9 posts tagged with "startup"

I recently came across a discussion on an online forum whether funding in startups is like "food" or "oxygen".

This intrigued me.

Why? Let me share more context.

So basically, the question was is fundraising or let's say investor capital like "Oxygen" as in you die if you don't have it? Or was it more like food? You can survive with less food for a good amount of time. Sometimes it may well be healthier for you. And eating more food may lead to myriad issues like obesity, diabetes, etc.

You don't die with less food​

If you think about it, you don't die with less quantity of food. You need an optimal amount of food to function at your best. Many would say occasional fasting is good for health.

Especially if you are in an environment like ours, where for many people, availability of food is not a problem.

Compare this to current environment where availability of venture capital is plenty, esp. in today's low interest rate regime. A fair question to ask is - are startups more at risk of "overeating" and developing diseases like obesity, diabetes or more at risk of dying without capital.

It also depends upon what kind of system a startup is. Is it an antifragile/self-regulating system like a human body? Which has systems in place to weather long periods of low food environment, or is it more like a factory which produces more output if you feed in with more input? Does pushing more capital into the startup lead to more output?

Or is capital like oxygen? If you reduce oxygen supply, you start feeling nauseaus and your brain doesn't function at the optimum level. And an increased level of oxygen increases your performance.

Startups - Like Factory or Human Body​

To me, startups are complex organisms with many areas of interdepending forces. Capital is just one part of it. The team and team motivation is another big piece on what a startup can achieve with a given amount of capital. Is the org a heavily bloated one or like a fit athlete who doesn't have extra flab on him? What is the market like - is there a natural pull for the startup's product?

Though startups are not really as antifragile as the human body. By defintion, a startup is an experimental business which still needs to prove itself. So, it is fragile by definition. And that's why more than 90% of startups fail.

But even then, capital seems more like food than oxygen. You can survive an extended period of low capital if you have a good team in place and users are loving what you make. Sometimes less capital may be a good thing. It makes you more agile and sharp. Hungrier. Makes your will stronger.

Of course, many founders would say that you need some capital to get started. And I agree.

But as one of our group partners in YC oftentimes told us, raising more capital doesn't mean that you have more runway. Having more capital sometimes leads you to burn it in different ways, try do multiple things simultaneously and distracts you from focusing on the core metrics.

Example from Economics​

I recently found a great analogy for this in a presentation by the Norwegian Prime Minister. Norway is an oil-rich country and does well in all economic indicators like per capita GDP.

Such countries face something called The Oil Curse. Oil-rich countries - because they have a good source of income from oil, tend to become overspenders and heavily dependent on oil. Because of this, other areas of the economy suffers, and when oil output reduces they are not ready for the consequences.

This may sound brash but in his own words -

States which earn too much money, tends to spend too much too fast

I had come across a tweet mentioning something about turpentine and Stripe. I remembered it had resonated with me at that point. But then I lost it.

Today, I went digging for it again. And yay, found it! This is the tweet thread I was looking for.

Written by a Stripe ex-employee, it explains certain key aspects of how Stripe works.

The one which struck me most was: Turpentine!

The context:

Picasso said, “when art critics get together they talk about Form and Structure and Meaning. When artists get together they talk about where you can buy cheap turpentine.” Stripe is obsessed with turpentine.

It's fun to talk about startups in terms of market size, trends, TAM, disruption, etc. Sounds cool, doesn't it?

But as I am getting more experience building one, I am realising that startups are more like knife fights in the back alley, rather than planned invasion. Everyday is a new challenge. You win at things you never dreamt of, and sometimes loose which you thought to be certain.

Who wins is decided by who is the most dogged and has the best tools at hand. And thats why turpentine! At a startup you are always looking for the cheapest turpentine. Anything which gives you an iota of advantage against the rest.

You can't get this by just paddling on the surface. You need to go deep. Really immerse yourself in the problem. What users are doing, where they are finding your product. Then only you find areas which may have been unexplored by others.

At the end of the day, in a fight - no matter who you are. You have to win the fight on that day. There are lot more details in the real world, then a plan on paper would show you.

A map is not a territory.

And thats what gives a startup an edge. Because the team has the will to win. Because they know they will die if they don't put their best fight. Because they refuse to say "ENOUGH".

I recently stumbled upon this interview from Andrew Ng, arguably one of the guys single handedly responsible for making Machine Learning popular and accessible.

In his interview, there is a beautiful excerpt which I want to highlight. When asked:

Do you have any helpful habits or routines?

He answers: Reading 6 research papers a week seems like a lot, but I think if one can read even one research paper per week, that will germinate lots of new ideas.

Especially for folks who operate in technical domains like I am (my startup is in a domain called observability, this practice would give them new ideas to think about, and possibly innovate on.

