10 Things You MUST Know Before Starting Up

Last 10 years have completely changed the professional landscape in India. We have seen a new breed of professionals emerge – the ones we like to call Entrepreneurs. From hardcore techies to management grads to school dropouts, starting a company has become “just the thing to do”. No wonder that if there is a true hockey stick growth this country has witnessed, it’s really more so in the number of entrepreneurs than anything else.

It is only natural in such environment for people to reach out & seek advice. Over the last 5 years, I have been at both ends as far as the start-up advice goes. And while there is a lot more Gyan available online today than it was 5 years ago when I started up, a lot of it is still pure rhetoric and somewhat opaque. It is like no one wants to really talk about the harsh realities of starting up. So I thought I would write down my 2 cents worth of 10 commandments for starting up, to whoever it may concern!

1. Start-ups are NOT for Everyone

Just like any other profession, start-ups are not for everyone, particularly when the risk reward ratio is massively skewed. Almost all of us, owing to the ‘creative’ right side of our brain, have ideas which we feel really passionate about. And if those ideas get validated by our ‘limited’ set of family & friends, we assume that they are massively scalable & are going to be the next big thing. Trust me, 99.9%, they are not!

So, if you want to start up, do it for the right reasons. Think of the following before you jump the gun:

a.      Are you solving a large enough problem? If yes, then why have others not done it? And if they’ve not done it, why would you be successful at it? Do you have an advantage (or can build one) that others don’t? – do your homework!

b.      What is your opportunity cost? Are you prepared to live the next 5 years of your life being miserable & frugal? Are you willing to sacrifice your & that of your family’s lifestyle in favour of your start-up? Trust me, the stress & the impact on your life is not always worth it, particularly if you are married & have (or want to have) kids

c.      Are you doing it to create wealth or to pace/spice up your career? There are several other less risky ways to do the same. You can join another start-up & enjoy similar challenges. You can even invest in a start-up & enjoy similar growth

d.      Lastly, remember that chances of success in a start-up are really low. So while you may have what it takes to be the last man standing, just be prepared for the fact that this ship might surely sink one day

2. Pedigree Matters

As biased as it may sound, but pedigree of founders does play a significant role in the funding (and hence success) of a start-up. And it is quite logical to a large extent. If you think of it, most early stage investors are essentially taking a bet on the founders whom they don’t really know well. In such situations, it is only natural for investors to favour founders from IITs/IIMs/Ivy Leagues because, to be honest, the world has already filtered them!

While exceptions are always there, but in most cases, the pedigree rule doesn’t apply only if:

a.      You have significant domain expertise

b.      You are a serial entrepreneur with at least a few milestones to show for

c.      You have significant years of work experience with a top-notch firm

In cases, where you think, you may not have sufficient pedigree, it may not be a bad idea to join another early stage start-up. If history has taught us anything, it is that early employees of successful start-ups have created huge value & impact.

3. Most People get their Co-Founders Wrong

For most of us, finding the right co-founders is more of an emotional decision than a rational one. That is why most of us end up doing start-ups with our friends. While there is nothing wrong with going into business with a friend, you should always keep the following in mind when deciding on co-founders:

a.      There should be only 2 or 3 co-founders. Starting a company with single founder is spreading yourself too thin whereas having 4 or more co-founders is inviting chaos & dissonance

b.      The co-founders should have complimentary skill sets, and at least one co-founder should be a hardcore techie. Also, at least one co-founder should have the key domain expertise

c.      The initially Equity should be distributed ‘Equitably’ and NOT ‘Equally’. Equitably means on the basis of what everyone brings to the table rather than just doing it willy nilly. Here is a great link (https://foundrs.com/) to calculate a fair equity distribution

d.      It’s important to have faith in each other. Team work means that you distribute the work amongst each other and have faith that your partner will deal with it in the most optimal manner. Give each other space, particularly when things are not working out

e.      Lastly but most importantly, Every Co-founder should invest in the business. It is important that everyone has skin in the game

4. Don’t bootstrap for long

This is going to be counter-intuitive to most of the articles that preach delaying fundraise for as long as possible. Well, it may work in 5% of the cases (almost everything does!), it’ll bite really hard in all others. When thinking of fundraise, remember the following:

a.      Market dynamics play a big role in fund-raising, particularly in a shallow market like India. Therefore, it is advisable to raise money while your sector is still in favour, so that you are well prepared to deal with seasonality in the investor sentiment

b.      Don’t raise distress capital. It will only elongate the pain

c.      Look for value, not valuation. % dilution doesn’t mean much if the investor has faith in your idea and has the means to guide you through the growth

d.      While dealing with investors, neither be a wall nor a pushover. Nobody likes to suffer fools

