Bootstrap in Bangalore

Very often we have great ideas but we are not the right vehicle for those ideas. Mostly when you figure you are not the right person, move to another idea. But say the idea is chasing you in your dreams! You want to move on but it won’t let you. This post is focused on this rarer case when you want to take the extreme risk of going after an idea even when you are not the right person.

Firstly, assess if you are the right person for the idea or how you are not the right person. For example, creating a solar powered car for Rs 1 Lakh is a great idea but I am not the right person for the same. My technical skills are not aligned (I only know how to make software products), the experience I have is not in this area (been working in software companies), the ecosystem I share of friends, acquaintances, vendors (all in software world) will not be able to support me in it. And then if I am thinking of venturing in this plan alone, I should definitely back down immediately. Startups without the right team rarely succeed.

The idea of the above exercise is not discouragement but realization. I firmly believe entrepreneurship is about the passion you have in the idea and in your dream. So stretching this hypothetical solar car example lets see what could a software pro with that burning desire to create a cheap solar car would do.

Given his passion, he has already been reading all the literature for the latest in cheap solar/automobile technologies and also on what other companies are doing in this area. He has a google alert set up on the right keywords just so that he doesn’t miss a development in israel on this. After identifying the lack of ecosystem, he starts attending all the solar and automobile conferences he possible could. Obviously, this means spending money on travel instead of buying that new car he wanted but thats a small sacrifice. Slowly the ecosystem starts emerging – vendors who supply the solar panels, engineers who have been working in this area for last 10 years, fabricators and manufactures who put things together, motors and battery suppliers etc. He visits the vendors, buys samples and kits and makes friends in general.

He also notices that Pune and not his current city Bangalore is the right place for such an enterprise and most of the companies he finds are based in Pune. Fortunately, Pune also has a robust software industry and he shifts cities getting closer to his network. All the while he has also been looking out for an ideal co-founder for this dream and he finds an engineer in Pune working in the manufacturing space who makes the fit. Given the pathetic seed funding opportunities in India and also the fact that no one will back a bunch of rookies, the duo get pragmatic instead of being depressed. Rather than make a solar car, they create a solar kit to convert an existing electric car into a solar powered car. Creating the prototypes was easier, cost could be borne by savings and utility is still great since the kit reduces the mean time to charge of the vehicles apart from saving the electric bill.

The duo now go looking for tie ups with existing electric vehicle manufactures for the solar kit which could be sold as an add-on. Both plan to leave jobs as soon as first tie-up materializes.

Although we can continue our story and make these people rich/famous, we will stop here. If the tie-up with a electric vehical company happens they would successfully bootstrap and have a better chance to convince investors to back them up on a solar car venture of their own. Or maybe this solar add-on business is more viable and scalable and they will never try making their own cars.

The lesson is to break the dream into smaller actionables and even scale down business objectives into more achievable targets with lesser resources. As long as those smaller business objectives are ‘making you the right person’ for the bigger objectives you are doing fine. So if you want to sell an educational ERP system, it might be a good idea to make colleges your customer by first doing a small alumni portal for them. Doing something smaller for the same customers or something because of which skills/experience develop in the area of interest is a great way to bootstrap.

This is a longish post, so thanks if you reached this line

Took a slightly longer break – meanwhile Neev completed 3 years and we are redoing our website to reflect our growth.

Back to business at hand. Picking the thread from where we left it: accounting. As I had said, we will use the depreciation funda we gained to some good use. Let’s say your last years accounts were

Earning
Revenue – 100

Expense
Computers bought – 50
Salaries – 20

Profits
100 – 20 – 30% (depreciation) of 50 = 80 – 15 = 65

Tax
35% of 65 = 22.75

Cash remaining (if we started with zero)
100 – 50 – 20 – 22.75 = 7.25

As we know that cashflow is the king, so for a bootstrapper the important figure is the princely figure of 7.25 which will allow investments, sales cost, working capital needs and say that customer cheque comes in a little too late. Unfortunately for young businesses in India credit facilities suck. After 2-3 years of doing business many avenues open up but as a bootstrapper you have to just get every paisa count. The simple lesson here is that rentals are 100% expense and have nothing to depreciate.

Now being the smart bootstrapper you are, here is what you do after reading this post – rent the same computers you were going to buy which give you:

Earning
Revenue – 100

Expense
Computers rented – 15
Salaries – 20

Profits
100 – 20 – 15 = 65

Tax
35% of 65 = 22.75

Cash remaining (if we started with zero)
100 – 15 – 20 – 22.75 = 42.25

This is assuming the close to real rate of 30% of value as rental in a year. Even if rental is 50% (leaving the calculations for you) the cash remaining will come to 35.75. So you are 5 to 6 times better than what you were!

Usually for cash focussed bootstrappers, the buy vs rent argument will always end in one place. This makes even better sense for expense such as furniture with 15% depreciation. Shivajinagar in Bangalore will have lots of folks ready to give you furniture on rent.

Also, things like UPS are good candidates since in your growth phase you never know how soon you will outgrow the need and be saddled with a piece of equipment you don’t need.

Enough numbers for now, in the next post we will come back to some good old personal advise.