#07 - APRIL 2008 by CyberMedia (I) Ltd

publication a

Vol 2 / Issue 07 / Apr 08

/Rs 30

11threats

that can close down your startup

how to handle them

Funding in volatile markets Business of performing arts

entrepreneur of the month/ Rehan yar Khan, Flora2000.com

Construction equipment rentals

investor of the month/ Sateesh Andra, DFJ Venture

Organizing home-stays Doing business in the Netherlands DNA of an angel investor Paranthewala at IIT gate

idea/

Seaplanes CASE STUDY - Pinstorm Interview - Byron Askin, JAFCO Asia Exploiting the â&#x20AC;&#x153;Indian advantageâ&#x20AC;?

Vol 2 / Issue 07 / APR 08

BOARD OF ADVISORS C K Prahalad

University of Michigan

N R Narayanamurthy

Chief Mentor, Infosys

Kanwal Rekhi

Chairman, TiE

Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande

Chairman, Sycamore Networks

Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw R Gopalakrishnan

Chairman & MD, Biocon Executive Director, Tata Sons

Philip Anderson

Professor of Entrepreneurship, INSEAD

Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Arunjana Das Binesh Kutty Chhavi Tyagi Shilpi Kumar Sreejiraj Eluvangal Vimarsh Bajpai OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Imran Ali Chandan Sengupta Dayanath Levaj Jagdish Nivedita Dwarkanath Naveen Barsainya

MARKETING Associate VP West West North South South South South-East Asia

PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Pooja Bharadwaj Assistant Manager, Reader Service Sarita Shridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at International Print-O-Pack Limited, B-204-206, Okhla Industrial Area, Phase 1, New Delhi-20. Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Mirchandani & Co, Mumbai. All rights reserved. No part of this publication may be reproduced by any means without prior written permission. BANGALORE 205, 2nd Floor, # 73, Shree Complex, St.Johns Road, Tel: 41238238 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117

11threats /cover story

that can close down your startup

how to handle them

Funding volatile troughs markets Riding outin market

MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387241 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 24-09 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.

108 pages including cover

DARE.CO.IN 2

APRIL 2008

What can startups do to boost the conﬁdence of investors when the markets have singed their skins off?

DARE.CO.IN

/contents

others/ The Power of Personality ...................... 46 The DNA of an Angel ............................. 58 What’s in a name?................................ 88 Talent Management............................100

entrepreneur of the month

Rehan yar Khan Flora2000.com

Market is never the problem. The problem is maintaining quality and the ability to execute. Putting the right processes in place can help you achieve quality.

/INSEAD Case Study - Pinstorm

Interview - Byron Askin, JAFCO Asia

Philip Anderson .......... 16

investor of the month/ Sateesh Andra, DFJ Venture

Paranjoy Guha Thakurta ... 76

DARE.CO.IN interactive business models,

wiki proﬁles, business

pic of

the day, sector spotlight, blogs, news, discussion fora, keyword , rss feeds, contacts,

based alerts

mentoring, market trends, newsletters, live chat,

leads, slideshows,

professional guidance,

search, on demand,

archives, event calendar, research, directories, faqs

DFJ has allocated $75 million for investing in India over the next three years from its Fund IX of $600 million. DFJ essentially focuses on IT, nanotechnology and life sciences, and clean energy technologies.

coming soon

opinion polls,

Beneﬁt from the country’s favorable tax regime, worldclass infrastructure, and a highly educated workforce.

India needs more airports. Its network of rivers, lakes and the coastline offers an alternative

Rupin Jayal ............. 46

webinars,

The Netherlands

idea/ Seaplanes anyone?.................................. 24

blogs/columns

graph of the day, idea

going abroad/

strategy/

Finding a co-founder

It is quite like a matrimonial hunt. Though you take different routes for both, you still have to satisfy the same concerns

opportunity / The Business of Performing Arts .........10 Airline catering ....................................26 Organizing Home-stays .......................30 Construction equipment rental .............56

society / Paranthewala at IIT gate .................. 102

NEN /

Going Green: The buck stops here ......96 APRIL 2008 3

DARE.CO.IN

blogs/edit

Many shades of grey There is money still available; there are opportunities and markets still available, but it may be tougher to get there and valuations have become stricter

ne of the kicks I get out of this job is the many entrepreneurs and intrapreneurs I get to see and the ideas they share with me. The wonderful

ideas you lay out, the concerns you share the questions you ask and above all the enthusiasm you bring to never cease to amaze me. These days, I notice an underlying strand of worry in the dialogues – The uncertainty in the ﬁnancial markets has become a new source of worry. Will I get funding? Are VCs still interested in projects like mine? How do I tide over rough times? Is simple belt tightening enough? Should I actually defer my startup plans? The questions are many. Frankly, there is no single answer to any of these questions. The answer depends on a number of things, including the area you are in and the stage of your startup. There is money still available; there are opportunities and markets still available, but it may be tougher to get there and valuations have become stricter. Some of the key articles in this issue discuss various aspects of this situation and try to ﬁnd answers to the questions we have been hearing. Hopefully, they will point you in the right direction. As always, we would be glad to hear from you, spend time with you and come up with even more ideas and pointers that can be of help to you.

/Krishna Kumar

APRIL 2008 5

Feedback DARE.CO.IN

Let me begin by offering my best wishes on CyberMedia’s completion of 25 years. I would like to thank you for publishing DARE. This magazine, in my humble opinion, is an ideal source of information for the aspiring entrepreneurs. I was particularly impressed by the article How to set up your NGO (Feb 2008) as well as Pet Grooming (Feb 2008). In fact, I presented copies of DARE to couple of my family members and they have recently ventured out on their own to set up businesses. They appreciated my gesture of exposing them to DARE, so many thanks to you. Pearl Misquita, Communications Consultant It was by coincidence that I picked up the DARE Jan 2008 issue and was surprised by the breadth and depth of relevant high-quality articles for aspiring and struggling entrepreneurs. Your articles not only bring factual, downto-earth stuff but also a whiff of excitement, which is so essential to entrepreneurial spirit. Going ahead, I have a few suggestions: A key factor for entrepreneurial success is ‘resilience’. Somehow your magazine even after being distributed widely was missing at this petty bookshop in my locality (which is where I picked up my ﬁrst issue). If you keep going - high-quality articles combined with wide distribution channels - I am sure that things will work out. You are publishing very useful articles for upcoming entrepreneurs. A few years down the line when new readers come on board, they too will request for similar articles. If you can build a supporting portal, with user-friendly, searchable archive and periodically print-publish a categorized index linking to the archives, it will help cater to both the newbies to learn the ropes and veterans to refresh their knowledge. Girish Managoli Very recently while passing by the newsstands I was glancing at the magazines on display. The cutie in green on the cover of your magazine (Feb 08) sure did catch my attention. However, I took the magazine to be just another fashion magazine showing nubile maidens on the cover. But a closer look surprised me. It is the magazine I was 6

APRIL 2008

looking for – for quite sometime now. Being in consultancy business for last seven odd years I was on the look out for such a publication. Dilip Nerlikar I am a professional working in a MNC and also regular reader of DARE. It motives me to take “DARE” in life with the details information on the business with the opportunities available in the market, which I do not find at offer in other magazines. Could you please run an article with detailed information on the “Franchise Business”, covering like the basic requirement to start the business, financial requirement, source of finance, profit, etc.? Jayesh Verma This is in reference to a feedback published in DARE (Mar 2008). Mr Saurabh Sukhani’s response is very interesting. I would like to meet him in order to help him out with his venture. I request you to kindly give me his contact details so that I could meet him at the earliest. Bhawana G Dullu Head, Private Client Group, Invest Care After completing MBA, I joined American Express and worked for seven months. Now I have quit the job and I am starting a new journey to be an entrepreneur. I want to go in food business. I have a product, which is a traditional Rajasthani dish. I want to bring it into the market like sweet corns are sold in the malls. I want to start it in a very small way and see if it clicks or not. I have taken this step alone. I don’t have a huge capital but I do have passion, vision and resilience to achieve what I want. Currently I am doing a market research for the product. I also have plans to do test marketing for the product. I am residing in Delhi and want to discuss my plans. I am the one who DAREs. I request you to help me on this venture. Saurabh Sukhani DARE: Bhawana, we have sent the contact details on your email

I am in the business of Financial Services. After 6 years of banking experience, I decided to start my own business of Financial Planning Services. It has been about 18 months since I did that, and I now have a decent base of investors. This business has a huge potential. However, the only problem I am facing now is in scaling up, wherein I want to have a team of 10 to 15 people to start with. I do not have a mentor who can actually guide me as to take my business to the next level. Ronak Thakkar DARE: Interested in mentoring Ronak? Drop an email – dare@cybermedia.co.in I am into recruitment and pre-placement training. There is a mindless neutron ﬂying in all directions in the form of CVs. I just detest the job boards type of stupid searching that confuses those working safely in the present organization. Fact is that I get more CVs from the experienced job seekers than freshers. It is for such people that DARE magazine must reach out. I am always telling people to never chase jobs but chase companies. DARE is now a part of the kit I give out now. Like this time the article “Creating Customer Addict” by Rupin Jayal (Feb 2008) is a must read for the MBA students. Word of Mouth Marketing is the area least understood in India Inc. R.K Dhanvada Recruitment Consultant & Placement Mentor, D & HR Consultants Let me introduce myself as an entrepreneur in the preliminary stages of setting up a facility in Coimbatore, Tamilnadu. The project is for manufacturing of Aluminum alloy .We have procured land and in the process of putting up civil structures for the same. Ours will be an absolute accountable project with compliance to all possible levies (taxes). We welcome ﬁnancial participation and are open to discussion. T. Mani DARE: Interested in funding T. Mani? Drop an email – dare@cybermedia.co.in

SMS “DARE <your comments, questions or suggestions>” to 56677 or Drop us an email: dare@cybermedia.co.in

news

DARE.CO.IN

/news Indian economy to be 90% of US by 2050 The size of the Indian economy would grow at a brisk pace in the next few decades to become 90% of the US economy by 2050, according to a report by PriceWaterhouseCoopers. The report projects China to grow even bigger that the US. “The global centre of economic gravity is already shifting to China, India and other large emerging economies and our analysis suggests that this process has a lot further to run. Our latest projections suggest that China could overtake the US in around 2025 to become the world’s largest economy and will continue to grow to around 130% of the size of the US by 2050,” it said.

PEs put in $1 bn in SMEs The conﬁdence of Private Equity ﬁrms in Indian SMEs bolstered during FY 2007-08, with the funds investing $1 billion in such companies, according to the Federation of Indian Micro and Small and Medium Enterprises (FISME). This was a jump of 75% over last year. The sectors, which bagged the major chunk, were pharmaceutical,

infrastructure,

transportation

and

manufacturing.

Promotion of rural tourism The Ministry of Tourism has provided Central Financial Assistance to 125 sites in 27 states for creation of infrastructure in rural areas having tourism potential under the existing scheme of destination development. Funds for skill upgradation are provided through Government of India-United Nations Development Programme Endogenous Tourism Project and the Capacity Building for Service Providers Scheme of the ministry.

Medium and Small Enterprises sector to grow 12% A growth rate of 12% is envisaged for the MSE sector during the Eleventh Five Year Plan (2007-12), according to Mahabir Prasad, Minister for Micro, Small & Medium Enterprises. He said the government implements various schemes and programmes to enable micro and small enterprises (MSE, formerly known as SSI) to enable them to compete in the global market and strengthen their export competitiveness. Such programmes and schemes also include assistance for participation in exhibitions and fairs. 8

APRIL 2008

DARE.CO.IN

/news Corporate India unprepared to handle fraud: KPMG

Entertainment industry to touch Rs 1,15,000 crore

Corporate fraud and misconduct remain a constant

India’s entertainment and media industry is estimated

threat to organizations in India, according to KPMG’s In-

to grow at a CAGR of 18% in the next ﬁve years. The size

dia Fraud Survey Report 2008. Over 80% of respondents

of the industry could touch Rs 1,15,000 crore by 2011, ac-

recognized that fraud is a problem in the corporate envi-

cording to the FICCI-PricewaterhouseCoopers report.

ronment in India.

The size of the industry in 2007 was pegged at Rs 51,300

More than 70% of the respondents believe that fraud in

crore, which was a jump of 17% over Rs 43,800 crore in

India may increase in the next two years. Shockingly, over

the previous year. In 2007, foreign investment in the sec-

60% of the respondents stated that their organizations

tor was at a record high of Rs 85 crore, the report said.

neither have a complete understanding of various risks

In the other BRIC (Brazil, Russia, India, China) coun-

of fraud faced by them nor they have an effective internal

tries, the entertainment and media industry is expected

control mechanism to manage such risks. Indicating

to grow at an annual rate of 13%, 8.3% and 7.7% respec-

about 54% rise in the number of fraud occurrences since

tively in China, Russia and Brazil, the report added.

the previous survey in 2006, about 60% of respondents conﬁrmed having experienced fraud at their companies,

Travel & tourism revenue to touch $100 bn

as against just 39% two years ago. The World Travel and Tourism Council, along with

27 locations have potential to harness wind There are 27 locations in the coastal areas of the country, which have potential for harnessing wind. Wind surveys were carried out by the government at 71 locations in the states of Andhra Pradesh, Gujarat, Goa, Karnataka,

Accenture, has predicted that India’s travel and tourism industry is likely to raise approximately $100 billion in revenues in 2008. It says the ﬁgure could touch $275.5 billion by 2018.

Nexus invests in organic farming company

Kerala, Maharashtra, Orissa, Pondicherry, Tamil Nadu

Nexus India Capital has invested in Suminter India

and West Bengal, Lakshadweep, and Andaman & Nicobar

Organics, a contract farming company that focuses on

Islands.

organic produce for the textile and food industries.

