Dilemmas We Entrepreneurs Face

Being an entrepreneur is exhilarating. It is filled with doubt, excitement, insecurity, and a sense of achievement all at once.

My two friends and I founded NoBroker, a C2C brokerage-free real estate marketplace in India, over three years ago. We bootstrapped for a good time, worried about funds, raised three rounds of VC funding of $20 mn, established our first office in a house, got some great founding team members, agreed and disagreed with each other, received both criticisms and praises from our customers, and expanded our cumulative customer base to 3 million.

In this eventful journey, we made many mistakes. So, let me share some of the big pitfalls here. We entrepreneurs have done enough mistakes. It’s time to learn from each other.

Should I put my best foot forward when I talk to people?

We entrepreneurs are generally never satisfied with what we build. We want to fine-tune our product more and more before we show it to the world. We want to be well-prepared when we talk to customers and VCs. But this often backfires.

I have a founder friend who spoke to a customer too late. The customer told him, “Yes, the product is good. But I don’t think we will ever have a budget for these services.” Imagine yourself in his place. Burning midnight oil for months, perfecting the product, and missing to ask a simple question: Will my customer ever have a budget to buy?

Another friend of mine approached VCs who told him, “The product is good and the customer problem is real. But the market size is too small. Didn’t you notice?”

In our company’s case, thankfully, we learned from others’ mistakes. We bounced ideas off our friends in the VC community while building the product. We asked questions like, is the market big enough? Where did other firms falter in the past? Is this a VC-fundable business? We spoke with friends and potential customers and got practical insights. We did mystery shopping and understood the pain points that our competitor was unable to solve.

The trick was to keep the product/service iterative. Talk to people and learn something. Use that learning to modify your product/service. Then, make it live and gather feedback. Then, again, talk to people, learn more, and repeat the cycle. Don’t wait.

Is scaling the main game?

Yes, we want to be 10x bigger than what we are now. But how soon? On which dimension? The real dilemma here is a short-term quick jump in metrics vs long-term sustainability.

A business can be a depth game or a width game. Which one did I choose? NoBroker helps owners and seekers meet each other directly without a broker in between so they can save on transaction costs. In this business, the customer need is micro-market-based. The matchmaking is micro.

Let me explain. A customer has a house with X dimensions in locality Y, with rent/sale amount of Z. We need to find a seeker who wants exactly these X, Y, and Z. So, this is more of a depth game where penetration and building a network in the same city is beneficial to both the business and the customers.

Did we also want to play the width game, which is about having presence in more cities? Yes, we wanted to expand; we are in five cities now. But for us, depth is more important than width. The priority is clear, and our team and investors understand this.

So, what is more important for your business? Width or depth? The answer seems obvious in hindsight. But with competitors breathing down your neck and VCs hungry for quick numbers, this is a dilemma that only us, entrepreneurs, can truly understand.

Should you do what VCs say?

A partner in a VC firm told me about a mind-boggling observation. He said that companies who look to him for advice and execute the idea like great managers give huge satisfaction to him personally. But companies like that almost never succeed! Those founders behave like project managers and are never able to navigate through very difficult times.

I suspect that every gray-haired VC knows this. Yes, VCs have seen the world and their advice is often well-meaning. They have wider horizon and can help you spot things which you have missed. But sometimes, it is not, because their time horizons are different from yours. Sometimes, they need to artificially fatten you up to feed their shares to a bigger fish. Don’t partner with such guys. If you are stuck, speak up. Tell them what your customers are telling you, the impact of certain decisions on cash flows, and other long-term business implications. Debate and decide.

Is GMV still important?

What about app downloads? Yes, a lot of other metrics are important. But so is revenue minus cost. The dilemma here, again, is timing.

For many businesses, marketing budgets and significant cash burns are initially required. But don’t be complacent about those metrics. Until the profit line is missing from P&L, it’s best to feel constantly jittery and uncomfortable.

Our GMV at NoBroker is big. But is it relevant to us? Yes, partly. Is it the most important metric for us? No. Since we focus on helping customers save on real estate brokerage fees, the number of deals closed is more relevant to us than the GMV.

The risk in tracking vanity metrics is that they mislead you into believing them. So, sit down and think. What is the metric that will snowball your firm into a strong, long-term pricing power and sustainability? Track that.

Should we wait to hire HR and finance talent?

In startups, everybody needs to behave as an HR manager to build and preserve the culture. And everyone needs to focus on revenue and expenses to develop a reasonably frugal culture. But this does not mean that the support talent should not be hired quickly.

I can say from firsthand experience that having great HR and finance staff not only saves a precious founder’s time but also ups the standards of the entire game. I mistakenly felt that there should be full-time work for support functions before we hire them. What did we do until then? We passed check entries, spoke with vendors directly, and typed offer letters to new joiners. It was a big mistake. It sucked our time away from building the business. Things quickly grew out of control. When we eventually did hire people in support functions, we marveled at their competence and realized how badly we had needed them.

So, if you are still waiting for a full-time support function work profile to be created, please stop. Hire good people in support functions now, as they return amazing ROI.

Should founders maintain control?

I am a founder and I have been nurturing the vertical aspects of the business. When a new hire comes up and screws even a portion of it, I hate it. I would know that I should not have delegated. I would say, “OK, OK. I will delegate but keep me in the loop.” But should founders actually be kept in the loop? No, since we have a view on everything. The business is our baby.

Well, the only way out is to define the maximum impact of error and go into what is called the “degree of optimal ignorance.” This means that as a founder, I don’t need to know everything. Let some things be delegated but define maximum failures.

For example, in digital marketing, I just need to know the final output in terms of customers acquired and costs incurred. I do not need to know the exact keywords for which the bidding was done. As a founder, I need to be comfortable with this feeling where I don’t need to know everything. This ensures that my company has the potential to scale without me being a hindrance. So, as a founder or leader of your team, take a deep breath, relax, and delegate.

Should I hire that McKinsey guy?

How cool would it be to hire an ex-McKinsey guy for your company? We entrepreneurs often want to hire “industry celebrities.” But does it work? No, it never does.

Hire the guy if he has passion for the problem you are solving, whether he’s ex-McKinsey or not. There is no substitute for passion and hunger. At our company, we look for passion first. Is it oozing out of the guy? Your people should also think about your customers. They should be willing to fight with founders for the customers’ sake. Lastly, they should take ideas and make them their own.

( This article was first published in TechInAsia on 19 Sept '17. https://www.techinasia.com/talk/my-answers-6-startup-questions-after-learning-mistakes-founder)