While entrepreneurs don't have the luxury to engage in deep research and compare results, they could learn a lot just by grokking through the research papers and at least understand what the basic concepts are. And then let the human mind do its magic 🦄. May be on some opportune day, when you are talking to a customer, hearing his issues and wondering how to solve it, one of these ideas will present itself before you. Boom! 💥

Adrian Colyer, who has been CTO at VMWare and currently is venture partner at Accel, has actually brought this idea to practice. He runs a blog - The Morning Paper where he discusses interesting computer science research paper every week.

There's also a meetup group which discusses research papers periodically and has chapters in many cities of the world. Fortunately they also have a chapter in Bangalore. I will try to attend one their meetups, once in-person meetups are back again, hopefully 🤞

So, which research paper are you picking today?

I run a business which builds products for application monitoring. There are many use cases it solves like:

• Finding how much time are your applications taking
• Which component of the software is slower compared to the other
• Which applications are giving high error rates
• What could be the root cause of the issue
• Can we generate proactive alerts, before the issue actually happens

Screenshots from SigNoz - Monitoring applications While this seems like a very specific use case for monitoring software, the underlying constructs are more universal and applicable in many other domains. It's just that these techniques are first being applied on software monitoring.

Let us take a more real world use case. Suppose you are in charge of delivery in Swiggy or Uber Eats, wouldn't you like similar monitoring graphs. e.g

• How much time is each delivery person taking to deliver the orders
• Which components in the overall delivery chain is taking more time? Are delivery executives taking more time in reaching restaurant, or are restaurants taking more time to cook the food? Which part of the chain is becoming a bottleneck?
• Which restaurants are telling that ordered dishes are not available?
• What is the root cause of the issue? How do we know which part of the chain is cause of the problem
• Can we get proactive alerts if something is about to go wrong in the delivery chain. e.g If less delivery boys have logged in on a day in a zone, if some restaurants are facing any issue.

Aren't the above points as good as monitoring a delivery business? They map one-to-one with what we do currently with applications & cloud infrastructure. It is a thing of wet dreams for a ops manager in food delivery companies. Of course, some parts of the above are already being captured in some analytics dashboards, but it is not to the level of sophistication of software monitoring. Root cause of analysis, proactive alerting, are still a matter of dreams. Business Processes like Delivery should be monitored Monitoring is a much broader concept than we realize today. Rather than just software stacks, we can monitor business metrics, we can monitor utilization of resources in any factory. This is what control systems was when factories were new things. Researchers would devise new & ingenuous way to monitor different machines & components in the factory. Any process within an organization can be monitored in a continuous way.

"So, why it is not already being done?", you ask. Well the key pre-requisite for setting up a good monitoring system is granularity of data. You should have high granularity of data on a continuous basis for each component of the system to get meaningful insights from monitoring.

Unfortunately, most meat space processes don't satisfy that requirement. Monitoring is actively being applied in software and applications, because that is one of the few places where we have good granularity of data.

But, as we are moving to a more data centric world, when each of our activities are tracked or logged somewhere, I am sure that the day is not far when we would be able to monitor processes in meat space also. Monitor different real world processes. Monitor business metrics.

Heck, why didn't the author get an alert when his cheese was moved? 😆  We would have escaped going through a whole book on it.

I had introduced the concept of effectuation few days back in one of my earlier blogs. For your reference I am attaching the blog link here.

Today I will be discussing about one fo the concepts in effectuation theory - the effectual ask. When we want something from someone, especially for an entrepreneurial venture, generally we take the following 3 approaches:

1. Visionary - We paint the picture of the goal we want to achieve, tell the other person our vision for the world - and expect him to align with the vision and hence, help us in what we are asking for. The only problem with this approach is that: we hope that the other person agrees with our vision. What if he doesn't? In a way, this approach depends a lot on our prediction of what future the other person will resonate with. And hence, there is a high risk of failure with this approach.
2. Adaptive - This is a person where we just request a person to help us, hoping that because of his kindness or sympathy - he will agree. This is a very weak approach, since we don't have much control on what the outcome of the ask would be.
3. Causal - This is the most common approach which people take. They want to ask for a favor from someone, in return for doing something for them. Quid pro quo. This approach is generally a decent approach, if we are able to accurately know what the other person will respond to. Though, more often then not, it is difficult to figure out what the other person is really interested in. What if our offer is not interesting to other person? And many a times, we don't even make the ask - as we don't know what quid pro quo should we offer. This is certainly not an ideal scenario.

The Effectual Ask Effectuation theory asks us to get rid of all these shackles. Rather than trying to figure out what the other person want or just appealing to their sense of kindness, why not just ask them what would it take for them to help us. This is called as the Effectual ask.

