sttanen o diostdian twtw THE FIRST MARKERS Initially margins we got from the backend were low. Our first marketing spend was Rs.50,000 worth of bookmarks distributed outside a book expo. Then we attended startup forums; some were free, some cost money. We lived on personal savings and never gave ourselves a salary for the first 1.5 years. We broke even in six months and met our initial target. By now the company was generating its own cash. We launched in October 2007, by March 2008 we had broken even and moved into a small office. This was in Wilson Garden and our rent was Rs.8,000 per month. We bought some more computers and UPS. At this juncture we were incurring more costs like printer, cartridge, electricity costs.

A WIDENING FOOTPRINT We were doubling every quarter in 2008. By end of 2008, we had covered all vendors/suppliers who would supply us books. In early 2009, we decided to start a Delhi office, as it had many more suppliers than Bengaluru. This required funds. When we went to Delhi, suppliers had already heard of us and asked when we were starting operations there! Marketing-wise, we were growing via word-of-mouth. We tried one more bookmark initiative, which worked well too. We also gave a discount coupon at one time which worked well. Social media was still a nascent medium back then. We started showing some ads on websites, and got some revenue. Overall, our business grew fast. After 2008 we were just catching up, expanding hiring, and money was not such a problem then.

OUR PEOPLE PUZZLE Stock options was one way to get people on board. Not everyone understood it though. So, we said we would make sure they would get experience and learn much from our organization. That attracted the right kind of people. These were people straight out of colleges, or out of jobs. The recession helped a lot. Property prices were down and many people looking for jobs. We hired good people at low salaries who understood the benefits of such an environment. Salary-wise we trying to be as close to what they were getting. Some people had experience, some did not. We wanted smart people. Then we wanted a culture fit; employees who didn’t want medical insurance and HR policies. allowed us to accumulate 30 days’ worth of money. This also got us a stronghold with vendors. In six months, we managed to add 5-10 vendors. By the sixth month all of them were on credit. [We were only funded in mid-2009 by Accel.] Photos© Sanjay Ramachandran

UNFORESEEN STRUGGLES We were small buyers to the vendors, so many times they wouldn’t entertain us on priority. We used to pick up books from warehouses ourselves, pay them and go because we didn’t want our

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

cover story

CASH SHY?

TRY BOOTSTRAPPING Try these tips for building a successful business with little capital. By Bob Reiss

define bootstrapping as “pursuing success with limited resources and with the help of others.” By limited resources I mean a shortage of money or knowledge. Here are some tips and ideas to help solve these shortfalls for small and wannabe entrepreneurial business owners. These ideas are particularly apropos in today’s environment.

BARTER, ONE OF THE WORLD’S OLDEST FORMS OF COMMERCE, is thriving today because it allows companies to trade their prodBARTER ucts or services for other needed products or services with little or no cash involved. You can utilize your excess goods, manufacturing capacity or the time to obtain needed things of every imaginable variety. Bartering can also help you reach and acquire new customers through some of your satisfied trading partners that, if pleased, will buy again with cash and provide good word of mouth to others. Most barter today is done through exchanges that match up the traders for a fee. You can also learn more about the details and even find a barter exchange near you by doing a simple online search or visiting the International Reciprocal Trade Association. SCORE IS A GOVERNMENT AGENCY with FREE CONSULTING the mission to provide resources and expertise to maximize the success of existing and emerging small businesses. All SCORE counselors are volunteers, mostly retired executives who want to give back. There is no charge, and everyone who calls gets an appointment. There are more than 370 chapters in the U.S. Remember that SCORE does not loan money, but

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BOOTSTRAP BOOTSTRAP YOUR YOUR BUSINESS BUSINESS

it will advise you on how to get it. You can visit the website to find your local office. The Small Business Development Center is another government agency that basically does the same thing as SCORE but with paid employees and even more educational classes. There are more than 1,000 centers in the U.S. Like SCORE counseling, SBDC counseling is also free.

MENTORS ARE EXPERIENCED, SUCCESSFUL BUSINESS PEOPLE who are willing to help entrepreneurs get started and grow at MENTORS no charge. A good one can be the key to success for an emerging company. Mentors can be found in myriad places: family, former teachers, suppliers, the local Chamber of Commerce, people you admire, etc. If you find a good one, be sure always to keep him or her in the loop and say thank you.

