7 Paths to Entrepreneurship

Introduction

A lot of people ask me “How does one become an Entrepreneur?”. Below, I’ve listed seven paths that you can take to reach that goal. Of course this is only a partial answer and attitude, mindset and many other steps have to be simultaneously explored. But choosing one of these paths is necessary to begin something and take the longest – so start thinking about them or even better, doing!

I’ll elaborate on each of these in separate posts, because a single post will become too long. But this is a start.

The 7 Paths

1. The Trader
• Starts trading the goods he wants to sell or something similar, but most importantly to the market/customer he wants to address
• Can start understanding the market/customer but also the entire value chain
• This can include a Franchisee, Distributor or Retailer. These three do require capital for inventory and sometimes fees
• Here, the Very Lean Startup can be applied. For example, put up a website or store announcing the products to be sold and offer discounts for early signup

2. The Pirate
• Like a trader but goes one step further – selling goods under his own brand
• Again, ethical and even legal conflicts – may be difficult to recover brand image
• Should limit yourself to selling just enough to test the market

3. The Employee
• Takes a job in an organization that may be a potential competitor i.e. engaged in the same/similar business
• Must work hard – see the Fable of the carpenter
• Diligence will be rewarded with promotions – so s/he will know more about the business
• Avoid ethical conflicts

4. The Journalist
• Wanted to call it the researcher, but connotation is not sufficiently action oriented
• Looking for “scoops”
• Not about writing, but document everything
• Focus on a market segment
• Can also blog on the relevant topics

5. The Customer
• Become a customer for the product or similar product
• Helps you to identify weaknesses in competition
• …as well as weakness in product or its delivery
• Gives insight into the “need”

6. The Integrator
• Puts together a solution from existing products or services.
• Important that no fixed cost or infrastructure is built up
• Low barrier to entry (beware of competition)

7. The Innovator
• My favorite
• Goes in with the mindset of innovating a product
• Nothing to sell
• How can I solve your problem?
• Looking for customers
• Lean or Very Lean Startup is best bet

Startups shouldn’t pursue patents

Starting up? Forget about patents – at least for a while. While there are definitely exceptions, 99% of startups shouldn’t try to “patent their idea” or even attempt to patent processes or products that will be at best, half-baked.

Twice last week, I was called upon to give advice about patents and intellectual property in general. For the latter see respectip.org – another blog that I just got started on. The first of those opportunities was to a group of about 40 entrepreneurs and would-be entrepreneurs at an accelerator called SparkPluggers. The fact that so many were interested in such a session clearly showed (no offense intended) of their lack of understanding of Intellectual Property. Of course there were knowledgeable people in the audience, but in general, their interest in patenting anything from their “business model” (forget about it) to actual prototypes of medical prostheses demonstrated a range of understanding from naive to sophisticated.

The second time was a one on one session with a very bright entrepreneur who wanted some protection to pursue his business without having to worry about someone copying him and getting ahead of the game because they had more resources. He was interested in attracting investors and wanted them to feel that they were reducing their risk, because the “idea” was protected.

Both of these are valid reasons to look into getting Patents, perhaps into trademarks or copyrights (although the latter two are typically weaker protection for a business). But it is important to be very clear about the costs – both in time and money of pursuing patents, because it simply is not for everybody.

Here are five reasons why a startup shouldn’t worry about patents for a while – at least until they have customers.