This makes the barrier to making an ask very low. You just have to go to the other person, tell them what you want and just ask them what would it take for them? You don't have to figure out the right quid pro quo. You don't have to make a pleading request. You just have to ask. Agreed, that this is not as simple as it sounds - but when you don't have many elements known, I think it is a good strategy. How would you know, what the other person really wants.

What this does, interestingly is that it lower the bar to asking, and in words of Steve Jobs, may times all you have to do is just ask what you want. Very people actually do that.

Here's a video of Steve talking about this:

I recently got a chance to attend a webinar organised by NSRCEL on Effectuation. I had heard about it from a few people, especially Prasanna from Upekkha. This webinar was being conducted by  Prof. Saras, who is the co-creator of Effectuation theory, so I thought to gave it a shot.

What I learned was pretty interesting and ties up with my experiece in building startups. I don't think I have completely grokked the fundaes completely yet, but I am eager to learn & apply it. Sharing a few notes below. Effectuation - Principles

1. The primary idea of effectuation is that the future is not something which is to be searched. Future is made. It is made by human actions.
2. An entrepreneur begins with what he can do about a problem or an idea. Try to understand who he is, what are the networks and resources he has at his hand. This is called bird-in-the-hand principle. Rather than thinking about what he needs to start something, he begins with what he has.
3. The  next principle is affordable loss. The entrepreneur tries to asses what he can do without taking a big risk. What are the things he can do, without losing everything. What this does is - it reduces the bar to start. If you only have to do things which don't kill you, your bar to take the plunge is much lower.
4. Once he has started doing something after understanding affordable loss, he needs to talk to other people or stakeholders to come in the journey with him. This is called crazy quilt. Since its a journey in creating the future, you need as much resources you need. Adding more people helps you increase your resources and hence the gamut of things you could do. It could be people who can  help you build the product, investors or anyone who is willing to help you.
5. As he talks to many people about his idea or work, he will get many people with advice. The idea is to take advice only from people who are willing to commit their resources to it. Be it in form of money, time, introductions, raw material or potential partnership. Don't worry so much about the initial idea you started with. If you are getting partners who are willing to make commitments of their resources, understand affordable loss and start buiding it.
6. This is very different from the standard visionary entrepreneur story we often hear, of an entrepreneur who started with a vision and persisted till he succeeds. This approach assumes a predictable future - which the visionary founder has miraculously predicted correctly. Of course, this approach can also work - but it has lower chances of success. In a way, taking external funding exacerbate this situation, as you need to take the journey which you have bought the ticket for. I have written more about it in this post.
7. The other principle is lemonade. It essentially says that the world is unpredictable. New challenges will often come in your journey. Like we are all facing the COVID-19 situation currently. But you need to take it into the stride. If life gives you lemon, make a lemonade. Thats what will allow you to discover new markets and possibilities
8. Once you have partners who are willing to take the journey with you, now you can take the organization wherever you want. You are the pilot-in-the-plane who takes the business where you want. There is no "the" future where you need to go.  It is you plane and you can take it wherever you think is right - and create that future.

These are just the 5 principles of Effectual thinking. I would write more about Effectual process on how one can apply this to their business and Effectual ask in future posts.

If you are interested in learning more about effectuation, checkout out effectuation.org

I attended a webinar today organized by Ashish from NextBigWhat. It was attended by Lalit from Mobisy and Sameer from Linger. It was a candid discussion with both founders talking about their experiences and how they have survived nuclear winters ( not the literal ones 😜 but winters in business activity & funding)

Here are some of my jottings:

1. Don't think of yourself as a startup. Think of yourself as a business. A "dhandha" business. And the first objective of any business is to survive. You can do anything, have any impact, only if you survive.
2. You have to create value. Value for which somebody is willing to pay you. Customer paying you hard money is the best indicator of you having generated value for him. Focus on that.
3. If you are an early stage startup, and trying to figure out if you are making anything of value - start charging money. Freemium is not a good strategy for early stages as you are just delaying the moment of truth - when he shows you the greenback 💵
4. In good times you tend to bloat. So period of harships, though undesirable, are good to become lean. As a business, you should always try to be lean. This applies even if you are an early stage startup business or a 1000 people company.
5. VC money is a fertiliser. As a founder you have to be aware what kind of plant are you? Are you a grass 🌿, slow growing tree 🌲 or a fast growing tree 🌳. VC money is only helpful if you are a fast growing tree. As VCs have a time frame for which they invest and they would come asking for the timber once you are due. So, be self aware. What kind of business are you building? What type of business suits you (as a founder) and the market you are targeting?
6. Taking VC money is like buying a ticket to the bus ride. Once you have bought the ticket, you need to finish the ride 🚌 You need to take the business to a logical conclusion in the VC fund time fram ( ~6-8 years) You either become big, bet acquired or bring in bigger investors to gives exit to the early stage VC. Or you shut down.
7. Founders and VCs operate at a very different timelines. Any VC has a fixed time period in which they need to return the fund (~6-8 yrs). They need to invest, see growth in the startup and exit in this time period. Founders potentially would like to run their company for their lifetime. It's easy for them to think in decades.
8. The risk profile of VCs is very different than the founders. They have a portfolio of companies and they need 1-2 companies to become a blockbuster to return the fund. So they want you to go big or go home. But founders have a portfolio of  1
9. With the compulsory lockdown in many places currently, customers are more amenable to video calls. They are finding that video calls are more productive as there are less transition costs. Sales people are also booking 2X meetings, at least for Lalit's business. His belief that people will realise the value of video meetings and it will become more important even post-lockdown.
10. Now is a good time to build teams. There is lot of talent available in the market now and you could potentially have some very good people join your team - which would be not available in better times.