IT IS DIFFICULT FOR SMALL COMPANIES TO SELL TO LARGE CUSTOMERS in any environment. An effective way to overcome this challenge is to offer your target an exclusive: your product, a package, a design, a channel of distribution— something special and different from the competition. The exclusive can also be time-sensitive. In return, you can ask for distribution in all of the company’s outlets, free ads, better payment terms or any other goody important to you.

FREE CONSULTING TO KEY CUSTOMERS

ALMOST EVERY COMPANY NEEDS RELIABLE SUPPLIERS. They can contribute to the quality of your business with on-time SUPPLIERS delivery or innovation and solve some of your financial problems by giving you extended terms. Some suppliers may even be willing to invest in your company. The best suppliers can help make you more competitive and reliable. To gain supplier cooperation, treat suppliers fairly and pay all of their bills on time.

PUBLICITY

GETTING COVERAGE ABOUT YOU, YOUR COMPANY OR YOUR PRODUCT IN PRINT, on TV, on radio or on the web can be more credible than a paid ad. You need not be an expert to get such media coverage. Remember that the writer’s job is to write, and they all need stories. Why

not yours? Start by approaching your local media with interesting facts or anecdotes about yourself, your product or service and how you started the company. Writers usually prefer the passion of the company founder to a pitch from a professional publicist.

OUTSOURCING CAN CONVERT THE FIXED COSTS OF FULL-TIME employees to the variable costs incurred only when you OUTSOURCING need them. This is a major cash-saving strategy that also can yield better quality and know-how as well as access in the case of sales reps. The myth about outsourcing is that you lose control. You may actually have more control because if a vendor doesn’t do a good job, you can just find another. You need not sacrifice control by outsourcing. Another myth is that outsourcing means sending work overseas. This does not have to be true. Anything not done in house is outsourced, whether you get it done down the street, in another state or in another country.

IF YOU ARE TRUSTED, CUSTOMERS WILL WANT TO DO BUSINESS WITH YOU, employees will BUILDING be motivated, and lenders and investors TRUST are more apt to give you money. You build trust by refusing to compromise on doing the right thing and conducting business ethically. Trust relentlessly pursued can pay great dividends.

SELLING IS “PERSUADING SOMEONE TO TAKE AN ACTION FAVORABLE TO ALL PARTIES.” There is no selling gene. Selling is an SELLING acquired skill best honed with experience. Everyone in the company should be selling with the CEO being the most important seller. There is no cash outlay for selling except for travel. You can do it. Your attitude is a crucial success factor, so keep your passion high. Don’t let fear of failure hold you back. Keep your ego under control, take care of yourself, rebound quickly from setbacks and always watch the cash. ©Entrepreneur Media, Inc. All rights reserved. BOB REISS is the author of Bootstrapping 101: Tips to Build Your Business with Limited Cash and Free Outside Help, and has been involved in 16 start-ups, is a three-time INC 500 winner and has been the subject of two Harvard case studies, in addition to speaking frequently at university entrepreneurial classes.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

success strategies [Tips to stay ahead]

LIFT Facebook is proving itself a smallbusiness marketing force. Here are three examples of how it’s working. By Jason Ankeny

movie theater in America understands the importance and business value of social interaction better than the Alamo Drafthouse Cinema. The 11-theater chain headquartered in Austin, Texas, has featured marquee attractions that have transformed moviegoing into a communal experience: a quote-along screening of Pulp Fiction, the Tough Guy Cinema series (which revives action hits like the Arnold Schwarzenegger vehicle Predator, complete with complimentary cap gun giveaway) and the HeckleVision showcase (offering quick-witted