  1. Rarely are raw “ideas” good enough to patent. When ideas are actually deployed in practice, you discover flaws in the “implementability” of those ideas – primarily because you simply can’t think of everything, but equally because the customer needs you are trying to serve are not well understood. And nor is the fit between your idea and the customer needs well understood. If they were well understood, someone else would have also understood them and would have been serving those needs. Solving those real problems of market deployment as well as the internal processes that allow you to create a good solution changes your idea so it is actually different from others who have had the same idea (trust me there are many) and you actually derive innovative processes in the implementation phase. And processes are what really makes a patent. Detailed, step-by-step processes are the result of attempting to implement an idea in the real world.
  1. Patents are costly. I have spent over $100,000 to date and we are not all done yet! This is for five US patents and 1 Indian Patent plus four pending applications. Not only are there initial costs, but the examination is a costly process and a surprise to many first-time patent seekers. Every time the examiner raised an object and we had to respond, my attorney’s fees were in the thousands of dollars!
  1. Patents take a lot of your time. I took eight months of doing nothing else. I would have been better off refining my product and then patenting it. And I would have been benefited from pursuing customers at that stage, which would have really helped cash flow.
  1. Solving problems for customers in an innovative way is the way patents are created. No longer in R&D labs, but in the hustle of serving a customer. And customers give a better perspective into the actual usage of the product or process so that it is more “useful”. It is important to recognize patents are utility patents, in other words they must be useful. Plus, the patents, even if granted, are not going to have much value if they don’t address real problems faced by potential users.
  1. Investors are not going to be impressed by patent applications – most applications either don’t result in patents or result in very narrow patents that are not much use at all. So, patent applications don’t really mitigate risk for investors, which is the supposed intent of filing patents.

Overall this also fits into the “Lean Startup” and my own “Very Lean Startup” philosophy, because a startup’s focus should be on recognizing and delivering on customer need – everything else is irrelevant.

Why the #AppleWatch is sheer genius!

Really, <faceplam> moment – why didn’t I think of this? A watch? That you wear on your wrist? And call it the launch of the wearables movement? Sheer genius!

Seriously, we have been wearing watches for centuries. Genius is when you can sell the concept of wearing a watch to the whole world, and make it seem like you invented the damn thing!

AppleWatch
I stopped wearing a watch years ago – yes when my mobile phone became permanently attached to me. Do I now want to spend anywhere from $549 to $1,099 to acquire some annoying thing that clings to my wrist? No! In fact, a good friend Cawas, who owns a string of watch stores locally has been trying to save my soul by selling me a watch, but I have resisted.

My first watch was a hand-me-down from my father, when I graduated high school. Even in college I didn’t often wear a watch. I just don’t like stuff like chains and rings that encumber me. So when “wearables” become ubiquitous, what do I do? Bury my love for tech? Or change who I am?

Maybe Apple will come up with something for me then. Like a shirt. With apps.

Don’t look for Funding, Generate Revenue instead

Less than 1% of startups get funding at the seed or startup phase. Of those that get seed funding, less than 1% get future rounds of funding. In America, the Small Business Administration estimates that “only 0.1 percent to 0.2 percent of funding requests made to VC firms result in an investment”. In other words, companies that raise multiple rounds of funding are literally less than one in a million.

Of course there are exceptions – if you are Elon Musk, you can raise funding with just an idea. But investors, unless they’ve lost their marbles do not invest in “ideas”. They invest in businesses that will turn a profit which they can leverage (typically) into a sale. Naïve entrepreneurs (and I meet many) often confuse investors with donors. They feel that investors should love their bright idea.

Therefore, startups should focus on revenue instead of funding. Paradoxically, companies who generate revenue are the ones that often get funded. But given the above information that investors are looking for companies that generate revenue and that either do or will eventually generate profits, maybe that isn’t so paradoxical after all.

The thumb rule is that startups need to expect to generate at least $10 million in sales within six years of starting for most external investors to consider investing. Most startups will never reach those kinds of numbers, yet they think they will and try to convince investors (who know better) otherwise.  Scott Shane (http://www.bloomberg.com/bw/authors/2250-scott-shane), author of Fool’s Gold: The Truth Behind Angel Investing in America estimates that 0.4% of startups achieve $100 million in sales in six years yet thousands of business plans show projected revenue of that order in their business plans.

The favorite company for investors is one which generates revenue AND when funded by them will generate profits. Thus, they are needed i.e. the entrepreneur cannot succeed without the investment, and their investment will generate returns (from the profits or from a sale).  How much should that return be? That’s another blog’s worth. Coming soon….

The Very Lean Startup

Here is a cleaned up and more formal version of the below.

I decided to follow my own advice and publish the following online before it was finished.  This is a very rough first draft, so please excuse the blemishes and mistakes.  I am looking for feedback and your thoughts on what I have outlined below.