A wind power capacity of 7844 MW has been installed

Suminter, which supplies to buyers in the US and

in the country as on 31.12.2007 including potential coast-

Europe, currently has a farmer network in four Indian

al areas. A target of 10,500 MW wind power capacity has

states, across 25,000 acres of land. Its network of farmers

been planned in the country during the Eleventh Five

grows cotton, oil seeds, spices and herbs, in accordance

Year Plan period including in potential coastal areas.

with buyers demand. The company plans to expand its reach to ten Indian states. It will also set up an organic

Quality and innovation to drive MSMEs In the long-term, it will be innovative small and medium enterprises that will drive the transformation in the

food park with high-end machinery for processing.

Yatra Capital to invest in two projects

country, Surinder Kapu, CMD, Sona Koyo Steering Sys-

Yatra Capital, the ﬁrst Euronext quoted company in-

tems told the India Global Summit on MSMEs 2008, held

vesting in Indian real estate, announced that it will invest

in New Delhi from March 18-19.

Euro 17.86 million for a mixed use development in Palla-

Ramesh Datla, Chairman, CII SME Forum and MD,

dium Constructions, and Euro 10.15 million in Platinum

ELICO, said that while the MSMEs have been globally

Hospitality Services for a 30% stake in each of these joint

recognized as a priority growth sector for growth and

venture companies.

development, there is still a lack of clear developmen-

Yatra’s joint venture partner in both developments is

tal agenda and program of action for MSMEs for various

The Phoenix Mills. In 2007, Yatra made a strategic invest-

reasons. Any future agenda, he said, needs to encourage

ment of Euro 3.73 million in Phoenix for 0.47% equity

the development of SMEs in an environment of increased

stake to enable the company to participate in the Indian

economic interdependence and open regionalism.

real estate sector with an experienced and quality player. APRIL 2008

DARE.CO.IN

opportunity/arts

Business of performing

Arts

Being an art entrepreneur is certainly risky, but for some souls, love of the arts overcomes the fear /Sreejiraj Eluvangal

hirty-two-year-old Jehan Manekshaw, like his more famous counterpart Sanjna Kapoor, director of Mumbai’s Prithvi Theatre, is dedicated to the cause of improving the prospects of contemporary Indian theater. But Jehan’s efforts are anything but similar to those of Sanjna, who has symbolized the desperate struggle of India’s independent theater to carve out a space for itself in India’s increasingly crowded, cluttered urban landscape. “Some people say I am dreaming,” says the young theater professional, excited, as he steps up to do what he has always wanted to do—create a nationwide platform for theater and theater artists. “But I have to ﬁnd out for myself.” Jehan is betting on India’s nouveau riche—the corporates—to support theater in cities like Mumbai where Sanjna confesses to have ‘failed’. While Sanjna is cast more in the mould of the traditional, die-hard independent theater person, Jehan is able to see himself as someone trying to ﬁll a new market opportunity for world-class art that has arisen with the emergence of wealth. “India Inc today has the same level of professionalism as in global cit-

10 APRIL 2008

ies, like London and New York. It also has more ‘global’ tastes. Like other arts, theater done here at the same level of professionalism [as London and New York] would have an audience now for that very reason,” he says. Jehan, who holds a Master’s in theater direction from the University of London, is one of India’s new generation art-entrepreneurs. Impelled by their passion for their art, they embark on the risky adventure of combining the not-always-friendly art and commerce. Like Mayuri and Madhuri Upadhya, two Bangalore-based sisters who, along with four friends, started the now famous Indian contemporary dance company Nritarutya seven years ago; or Jayachandran Palazhy, former director of the Imlata Dance Company of London who left a thriving ‘international’ career in 2001 to start the Bangalore-based contemporary dance company Attakkalari Centre for Movement Arts. While Jehan has just embarked on his quest to create a nation-wide platform for theater in the country, the other two are well on their way to creating a sustainable, even proﬁtable way to practise and propagate their art. Ask

Bangalore-based Ashwin Mohan, who has created a Rs 3.3 million business in just one year out of his passion for martial arts. “There is a lot of money to be made in the arts, you just have to approach it with the right entrepreneurial spirit,” he says. Nritarutya has meanwhile grown into a full-fledged corporate entity, with full-time dancers earning a salary at the company as they would in any other field. What does it take to make it as an entrepreneur in this field? What qualities must an entrepreneur of the arts possess? What are the risks?

The raw material Like entrepreneurship in any sector, there are two key ingredients to success in creating a successful business rooted in the arts—passion and innovation. “Any business is good business, if you have focus and a vision,” says 53year-old Maher Dadha who started his career as a gems trader. Dadha traded in rubber, chemicals and even ran a security lockers company before turn-

DARE.CO.IN

opportunity/arts ing his attention to artworks in 1992, setting up Dukan to trade in antiques, paintings, lithographs etc. Last year, Dadha set up his second business in the arts ﬁeld, the auctioneer Bid and Hammer. “To succeed in any business, you need passion,” says Dadha, himself an avid collector and the author of Views of India – Connoisseurs’ Compendium. “It is especially true in businesses that deal with art, since it is all about passion,” he points out. Dadha is not kidding, of course. Without a burning passion, an art entrepreneur is unlikely to succeed, says the big daddy of Indian contemporary dance, Shiamak Davar. “As a ‘business’ art tends to be unpredictable,” he says. “I wouldn’t advise one who has no feeling for it to dabble in it without proper guidance from experts.”

Virtually from scratch, the group (Rang Vidushak) has not only created an extremely energetic, reﬁned and distinctive idiom of theater, its repertoire of productions circulates in all the Hindi-speaking states and even beyond. — ANMOL VELLANI ARTIST, ART PHILOSOPHER, AND DIRECTOR OF THE INDIAN FOUNDATION FOR ART

Anmol Vellani, artist, art philosopher and director of the Indian Foundation for Art, points out that successful art entrepreneurs have all been either artists, trying to create conditions that enable them to pursue their art, or non-artists led by a passion and love for art. In his paper Arts Entrepreneurship in the Age of Creative Industries, Anmol points out how innovation and out-of-the-box thinking can help even the so-called dying arts to turn into a proﬁtable venture. One of the examples he uses is Rang Vidushak, the Bhopal-based theater organization set up by Bansi Kaul. “For three decades, Bansi has been driven by the idea of developing and rooting a contemporary Indian theater in the impoverished hinterland of the Hindi belt––a theater based on smalltown sensibilities and everyday life,” he says. Borrowing heavily from the performance styles of the traditional Indian clown-narrators, street gymnasts and akhadas, he points out that “virtually from scratch, the group has not only created an extremely energetic, reﬁned and distinctive idiom of theater, its repertoire of productions circulates in all the Hindi-speaking states and even beyond. Rang Vidushak has also cultivated audiences in villages, small towns and big cities, bridging a rural-urban divide that few theater groups manage to do.” Anmol credits Bansi Lal’s success to his uncompromising dedication to his cause and to his true out-of-the-box, entrepreneurial thinking. “Bansi encouraged the actors to seek opportu-

nities for performing Rang Vidushak’s productions in their respective home towns and surrounding areas. He promised them a ﬁxed sum of money for every show they succeeded in procuring for the group. This resulted in a win-win situation. “Rang Vidushak’s theater began to be seen across a vast cultural zone, the group’s income from shows grew substantially, and the actors were happy with the additional money they were earning. To reduce the cost of touring with performances, and facilitate the staging of their work in rudimentary and ill-equipped spaces in small towns, the group mounted its plays without relying on heavy sets and complicated lighting. Instead they developed a mobile design philosophy based on vibrant costumes, the movement of actors and group composition,” he points out. And as often happens in the art sector, Bansi was also able to successfully tap the altruistic and volunteering spirit and goodwill generated APRIL 2008

DARE.CO.IN

opportunity/arts by the movement. “Writers would script plays for the group, dancers would take classes with the actors, bankers and police ofﬁcers would assume responsibility for administrative tasks. Much of this help came free of cost or for nominal payment,” Anmol points out.

Deﬁning success

‘Purushartha’ by Attakkalari

Given that many great art entrepreneurs have been motivated by the desire to support and propagate art rather by material prospects, some entrepreneurs define ‘profit’ in the art enterprise differently. As Jehan, whose ambition is to create a nation-wide platform for theater artists puts it, “if I can pay all the artists their salaries and fees, that is my profit.” “Fulfillment need not be looked at in terms of how many material things one has achieved,” says Jayachandran of Attakkalari, “that is a shallow way of looking at achievement.” At the same time, artists do make a lot of money. Jayachandran says there is no conflict between making money and remaining true to the art form. “In this business, as in any, the idea is not just to survive,” he says. “We need money to create exciting work, to do exciting things, to challenge, to create new world views, to look at ourselves differently. This is the purpose of art, and money is a means to do that. The purpose of art entrepreneurship is to find creative ways of finding the resources to do all this,” he points out. Art entrepreneurs see generating extra money or profit as integral to their role of contributing to the sector itself. “The aim should never be to just sustain the enterprise,” says Dadha. “You need money to grow, to expand what you are doing,” he points out.

The danger of commercialization

Photo by Thilo Beu

While none of the art entrepreneurs see any conﬂict between commercial success and remaining true to the art itself, there are many who draw the line when it comes to what they will do for the sake of commercial success. Like any other business, the temptation to increase or ease the rigors of 12

APRIL 2008

DARE.CO.IN

Madhuri Upadhya of Nrityarutya production and water down quality to cater to urgent demand from a highappetite market remains strong. Shiamak Davar, arguably the most successful of contemporary dance entrepreneurs, points out the subtle difference between being flexible and responsive to the needs of the market and compromising on one’s core artistic sense or aesthetics. “If there is a disagreement in what appeals artistically to me in a performance and what a client or partner want to portray, I am quite open to suggestions, as being versatile and flexible is essential. However, if there is a conflict between what 14

APRIL 2008

opportunity/arts

“

”

I believe to be spiritually right and commercially viable, I always choose to do what is right, because it is more important to me,” he points out. The distinction is not moot—the temptation to cater to the market and chase short-term material success at the cost of the integrity of the art can be very strong. Quoting Phillip Zarrilli, the noted director, actor, author and martial art specialist, Anmol points out that unscrupulous exploitation can undermine the very art that forms the bed-rock of the business and from which it draws its sustenance and brand-equity. Zarrilli has commented on improvised forms of Kathakali being peddled by local entrepreneurs to tourists. “The speciﬁc reinvention of Kathakali in both instances,” Zarrilli suggests, “is driven by a desire to make Kathakali a ‘universally’ communicable art form.” So, for example, realistic Western conventions of staging have been introduced, the use of language has been minimized, and the emotions of everyday life have been emphasized. Zarrilli observes that rather than attempting to ‘educate’ the new audience into received conventions and traditions, the two makeovers of Kathakali choose to alter and adapt the system itself to meet what they think the new audience wishes to see and appreciate. “What is being shown in the name of Theyyam and Kathakali in these two instances should make us all uneasy. One might applaud the outﬁts in Kerala for their entrepreneurial spirit, but one can hardly commend them for stealing Kathakali’s brand equity to peddle something other than the original article,” Anmol points out in his paper. Dadha, having an experience in both factory-manufacturing and antique dealing, cautions against watering down the standards to meet the demands of the market. “Art is valued only because it is art, like an exquisite painting or an antique. The minute you try to mass-produce it, it becomes a commodity. It will no longer command the same respect as art,” he points out in a warning that applies to painters as DAR E well as to dancers and theater.

DARE.CO.IN

blogs/INSEAD

Exploiting the “Indian advantage” Indian startups and those that are born global with signiﬁcant operations in India have a massive advantage compared to ventures in more developed countries /Philip Anderson

couple of years ago I had the pleasure of hosting Rajesh Reddy, co-founder and President of July Systems, in my MBA course, where he told the students how the company he started with Ashok Narasimhan evolved its selfconcept over the course of several years. July Systems is now a classic US-India “born global” success story that helps brands extend their presence to mobile devices in a way that drives results and revenue streams. Yet it started off with quite a different idea. The company was launched in July, 2002, with headquarters in Sunnyvale, California and technology development located in Bangalore, a rather novel model at that time. Originally, it intended to build an end-to-end software infrastructure system that would remove what the founders saw as the most important barriers preventing businesses from deploying key applications to mobile devices. Any company that wanted to extend applications to wireless devices faced a daunting array of incompatible standards, network infrastructure, operator services, and handsets. Reddy and Narasimhan saw a need for a single software platform that would tie together these disparate elements, so that a business could seamlessly deploy its applications and services to different mobile devices across different networks. One version of the software would be offered to carriers so they could deploy data access services integrated across widearea data networks and wireless networks, while another would be offered to businesses to support delivering mobile data services and applications to their users. JumpStartup Ventures, WestBridge Capital Partners, and Acer Technology Ventures Asia Pacific provided July Systems with $5.5 million in series A financing in April, 2002. July Systems hired over 50 key product creation and delivery team members (including engineers, product managers, user experience designers, and network operation specialists) in Bangalore to start building its system, and in August, 2002, it raised another $2.5 million in an extension of its series A funding, with NeoCarta Ventures joining in and WestBridge increasing its stake. Says JumpStartup founding partner Sanjay Anandaram, “In the first 18 months, it was unclear whether the customer was the operator or 16 APRIL 2008

someone else, or whether July would be better off licensing software or providing a managed service. With everything in extreme flux, July had to figure out in real time where the most money could be made.” By spring, 2003, an early version of the July Meta-Service System (JMSS) was on trial with mobile operators. The focus of the software was now on offering operators the ability to deliver premium mobile data services to their subscribers. Written in the Java programming language, JMSS was a software platform designed to simplify the complex task of delivering many different types of mobile content and applications to the subscribers of different operators via a variety of pricing schemes. But enterprises proved slower to put enterprise applications onto networks than had been forecast. On the other hand, sales of digital content grew much faster than many had envisioned. In 2004, revenues from selling ringtones exceeded revenues from compact disk sales in several countries. Sales of games written in the Java language for mobile devices were zooming, and with higher-speed, third-generation networks poised to roll out worldwide starting in the middle of the decade, video and music on demand seemed poised for growth. As purchases of digital goods soared, July Systems’ leaders saw a gap that its software could fill: enabling m-tailing. Those with digital goods to sell had to deal with an array of non-standardized service delivery mechanisms, because their target audience was spread across operators who managed the service delivery chain in different ways. Through most of 2003, July Systems tried to sell its software platform to mobile operators, many of whom were playing the role of operator-retailers. This approach led to a number of trials, but did not drive revenue growth quickly enough. By 2004, July had switched its emphasis from selling software to selling a managed service. Mobile operators remained the target customer; the sales challenge was getting them to use July Systems’ services to deliver content to their subscribers. It eventually became clear that operators needed more than a service platform: they needed an endto-end service provider who could deliver a whole product. July Systems gradually positioned its SmartMedia platform as a way for companies to create branded channels on mobile devices featuring personalization, interactivity, crossplatform campaigns, and target advertising. July Systems illustrates a maxim of entrepreneurship: ventures almost never end up doing what their business plan says they are going to do. In a sense, that is a trivial