Every challenge is also an opportunity. It all depends on what you make of it.

In our first year MBA class, we were taught the Efficient Market hypothesis. It basically implies that it is impossible to beat the market on a risk adjusted basis. If you want to beat the markets, you have to take more risks.

Now, this hypothesis relies on a class of people/agents who can be loosely identified as "entrepreneurs" - who identify any opportunity to make higher returns, make money out of it and correct the prices. Hence, markets again become efficient.

The thing to note here is that, this class of people which I have called above as "entrepreneurs" are those agents who operate on the margins and always looking to push the boundaries. e.g. If there is a new cheaper way to drill oil, entrepreneurs will exploit this technology by forming ventures which exploit this - and bring the prices down. The market thus gets corrected. If there is a new way to deliver goods cheaper by drones, there will be entrepreneurs who will start ventures to provide this service - and hence will make delivering goods cheaper. This will reduce the price of delivery and hence the logistics market will get corrected. You get the drill...

But, being in the space of creating ventures and constantly thinking about it for few years now, I think that not enough thought has been given to how these "entrepreneurs" are created. There are no single, well defined process by which entrepreneurs are created. Some accidentally discover an opportunity, some tinkered for long years to reach there. There is lot of luck involved. For example, Jeff Bezos came to know about the potential power of the Internet - by working for DE Shaw - which was a hedge fund trying to exploit the emergence of computers and the Internet. Ray Krock, who took over Mc Donald from its founder - and scaled it across the world. There is not set pattern for it.

Since the process by which entrepreneurs come to be is so random, how can something like the Efficient Market hypothesis - which relies on "entrepreneurs" exploiting every possible opportunity - be true. There are many areas where very few entrepreneurs enter - just because of the nature of that market - and these markets stand uncorrected for a long period of time. Markets which involves hardware are uncorrected for a long time - because very few entreprenuers go there. Areas which are loved by VCs get lots more attention - and hence are more efficient.

Of course, if by some random chance, an entrepreneur goes to an unattended area - and achieves success - then a lot of money flows into it - and the market gets corrected. But, till that entrepreneur stumbled upon that area - it was uncorrected for a long time. A case which comes to mind, is the area of RPA (Robotic process automation) which was unattended for a long time - till UiPath somehow stumbled into it - after barely surviving for 8-9 years. Of course, after UiPath - lots of money flew into this market and the market is overheated now.

So, the very mechanism by which markets get corrected is so flaky - so based on luck, that it always remains uncorrected for long periods of time - before it gets corrected.

The invisible hand of the market works through the toil of entrepreneurs. But the creation of entrepreneurs is unpredictable, and thus the invisible hand also plays to its own tune.

Efficient market hypothesis is just taught to students, to make them feel that the world works through well defined rules. While in reality, there is so much depth and complexity in the world, that simple rules like EMH can't possibly ever explain it.

Being a founder is considered a milestone by many. You have finally taken the plunge to make your dreams a reality. Something you have been carefully tossing around in your mind, can now finally be tested against real people.

Is your product idea valuable? Will other people benefit if it becomes a reality? Does your startups existence create any value?

This also gives you immense amount of independence to do whatever you want. You can spend time on talking to users, researching the market or reaching out to people to get 'gyaan'.  In your head, everything does add value to take your product to the elusive PMF. The intentions are right, why won't they be? After all, you are the founder.

But indepedence is also a double-edged sword. A very broad canvas in early stage can lead to lack of focus. You can easily lose time - without seeing any visible movement in key metrics. And since time is always scarce in startups, you need to be miser about it.

Focus on the key metrics you want to move in a week, and ruthlessly prioritise to only take up those tasks which move these metrics. Be realistic, not optimistic.

This is something which I am trying to improve in myself.

Define metrics. Chase them. Reflect what went right/wrong. Iterate.