Brief Introduction

The Very Lean Startup Method© or perhaps the Really Lean Startup Method© is but a natural extension of the Lean Startup Method. This approach to entrepreneurship has been articulated exhaustively by Eric Reis in his eponymous book as well as by many others. In fact, there is now an industry around the philosophy expressed in the book. Any aspiring or practicing Entrepreneur must read it. I strongly recommend that you read it right after you read this blog and certainly before you start using the ideas in this blog. You want to be prepared for success – once you start getting customers, you need to develop the product and there is no better source than Eric’s book.

I will elaborate more on the process but let me explain the concept in a few words. The Very Lean Startup Method focuses on finding customers before you build or perhaps even define a product.

Why that’s good and why that’s not so good

Now, in reality that is difficult to do because most entrepreneurs and innovators work from passion first – they have an idea and then try to make a business of it. In some cases they may not have an idea, but their experience, skills and interests determine what kind of business they are inclined to do. In fact, the latter is more useful than just an idea – experience and interest will often point you to the problems that need to be solved in order to have a real business with real customers.

In fact, I often meet entrepreneurs who are looking for help, and they have already built a product! They just want Sales & Marketing services (which we provide) because they think their product or service is so great, they just want someone to get in front of the customer. And very often, they will say in a self-deprecating manner “Oh, I am not a sales(wo)man, I am just an innovator…” Or worse “I am just an ideas person…” Well, they don’t realize how unclued they are.

Eric Reis has already talked in detail about the Lean Startup Method and how you create a Minimum Viable Product, so I won’t (re)address those. I think though that process will come after the process I am going to outline below.

The Very Lean Startup Method

Brainstorming and Informal “Research”

The rule is “Tell everybody about your idea”. This is a fail point and a possible innovation point. I say innovation is (only) possible because your idea may be so hare-brained as to defy possibility of any innovation to circumvent its fail point.

Identify possible customer demographics

First, identify who might be the customer for the product or service you want to create. This is fairly easy and at this stage you can afford to be broad. Remember that you are most likely to be wrong, unless you have been in that market before, so try to be as exhaustive as possible. Our goal is test various customer demographics and find a “product-market fit”.

Make a brochure or website

The next step is to create collaterals to engage the various segments you have identified. Depending on whether you customers are online or offline you would make a website or a brochure or both. Provide details of the features you plan to provide but at the same time, sell the benefits. Much has been written about this, so I am not going to go into too much depth on this. Suffice it to say that you need to convince people to want the benefits and they won’t give a damn about the features.

Send it out to a few specific target customer types/demographics

This has to be broad. And don’t get into the trap of asking your friends or your mother. They may not tell you the truth. And even if they do, you may not believe them! Talk to strangers online and offline. Don’t hesitate to talk to potential customers in real life, even if your product is online.

Send out variations with different pricing or offers

For each segment you will have to experiment with various offering and price points. Your website can for example have a landing page that leads to the pricing for that particular demographic. Important: None of these pricing pages should be linked from any public page on your website. Naturally, if you do, people will soon discover that you have different pricing schemes and different offerings! That will obviously not have a very pleasant fallout.

Identify the ones that respond and why

If you are lucky, some of your targets will respond. Find out why. Easy to say, harder to do. You obviously don’t want to look a gift horse in the mouth, but you do need to know what color it is. In other words, it’s great that you got a few responses, but you need to know why you got those responses so that you can get more of them. Even at the expense of losing a few of them.

However, it is very likely that you won’t lose them. By engaging them, you are more likely to create an unshakeable bond, because people like to connect. And you will be surprised how many people respond if you ask the right questions.

Find out why the non-responses didn’t respond

It’s perhaps more important to find critics than friends in business. The critics keep you honest. There may be many reasons or even a single small reason that people didn’t respond. Maybe the message was not appropriate for that target demographic, maybe the timing was off, maybe the price was wrong and so on. But it could be that there is a very small piece of the puzzle that is missing and adding that could turn the tables, so to speak. This little piece may be easy for you to implement and may not even be a feature – it could, for example be financing, an external option.

Note that in any campaign to acquire customers, there are always many times more people who don’t respond than those that do. So, if you don’t go after the silent majority, you are missing out on getting some very valuable feedback.

