Bootstrap in Bangalore

Continuing from the previous post, another clear advantage of starting early is simply that you get to take many stabs at the problem. You won’t learn how to start a company in school and chances are your parents won’t be able to teach you either. The early start can be a business venture but not necessarily so. Do recognize that many of the skills of starting up work are needed when starting a new initiative within an existing organization also – like mustering support for your idea, leadership, managing budget, planning and delivering on dates. So you can sell computers or newspapers like Michael Dell but don’t underestimate organizing college fests, running the local IEEE chapter, conducting a workshop in college or pushing for a new module in your product, leading your local cricket team. The important thing is to learn from each success and failure that you meet and gear up to use that in your next step. As long as new mistakes are happening, you are on the right path. I had my brush with enterpreneurship in school when I tried to convince my principal that I can publish a school magazine. Before that I had done it on a smaller scale doing magazines for a children’s club. I think it helps to start small and gradually rise up the chain. Risk taking apetite is a matter of habit, once you get used to a certain level of risk – you are ready for the next. Mind you usually entrepreneurs don’t feel they are taking a risk, they are fully confident that their venture is risk-free.

There is a useful technique to learning without starting a real venture also. Similar to thought experiments in physics, I call it a thought start up. The parallel in stocks is to build a dummy portfolio where you notionally buy stocks and track worth of the dummy portfolio, buying and selling based on real events. As you learn key lessons, making the first step with real money becomes easier. Taking a thought start up through real events is difficult, so my intention is just to take it to a detailed business plan level with execution plans included. As soon as you see an opportunity that excites you, don’t just leave it after a coffee table discussion. Expand upon it, build a execution strategy and a revenue plan. In case you have stumbled upon a truly unique opportunity this may just convince you to go all out after it. More likely, initially you will find that someone else has already identified it and is pursuing it. This discovery is a good thing. At least you are thinking of viable ideas. If no one is doing something you have thought of do give it a serious thought if the idea is not worth pursuing. If you are keeping up with the domain of your interest you may come up with a sound business idea which no one is already doing but you find that in a few months someone else does it and you rue the missed opportunity! This again is a good sign. It means that you are able to ahead of the market and should now realize that its not idea but speed of execution that matters. We are all exposed to similar opportunities and will come to similar conclusions regarding businesses around them. The difference usually is in who executes faster and better. The longer the gap between your thinking of an opportunity and someone else launching it in market, the better your instincts are developing in the area of your interest. This should give you tremendous confidence in your instinct and as soon as a fit is found between execution resources required for a business idea and your skills – just go for the kill.

Heard two instructive anecdotes last week related to the same quality. The first one is about a young company which sent a bid against a tender in a public sector company. Surprisingly, they got a call from the company and were asked to come over to the headquarters for negotiations. The young entrepreneur thought that going to the headquarters is going to be significant travel expense and chances of getting a contract from a public sector company is next to impossible. He decided to give it a pass. Many years later in a chance meeting he met the concerned official who had called him. He still remembered this fellow and expressed his amazement about him not turning up. He said the purchase order was ready with your name and we had to award the tender to someone else. It seems calling for negotiations was a just a final formality.

Then I heard this anecdote about rockfeller then. A journalist asks Rockfeller – How did you make so much money. Rockfeller says, whenever an opportunity came I jumped. Journalist then asks how did you know if an opportunity has come. Rockfeller replied, I didn’t – I just keep jumping.

Put the two together and you can see how the entrepreneur above did not jump enough. As a bootstrapper you definitely don’t want to be caught heavy footed. Be nimble and out jump the big guys.