68 Entrepreneur + July 2011

patrons their chance to eviscerate misfires like M. Night Shyamalan’s The Happening), for example. Events like these have earned Alamo Drafthouse the adoration of film geeks as high profile as director Quentin Tarantino, who holds his semi-annual QT Fest movie and multimedia event at the downtown Austin location. “We’ve developed a unique fan base, and our patrons are very respectful and knowledgeable about movies,” says Alamo Drafthouse Founder and CEO Tim League. “All of our special events are hosted by members of our programming staff, and we hang out with the audience after

the movie ends. That kind of conversation and dialogue is very important to what we do.” So is Facebook—now. Alamo Drafthouse has relied on digital marketing since its inception: League assembled an e-mail list soon after launching the company in 1997, and also built its first website. He later made his first foray in social media via Myspace but had a less-thanspectacular experience. “I felt obligated to use it because so many other people were using it, and I felt we had to get involved,” he says. “But I hated it. It never clicked. When a friend pointed me to Facebook, I stayed up most of the night checking it out. It clicked immediately.” Facebook works well because it expands the scope and reach of Alamo Drafthouse’s ongoing dialogue with its patrons, League says. “Facebook isn’t a one-way means of communication. You have to look at it in terms of conversation. You have to monitor comments, respond and engage with your customers. It’s a way of telegraphing that you’re listening, and that you do care.” Last fall Alamo Drafthouse signed on as one of the inaugural partners supporting Facebook Deals, which offers bargains and coupons to consumers who check in at physical locations like retail stores and restaurants via their smartphones. Facebook Deals partners can offer coupons, loyalty programs, premiums and other promotions: Alamo Drafthouse awarded a limited-edition pint glass to anyone checking in across the chain. League produced 10,000 pint glasses in all, and patrons claimed the entire run in about two weeks. “We’ve dabbled with [location-based mobile social networks] Gowalla and Foursquare, but those services are about rewarding über-customers,” League says. “The Facebook Deals concept enables us to reward anyone who comes into the theater. It’s more inclusive, and it incentivizes people to give us a shot for the first time.” Facebook Deals is a natural extension of existing consumer behaviors, League says. “Our customers are already checking in when

SOCIAL SCREENER: Tim League uses Facebook to engage Alamo Drafthouse’s following.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

tech department [Editor’s Pick]

02/ 490%

The second WP7 phone we reviewed turned out to be as good as the last one. Little chinks here and there, but Dell should seriously consider making more phones. By Ankush Chibber

VENUE PRO PRICE Rs.23,999

DIMENSIONS 64.4x121.6x14.9 mm WEIGHT 192 g SCREEN SIZE 10.4cm WVGA AMOLED capacitive, multi-touch display CAMERA 5MP, Auto-focus, LED ﬂash MESSAGING Email, MMS, SMS, Voice Mail. BATTERY 6 hrs talktime

80 Entrepreneur + July 2011

WE FIRST SAW THE DELL VENUE PRO when it was still called the ‘Lightning’ via a few leaded pictures on all those rumor sites that seem to be pretty big these days. Straight off, the first thing we noticed that it was a pretty nifty looking device coming from the sometimes very industrial-minded design team at Dell. I am happy to confirm after two odd months of playing with it, the Venue Pro is very nifty. And I mean George Clooney Nifty. Not James Franco. Okay, so it is also George Clooney chunky. But it has that vintage Hollywood look as well. Pretty sturdy at about 200 grams, it feels as reliable as it does heavy. There is a gorgeous AMOLED Gorilla Glass screen, which would put any LCD rival to shame, encapsulated by an all-black body with a great chrome trim. The buttons are all standard as on any WP7 device that you may run, and the body also takes care of a 5-megapixel cam, a headphone jack on, and a micro-USB port. Overall, it just

looks fantastic in the middle of a table, with a profile that is more expected of a venture capitalist than a journalist. Then comes the real interesting bit. Dell has set up a slide-out keyboard, albeit not in the landscape mode like say the Nokia E7, but in the portrait mode like the Blackberry Torch. At first, we thought that this keyboard gave it a monster size and perhaps would be a waste given how much we loved on the onscreen keyboard on the other WP7 flaunting phone we reviewed last month, the HD7. However, we are happy to claim here that the slide-out keyboard was even better than the onscreen keyboard. BlackBerry users will dig the firm buttons on the keyboard and the entry response on screen. However, one handed operation maybe a stretch considering it’s a heavy phone and almost as big as the Galaxy S. We did write about Microsoft laying down strict rules on how the WP7 hardware needs

