Entrepreneurship is all about creating the future – Ashok Soota
Entrepreneurship is all about creating the future. The book written by Ashok Soota, founder and executive chairman of Happiest Minds has shown you the path to the future all the way from idea generation to IPO and beyond. We have drawn key takeaways at the end of each chapter. Though we believe that each of these is relevant for your success, we would like to close this book by summarizing the top takeaways for your ready reference.
By quoting,The best way to predict the future is to create it’ – Peter Drucker
Your venture is only as good as your idea. Accordingly, evaluate multiple opportunities before you settle on the one for your venture. Idea generation methods can include the kaleidoscope approach and your chosen idea must solve a customer pain or be a new way of delivering an existing service or disrupt existing businesses. You must put your idea through an inexpensive validation test, including for scalability and defensibility.
We have a strong preference for raising funds from external sources rather than bootstrapping. Money is the fuel for accelarated growth and scaling. Also, VCs validate your idea and add value and for this one must have a strategy for the entire cycle of fund-raising till the pre-IPO round. Work backwards and decide on the money to be raised per round. The objective should be to maximize valuation at each stage and minimize dilution. Equity once given away can’t be recovered.
Ashok spoke on before negotiating with VCs, understand their mind, imperatives and drivers. Is the money they provide ‘intelligent money’? Don’t just accept the first offer you receive. Entrepreneurship is about value creation and you need to ensure that the founders capture their fair share of value creation. You should target for the founders to retain a minimum 40 per cent and preferably 50 per cent or above of shareholding in the pre-IPO round.
Secondly, shareholder agreements can contain onerous clauses. You need professional help to negotiate these agreements. In a rush to get money, don’t agree to clauses which give the VCs the right to replace the CEO or clauses which can restrict your operational freedom. The entrepreneur–VC relationship is mostly cordial and supportive. However, things can turn sour and you need to protect yourself. Culture can be your most unique and enduring differentiator which others can’t replicate.
Ashok further spoke on, it is best to avoid M&A activity for the first three to four years of a company’s life. Different companies have different cultures, even though some will appear similar. A ‘too early’ M&A is like grafting another culture on to your own even before its taken firm root.Don’t just call your company and team a family without being able to demonstrate the same through the way you behave, particularly in difficult times.Ashok says.
Founders should come in with a salary cut as the start-up won’t be able to afford their prior salaries. The senior most founders and those who receive the highest equity should take the largest salary cuts. High founder salaries are a red flag for VCs.Being a founder is not a role. Neither is it an entitlement for any special concessions. Accordingly, if a founder is not measuring up, he or she should be treated like any other member of the team: provide maximum support and if things still don’t work out, plan for a separation.
The most important role in the company is that of the CEO. One amongst the founders who is clearly seen as the leader should be the CEO and should get a higher share of equity than others.The organization structure is not so much about hierarchies or reporting relationships, but defines your go-to-market approach, operational efficiency and accountability. Your profit centres will determine your organization’s power structure.
The opportunity cost of a wrong hire is five times the direct cost until separation. Accordingly, it’s better for leaders to multiplex and fill the gap than hire in haste.You need a continuum of strategies including a start-up strategy, a scale-up strategy, a strategy to compete against much larger players, a strategy to pivot if required, a strategy for risk reduction and a strategy for acquisition. For every inflection point in your company or major externally induced change, you need to revisit your strategy.
Price is not a strategy. It’s a mug’s game. Market entry at lower prices is only justified if your costs are lower, allowing you to sustain healthy margins.Platformization of your offerings is a great tool to scale both B2B and B2C markets. In B2B, it can yield you annuity business in the form of multi-year contracts. In B2C, it helps you to enlarge your reach and lower your customer acquisition costs. Platforms can help you make money while you sleep.
You can successfully compete against large companies as they all have their own weaknesses. Techniques you can use include guerilla tactics, judo strategy and the Tai-chi advantage.Every strategy is only as good as its implementation. Good execution requires working backwards from the three- or five-year vision and drawing up a roadmap of actions.
The best publicity is free publicity; third party statements such as media articles and social media comments have a higher credibility than your own statements or paid advertisements. Customer testimonials are the most powerful publicity. To get a vast amount of free coverage, ‘be interesting. do interesting’.
Ashok wrote on how building trust is important in both B2B and B2C marketing. When things go wrong, handle these exceptions well, they can contribute to building trust. Excessive choice in pricing, schemes and variety can confuse a customer and lead to delays in decision-making. Keep it simple.
The future of marketing lies in improving the customer’s experience and demonstrating you care. Those who do this well will be the winners.We recommend a generous and all-inclusive ESOP plan. You will have many priorities when you start a company, but it’s important to develop your ESOP plan even as you prepare to launch your venture. You need to be aware of taxability provisions which vary from country to country and change also from time to time. It’s best to distribute founder sweat equity before the company becomes operational and also disburse a significant proportion of your ESOP pool earlier rather than later.
Secondly, an IPO requires years of advance planning. This includes action on governance and disclosure requirements of the Companies Act and stock exchange listing agreements which become applicable to you as a public limited company. About twelve to eighteen months before your IPO you should expand the board to meet the requirements of having the required proportion of independent directors. Select directors who bring in complementary capabilities and who can add value.
The key decisions for the IPO are the size of issue, the price of issue and the valuation of the company. Your investment banker will help you finalize these, but you need to be aware that too many stocks tend to be below issue price even a few years after the IPO. We define a successful IPO as one which gives good returns to existing investors and also the new investors as measured in a three-year timeframe. Ventures started by young entrepreneurs are more likely to attempt to change the world, but also have a higher failure rate. Late-stage entrepreneurs are likely to build on their experience which makes it easier for them to raise funds, attract talent and scale the venture.
Serial entrepreneurs are of two broad types: those who move from venture to venture, and others who retain control of their prior ventures and create an empire. Paths towards serial entrepreneurship vary depending on which skills the serial entrepreneur seeks to leverage. If you start a venture in the same space as your previous employer you may have to face legal suits on non-compete or non-solicit. You should be aware of the law and ensure you are on the right side of it. Don’t be intimidated but take a head-on approach to confront such situations.
Failure and success are two ends of a spectrum. At the low end are situations where you have to shut shop or make a distress sale. In between are ventures with varying degrees of under- and over-performance. At the top end are ventures with excellent financial success, good corporate governance and a sustainable business model for the future. An ongoing factor for success is to get your timing right all the way from idea selection, market entry, scale-up timing, pivoting strategy if needed, acquisition etc. You have to find the right timing in an environment of uncertainty.
The two largest reasons for venture failure are ‘no market need’ and ‘ran out of cash’. A single huge mistake can lead to venture failure. On the other hand, to be on the high end of the success spectrum many, many things have to be done well. This covers the entire gamut of areas from idea generation to IPO and beyond. In addition, you will need multiple personal attributes like perseverance, flexibility, agility and resilience.
Lastly, he spoke on how you should be passionate about your venture, but don’t get consumed by it and destroy your personal life. Apart from achieving financial success, entrepreneurship should be a joyous journey and a journey filled with purpose to be called truly successful.
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