DARE.CO.IN

blogs/INSEAD observation because there is just one way for the business plan to succeed while there are infinity minus one other ways for a venture to thrive. But the deeper truth is that a business plan is nothing more than the starting point of a journey. Experienced venture capitalists have learned they must bet upon a team that will find a way to win after the business plan fails to pan out. Every venture starts off with an identity. This includes: • A definition of the initial customer segment and its boundaries; • A definition of the initial product or service; • A vision of the value proposition, why customers will pay for the product or service; • A business model explaining how the firm makes money on the difference between willingness-to-pay and costto-serve; • Boundaries specifying what activities the firm will or will not undertake. Any of these elements can change, and often all of them do as a venture develops. Usually they change together. For example, when the customers you thought were going to pay don’t buy quickly enough to sustain the business, you change your definition of who is the customer, what is the service, why they buy, how you serve them and what activities you have to become good at in order to serve them. The challenge for most businesses is that while the entrepreneur is figuring out what works, the venture is burning precious cash. A venture is a race between getting traction—finding some niche where it becomes cash-flow positive—and running out of cash. Early-stage venture capital emerged in the late 1950s as a way for investors to lengthen the runway, the amount of time and cash a new company has before it must close its doors. Indian startups and those that are born global with significant operations in India have a massive advantage compared to ventures in more developed countries: the same amount of cash produces a longer runway. The $8 million in series A financing that July Systems raised would not have lasted long in Sunnyvale, California. With the bulk of its operations in Bangalore, the money lasted long enough for July Systems to explore three or four different versions of its identity, even though it hired more than 50 technical professionals at a very early stage in its life. A Silicon-Val-

ley-based company would have run out of cash before it discovered the way to get traction was to provide an endto-end mobile channel solution for brands and operators. That advantage is eroding over time, of course, as wages spiral upward in India, but it is still significant. Other things equal, an Indian company can conduct more experiments and re-define its identity more times than a Western company could. This is a key advantage for Indian entrepreneurs who take a flexible approach, seeing their mission as discovering a profitable identity instead of executing a business plan. The INSEAD case in this issue of DARE describes how Mahesh Murthy discovered such an identity for his startup, Pinstorm. The original idea was to use Indian intellect and software skills to help companies optimize their purchase of Google Adwords. The business was sufficiently successful that Murthy has never needed one rupee from venture capitalists, and has thus avoided diluting his equity stake. But what Murthy discovered by observing what customers would pay for is that they wanted to pay ad agencies for results instead of paying them for campaigns. Once he reconceived Pinstorm’s identity as the leader in pay-for-performance marketing, he discovered a host of growth paths that never would have occurred to a CEO who defined himself as the owner of an online advertising company or a search engine marketing company or a software platform. The lesson for entrepreneurs: don’t get too attached to any one vision of what your company is. Let the market help you find what it can become. Every couple of months, revisit the five elements of your identity: ask yourself what customers are actually paying for and how you can provide what they will pay for with even more value at even higher margins. Entrepreneurs tend to get locked into the identity you see on their Web site when you click on “About Us.” Remember: entrepreneurship really is “About Us,” not about what we are doing at this particular moment in time. It’s “About Us” because we, the entrepreneurial team, are the ones who define and re-define a venture’s identity, listening creatively to the voice of the market while thinking creatively about how to close the gap between what is and what DAR E can become. INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab

SMS “DARE <your comments, questions or suggestions>” to

56677 APRIL 2008

DARE.CO.IN

case/INSEAD

Pinstorm:

Searching for a business model /Philip Anderson Our name, Pinstorm, in fact comes from our belief that the era of “big” campaigns typiﬁed by the “one expensive ad shown once during Superbowl” school of thought is well and truly over. The future for marketing, we believe, lies in doing hundreds, even thousands of pin-pointed campaigns aimed precisely at niche audiences, wherever they live on the planet. All running in parallel. —Pinstorm web site.

instorm began its life in May, 2004 in a small office in Mumbai with just one employee, entirely funded by serial entrepreneur Mahesh Murthy. Well-known in India for his provocative columns in various print media, Murthy exemplified the “new generation” of entrepreneurs who arose in India after the end of the license Raj outside the traditional families and regions that have been India’s wellspring of new businesses for centuries. The son of an Army officer, Murthy was born in Hyderabad into a strictly traditional middle-class Brahmin family of Tamil origin. The brilliant lad won a number of national quizzes and IQ contests and his father urged him to pursue the well-trod path of attending a top university, earning an engineering degree abroad, and settling down. Yet while studying engineering at Osmania University, young Murthy realized he wanted to do something far less traditional, so he dropped out of college and started two small ventures.

18 APRIL 2008

These small businesses taught Murthy that he enjoyed design and marketing communications, so he cut his teeth at two advertising agencies in Hyderabad before joining Trikaya Grey in 1996. At the age of 23, he took charge of the account of HCL, and when a pioneering comparative advertising campaign helped drive HCL’s share of the Indian photocopier market from 4% to 37% in one quarter, Murthy was established as a star advertising director. At the age of 25 he joined the US-based global advertising giant Ogilvy & Mather, moving to Hong Kong where he branched out into consumer marketing, working for clients such as Microsoft, Pepsi, and Unilever. Murthy returned to India in 1993 to help launch MTV, then in 1995 joined a pioneering Internet advertising company in the US, CKS Partners. “People in advertising had no idea why I went from working with huge brands to doing this,” he recalls. But in 1995, a small “dotcom” company with big ambitions approached CKS to ask

whether the agency would help them build an online advertising revenue stream in return for equity. Murthy believed in the entrepreneurs, who gave CKS 40,000 shares in their company at $2 apiece. “I met the guys, spent a few months thinking about their problem, and helped them ﬁgure out how to divide their links into categories, what size their online ads should be, what the site should look like and so on,” Murthy says. The risky development effort paid off when the client, Yahoo!, went public in April, 1996 at $24.50 per share and hit a high of $43 before closing at $33. A year later, CKS helped Amazon.com position itself as ‘Earth’s Biggest Bookstore.’ Murthy became a partner at CKS but left at the end of 1997 to join a software startup that was acquired in December, 1998 by Intel. Having invested personally in Yahoo! and Amazon, Murthy was ﬁnancially independent and had time to ponder his options after the acquisition. In early 1999, he returned to Mumbai to take over Channel [v],

DARE.CO.IN

case/INSEAD which had lost money since its launch in 1994 and was on the verge of closing in India. Murthy succeeded in turning the property around and launching the channel’s online presence. He then started his own angel investment company, Passionfund, with friend and partner Arun Pai., which made 14 investments in Internet-related or technology-enabled companies between 2002 and 2005. While running Passionfund, Murthy began helping the well-known nonprofit CRY (then “Child Relief and You,” now “Child Rights and You”) to place advertisements with search engines. This led to the idea for Pinstorm. Murthy explains: Google auctions off words or phrases, such as ‘mobile phone’ or ‘Siemens mobile phone.’ You have to input your budget, and the more you bid, the higher the position of your advertisement relative to other ads for that phrase – all typically part of a column down the right-hand side of the page. The price for a particular word varies enormously, from perhaps five cents per click to $100 per click. If you are marketing mobile phones and bid on obvious or common words, you pay a lot because they are the same words that everyone else is bidding upon. Murthy thought it would be possible to develop a technology that would help marketers find relevant but less commonly used search terms that

would therefore cost much less per click. He explains: With assistance from technology, we pick words and phrases more intelligently, looking for those that are relevant to the topic at hand but that are less frequently bid upon. Instead of buying 50 words at a dollar per click for a thousand clicks, we can help clients buy 15,000 words at perhaps 15 cents a click and get 2000 clicks. We use a lot of linguistic analysis and analyze search patterns to find words that are relevant but that are not accompanied by a lot of ads. We can run an invisible Google search for a term, measure how many ads are associated with it, and read the report from Google that tells you what you must bid to have your ad listed first for that term. Then, we choose the optimal combination that we forecast will produce a given number of clicks most cost-effectively. Optimizing search engine advertising productivity in this way is a complex linear programming problem. Taking advantage of India’s highly skilled labor, Murthy hired a group of mathematically sophisticated analysts to build and hone the necessary algorithms. It took 8-9 months for Pinstorm to develop a suite of tools that produced reasonable results, which Murthy expected would improve continually over time. In early 2005, Pinstorm filed for US patents on its analytical breakthroughs. Additionally, Murthy hired a team to develop creative advertising for its clients. He says: Google also multiplies your bid by the click-through rate, so you are rewarded if your advertisement pulls more responses. If you bid five cents per click but your ad has a 2% click-

through rate, you will be placed higher than someone who bids seven cents per click but has a 1% click-through rate. The pulling power of an ad is based on creativity. We have good creative people in India who can think in English and can create advertising for any market anywhere. Again Pinstorm leveraged India’s high-skilled work force by hiring creative talent to write more effective advertisements. Although Google only serves up text advertisements on its pages, it also has a large network of third parties (for example, many major newspapers) to whom it serves banner advertisements. Therefore, Pinstorm creates a mix of text and graphic advertisements, relying like most ad agencies on a mixture of clever copy and compelling graphic design. Advertisements are ruthlessly winnowed by what Murthy calls “natural selection at work.” He amplifies, “You only pay for results in search marketing, not impressions, so we can throw in half a dozen ads every few weeks, see what works, and cull what is not working.” By May, 2005, a year after he had launched Pinstorm, Murthy found himself at a crossroads. The firm was working on three different approaches to helping its clients optimize the costeffectiveness of their search marketing campaigns, and Murthy wondered which one would provide the most promising growth path for the firm. First, Pinstorm was in part a technology company, developing software that would help advertisers on big search engines (initially Google and Yahoo!) automate their buying and placing of advertisements to achieve specified results. Eight people had

e are the ﬁrst ad ﬁrm in the world that is paid only for results. Great brands are those that have been built on less spending, not more. Our home page talks about pay for performance and digital media, not search. We could have gone down the road of saying we want to be a search-specialist agency, but we chose to do everything a client is willing to spend money on by paying for performance. — MAHESH MURTHY APRIL 2008

DARE.CO.IN worked on this application for six months. Murthy explains: Only the top 10,000-15,000 advertisers get personal service from Google. The rest go through a painful ordeal of picking each keyword to bid on, deciding the bid, writing the ad that appears when the keyword is searched, and managing complex campaigns themselves where they have to specify languages, geographies, budgets and then swiping a credit card and keeping a watch on the entire process thereafter. Google has over 230,000 such advertisers. We are developing an automated service where these advertisers could come to our site and enter their advertising brief, for instance specifying that in the next three months they want 500 visitors from Singapore who are interested in WiFi routers. The system will generate all necessary keywords in the background; run a simulation and come back with an estimate; take payment up-front via a credit card; ask the advertiser to input an ad; suggest some other ad templates that can be customized; then automatically do the buying and ad placement in Google and Yahoo!, while offering full reports to the advertiser. This will allow us to become a high-volume, lowvalue service provider. All we will do is buy clicks for less using our technology and resell them at a premium because of the convenience we offer; it’s a simple arbitrage business. We think a typical client will pay us $200-$300 per month with margins around 25% - and we could end up with thousands of clients. Second, Pinstorm was pioneering a new model for how clients paid for search engine advertising. Search engines charged on a pay-per-click basis; their advertisers only pay when someone clicks on their advertisement. Pinstorm not only generated clicks; it allowed some clients to pay only when they received a qualiﬁed lead. Murthy explains: We can attract visitors to a Web site designed so that they show an interest in a particular offering and leave their contact details. An insurance company might pay $10 for a qualiﬁed lead, while 20 APRIL 2008

case/INSEAD an enterprise software firm might pay $100 per lead. We typically generate leads for 20-30% of what clients will pay for them. However, it involves a lot of client servicing; you have to meet with and manage the client, unlike a high-volume media agency were there would be no humans involved. Murthy liked the way this model combined both technology and creative work, and was instinctively attracted to the higher-margin value proposition. He elaborates: It’s more profitable to turn traffic into a lead than it is just to drive traffic to a customer. Lots of companies make a living selling leads. Anyone in software outsourcing would pay $90$150 per qualified lead, and it costs

“

Digital media accounts for just 4% of India’s advertising spend; when the big TV money starts shifting toward pay-for-performance we will really have set the cat among the pigeons