Perhaps its a coincidence that while I had this draft sitting on my computer other people wrote great stuff on this topic. Anyhow, here is what I had to say:

Starting early is perhaps the easiest step you can take to increase you chances of becoming a successful entrepreneur. Apart from the obvious advantages like less risk, more energy, not knowing the 100 reasons why your idea won’t work, more time, surrounded by eager participants in your plan etc etc I think two important overlooked advantages are: 1) Having a clear goal to guide you 2) Experience of early failures or small successes

When kids are growing up most want to become some kind of a “profession” when they grow up – like an engineer, a doctor, soldier or a train driver! Somehow an entrepreneur is not looked at as something you want to be when you grow up. Perhaps its because if your parents were successful entrepreneurs, you would be inheriting the wealth and the business rather than starting your own. If they were failed entrepreneurs, thats hardly a role model to follow and surely they will discourage their children to no end. Children of the majority, the working middle class, have aspirations to be the typical professional like their parents. So kids get inspired about entrepreneurship when they grow up and either meet a role model, read about someone, get repulsed by the cubicle, are simple trying to scratch their own itch or get a random inspiration.

Any which way, once this goal of becoming an entrepreneur sets in your whole perspective and decision making gets oriented and optimized towards that. Your reading habits, skills you wish to acquire, people you want to hang around with will get affected by this decision. Where people will see problems worth despair like the huge skill shortage of college graduates, an entrepreneur will see the opportunity of a training business. The dirt in our cities provide opportunity for someone to start a waste management company. It helped me make many of my important choices – joining a lesser known product company instead of a big 3 software services company I had an offer from after college. I wanted to learn how to make software products and this fitted well with that dream. A few months into the job I realized I wanted to learn how a software product company works and not just the making of it. This made the decision to join the product/program management group a no-brainer. That function interacted with pretty much every department in the company giving me an opportunity to learn a lot. A couple of years later I got the opportunity to be the first employee in a start up, my quick ascent to the offer (I think I made my mind in hours, if not minutes) even took the person making the offer by surprise. I wanted the experience of being around when things started off so much that I said yes without even asking what my salary would be! I ended up joining even before the company was incorporated and got involved not only in my role but also in helping create the team.

The point above is not whether I made the right decisions. They weren’t really, its just that they were my decisions driven by the goal to become the picture of entrepreneur that I had. It helped to take active decisions rather than tread along through chance happenings or peer pressure shaping your life. If you are still wavering about whether you should or shouldn’t become an entrepreneur, make that decision now and give yourself time – to learn, find opportunities, make friends, save money – to prepare for when chance arrives and then let other people call it luck.

Next part of this post on the other advantage of starting early.

In the context of bootstrapping it is worth exploring what are we starting. There are millions of small businesses in India but not all of them are called start ups. Whats the difference? In one sentence: a start up is the first phase of a scalable business started by entrepreneurs. This eliminates new businesses started by existing businesses. So Reliance Fresh doesn’t qualify. This also eliminates your one-person consulting business. In my opinion, if the business is not structured to scale (in terms of revenues) practically indefinitely or is totally dependent on the founders for ever it doesn’t qualify too.

Digression: Product or Service?

Traditionally the word start up is associated with high technology software product companies in the valley. Folks in valley look down upon the service industry and see limits in scalability due to the linear equation of people and revenue. That may make sense given the high cost of human resource in western countries. However, in the Indian context service sector is full of opportunities. Having a huge number of people is a resource that needs to be leveraged rather than shunned.

It is time to look beyond the traditional views of products or services and only concentrate on scalability, sustainability and growth. Contrary to what people may think, bulk of revenue of companies like IBM and SAP comes from services and not products. Profitability of Microsoft and Infosys is almost the same. A business model of hybrid companies with both product and services angle to it may suit Indian start ups much better. The ideas on hybrid companies are explored much in detail in Business of Software.

Back to the topic at hand

With your own start up, look at whether it scales. Lets take an example: Say you are creating a restaurant which serves Kati Rolls. If you rent a place, create fresh filling every day with a good chef, put a tawa and start creating yummy rolls which people queue up to buy what you have is a nice small business. Instead of that if you standardize the recipe first, making sure following the recipe produces the same roll each time, create half cooked roties and filling which can be frozen and re-heated with consistent taste every time you are on to a start up. The second approach will create a business model like the bangalore based kati zone which is growing very well and once its processes have stabilized is able to scale. In this case the product is the recipe and the process which can be replicated successfully. If you are opening a coaching centre you could take a place on rent, advertise your credentials and start teaching students or you could create a training material, build a nice train the trainer course, build quality control, standardized examinations and follow the success of FIITJEE.