are and enforcing it too on their clients. So just like other WP7 phones, the Venue Pro comes powered by a 1GHz processor and 512MB of memory. And that means that the much lighter and smoother windows operating system is nippy and much more a joy to use. On WP7, we also wrote the last time we reviewed the HD7 that Microsoft has ensured that the software will remain unchanged no matter what the device. So we have the same problems, no multi tasking, no cut copy paste

etc. But it also has the same advantages, faster, better interface, great onscreen keyboard etc. Nothing changes on that front. One thing that still leaves a sore and scratchy feeling with the Venue Pro is admittedly the Windows Marketplace. We wrote about it last time, but having gone through two phones, we have realized that it really does suck a lot more that we first thought. Not only are there like 10 percent of the apps that are there in all other such stores, they are priced much higher, double in some cases. Plus, download too many apps, and the Venue Pro becomes much more sluggish, even as it remains nippier than others. On the whole multimedia front, the Venue Pro’s camera is expected to take 720p video in addition to stills, but both frankly are sub-standard. That is one area that they really need to improve on in the next iteration of the phone. And since there is no memory card slot, there are only that many photos and videos that can be made. On the music front, the Zune bit is better not talked about. We do not dig it. In our opinion, you should buy the Venue Pro for two reasons. One is that you, like us, consider its size and profile which is as impressionable as its WP&-juiced performance. We certainly think there is a place for such holding-their-own type of phones in the thinpin phone market of today. Second, if you are one of those who would want the best of both worlds and desire a physical interface as well as a touchscreen one. In either case, it became much more buyable thanks to Dell dropping its price from Rs.35,000 to Rs.24,000. WIN!

“THERE IS NO MEMORY CARD SLOT, SO THERE ARE ONLY THAT MANY PHOTOS AND VIDEOS THAT CAN BE MADE.”

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

money department [Where to get it, how to make it, how to keep it coming in]

Life After Business ‘I’ll never retire’ is a common refrain among ambitious entrepreneurs, but the fact is you are likely to decide to at some point. Here’s a look at how to plan for that day. By J.D. Roth

aving for retirement is tough. For one thing, there’s no way to know exactly how much you’ll need to save. All you can do is make your best guess based on your situation and goals. Traditionally, financial planners and retirement calculators suggest that you will need 70 percent (or 80 percent or 100 percent) of your pre-retirement income to maintain your current lifestyle. This doesn’t make much sense.

68 56 36 74 PERCENT

PERCENT

Workers who report that they have saved for retirement

Workers who report that the total value of their savings and investments is less than Rs.11.25 lakh

Workers who expect to retire after age 65

Workers who plan to work for pay in retirement

HOW MUCH SHOULD YOU SAVE? Instead of basing your retirement needs on your income, base them on your spending patterns. Your spending reflects your lifestyle; however, your income does not do so. But how much should you save? According to the Employee Benefit Research Institute’s 2010 Retirement Confidence Survey, 49 percent of retirees spend less in retirement than before (23 percent spend much less) and 37 percent spend about the same. Only 13 percent spend more in retirement—and of those, 6 percent say their expenses are only “a little higher.” Sure, you will need a sizeable nest egg for retirement— especially if you plan to travel or play golf every day. But don’t be snookered by the constant refrain that you need to save 70 percent of your pre-retirement income to retire well.

RETIREMENT CALCULATORS There are hundreds of retirement calculators across the web, and each is a little different. No one calculator is necessarily better than any other, but these are especially handy:  The T. Rowe Price calculator bases its results on your spending, not income.  The Motley Fool has two useful calculators.