”

us about $25-$30 to deliver that lead. I don’t know if that margin will go up or come down, but it’s a good business right now. It’s the best you can do with products that are not sold on-line; if you have a Web site and you don’t know how to attract prospects, we will do that for you. It lets people participate in e-commerce if they want customers online but can’t sell their products or services online. Third, Pinstorm had experienced some early success acting as a reseller for a select number of clients. Murthy explains: We can take the entire marketing of a product or brand on our heads, assuming all the risk. We can work as a distributor, investing our own money to create advertising and buy placements for it, living on the margin between what we charge and our cost of sales. We complete the entire sale

via our credit card gateway and hand over the order to the client. We are very picky about this business and don’t advertise it on our site; it’s by invitation only. A lot of clients want us to do this – it is the holy marketing grail to be paid purely on sales– but we have to believe in what they are selling or we don’t want to get involved at this level. The volume is lower but the value is much higher. Having worked in advertising for so many years, Murthy liked not only the creative challenge of the reselling business but also its economics. He comments: Many companies set aside 10% of their turnover for marketing communications. Of that 10%, 90% is spent on media and 10% goes to creative work. So if you are in the media buying you just make 2.5% of the 9% spent on media and you end up addressing .2% or .3% of every marketing dollar spent, while your creative ad agency addresses 1% of the market. The total advertising business is just 1.3% of the marketing business. A distributor or reseller, on the other hand, makes 2050% of the bigger pie, and if we occupy that role, we can make more money, especially in our model where we don’t take on delivery. We run a customer’s ebusiness, get an order, collect the money and get others to fulfill the order. Potentially, you can grow that way much bigger than an advertising agency can. The key factor here is whether you can market online better than the marketer himself. We feel the world is full of incompetent online marketers, and they all can be our clients. If we can deliver a sale, we can charge high margins. At the end of its first year in operation, Pinstorm was solidly profitable, but Murthy had to decide how to grow the business. What would create the most value: building a technology company, a lead-generating enterprise, or a business focused on re-selling? Could and should Pinstorm focus on all three business models, or was it time for the firm to narrow its focus in order to establish itself as a clear leader in search engine marketing? What should Mahesh do? Contd. on Pg 22

DARE.CO.IN

case/INSEAD

Pinstorm: case study - Contd. from Pg 20 Between 2005 and 2008, Pinstorm grew into what Murthy believes is the largest digital marketing company in Southeast Asia, on target for $25 million in revenues for fiscal year 2008-9 without ever requiring additional investment capital. This growth was achieved by re-thinking Pinstorm’s fundamental identity. Instead of positioning the company as a leader in search engine marketing, Murthy gradually defined it as a leader in pay-for-performance marketing. He comments: Advertising businesses are traditionally compensated on three things. One is a commission on media spending, which rapidly declined after 2000. Second, they charge fees for things like photography or doing an ad. The third is a retainer per month. Something is wrong with these fees. The more you spend, the more an ad agency gets paid, so an agency’s goal is to get clients to spend more. Great brands are those that have been built on less spending, not more. The system rewards incompetent, inefficient agencies. Paying a 22

APRIL 2008

Mahesh Murthy of Pinstorm with his team

retainer means there is no incentive for the agency to succeed—they get the same if their ads do nothing as they do if they boost clients’ sales 10 times. We are the first ad firm in the world that is paid only for results. The unifying idea behind all three growth paths turned out to be the same: converting marketing expenditures from a fixed cost to a variable cost. Murthy says, “Our home page now talks about pay for performance and digital media, not search. We could have gone down the road of saying we want to be a search-specialist agency, but we chose to do everything a client is willing to spend money on by paying for performance. That helps distinguish us and gets us a larger slice of the client’s budget.” Lead generation became the mainstay of Pinstorm’s business, accounting for 65-70% of revenues by 2008. “We progressed a lot because the usage of the online medium has gone up in most geographies, giving us tremendous increases in the volume of leads we can deliver,” Murthy remarks.

“A year ago we could deliver 300-500 leads per day for an online brokerage, but today it’s more like 1500-2000, making us much more important for our clients.” The reselling business also grew steadily and accounted for 25-28% of revenues by 2008, but in more narrowly targeted segments, principally travel and financial services where an entire business process could be managed online. Pinstorm’s key differentiating factor in this sector was its proprietary “Perfect Landing” technology that creates web site landing pages on the fly, customized to the user’s search string. Says Murthy, “If you search in India for Mumbai-Delhi flights, you’ll see an advertisement for Yatra, one of our clients. If you click on it, you’ll go to a page that says ‘Lowest-price MumbaiDelhi flights on Yatra.’ We match the entire experience to what the user was searching for all the way to the point of sale, and charge clients per customer they acquire.” Pinstorm’s proprietary software developed much more slowly, leav-

DARE.CO.IN

case/INSEAD ing Murthy grateful he had decided to build a marketing company instead of a pure technology company. A beta version shipped in October, 2006, and was sold to eight clients. “Where it works, it works well,” Murthy comments. “We realized 86.5% gross margin on our ﬁrst client, so we know there is a lot of money to be made helping people who have $5000 to spend but don’t know what to do except buy the most expensive keywords.” As the system evolved, it became clear that not every exception could be automated, so the company offered hands-on support via chat or trouble tickets, leveraging India’s unique ability to create value by combining software with service from talented people. “We’re 18 months later than I thought we would be, but we have a more solid product as a result,” Murthy says. Murthy believes that Pinstorm has helped transform India’s online advertising market into a unique model. “India is very different from the rest of the world because we pushed the market to pay for results; it now has the largest share in the world of payfor-performance revenues as opposed to traditional models. Few people here can hang onto accounts using a commission system,” he states. Pinstorm’s future growth will be propelled by taking the pay-for-performance into new areas, Murthy

Pinstorm team out camping

predicts. In March, 2008, Lintas gave Pinstorm a large budget and asked the ﬁrm to take the pay-for-performance concept into print and television advertising. “Digital media accounts for just 4% of India’s advertising spend; when the big TV money starts shifting toward pay-for-performance we will really have set the cat among the pigeons,” Murthy says. Pinstorm also has performed search engine optimization, getting paid for clicks on the left side of the search page. “That lets us

A light moment with the Pinstorm team

charge prices equivalent to advertising fees without paying Google per click,” he remarks. In addition, Pinstorm developed and manages a site for a large entertainment client in Singapore that captures movie fans and exposes them to all the client’s movies. The client pays for the number of members and the interactions with them that take place on the site. “It’s a very different approach, charging for driving traffic to the client’s brand, and it’s hugely profitable,” says Murthy. “It’s one of many different ways our clients can pay us for performance.” The Pinstorm experience exemplifies how business models evolve over time. The company was originally founded to advance the art of search engine marketing by combining India’s strength in software and people. Over time, Murthy discovered that pay-forperformance in any venue, not just search engine advertising, was the unifying idea propelling the firm’s growth. Had Pinstorm defined itself as a technology company or a re-seller, it would not have achieved the same results. The key lesson to be learned, according to Murthy, is that entrepreneurs should learn what customers value most and adapt their identity and services as that DAR E understanding emerges. APRIL 2008

DARE.CO.IN

Seaplanes anyone? India needs more airports. Its network of rivers, lakes and the coastline offers an alternative /Krishna Kumar

onsider this: India is facing an explosive growth in air trafﬁc. We are seeing a fast growth in airline seats and in passenger trafﬁc. We are scrambling to expand existing metro airports, and smaller regional airports are also bursting at the seams. Even with all this, we have one of the lowest per capita levels of air travel in the world—in low single digits. The civil aviation minister has gone on record to say that the number of airports has increased from 50 to about 80 cities in the last three years and there is

a need to increase the number further to 300 or 400 airports in the future. However, building an airport is easier said than done. Even a small airport takes huge tracts of land, large amounts of money and more importantly, a long gestation period to start functioning.

Is there a way out? Cut to the Maldives. The Maldives is made up of 1,190 coral islands, out of which 87 are exclusive resorts. If you have ever travelled to the Maldives,

DARE/seaplanes Seaplanes, also known as hydroplanes, are fixed-wing aircrafts designed to take off and land on water with almost no wave action. The amplitude of the wave they can withstand depends on the size, design, and weight of the aircraft. There are two kinds of seaplanes. Floatplanes have pontoons (floats) fixed under the fuselage (main body of the plane). In flying boats, the fuselage acts like the body of a ship in water. Modern seaplanes are usually floatplanes with amphibious qualities, meaning that they can take off both on land and water. The De Havilland Twin Otter, which is the model used in the Maldives, is a 20-passenger utility seaplane, developed by De Havilland Canada. It can operate on floats, wheel/ski combinations and high floatation tires. Unlike big jets, the twin otters fly at a much lower altitude of 3500ft. They are designed for short takeoff and landing (STOL), That is, an aircraft can clear a 50 ft. obstacle within 1500 ft. of takeoff and do not require much distance for takeoff or landing.

APRIL 2008

DARE.CO.IN

you would remember that you walk out straight from the airport terminal to the boat jetty! And if you are the curious type, you would also have noticed that just before the jetty, to the left is the terminal for the Maldivian Air Taxi Service. The Maldivian Air Taxi Service operates De Havilland Canada DHC-6 Twin Otters on floats. These aircraft take off and land on calm water! They do not need expensive runways. All you need is a jetty where passengers can disembark. Push comes to shove, passengers can even wade out of ankle deep water! The planes mostly fly on VFR (visual flight rules) and thus do not need the support of full-fledged air traffic control (ATC) towers and services. They

usually cover short distances, as in the Maldives. India has a large coastline, as well as large rivers and lakes in almost every part of the country. Brahmaputra, Ganges, Cauvery, Jhelum, Chena, Ravi, Beas, Sutlej, Narmada, Godavari, Krishna, Tapti, Mahanadi, Periyar, Pamba, Dal lake, Hussein Sagar lake, Vembanad Lake, Chilika lake, Kukkarahalli lake, Loktak Lake, Bhimtal, Suraj Tal… the list is virtually endless. The question: Can seaplanes provide a quick and cost-effective alternative to costly and time-consuming airport building, particularly in the remote and coastal areas of India? Is there a business opportunity ﬂoating out there? The answer is waiting for you to ﬁnd out. D A R E APRIL 2008

DARE.CO.IN

opportunity/F&B

Serving

Air

in the

The meteoric growth of the aviation industry has opened up new skies for the business of airline catering. /Chhavi Tyagi

he Indian aviation industry is going through a boom and its infrastructure is fighting hard to expand its contours to provide this growth with the new required space. According to the Airports Authority of India, passenger traffic saw a jump of 25-30 per cent last year as compared to 2006, increasing the aircraft movements to an unprecedented level. What’s more, the airline business in India is growing at a rate of 50 per cent in the domestic sector alone, with LCCs (low-cost carriers) spearheading this growth. Since the industry’s fulcrum, the passenger traffic is supporting this growth; the chances of this being a steady development are very strong. Besides this, all the allied services to the aviation sector are growing with it. Since in-flight catering is an area directly related to the growth of the aviation sector, its own

26 APRIL 2008

growth is also directly proportional. Says Murali Krishnan, General Manager, Ambassador’s Sky Chef, “Inﬂight catering has a good future. The aviation industry is growing at a good pace and with it the business of inﬂight catering”.

What is this business? The business of in-ﬂight catering is not only about providing meals to airlines. Today most airline catering companies are performing the role of in-ﬂight solution providers, providing the airlines with all that goes inside an aircraft, like newspapers and magazines, cabin cleaning, laundry, and so on. But as far as beverages are concerned, the role of catering units differ from one to the other. While some limit their role to just providing storage

and chilling facilities to the airlines, the rest not only store them but also buy them for their clients. Alcoholic drinks, however, are arranged by the airlines themselves. Apart from all these principal activities most of these companies are also involved in other non-ﬂight services, like managing airport lounges and restaurants. Though these services are not their chief operations, most of the big players are operating in them. Says Nowzer Dudhmal, Deputy General Manager, TajSATS, “These make for moderate business, not like the hotels”. The big players in the airline catering business of India are TajSATS, a joint venture between the Taj Group of Hotels and Singapore Airport Terminal Services, The Oberoi Group, Ambassador’s SkyChef, Sky Gourmet and LSG

DARE.CO.IN

opportunity/F&B DARE/estimates Projected size of airline catering market Number of Air Travelers (year 2007) 5.53 crore Projected growth annually 25% (in percentage) Number of Air Travelers (by 2010) 10.80 crore Per meal cost (approximately) Rs 45 Total size of opportunity (by 2010)

Rs 486.26 crore

major contributors to the growth that is being witnessed. Low-priced airlines like Air Deccan, SpiceJet, Go Air, and Indigo Airlines, are not just offering low-priced tickets, but have also redeﬁned the market for the full-service airlines. Not so long ago traveling by air was considered a privilege of the rich. But the advent of LCCs brought air travel down to the level of middle-class families and those residing in small cities. A number of foreign airlines have also increased their operations at Indian airports to take advantage of the limited Open Sky policy of the Indian government. The proposal allows foreign carriers, already operating in India, to add to their passenger-carrying capacity during a speciﬁed period, by either introducing a larger aircraft or increasing the frequency of aircraft movement. Sky Chefs. These cater mostly to fullservice and international airlines.

So, is it an opportunity? According to experts, air traffic is expected to grow at the rate of at least 25% for the next 5-10 years, making aviation one of the fastest growing industries of the country. The number of airports presently operating in India is only 80, out of which only a few account for a major share of the total airline traffic. The government has plans to rejuvenate most of the non-operational airports by 2010 so as to evenly spread the existing load and also to make provisions for the increasing passenger traffic. Driving this growth is the domestic sector of the country. According to industry experts, apart from full service airlines, low-cost carriers (LCCs), also known as no-frills airlines, are the

LCCs and chartered aircraft Though LCCs, unlike full service airlines, do not serve full-course meals in their ﬂights, most of them have light meals. They offer perishables, like sandwiches and noodles, and non-perishables, like wafers on board and customers are required to pay for them. Initially no-frills airlines sold only a few items, like juices and chocolates, but passengers’ demands have made it possible for LCCs to update their menus to include comparatively more elaborate meals than before and, apart from other F&B companies, these airlines are now approaching the big players of the market to provide them with these. For instance, Ambassador’s Sky Chef, apart from serving full-service airlines, has also entered the LCC market by enlisting carriers like IndiGo and Spice Jet in its list of clients.