5. Hack-it up initially but build structure later

Almost every successful start-up reaches a point where it ceases to be a start-up and becomes a company. However, it doesn’t happen in a day. A successful start-up almost always morphs into a company through a slow & gradual process, driven consciously by its founders. As a general guideline, remember the following:

a.      A lot of roles & responsibilities will overlap in the beginning. At this stage, you should hire generalists. As your start-up grows, promote these generalists to business head roles & bring in specialists to handle actual execution

b.      Teamwork doesn’t mean that everyone does everything. When you hire a person, have faith in him & let him perform. If you don’t like someone’s performance, you should replace the person rather than micromanage, as it is a not a viable long term strategy

c.      Democracy doesn’t last long in start-ups. You can either build consensus or build your start-up. It is always good to have discussions to evaluate the pros & cons of any initiative, but the onus & freedom of making a decision should lie with only one person (initially it will lie with the respective CXO, but later as the company grows, it could be with a business head or even a respective manager). Remember, you cannot clip the wings of a bird and ask her to fly!

6. Invest Only in Two Teams & Leave Everything Else Bare

For at least a couple of years, you are going to be thin on resources. You won’t be able to do everything yourself, talent would be expensive & you wouldn’t want your company to be a jack of all & master of none (which is by the way what most mediocre companies are!)

So build wisely. Consider doing the following:

a.      Invest in technology (team). It will strengthen your product, enhance productivity & drive capital efficiency

b.      Invest in one other core team depending on what your USP is for the first few years. If you are a curated marketplace (think Fab.com), invest in your merchandizing team; if you are a delivery service (think Instacart.com), invest in your operations team; if you are SaaS start-up (think salesforce.com), invest in your sales team

c.      Remember, Equity is cheap initially, so build a healthy ESOP pool (10-15%) & use it cautiously. A 15% ESOP Pool should last you at least 2-3 rounds of funding if not more

7. Marketing is Super Critical & Branding is the Holy Grail

Marketing is almost always a make or break in a start-up. Therefore, whether you like it or not, you yourself will have to learn marketing. Keep the following things in mind:

a.      For most start-ups (B2B, B2C, C2C), marketing is probably the single most critical thing behind their success (or failure)

b.      Marketing is more art than science. It requires creativity & a holistic understanding of the business. Therefore, it is super important that you are directly involved in it yourself

c.      Focus on building marketing strategies & overseeing analytics. Outsource execution to Agencies

d.      From Day 1, invest in building a brand. Trust me, ROI will follow

8. Build Your Personal Brand

Social signals have become increasingly important for how we perceive things & take decisions. Whether you are trying to attract talent, or clients, or potential investors, your personal reputation (or the lack of it) will play a significant role in your success.

You should definitely allocate some time in your week to build your personal brand. This could involve speaking at an event, writing a blog, connecting with influencers, helping out other budding entrepreneurs, etc. Here is a great article by Neil Patel on how to build a personal brand (https://www.quicksprout.com/the-complete-guide-to-building-your-personal-brand/)

Remember, building a start-up is not a sprint, it’s a marathon, and even then, it’s only one part of your whole career. So don’t lose sight of the bigger picture!

9. People will be Never Fair to You

There is a reason they say that Life’s not fair. It’s because it is not!

a.      Co-founders/Investors/Employees will never be fair to you. Not because they don’t want to, but because in a lot of cases your definition of fair will differ from theirs. So don’t fret or victimize yourself. Only the fittest survive here. Always remember that it was you who chose this life

b.      Keep the larger picture in mind. Your whole life is not about this one start-up, so don’t get stressed. Learn to play the game

c.      Always hope for the best & prepare for the worst. And while perseverance trumps everything else, have a stop-loss. It helps!

10. Success is Subjective, Happiness is Not!

This is probably true for all of us, entrepreneur or not. Success is always relative. Doesn’t matter how big you become, there would always be someone who’s ahead of you. There’s a reason they call it rat race. But happiness … happiness is absolute. And it should not be driven by the success of your start-up, but by the journey of it.

Do you remember why you started in the first place? Because … you wanted to do something that made you happy. Never forget that!