Source: Employee Beneﬁt Research Institute’s 2011 Retirement Conﬁdence Survey

One estimates your retirement expenses and the other lets you see if you’re saving enough.  Choose to Save’s ballpark estimate tool can be used online or off. (But its numbers are based on income, not expenses.)  FireCalc.com may seem overwhelming at first, but it’ll give you an idea of how safe (or risky) your retirement plan is based on how it would have fared in every market condition since 1871. Looking at the results from one calculator isn’t very useful. But by comparing numbers from several, you’ll get an idea of how much to save for the retirement you want. If you’re lucky, you may even have enough to spend your mornings on the golf course. ©Entrepreneur June 2011 by Entrepreneur Media, Inc. All rights reserved. J.D. ROTH is the founder and editor of the personal ﬁnance blog getrichslowly.org and the author of Your Money: The Missing Manual. e-mail him at jdroth@getrichslowly.org.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

success style

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N a monsoon evening of June at a grand ceremony at Hotel ITC Grand Central, the first-ever India Business Icons awards were held to honor those men and women who run the companies that are redefining Indiaâ&#x20AC;&#x2122;s future position in the global economic landscape. These men and women are climbing the pyramid that makes the Indian economy, and helping to build it at the same time. And may we add that they are doing it with a flair that really sets them apart from the rest of the pack. This flair is the foundation on which the first ever batch of Indian Business Icons has been chosen by out esteemed jury. In the business world today, where statistics and strategies are paramount in determining who rules the roost, it would be prudent to ask â&#x20AC;&#x201D;what is success without a dash of style? What are profits for a business leader if they are not declared with panache?

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Our business icons were chosen after many hours of deliberation and we confess, of organized chaos; such was the quality of the nominations for the firstever India Business Icons. The process behind these awards was started six months ago via an online call for nominations that saw a large number of entries across verticals. These nominations were then vetted internally in association with the process auditors from Ernst & Young. The jury bench comprised the esteemed names mentioned on the following page. In the end, we can say that the awards went to those who truly deserved it, though there were no losers on the night. Because the India Business Icons Awards are first and foremost a platform for all nominated entrepreneurs to be honored in front of their peers, industry professionals, and the media for the efforts they have put in to bring their entrepreneurial ventures on the path to success.

PhotosÂŠ Mexy Xavier, Joshua Navalkar & Neha Mithbawkar

4(% *529

VED PRAKASH ARYA

HARISH MEHTA CEO, Onward Technologies

SENTHIL CHENGALVARAYAN President & Editorial Director, TV18

NARENDRA KUMAR AHMED

MAHESH CHAUHAN

BHARAT BANKA CEO, Aditya Birla Private Equity Group

MD & CEO, Milestone Capital Advisors

Founder, Salt Brand Solutions

Fashion Designer

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

107

how to [... do just about anything]

Negotiate with an Investor Be penny wise and not pound foolish when negotiating with investors. Read on for crucial tips. By Shonali Advani

ou’ve got a great business idea and are also one of those lucky ones who has attracted investor interest in your venture. You need the capital for healthy business development and your potential investor is here to make his buck too. There’s always a very critical period from the time an investor shows 120 Entrepreneur + July 2011

interest to actual deal closing, called the negotiation stage. How and what you negotiate can make or break a deal, so be wise.

REALISTIC VALUATION Valuations of any business are largely based on industry standards and the kind of funding Illustration© Chaitanya Surpur

that’s happened with similar businesses before. Before negotiating make sure you’ve set a realistic valuation for your business, do enough home-work and understand the industry you operate in fully. Your potential investor will not want to invest a small amount, so remember that he’s here for vested interests too. However, over-valuing your firm will only turn off investors. Most often entrepreneurs base their valuations on revenue projections or are under the impression that if they ask for a small amount VCs will be okay with a smaller percentage of shareholding. It does not work that way. You must remember that the VCs also like to be fair during the negotiations stage.

Make sure your lawyer helps you understand each and every term in the draft. Your lawyer and the VC’s lawyer will usually be the ‘negotiators’ on all these nitty-gritties. An entrepreneur should negotiate without treading on a VC’s path, there are certain terms that any investor will not budge from, like tag/ drag along, so remember that. A VC wants to secure his/her exit, so don’t be naïve and waste time negotiating areas that will dilute his/her share. As far as board goes, apart from having a seat for yourself and co-founders, make sure you have an independent advisor, mutually chosen by both parties, as an objective director. A right balance and mix is important in the formation of your company.