This market is going to open up further in the favor of large-scale caterers to put an end to them complaining about low-cost airlines eating into the market of regular airlines. This new modus operandi of LCCs of keeping light meals in their menu has also opened the door for F&B companies for in-flight catering, an area that has traditionally been the domain of five star hotels. Café Coffee Day (CCD) is one such company that provides catering services to low-cost airlines such as Air Deccan and GoAir. The market for chartered aircraft has also opened up after the new guidelines by the government. As per the revised foreign direct investment (FDI) policy guidelines, 74% FDI is allowed in chartered airlines while NRIs are allowed 100%. After this announcement a number of chartered airlines have come into India and started their operations. And since all these chartered airlines contact the airline catering companies for providing meals on board, this segment of the market is also looking up. Though an international flight generates more money for the catering company as compared to a domestic one, the mix for most of the Indian caterers is more domestic than international. The reason is that the frequency of the domestic flights is far more than that of the international flights. Explains Krishnan, “International flights are more lucrative because of the fact that they are jumbo flights and also longer. With this they more or less have 100% load factor, i.e., the flights are usually packed. Keeping this in mind, it is obvious that they require elaborate meals. The same is the case with chartered aircraft; the meals demanded are more elaborate”.

How does an airline choose a caterer? This industry runs on a few set standards that are hard to break—standards of quality and hygiene. So much so that most of the airlines depend on these standards to pick and choose service providers to cater to their customers. Says Krishnan, “The basic criteria that an airline looks for while choosing a APRIL 2008

DARE.CO.IN catering company is merit, the quality of the food and the hygiene standards of the caterer”. V B Ra j a n , G e n e ra l Ma n a g e r, CAFS, the flight kitchen of the Casino Group, says it has more to do with the reputation of the company. He says, “It depends a lot on the goodwill, comparison with other caterers, relations and pricing”. However, industry insiders say that the selection criteria differ a bit for international flights. Apart from following the usual standards, these flights tend to prefer those catering units who are also in the hotel business. This is because these companies then become a one-stop shop for their catering needs and their lodging requirements for the crew and other people.

Challenges A catering company has to face challenges on a daily basis. As is true for any food-providing unit, an in-flight caterer has to maintain the highest standards of food safety and hygiene along with keeping that competitive edge. Says Dudhmal, “Since along with maintaining all the food safety standards you also have to be cost-effective, it is definitely a challenge to offer the product at the right price”. Another challenge for the industry, and by consequence, to these caterers, whose client portfolio mostly has the full-service carriers, is the various charges that are included in the price of a ticket. Though the airfare has come down drastically, there are a number of costs included in the price of a ticket, for instance, airport usage charges. The various charges are still standing in the way of the airlines becoming a feasible option for a large number of people. Agrees Krishnan, “One big challenge that the aviation industry as a whole is facing are the different kinds of charges a passenger has to pay for a number of things. Like a person traveling in a domestic flight has to pay Rs 1,000 as airport usage charge and for international flights, Rs 600, and that is apart from the taxes. This increases the price of the ticket and so an average pas28 APRIL 2008

“

opportunity/F&B

Since along with maintaining all the food safety standards you also have to be costeffective it deﬁnitely gives us the challenge of giving the product at the right price

”

— NOWZER DUDHMAL DEPUTY GENERAL MANAGER, TajSATS

senger prefers traveling in a train. This affects the catering business as the number of meals required goes down”. Punctuality is another challenge that the industry is facing. Any company dealing in food takes a lot of initiative for on-time performance. It is a very important factor for survival in any food related business, but for inflight catering it assumes great importance keeping in view the tight schedule of flights. A caterer has to provide the airline with meals at the right time. Any delay could result in the flight getting grounded for three to four hours. This can easily result in the loss of that client and can further dent the image of the caterer. For a company in the service industry whose only base is its goodwill this could be a very serious challenge. Conversely, if the airline delays the flight and the food has reached on time, there is the added issue of ensuring that the food remains edible till the end of the flight.

“

The logistics of the business involves implementing and controlling efﬁciently, effective forward and reverse ﬂow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements

”

— V B RAJAN

GENERAL MANAGER, CAFS

Food Certification These days if you want to do business with any airline you have to be certified for at least Hazard Analysis and Critical Central Point (HACCP). This is a food safety management system, a process control system designed to identify and prevent microbial and other hazards in food production and the entire food chain. HACCP includes steps designed to prevent problems before they occur and to correct deviations through a systematic way as soon as they are detected. Such preventive control systems with documentation and verification are widely recognized by scientific authorities and international organizations as the most effective approach available for producing safe food. There are many organizations that provide food certification to caterers; most of which are international, like Lloyd’s Register Quality Assurance (LRQA). However, there are some national ones too like the National Centre for HACCP Certification (NCHC), a Kerala Government organization. After certification, the organization conducts checks on the catering company without any notification and if there are any discrepancies found, the certificate can also get cancelled. Usually, though, the company gets one warning before such action is taken. The time that this procedure takes depends a lot on the awareness level of the company seeking such certificates. Says Suraj S Nair, Manager and Nodal Officer, NCHC, “The time taken depends on the company’s cooperation. One company that I handled took only three months and other one took as long as three years. It depends on the management’s commitment and how aware are they about food safety standards”. Though some say this business is one of low margins and high volumes and that there are already too many players in this field; the expansion plans of the big players and the entry of international companies like LSG Sky Chefs in the country tells DAR E another story.

/xxxortunity company showcase /xxshion

DARE.CO.IN

APRIL 2008

DARE.CO.IN

opportunity/hospitality

Organizing Home-stays As people are increasingly opening up to the concept of bed and breakfast, a huge opportunity in providing a common platform for homestay owners and guests is still waiting to be tapped /Shilpi Kumar

taste of the country’s rich ethnicity blended with great hospitality is what most tourists look for when they visit India. But do you really think by staying in hotels, amongst other foreigners and getting that ﬁve-star treatment, they even get close to becoming familiar with what India has to offer? Not really! Perhaps what they need is a more intimate experience, something they can only get by intermingling with the residents of the country. This is exactly where the concept of home-stays comes in. Just imagine being a part of an Indian family, which enriches and personalizes every bit of your stay in India, by providing you lodging, authentic home-cooked Indian meals and accompanying you to some of the best places in the city. While the tourists enjoy their home away from home, this also gives the host family a great way to make some quick bucks. So is there an opportunity in the home-stay hospitality sector in India? Deﬁnitely! The gap between a homestay guest and the host is still very wide

30 APRIL 2008

and private players can help in bridging this gap by bringing them together on a common platform.

Gradually catching up In India, the concept of home-stays, commonly known as Bed and Breakfast, is still relatively new. Except for certain beachside places in Goa, where tourists frequently stay with families, the concept was almost unheard of until a couple of years back. With the initiation of the Delhi government’s Incredible India Bed and Breakfast Scheme, more home owners started opening up to the idea. Con-

“

There is a shortage of 30,000 rooms for the expected visitors of Commonwealth Games 2010. Incredible India’s Bed & Breakfast Scheme is an initiative by the Delhi government to tackle this issue.

ceptualized by the Union Ministry of Tourism, it was implemented keeping in mind the shortage of 30,000 rooms for visitors during the Commonwealth Games 2010. Under this scheme, those who are interested in starting a homestay are inspected, given a license to operate, and it is ensured that they charge domestic rates, not commercial ones. According to Ekta Capor, Director of Operations, Comfort Homestay, “There are about 200 approved Incredible India establishments as of now”. Besides Delhi, states like Kerala, Himachal Pradesh, Rajasthan, etc, are also fast catching up. According to Dhrubajyoti Baruah, CEO of the Bharat Homestay portal, “Even in places like Ladakh, which is an area otherwise devoid of major economical activity, entire villages are looking at home-stays as a proﬁtable proposition”. With lakhs of foreign tourists pouring into the country for holidays, medical treatment, and business purposes, the concept of home-stays is gradually on the rise, especially in places like Goa, Kerala and Himachal Pradesh. Besides foreigners, even Indians tourists are opting to stay in home-stays. According to Tarun Tammanna, a student of St. Joseph’s College, Bangalore, who has done extensive research on the subject, “Many students and IT professionals travel to places like Coorg and Mysore during the weekend or on special occasions, and prefer living in home-stays. For Rs. 700 a night, they not only get lodging and food facilities,

DARE.CO.IN

opportunity/hospitality but also a family that makes them feel right at home”. Most of these home-stays, however, come under the unorganized sector. As said by Ekta Capor, “Only about 25% of the homestays are actually registered”. The government is doing its part by certifying authentic home-stays, but there is room for several private players to organize this sector and to play the role of a facilitator. “We need more agencies that can be a support system to home-stay owners, by not only bringing business to them, but also by training them and providing them with basic necessities needed to run a home-stay,” says Ekta. Even though there are many agencies that deal in providing home-stays to tourists, it is only a small part of their overall business. Many pose as agencies only for home-stays on their Website, but just a quick call to them shows that home-stays are only part of the several other modes of lodging they have to offer to tourists. Players

DHRUBAJYOTI BARUAH CEO, Bharat Homestay

DARE/estimate per agency THIS ESTIMATE IS BASED UPON SOME FIGURES GIVEN TO US BY AN AGENCY CURRENTLY OPERATING ACROSS THE COUNTRY CURRENT FIGURES Number of rooms registered with the agency 150 rooms Average occupancy in a year 50 % Actual room occupany in a year 75 rooms Charge per room per day 4,500 Rs Estimated days of room occupancy in a year 300 days Revenue generated by home-stay hosts 10.1 Rs crore Agency’s share of revenue for organizing home-stays 25 % REVENUE EARNED 2.5 Rs crore FUTURE ESTIMATES (2009) Number of rooms registered with the agency (expected) Average occupancy in a year Actual room occupany in a year Charge per room per day Estimated days of room occupancy in a year Revenue generated by homestay hosts Agency’s share of revenue for organizing homestays ESTIMATED REVENUE

rooms % rooms Rs days Rs crore % Rs crore/player

ASSUMPTIONS: 300 days of occupancy in a year, 450 rooms expected by end of 2008, Average charge per room per day is Rs 4,500 DISCLAIMER: This data and analysis are indicative, and CyberMedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture

that are solely dedicated to marketing home-stays are few in number. How huge is the untapped potential? Like mentioned previously, in the scenario of the upcoming Commonwealth Games, we have a shortage of 30,000 rooms, and there are only around 200 homes registered under the Incredible India scheme in the cities of Delhi NCR and Jaipur. Assuming that each house in these cities have two rooms on an average, this still adds up to 400 rooms registered in this region. Clearly, there is still a lot to be done!

Who are the current players?

Besides Delhi, states like Kerala, Himachal Pradesh, Rajasthan, etc are also fast catching up. Even in places like Ladakh, which is an area otherwise devoid of major economical activity, entire villages are looking at home-stays as a proﬁtable proposition.

450 50 225 4,500 300 30.4 25 7.6

Ask Dhrubajyoti how he conceptualized the Bharat Homestay portal and he replies, “My colleague, Sandip Chhetri, CTO of Bharat Homestay, stayed as a home-stay guest on his business trips to other countries. Not only did he get a taste of the country’s way of life, but he also didn’t miss home as much. We wondered that if the concept could work in other places, then why not in India?” After traveling extensively to places all over India and studying market trends, Dhrubajyoti realized that although the home-stay concept was flourishing, it was very difficult to actually find one. News about home-

stays usually travels through word of mouth—something that doesn’t appeal to the high-end tourist. There was a need to bring them to a single platform. The portal Bharathomestay.com, created about a year ago, is not only doing that, but also educating hosts about how to showcase their homes on the Net and use to it enhance their business. The Website now has around 1000 visitors and about ﬁve to ten registrations on a daily basis. “Our Goa and Kerala home-stays receive an average of 10-15 enquiries daily, which is good considering that the concept of a home-stay is still at a nascent stage,” says Dhrubajyoti. Similarly, Comfort Homestays claims to be the ofﬁcial agency to register and market home-stays across India. Brainchild of Maharaj Inder Singh Wahi, President of Indian Association of Tour Operators, the agency is dealing with 150 rooms with about 40-50 per cent occupancy as of now. “The peak months for tourism start from the month of August, so many guests are expected in the coming months,” says Ekta.

Ensuring safety and quality One of the most crucial decisions to make in this business is selecting the APRIL 2008

DARE.CO.IN EKTA CAPOR

Director of Operations, Comfort Homestay

We, as an agency, have 150 rooms in our portfolio and expect it to rise to 450 rooms by the end of 2008. India could deﬁnitely use more agencies to be a support system to homestay owners. These agencies could not only bring business to them, but also train them and provide basic necessities for running a home-stay. right home-stays in order to ensure the authenticity of your agency. So how do agencies keep a tab on this? “We follow a stringent selection process and have our own inspection team that looks at various aspects before selecting a home-stay. Even after a home-stay is selected, we make the home owners go through a two-day training process, where they are taught how to enhance the experience of the guests without too much investment,” says Ekta. Similarly, Bharat Homestay also does a background check that includes their executives visiting the homestays. Although, according to Dhrubajyoti, they do go easy on those who are registered under the Bed and Breakfast scheme. So what price tag do these agencies put to their services? In the case of Bharat Homestay, both home-stay owners and guests can register and avail of most of their services for free. 32

APRIL 2008

opportunity/hospitality As of now, only availing for airport pickups and drops comes at a cost. Revenue is also generated from the various ads on their portal of ﬂights and travel packages that have options of home-stays, real estate companies, e-travel books, etc. “For the next ﬁscal year, we are thinking of bringing in value-added services, like a 24×7 helpline, home-stay packages, taxi services, etc, for which the users will have to pay,” says Dhrubajyoti. Comfort Homestays, on the other hand, were initially charging a membership fee of Rs 5,000 from homestays. Now that the concept has become more popular, however, they only ask for a share of 25% from the business they give to the homestay owners.