Ask the responding customers to pay

This is perhaps the most important step – this is where you get to see whether your idea for a product or service can actually be a viable business.

Take this life example as a parallel to what happens when people have to actually commit to some time or expense. Let’s say you are putting together a trip to a holiday location with your friends or relatives. You are sitting talking about it and you all agree that it would be fun to go to the Bahamas or the Grand Canyon for a holiday. It’s not very expensive, but the cost is not trivial. Everybody is excited and agree to go. Now you ask them to decide on a date and also ask them to fork out the money, so you can book the tickets and the hotels. Suddenly everybody finds an excuse, or they find another topic of discussion.

This is also true when people buy products or services. If you explain your offering to people, they most likely tell you they are definitely for it. How many times have you heard “Sure, I’ll buy that for $X!”. However, when you ask them to pull out their wallets and actually buy it, they have various excuses – “Let me think about it some more” or “Hmm, I’m a little short of cash right now, but maybe in a couple of months…”. Alternately, if you are lucky, they will start asking questions, for example about warranties, about specific features they want (and you probably don’t have).

In fact, their objections, if real, are a great form of feedback that could significantly improve your product/service. Listening at this stage and asking more questions could be a goldmine of market research information.

Do the math on cost of acquisition of customer

Okay, so you got people to pay. But wait! Don’t jump for joy quite yet! Sorry, to be a wet blanket but the next important question is… Are you charging enough? It’s easy to get customers if you low-ball your price. But that price may not be enough to make a profit. If you have made a business plan with some pricing (and cost) assumptions, it’s now time to revisit that. Is the promised service level doable in the cost structure you had previously assumed?

This is a fail point and an innovation point.

Apply the above and the cost of development to the business model

Modify offering – product/price/placement/target customer

Repeat

…till you have a viable business model

Now read Eric’s book on The Lean Startup Model and it will go a lot quicker and a lot smoother.

Conclusion

It’s Lal Bahadur Shastri’s birthday too!

While I have nothing against celebrating Mahatma Gandhi’s birthday today and celebrating it enthusiastically, let us not forget another great man who was born today. And we must especially remember him now because of our problems with China. They are repeat of what was happening in the early 60s.

I was very, very young, but I remember those days because my father, being in the army, was on the border with China (we called it NEFA then). There was a lot of tension at home, because we didn’t know how he was – all we knew was that he was in the midst of the war. It was 1965 and we didn’t have the kind of communication we have now. Once every two weeks or so, we would get an “inland letter”, and when that blue piece of paper with his neat handwriting arrived, we were happy for a while.

My uncle’s family had a tougher time. Even after the war ended, he was missing for months. We learned later that he and his men had gotten lost and had wandered behind enemy lines. They survived by tossing grenades into frozen ponds and eating the raw fish that floated up to the surface. But I’ll perhaps save that story for another time…

More importantly it was in this mood of tension and waiting that our Prime Minister Lal Bahadur Shastri went to Tashkent (then part of the USSR) to negotiate a peace with Pakistan (and unbeknownst to the world, also the Chinese). It was after the successful conclusion of the negotiations that he suffered a heart attack, and on a cold January morning in what is now the capital of Uzbekistan, surrounded by strangers, he passed on.

Today is the anniversary of his birth too. Let us also pay our respects to him along with Gandhiji.

 
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Deepika Padukone & the Cleavage Row!

OK, Deepika, you rock!  But not in this case…

I am sorry, and I know I am going to get flak for this, but sometimes men have to stand up and be counted. 🙂  Yes, we do rude things sometimes, because we are men.  I do believe in “Different but Equal“. Absolutely, without equivocation.  So…

Remember when Professor Higgins (Pygmalion, or My Fair Lady for the unwashed masses) asked “Why can’t a woman be more like a man?”.  Well, I’d rather not have that, and please women, I hope you can do us men the same courtesy.  And if you think most men are pure at heart, please watch this video where President (and professed man of god) Jimmy Carter famously said “I’ve looked on a lot of women with lust. I’ve committed adultery in my heart many times.”

I really like the below video, and it is a great answer to this and all the other such “rows”, but it might offend some prissy people. If you are one of those, please don’t watch!

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