So you can look at scalable/replicable processes in the same light as products. In the Indian context you will be able to get the man power and manage it if you use the right strategy. As long as you are wired for growth you are a start up – product or service (or a combination) doesn’t matter.

Sometimes you may start in the mode of a small business. Learn the trade, identify the scalable attributes and then change gears into the scalable business. What is important to realize is that unless you don’t have the scalable ambition baked in from day one you are not a start up. Also, it is much more difficult to build the scalable dream rather than a small business. That is why there are so many burger shops but only few McDonalds or many ABC Coachings but only a few FIITJEEs.

By the way I have nothing against opening a small business. It may suit many people and their ambitions. However, this blog is not about them and that is not what I want to promote. This is about bootstrapping a start up and not a small business.

Bootstrapping, by definition, means that you are not raising any funding. Apart from the traditional view of bootstrapping in point 6, I am lenient enough to include 5 more. I am planning a write up on cash flow management but thought lets just list all the sources of funds at our disposal right now

1. Savings – This is an obvious one. The only insight I have is that don’t use all of it. I think one should keep at least 3 months of running expense in a separate buffer which is not invested in risky instruments. I used the 3 month formula keeping the existing job conditions in the IT market in mind. I was pretty confident of landing a job in 1 month if started looking and simply multiplied that by a safety factor of 3. You will need to do the risk analysis yourself but I would say if you are keeping a buffer greater than 6 months, you are not taking enough risk.
2. Rich uncle – or Dad or Brother is definitely one of the good things that can happen to you. Not only do you get money but also advise which I hope is coming from their own experience in becoming rich. In case its just inherited wealth coming your way, be wary of the advise. When borrowing from relatives make sure they know this is going into a risky venture and that money may not come back any time soon.
3. Working Spouse – This can be a mixed blessing. It can lull you into a feeling that you have infinite buffer and the sense of urgency may get lost. But if you are a nuclear powered individual this can make things really easy. As a bootstrapper you will have enough worries and not thinking about whether you will be able to pay the phone bill next month is one less worry.
4. Personal loan – If you have been getting too many calls of people wanting to give you a personal loan, do evaluate the offer if you are planning to bootstrap anytime soon. Never take more liability than you can handle after failing in the venture and going back to a full time job.
5. Credit card – Same principles as the personal loan. The main purpose in the listing both is because we usually avoid looking at credit card for credit and only as a spending convenience.
6. Part time work, consulting and training – Bootstrapping is a lot about having a constant source of revenue to fund your other venture which requires that money. The balance required between the other activities and your real motive needs another post. It suffices here to say that these days Bangalore has enough opportunities to do quality work part time and make money. If you are good at your craft there will be many companies looking for quality trainers (can make as much as Rs 10,000 a day as a trainer) or negotiate a part time work deal with a company freeing up your time for something you want. The thumb rule should be too charge on a temporary job at least twice as much as you would make in a regular salary in that job. It proves cost effective for the company too, so there are no losers really. The company saves on many fixed costs of owning an employee and you can take those savings. The real trick is to also halve your expenses and then work just quarter of the time you would really work. Since as a bootstrapper you would also be working at least twice as hard as normal employees, you will be able to invest 1.75 equivalent of your normal employee productivity in your venture for sure while sustaining it with regular inflow of money! I like Paul Graham’s idea that starting a company is about compressing your working life in a few years and generating enough wealth for a lifetime.

Working on a post on cash flow management, might take some time.

Found another bootstrapping case study posted here and here by DropSend – started by a 2 people husband-wife team.