For big and small budgets Depending on how large you want your business to be, investments would be made on setting up an ofﬁce, developing and maintaining a Website, or even training home-stay owners. Dhrubajyoti, for example, started with a very modest investment. “I knew I could not spend money on advertising for the portal, so I gave more importance to promoting the portal in search engines. I am currently running the portal from home and the Web designers, promotion team and executives in Kerala and Goa work on a freelance basis,” he says. Investments in the case of Comfort Homestays have been greater. Besides investing in ofﬁce space, representa-

“

Besides foreigners, even Indian tourists are opting to stay in home-stays. According to a research, many students and IT professionals from Bangalore travel to places like Coorg and Mysore during the weekend or on special occasions, and prefer living in home-stays

tives, Web management, inspection visits and training programs, they also spend on basic supplies like bed sheets, soaps, towels, shampoos, cleaning solutions for ﬂoor, utensils, furniture etc, which they provide to home-stay owners, at a cost. “They can purchase these items from us at a cheaper rate than the market, since we buy in bulk from manufacturers,” says Ekta.

What challenges will I face? There are several reasons why private agencies have been shying away from basing their business model entirely on home-stays. First of all, a homestay guest usually can’t pay as much as hotels or resorts can for the services offered by portals and agencies. Secondly, according to Dhrubajyoti, “Home-stays in India mostly cater to a foreign clientele. Indians would rather shell out a couple of extra bucks and stay in a hotel rather than in a homestay. An average domestic tourist’s vacation varies from four to seven days, so they prefer to pamper themselves in the confines of a hotel”. Even the foreign clients are somewhat skeptical about issues like security and hygiene. According to Anuplal Gopalan, a professor of Industrial Relations at St. Joseph’s College in Bangalore, “Many of the home-stays in villages like Coorg and Cannanore in Kerala are not equipped with facilities for efficient disposal of plastic wastes. In my village, plastic waste has resulted in water logging and an increase in mosquitoes”. If such issues are not dealt with immediately, it could result in a decrease in the number of foreign tourists who choose to stay in homestays and a loss for those who are organizing stays. We ran a quick estimate in a very conservative fashion, based upon some figures given to us by Comfort Homestay. It so turns out that by next year, a single agency like Comfort Homestay could make up to Rs 7.6 crore in a year (See estimate table). The good news is that there are only a few players in this highly unorganized DAR E and largely untapped sector.

DARE.CO.IN

interview/amity

Best entrepreneurs chase passion not money Aseem Chauhan launched the Amity Innovation Incubator, that helps entrepreneurs through a range of infrastructure, business advisory, mentoring and ďŹ nancial services. Chauhan has extensive experience in venture capital and leveraged buyouts and has made investments of over $500 million globally. Chauhan holds degrees in Engineering, Finance and Strategic Management from The Wharton Business School at the University of Pennsylvania. /Vimarsh Bajpai ow is entrepreneurship education shaping the students of today?

The entrepreneurial gene may not be enough to make you a successful entrepreneur. There are other skills required to become successful, and that is what can be taught. If there is an entrepreneur who just has a gut instinct, which is very much required, but does not know how to do ďŹ nancial planning of the company or does not know how to make a business plan to raise venture capital, he may not do well. So I think by combining that innate sense of entrepreneurship with the skill-set required to be successful, we can increase the probability of successful enterprises.

Aseem K Chauhan Chief Executive Amity Innovation Incubator 34

APRIL 2008

Is there enough stress given to teach students about approaching an investor? It is one of our strengths. This is why our incubator is a different type of a setup than a normal incubator. I know what VCs look for. Many in the team

DARE.CO.IN

interview/amity that is guiding the entrepreneurs have that experience as well. We also work very closely with many VC firms and keep getting their guidance. So we give the kind of exposure to our entrepreneurs in which they can meet a VC in a low-pressure situation so they feel comfortable. Many entrepreneurs can get nervous when they meet VCs for the first time. But if you meet them in a cordial setting like an incubator, they feel more comfortable. We also help them. We do a lot of mock sessions with them. We grill them intensely on their business plans. We ask them all the questions a VC could possibly ask. We take the position of an outsider and we point out the flaws in their business plans. So, when we send them to a VC, they are well prepared. That increases the chances of something clicking.

Do you warn your students about the possibilities that they could face in a volatile market; telling them that things are not always hunky-dory? I think students know. Entrepreneurs know that there is a downside too. It is not that we paint a very gloomy picture, but yes we do warn them of the possibilities of failure, of market turmoil. But at the same time, we tell them that when the rest of the world is seeing a gloomy picture, an entrepreneur can see opportunity. As it has been famously said, there are more opportunities when there is turmoil in the market. So even if the market is falling dramatically, I personally start looking for opportunities. When the markets are high, I sit back and let people invest. India is a very entrepreneurial community. We have gone all over the world and made huge amounts of fortunes because there is a certain amount of risk-taking and entrepreneurship, which is at the foundation of our Indianness. We want to take this sense of Indian entrepreneurship and give them the best technical support that any university can give.

Entrepreneurship is not just about making money or becoming big your-

self. It is also about giving back to the society. How do you think today’s entrepreneurs are placed to meet this requirement? Naturally, entrepreneurship is about making money. But I strongly believe that the best entrepreneurs are those who are not chasing money but passion. These are people who say that the money will follow, but this is an idea I must chase. Those are the people who will create truly great businesses, and in the process also make money. Due to the recent development of our economy, people are looking at quickly starting a business and getting private equity or releasing an IPO. Many of those businesses may not work out in the long term. One has to have a long-term vision. In terms of national development as well, there are many social beneﬁts that entrepreneurship brings. One is that it drives employment. There is also the concept of social entrepreneurship in which people have now found that they can do something for the society while creating a very viable business.

How is Amity’s incubation center helping budding entrepreneurs? Amity is an education brand. People know Amity mainly for education. We feel that the future of India will be built by the youth of today. Many students who pass out of Amity go for corporate jobs in various industries. We feel that to fulﬁll the vision of India, that is, to meet the GDP growth target set by the leadership of the country, it will not be enough just to work in corporate jobs and to build it at the pace of today’s corporate world. We need to create companies. We need to have a thriving sense of entrepreneurship. We feel that academia and entrepreneurship can together transform the way our society and India will be, both in terms of economic as well as social development. So the incubator is the nucleus of the various initiatives we have in entrepreneurship development. We were one of the ﬁrst institutions in India to develop specialized MBAs. Apart from general MBAs, we had MBA in biotech, telecom, etc, and also an MBA

in entrepreneurship. In this program, from day one, students are tuned to think like entrepreneurs, given handson and practical applications. Just to teach them is not enough, we also had to show them. Young entrepreneurs today have ideas. Many people think of being the next Narayana Murthy or Mukesh Ambani. But if you ask them, how they will do it, they are stuck. There are family commitments, expectations from parents and lack of resources. The question is: how do you take the ﬁrst step? That is where the incubator comes. The Amity Incubator is there to take budding entrepreneurs and give them a support infrastructure, where they can implement their ideas. It is a hand-holding process. Someone can come here with a technology one has developed or the idea one has worked out, and we will help with all the facets of developing it. It could be with market analysis, feasibility analysis, technology vetting, or even getting VC ﬁnancing. After the company has reached a certain stage, we let them go from the incubator into the real world, where they fend for themselves.

How have entrepreneurs responded to the incubator? There is tremendous excitement among students. We are seeing for the ﬁrst time how much potential there is among the students to create new ventures. Engineers, bio-technologists, nanotechnologists, etc—they can all have an idea. This incubator is not a student incubator per se. There are some cells for students who have ideas, but largely, we take entrepreneurs from outside whose bread and butter it is to create a business. So, some of the people we’re talking to are scientists who have been in research labs for many years. They have developed something and now they want to commercialize it. We’ve got young executives who have led corporate houses very well and now they have this urge in their belly to create something. All the incubates that we currently have are actually full-time professional entrepreneurs, who are DAR E developing their businesses. APRIL 2008

DARE.CO.IN

global

startup Flora2000.com delivers ďŹ&#x201A;owers to 153 countries across the world. Only around 1% of the orders that it receives are to places where the company doesnâ&#x20AC;&#x2122;t have coverage

36 APRIL 2008

/bio

DARE.CO.IN

/bio

hances are you haven’t heard of Flora2000.com. But the eightyear-old online ﬂower retailer may well be the biggest Indian e-commerce company. Flora2000.com is also one of the few Indian companies with trading partners in more than 150 countries, despite being just eight years old. DARE caught up with Flora2000. com’s founder, 37-year-old Rehan yar Khan to ﬁnd out the secrets of running a successful global startup from India.

How the journey has been so far? I am from a non-business background. My father is a working professional. I was studying in the UK to be a chartered accountant in the early-mid

nineties when I saw a newspaper article saying the rules of agricultural import to India have been liberalized. But I noticed that the import agencies for most of the big commodities had been cornered by the big guys. So I chose a niche area, flower seeds, for import into India. Soon I also started dealing with the flowers, exporting them. In terms of capital, an agency is one of the easiest things to set up. I ran it for about five years, till around 2000. But the industry was not growing fast enough because of regulatory issues, land laws, etc. So, I turned my attention to the retail side, to the US market. I saw that most of the flower vendors were focusing on the domestic US market and if you wanted to send flowers from the US to any other country, you did not have many choices. So Flora2000.com was born eight years ago. We had a full marketing effort and targeted upmarket customers in America who typically also sent flowers abroad.

Today, we deliver ﬂowers to 153 countries across the world. Only around 1% of the orders that we receive are to places where we don’t have coverage. By revenues, we are the number one e-commerce company from India, though there are no published ﬁgures.

What was the biggest challenge you faced? The biggest challenge we faced as a startup was HR. It was extremely unstable. People were moving around a lot. I was determined to solve this problem. It took me three years to stabilize HR. What I realized was that we were not looking for the right kind of people. We did not know what to look for in people, what kind of traits to identify. We were recruiting people and they wouldn’t gel. Market is never the problem. The problem is maintaining quality and the ability to execute. Putting the right processes in place can help you achieve quality.

entrepreneur of the month Market is never the problem. The problem is maintaining quality and the ability to execute. Putting the right processes in place can help you achieve quality. — Rehan yar Khan Flora2000.com APRIL 2008

DARE.CO.IN

/bio That said, you know as well as I do how good or bad India’s brand is. That cannot be avoided. People will look at you in a particular way. The only way to beat that is to be even better than they are, more accurate, more qualityconscious.

The ﬁrst few people in the organization should be very passionate about what they are doing, relentlessly pursuing better quality, better growth. Unlike in a mature organization, which has the ability to absorb some of the faults of its members, the margin of error in a startup is very small.

What advice would you give to smaller Indian companies looking for tie-ups on a global scale?

Was being perceived as Indian a quality issue, especially in markets such as Western Europe? Never be shy of being an Indian. Many people think that presenting yourself as an Indian is a disadvantage. Look at the Johns and the Janes in the call centers. A lot of Indian software companies have American addresses. People know who you are, they will ﬁgure it out.

“

One of the most important things to watch out for is time. On the global platform, you cannot afford to be late.

”

The ﬁrst thing you have to realize is that there is such a thing as a global business standard. If you want to do business with global partners, you have to adhere to global practices and standards, whether you are an Arab or Korean or Japanese, everyone must adhere to the global standard. One of the most important things to watch out for is time. On the global platform, you cannot afford to be late. In fact, you have to be early, not just on time. If you have to make a call at 4, call at 3:50. The same with payments— always be very, very early. Another thing that we pay less attention to in India is presentation. I

am shocked at how bad the presentation is, even of companies dealing with overseas partners and clients. You can be in the best of companies in India, but you may still give reports that are not aligned properly. In India, people think ‘what is there in presentation?’ We are fine as far as logical structure and content is concerned, but we don’t pay enough attention to the art of presentation, not just in documents, but also in displays and shops. On a global scale, these final finishes matter. Another thing is promising something you know can’t be delivered to win a contract. If you can’t do it, say you can’t, and give a good explanation. You have to intelligently manage expectations. After telling your prospective client or partner what you can and cannot do, if he says yes, he is the right partner. Otherwise, you end up in a fantasy relationship. Finally, a lot depends on the first few words that you say. First impressions are very important and it is crucial to ensure that you make the DAR E right one.

SMS

“DARE <your comments, questions or suggestions>” to

56677 or

Email us at dare@cybermedia.co.in 38 APRIL 2008

Special Interest Group (SIG ) on Internet @ TiE Delhi The internet has truly been the medium for the new wave of entrepreneurship & has lead to the creation of some very successful ventures. The Internet is clearly a key growth area in many industry studies & this represents a huge potential for entrepreneurs to further explore lucrative opportunities in this sector. TiE Delhi has decided to launch the Special Interest Group (SIG) covering the Internet sector with the aim to inspire the next generation of Internet entrepreneurs by creating a cutting edge platform for showcasing ‘next’ practices and focused discussions on emerging issues. The SIG would be the forum of choice for leading entrepreneurs & practitioners in the ﬁeld of Internet who would contribute by way of their knowledge and experience in Internet related ﬁelds as well as take an active interest in impacting the policy framework that exists for the sector. Thus the SIG aims to attract not just thought leaders but also change agents that would help in creating a vibrant Internet community that would work towards improving the overall environment for entrepreneurs. The SiG would represent the common voice of the Internet sector in India. This initiative will be chaired by two TiE Delhi charter members – Sanjeev Bikhchandani and Mahendra Swarup. The exclusive Internet SIG launch event is scheduled for 14th March, 2008. Ram Shriram, founding board member of Google Inc and 24/7 Customer, would inaugurate the SIG. Participation in the forum would be limited to select invitees from the Internet space.