DON’T BE ANXIOUS

UNITED IN STAND

Call it strategy or reverse psychology, showing anxiety or desperation to sign will only lower your chances of a good valuation. The art of negotiation requires an entrepreneur to display maturity and trust your own gut. Don’t hesitate to go to the next if it’s not happening with a particular VC. Also if you’re one of those lucky entrepreneurs who has offers from multiple VCs, then do flaunt that. VCs never take negotiation as a negative, in fact, they appreciate an entrepreneur who is willing to fight for his company, one who shows that he/she wants to be a winner and maximize profits. However, you must be level-headed and not behave in an over-confident or authoritative manner. Remember, VCs do this day in and out; they can sense murky facts and understand well when you are trying to hide something. At the end of the day, always remember that if your project is good, then the VCs will come back to you.

If you have co-founders, then it’s imperative for all partners to meet/negotiate with investors. Make sure you speak the same language showing no disparity in views. Remember that VCs give great importance to the team behind a venture, so brainstorm amongst yourselves and get some clarity on the areas you want to negotiate and your expectations as a team.

CLAUSES IN THE TERM SHEET This is a crucial step and having a lawyer would be a smart thing to do as the term sheet is a complicated set of documents. Important aspects to negotiate here are vesting of shares, composition of board and exit clauses. A VC will disclose terms for the first time and will safeguard its interests and investment in best possible. An entrepreneur may hear VC-centric jargon like tag along, drag along, disinvestment rights.

KEEP IT PROFESSIONAL If a VC likes the entrepreneur[s], negotiating automatically becomes a smoother process. However, getting over-friendly or social with your potential VC is not the way to make him/ her like you. Be yourself, stay professional and don’t over-negotiate either. Investors too do their home-work before showing interest/giving valuations, so don’t be dishonest/unrealistic. Investors also usually conduct very strict due diligence exercise to check your background, a financial check, statuaries et al. So if you feel that there’s anything that may mar your reputation, you need to be upfront and talk about it before your investor finds out on his/her own. The most crucial factor that you must keep in mind during negotiations is this: let them come forth and tell you to sign, don’t be in a hurry to ink your deal. Even if you don’t get funded, always close the conversation with your VC on a good and warm note.

To read more, grab the July issue of Entrepreneur Entrepreneur + July 2011 To Subscribe, visit www.entrepreneurindia.in

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back stage ANATOMY OF THE GAME The global gaming industry is expected to reach Rs.1.8 lakh crore in revenue by 2012.1 Here are some cheat codes to help you win a piece of it. By Jennifer Wang

WHO’S PLAYING 40 PERCENT of computer and video gamers ARE FEMALE.2 (Lesson: More kick-ass girl characters, please.) The average social gamer is a 43-YEAR-OLD WOMAN.3 The average age of the most frequent game purchaser is 40. MORE THAN 25 PERCENT OF GAMERS ARE OLDER THAN 50.4 41 PERCENT of social gamers WORK FULL TIME.5 (That probably means they’re playing at work.)

HOW THEY PLAY 80 PERCENT of females PLAY THE Wii as their primary console.6 42 PERCENT of Americans play games on WIRELESS DEVICES.7 So go mobile. Consumers bought RS.32,850 CRORE worth of VIRTUAL GOODS in 2010.8 (Lesson: Gamers are not afraid to spend real cash—they just don’t always spend it on real-world stuff.)

HOW ELSE GAMERS SPEND ROVIO HAS MADE RS.108 CRORE selling more than 2 MILLION ANGRY BIRDS plush toys.9 4,204 BILLION CANS OF RED BULL (Keeping gamers going since 1987) were sold in 2010, up from 7.6 percent in 2009.10 3 BILLION PIZZAS are consumed each year, for total sales of Rs.1.44 lakh crore.11 Pizza is gamer-friendly food: It’s portable and can be eaten one-handed so eyes can stay glued to the screen.

AND FINALLY: HOW GAMERS CHOOSE THEIR MATES 39 PERCENT OF WOMEN said they would find it a turn-on if a man listed “videogames” as a personal interest.12 Gamers everywhere are switching screens to update their online dating profiles. ©Entrepreneur June 2011 by Entrepreneur Media, Inc. All rights reserved. SOURCES: 1 CSMG, 2 , 4 , 7Entertainment Software Association, 3 , 5PopCapGames/ Information Solutions Group, 6Nintendo of America, 8In-Stat, 9Rovio, 10Red Bull, 11PMQ, 12

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