Delhi C-25, 2nd Floor, Sector 8, Noida 201-301 Tel: 0120-4243322, Fax: 0120-4243311 For future updates on the Internet SIG and other TiE Delhi events, please visit www.tienewdelhi.org. If you want to sign up as a member of the TiE Delhi Internet SIG, contact Manish at info@tienewdelhi.org

DARE.CO.IN

The

/going abroad

Netherlands

In the land of tulips, Indian entrepreneurs stand to beneďŹ t from a favorable tax regime, world-class infrastructure, and a highly educated workforce

/Vimarsh Bajpai

40 APRIL 2008

DARE.CO.IN

/going abroad

hen TCS, India’s largest software exporter, established its European headquarters in the Netherlands in 1992, it set for itself a clear mandate. The Tata Group’s ﬂagship company was keen on managing a closer relationship with its European clients while ensuring high quality delivery of services. This apart, the company’s move was also a strategic one, aimed at bagging customers in the neighboring countries. The Netherlands, a founding member of the European Union, proved to be a perfect launch pad for TCS from where it could reach out to the larger European market. TCS was one of the early birds to have set up base in the Netherlands. Other IT majors such as Wipro, Infosys, HCL and Satyam soon followed. The ripple effect also saw Indian majors from various other sectors reap the beneﬁts of the country’s strategic location in Europe, its international business environment and a favorable tax climate. Moser Baer, Suzlon, ONGC Videsh, Crompton Greaves and Jubilant Organosys are among a host of Indian companies that have set up operations in the Netherlands.

ing their clients in any geography requires them to be closer to their customers at all times. Economies of scale and efﬁciency have made it imperative for Indian companies to look out for a “neutral location” from where they can penetrate a bigger market and identify strategic partners to help them grow. Therefore, deciding on the country to set up base in becomes all the more crucial. Most of the decision-making about whether to acquire a company or set up a subsidiary or start a business afresh in any country comes after a thorough evaluation of its business opportunities, infrastructure, tax regime, local expertise and labor laws. The tax environment at times plays a crucial role as companies want to reduce their overall tax burden. Other factors relating to culture, language, proximity to airports and sea-ports, and so on, could also affect the ﬁnal decision of a company.

Why the Netherlands?

Indian companies today, no matter how big or small, harbor global aspirations. The new breed of Indian entrepreneurs, which has not seen the dark days of the license quota raj, eyes overseas customers from day one. Most businesses now recognize that servic-

The country acts as a gateway for companies planning to either establish themselves or expand in the EU market. Located by the North Sea, it is bordered by Germany in the east and Belgium in the south. The Netherlands’ infrastructure is world-class as both the Rotterdam port and the Amsterdam airport are among the best in Europe. “Over 50% of central European distribution centers are located in the Netherlands, and Dutch logistics companies take care of over 30% of all

DARE/country facts

DARE/opportunity areas

Going Global

Area

41,526 Sq Km

Average Temperatures

16*C (Summer) / 3*C (Winter)

Population

16.373 Million

Population Density

484 persons per sq km

Labor Force

8,157,000

National Language

Dutch; English spoken by 85% of the population

Gross Domestic Product

Euro 534 billion

GDP per capita

Euro 28,000

• • • • • • • • • • • •

Biotechnology Agriculture Floriculture Food Processing Waste Management Environment Oil & Gas Ship Building Nano-technology Port Development Inland Water Transport Information and Communication Technology APRIL 2008

DARE.CO.IN

/going abroad

hat makes the Netherlands an attractive destination for Indian entrepreneurs? First of all, the Netherlands is the only country on the European continent where English is widely spoken. Not only in business, but also in daily life, an English-speaking visitor or resident has no problem communicating. Secondly, the country has an excellent tax climate. The Dutch tax system is geared towards avoiding double taxation, facilitates cross-border investments, and is business-friendly and internationally oriented. For centuries, the Netherlands Robert V Schipper has been a major trading Executive Director, and transport hub (both Netherlands Foreign Investment Agency for incoming and outgoing traffic) in northwestern Europe. It is that part of Europe where the main rivers come out into the sea. And the Netherlands has banked on that geographic position. It serves for many internationally operating companies, such as from the US and Japan, but also increasingly for Indian companies, as the place for their European headquarters, and central distribution centers. The workforce is very international and highly educated. Many people speak not only Dutch and English, but also a number of other languages. The infrastructure is worldclass. Rotterdam is the largest European port, both in terms of containers and cargo. Amsterdam’s Schiphol airport is also one of the main European hubs for passengers and cargo, and the Amsterdam Internet Exchange is the largest in the world. One of the effects of being a major trading hub is that we are also a neutral location from where to manage things in Europe. Over 50% of central European distribution centers are located in the Netherlands, and Dutch logistics companies take care of over 30% of all cross-border traffic in Europe. Which are the key sectors where Indian entrepreneurs can look for opportunities? Many Indian IT companies are expanding their operations very quickly into Europe at the moment. Because of the diversity of languages and cultures, the environment there is a little more difficult than in the English-speaking markets of the US and the UK, which makes the

Particularly interesting for us is the life sciences industry... I would be very eager to promote cooperation in this area. 42

APRIL 2008

/going abroad

DARE.CO.IN

Orchids from Thailand and flowers from Brazil and Africa are flown into the Netherlands, auctioned there and then flown to other parts of the world. Netherlands an excellent bridgehead to conquer the European market. TCS was one of the first to realize this in the nineties, and they have their European headquarters in Amsterdam. In the past few years, we have seen not only the large ones but also smaller IT companies move into the Netherlands. Since its inception last year, the NFIA office has put a lot of effort in assisting the IT industry to establish its foothold in the Netherlands, because of its need to move very quickly and service clients in the neighboring countries as well. We are also looking at other sectors. What you see at the moment is that much of international expansion of Indian companies is happening through inorganic growth, by acquiring interesting companies in Europe. In that respect, the Netherlands plays a role in which companies set up subsidiaries there to facilitate investing in other European countries, but also increasingly in the establishment of headquarters to operationally manage those interests in Europe from a neutral location. I hope many Indian companies, not just from the IT sector, will follow TCS’ example in the near future. In that respect, one of the interesting movements last year was that of Suzlon, which set up its global management center in the Netherlands. A particularly interesting industry for us is the life sciences industry. I see a lot of movement and acquisitions there, especially among the pharmaceutical companies. In that respect, it is good to know that, besides an excellent location for headquarter function and distribution of products to other European destinations, the Netherlands is also one of the major centers of research excellence in pharmacology, bio- and nano-technology, and medical equipment. I would be very eager to promote cooperation in these areas, as I strongly believe that a combination of Indian entrepreneurship and Dutch research will enable us to jointly bring products to market, that will benefit all of mankind. How does the tax system in the Netherlands favor businesses? The Netherlands’ tax system has always been geared towards facilitating cross-border investments and international activities of companies, and therefore is focused on avoiding double taxation. We have a very extensive network of double taxation avoidance treaties. We also have the concept of participation exemption. If you have been taxed already on the profit made in a subsidiary outside of the Netherlands, then we don’t tax the dividends or interest paid to the mother company in the Netherlands. This helps reduce the cost of business. Besides, we have one of the lowest corporate tax rates in Europe, and a very business-oriented and approachable tax administration, which provides certainty in advance to potential investors. How easy is it to start business in the Netherlands? As I mentioned, the regulatory environment is very liberal. There is hardly any restriction. There is no sector of industry where foreign investments are not welcome. One of the roles of the NFIA office in India is to facilitate a company wanting to set up a branch or subsidiary in the Netherlands, to advise them, to help them speed up the process, to make them aware of what they need to do, what documents they need, and assist them in the process. We do this free of charge and in all confidentiality. If it’s a branch, the procedure only takes a day. If it’s a private limited company, then it takes a little bit longer, but, in general, you can be up and running within a few weeks. Is it true that the labor laws in the Netherlands are very stringent? There is a marked difference between the continent of Europe and, for instance, the US. In the US it is much easier to let go of employees. The European view puts much more emphasis on the employee as a stakeholder in the enterprise. The flexibility in the Netherlands’ system is also there, but needs a little more consideration. Since laying off long-term employees is definitely more expensive, the way it is done in the Netherlands is that you have several

For centuries the Netherlands has been a major trading and transport hub (both for incoming and outgoing trafﬁc) in northwestern Europe. APRIL 2008

DARE.CO.IN

/going abroad

ways of employing people. There is a very large infrastructure of temporary employment agencies where you can hire temporary personnel, and also have the possibility of contracts with limited durations. Many companies find a mix between long-term employees and some other flexible employment schemes, which makes it easier to react to the ups and downs in the market. It takes a little more work than in the US, perhaps, but in principle, when the need arises, it is not that difficult to adapt to market circumstances. How does the NFIA help Indian companies? Our function here is to identify companies that are looking to set up operations in Europe. We try to help them get a picture of whether the Netherlands could be a good solution and how that could be done, so that they can make well-considered comparisons with the other options they may have in Europe. If they come to us saying that they may want to do something in the Netherlands, we gladly help. Our main function is to make sure that the options in the Netherlands are made clear and, once a company decides for the Netherlands, to assist them in setting things up all the way. We work closely with our regional partners in the Netherlands. Every major city and every province there has its own people who assist investors into their region, and, together with us, they provide the needed local support.

We have the concept of participation exemption. If you have been taxed already on the proﬁt made in a subsidiary outside of the Netherlands, then we don’t tax the dividends or interest paid to the mother company in the Netherlands. This helps reduce the cost of business.

The Netherlands has a very well developed floriculture and agriculture sector. Do you see some action there from Indian entrepreneurs? One of the smaller Indian companies we helped last year, JKT Enterprise, was in that sector. They are from Mumbai and are in the onions business, among other products. They originally had their office in the UK, but they moved it to the Netherlands because it made more sense to them. They now have their marketing and sales operation at The Hague and have outsourced their logistics for the European market to a Dutch logistics service provider. Floriculture in the Netherlands is very advanced. Not only for the tulips, for which the Netherlands is famous, but also for many other types of flowers. That tradition has also meant that we have become the most important transport and distribution hub for flowers from all over the world. We have a very efficient auctioning system. Even orchids from Thailand and flowers from Brazil and Africa are flown into the Netherlands, auctioned there and then flown to other parts of the world. I think that many Indian flower growers will also be able to take advantage of that. Besides, I see a lot of scope for other agricultural and food products too. Together with the US and France, the Netherlands is one of the three largest global exporters of agricultural products and one of the world’s leading R&D centers in seed improvement and food technology. There is a lot of scope for cooperation in these areas. Having lived in India for over a year now, I am impressed by the excellent taste of the fruits and vegetables and by the quality of some of the food products produced here. I should hope that the Netherlands can play a major role in the near future in bringing these products to European consumers. NFIA India: Website: www.nfia-india.com, e-mail: info@nfia-india.com 44

APRIL 2008

DARE.CO.IN

/going abroad

Source: Ministry of Commerce, Govt. of India

US$ million

INDO-DUTCH TRADE

cross-border trafﬁc in Europe,” says Robert V Schipper, Executive Director, Netherlands Foreign Investment Agency (NFIA). A division of the Dutch Ministry of Economic Affairs, the NFIA provides information and assistance

to companies keen on setting up, expanding or restructuring their pan-European operations in the Netherlands. Some of the world’s most respected companies, such as Philips, Shell and Unilever, are based out of the Netherlands. “Dutch companies prefer doing business with Indian companies rather than with those from China,” says Sandra Oemrawsingh of S&S Consultants BV. S&S provides consultancy services to foreign companies wanting to set up shop in the Netherlands.

Opportunity Areas

“Dutch companies prefer doing business with Indian companies rather than with those from China.” — SANDRA OEMRAWSINGH S&S CONSULTANTS BV

Although there has been a lot of action with respect to Indian IT companies, both big and small, there is tremendous scope for those in other sectors to take advantage of the Netherlands’ favorable business environment. Schipper hopes that many Indian companies, not just from the IT sector, will follow TCS’ example in the near future. “A particularly interesting industry for us is the life sciences industry. I see a lot of movement and acquisitions there, especially among the pharmaceutical companies,” he says. Some of the new areas of economic cooperation are biotechnology, ag-

riculture, ﬂoriculture, food processing, waste management, inland water transport and ship building. The Netherlands also has top-class research centers in biotechnology, nano-technology, pharmacology and medical equipment. For those wanting to enter the small businesses sector in the Netherlands, Oemrawsingh has this to say. “You’ll see that the majority of those who come from India either enter the food and restaurant sector or the textile industry. This group helps to make up the country’s small and middle enterprises, and it just keeps growing,” she says. Bilateral trade between India and the Netherlands touched $3,824 million in 2006-07. The value of India's exports to the Netherlands crossed $2,668 million in 2006-07 while that of imports from the European nation stood at $1,155 million. The main exports to the Netherlands include petroleum (crude and products), RMG cotton, electric goods and machinery items. The main imports from Netherlands are metalifers ores, metal scraps, machinery except electric and electronic, organic chemicals, etc. D A R E APRIL 2008

DARE.CO.IN

strategy/brands

The Power of Personality

Copy

right

H-D

nce upon a time intrinsic, tangible assets were the only source of strength. This applied equally to people, products and services. It was the golden era of the USP, of unique features, where a soap could become world famous for ﬂoating on water, the sound of a clock ticking underlined the magic of the “world’s best car” and the sound of a motorcycle exhaust exempliﬁed an entire way of life (so much so that the manufacturer tried to patent it!). However Bob Dylan put it best when he said: Come gather ‘round people Wherever you roam And admit that the waters

46 APRIL 2008

Harley-Davidson Archives

/Rupin Jayal

Around you have grown And accept it that soon You’ll be drenched to the bone. If your time to you Is worth savin’ Then you better start swimmin’ Or you’ll sink like a stone For the times they are a-changin’. The “waters” in this case are the rapidly rising waters of complexity and, paradoxically, parity. People are being besieged by a multitude of stimuli, and products and services are increasingly using technology to provide ever ﬁner shades of differentiation. The resultant complexity makes it even harder for most people to actually understand the differences between competing brands. Logic and rationality are like steps in a blizzard—supposedly providing you direction, but rapidly obscured by change and parity at every turn. Times truly “are a-changin”. So how do we actually choose between brands and promises? Think of a party. How do you remember people? By their demographics? By statistics? By ethnicity? By DNA? Usually most of us remember that “loud talkative guy” or “that joker” or that “sexy” person or

that really “sharp” guy. And those that do not blip in any way are forgotten, so that even when they meet you next time you look vaguely embarrassed trying to remember who they actually are. The answer lies in personality. Possibly one of the most iconic examples of the power of personality was the Volkswagen Beetle. Its unique shape was used to create a personality of lovable quirkiness. It wasn’t just the advertising that did this. Hollywood celebrated and reinforced it by the movies it made starring this car. Owners underlined it with the quirky paint jobs and the seventies’ ﬂower iconography. It could be said that its personality made it much more than just a car. It represented an entire generation. Perhaps one of the most visible cases of the power of personality is that of the colas. Most people would not be able to differentiate between the two

DARE.CO.IN

strategy/brands most popular colas in a blind test. In fact, in the US it was comprehensively proved that taste was the last thing that really made the difference. What did make the difference was what each cola stood for—the personality of the brand. In service brands too, there are brands that some people are more comfortable with or trust more. When asked for specifics, few are able to provide more than some anecdotal reasons. Yet the way the brand presents itself to people makes them either more or less prone to using it. Some people aspire for the rebellious image of Harley Davidson, while for others that is exactly what puts them off. Just like in the social world, the personality of the brand increasingly defines who will prefer it and who will not. It is also becoming a key differentiator in a world of increasing functional and technological parity and complexity. Personality does not emerge from advertising alone, but that could be an important channel of communicating it. It comes from every point of interface with people. In the case of service brands, actual physical interface powerfully supersedes mass media communication. What you will think of a bank that advertises itself as a “friendly” bank but when you go to it you are met with an unfriendly cashier? Or an airline that prides itself on its professional efficiency but the hostess keeps stumbling when making announcements. Or an automobile brand that is based on a “value for everyone” platform but the first vehicle it launches costs over Rs 1.5 million and is positioned in a niche. Personality is built with every action that a brand takes and each moment of interaction is a moment of truth that helps to build it. There was a time when a particular cola brand was the standard bearer for irreverent youth in India. Today when it increasingly appears to be clever rather than irreverent, with communication that seems to try too hard, can it still be differentiated strongly enough to actually drive preference for it? Especially when there are so many brands today that actually behave in an irrev-

erent way—through showing the elderly behaving like teenagers (Pfizer), celebrating stains rather than fighting them (Surf ), making a fool of the boss when you have the security of another job (naukri.com), using a cow as a proof of efficacy (Orbit), or making the brand ambassador the butt of a joke (Motorola). When irreverence increasingly becomes ubiquitous and the erstwhile icon of irreverence resorts to merely being clever, what will happen to its core audience? A carefully nurtured personality can create a brand icon. Many of the most resilient brands transcend features, facts and rationality and make a direct connection with the emotional mind. There are many sports car brands. Many are technically very sophisticated, flamboyant and highly innovative. Few, if any, have actually built themselves into being one of the most profitable companies in the industry on the back of a single iconic design. Is it the most aerodynamic? Is the design the most cutting-edge? Is it the most beautiful or aesthetically attractive? Who knows! In the case of Porsche, it is an iconic shape that represents the core of what teh brand stands for. In fact, in the past, Porsche had introduced entirely different models, yet none of them endured and all were discontinued. Today every model is inspired by the iconic 911, even the controversial Cayenne. Why? Because the shape reflects the personality of Porsche and that is its greatest differentiator. It says that here is a brand that places function over form, absolutely. How it performs is paramount, not how it looks, or what technology it uses or what it may or may not say about you. Not even how quickly it travels in a straight line. It is about a company and cars that celebrate the fact that they are compact, feisty, agile and stubbornly independent minded. They are not distracted by current fads and fashion. They do not follow trends for the sake of them. And “We are independent. We are the world’s most profitable car maker”. (© 2008 Porsche Cars Great Britain Limited) What are the imperatives to building a strongly differentiating personality?

The first is to define the brand’s position as distinctly as possible. Generalities such as “consumer delight,” “leadership” and “most preferred” no longer define brands. They actually serve to make them even more anonymous. The most important role for brand positioning is that it must be divisive. Some people will react positively, but those you choose not to address should not react negatively. The personality then should add “flesh and blood” to this sharply defined positioning. And the personality too must be divisive. Words such as “friendly,” “attractive,” “charismatic,” “warm,” “interesting,” “youthful,” etc., are excellent in not creating a personality at all. Create a pen portrait of who your brand truly is. In a world of anthropomorphic brands, engineering quirks and characteristics that make your brand truly individualistic will ensure that it stands apart from the grey mass of its competition. Define, in the sharpest possible terms, how this unique personality will be experienced by the people you are seeking to attract at every point of interaction—whether the brand is a product or a service. The personality must be made tangible. “Southwest Airlines sacrifices traditional airline services for stripped-down cheap flights. But Southwest is an airline with a personality—it recruits staff primarily for their sense of humor. The resultant on-board impromptu routines and passenger interactions are not always to everyone’s taste (when delayed on the tarmac, a flight attendant threw a roll of toilet paper down the aisle, keeping hold of one end, offering a $150 coupon to the first passenger who could count the number of sheets between the attendant and the end of the toilet roll), but enough people love the break with bland airline service to make Southwest the most consistently profitable US airline of the 1990s.” (Eating the Big Fish – Adam Morgan) Most importantly, this definition of your brand’s personality must not be the last line of a voluminous branding document, but the heart of DAR E your brand. The author is Director-Strategic Planning at M&C Saatchi APRIL 2008

11threats DARE.CO.IN

/cover story

that can close down your startup

how to handle them

/Krishna Kumar

As they prepare to start out, all entrepreneurs are sure that they are on to the next big thing since sliced bread. They are also equally sure that their venture would become really huge in no time and that they themselves would be the next Warren Buffet (in case you did not notice, investment guru Buffet has replaced Bill Gates at the top of the list of the wealthy). Unfortunately, nine out of ten startups fail to make it big. They close down, get bought out, or remain really small forever. Getting bought out is okay in many cases, and remaining small is also not a bad deal. The real show-stopper, then, is the prospect of closing down. What are the most common reasons for startups closing down, and how can you circumvent them? 48 APRIL 2008

DARE.CO.IN

/cover story

Your idea is stolen

sk anyone wanting to start out and they are sure to tell you that the key to their success is their idea. All of them believe that their idea is so unique and so ground-breaking that many are afraid to discuss the idea with anyone, least it is stolen. In essence, they fear failure from someone stealing their idea. You only need to look around to understand that this is one of the biggest misnomers about entrepreneurship. Let us, for the moment, accept that your idea is indeed ground-breaking. Assume that you have also kept it a grand secret and have come out with your product or service. What next? How much time will it take for a competitor to come up with a better product, learning from the mistakes you made? If your product is hot, how much time will it take for someone in China to mass-produce it? If you product is a medicine, how many months

his one is a serious issue and is faced by many startups. You start off with a wonderful idea and after turning your blood to sweat and vapor, realize that things did not quite work out as planned. The limitations could be simple, like you are not able to get components of the exact precision that you want, or staggering, if, for instance, you made a basic blunder in your calculations or assumptions that was revealed only in the later stages. I know of this Indian company that set up a huge manufacturing facility based on published ﬁgures of market size. They wanted a 10% market share. A year later, the publisher issued an erratum. There was a mistake in their ﬁgures; there was an extra zero! So, here was the company, saddled with a plant that virtually doubled the world’s production capacity! That plant could

before someone right here in India comes out with a generic? If you look around, you will find enough evidence that the first-mover or original inventor advantage does not always work out the way it has been advertised. Consider the GUI for today’s computer. It was created at Xerox Corporation’s Palo Alto Research Centre, but was made popular by Apple in their Lisas and Macs. But who really made money out of the GUI? Microsoft, many years later with Windows, and that too after many attempts! While on the topic of technology products, let us look at a few more examples. Who came up with the idea of a portable music player? Who created the first portable music player? Who cares? But who made the most money off portable music players? One of the last entrants in the field—Apple. Who came up with the first cellphone? Motorola. Who is lord of the cellphone

DARE/ It is not the idea, but the execution that makes the difference Being a ﬁrst-mover is not always the best. Learning from others who went before you helps business? Nokia. Or is that Apple? Where is Motorola now? Struggling. The often held belief that letting your idea out is a stepping stone to failure is wrong. It is not the idea, but the execution that matters. And there, you need to learn from the successes and mistakes, particularly the mistakes of others who went before you. Nanos gigantium humeris insidentes (Successful ones are dwarfs standing on the shoulders of giants).

You got it wrong never produce good results. Luckily, the company has other product lines and has survived. You may not be so lucky. There could also be market readiness issues or limitations in delivery mechanisms. The entire dotcom bust of the two thousands can be attributed to Internet technologies and bandwidth at the customer end not being ready. Transporting fresh vegetables used to be a nightmare till a few years back. But with better roads, many businesses are now coming up around the concept of transporting fresh fruits and vegetables across the country. What is the way out of getting trapped here? Stringent and frequent reality checks are the only answer. At the concept stage, do not make sweep-

ing assumptions. Get your basic ﬁgures of market size, technology availability and costs right within reasonable limits (plus or minus ﬁfteen to twenty percent). Cross-check these numbers thoroughly, and more importantly, recheck them frequently. Remember the fable about the team that drowned because the person who estimated the depth of the river they had to cross measured only along the edges and not at the middle. If your business has come about as a result of some market feedback, like, for example, from a market survey, recheck to ensure that the sampling and the interpretation is correct. APRIL 2008

DARE.CO.IN

3 Y

/cover story

Takes longer than planned

et another regular in the list of show-stoppers. This happens because of a number of reasons including that the complexities were not fully understood in the beginning. But an even bigger problem is when the founders fall in love with the product and tinker around for ages trying to add one more cool feature or trying to make it perfect. The ﬁrst problem is easy to manage. First of all, budget for more time than you think it will take. But how much do you overbudget? Those who have been there and lived through that say that it would be wise to budget for anywhere from 25 to 50% more time than you originally thought it will take, depending on the scope and complexity.

The second part, of going on and on has a very difﬁcult solution. Do not fall in Love with your idea or product. I know that this is easier said than done. But that is what happens. We get so enamored by our own idea that we refuse to let it go. We become its muse and forget the passage of time even as we contemplate ever-so-minor changes to it. Perhaps we need to learn from Google, which releases its products for use with a beta tag. Google continues these beta runs for ages. For example, Gmail ran as beta for three years from 2004 to 2007! Think of what would have happened if the engineers and founders at Google had waited till all aspects of the product were ﬁnal?

DARE/ Work with a clear road map Budget for extra time right at the planning stage Drop features that will throw the whole schedule out of sync The way to handle this is to break down your project into clear activities and milestones and (particularly if you have some project management exposure) work out how much slack you can afford to take at each point. Having someone else (a co-founder or even an employee) sound alarm bells on slippages is a good idea.

Competitor releases free equivalent S

ome time back I was talking to the CEO of a successful IT company. One thing led to the other and I asked him about his past. Suddenly, he went all nostalgic; turns out that this was not his ﬁrst venture. The original effort died a brutal death when the large competitor he was going to take aim at released a software similar to his for free, just weeks before his planned launch. He was lucky in being able to pick up the threads and start afresh and make a success out of the second attempt. This is a problem that many think is unique to the software industry. But it can happen in various forms in other industries also, where the competitor reduces prices to rock bottom just before you launch. So, how do you handle this situation if it happens? Frankly, this is a tough one. The best recommendation we came across was to cut your losses immediately and move on to a plan B, if you have one. 50 APRIL 2008

DARE.CO.IN

/cover story

One-man-shows don’t work

he other day, a budding entrepreneur was discussing his project. He had his idea and product architecture ready. He even knew what components he needed. About a year back, he started working on it even as he kept his day job. Very soon he ﬁgured out that he could not do the full thing himself. So, he broke the components into different contracts and handed them out to various sub-contractors—other individuals like him. Great way to get started off, but no way will he be able to sustain it. Very

soon he will ﬁnd out that managing these contractors is a full-time job in itself. Then he will ﬁnd out that combining all these parts into the product; making them work with each other is yet another full- time job. And then he will have to go looking for more contractors, he will have to search for funding, he will have to work on marketing plans and so on and so forth. There are very few businesses where a one-man-show can pull along and grow for long and they are either in the show business or in sports. If you are not an ace actor or a sportsman, and

in most cases even if you are one, you will need a team that will help you to achieve your goals, and to grow big. One-man-shows usually collapse from sheer exhaustion. So the faster you get a team in place, the better it is for your dreams. Another version of the one-manshow is where the team is kept too small, because the founder does not want to give up control or because of fears of quality being compromised. While this does not lead to the business closing down, it does curtail its ability to scale.

Co-founders fail to get along

his one is deadly. You have a brilliant idea, you have a solid business plan, you even have a brilliant team. The only problem is that the top team can’t get along. Too many ego clashes, too many instances of my-way-or-the-highway! Some differences of opinion are bound to happen as people come together to work. An occasional spat is

APRIL 2008

also not a bad thing, as long as all of you can put it behind you once the steam has been let out and you get back to work. But if these get too frequent or irreparable, then it is better to part ways than to continue. Before things get too bad, maybe you can even opt for professional help to get the interpersonal issues sorted out. A clear exit plan for the co-founders is a good thing to have

as part of your agreement so that such an exit, where unavoidable, is as painless as possible. Worst of the worst is when the leader—you—are the cause for all the trouble. Like in the kids’ teams, where the owner of the cricket bat gets away with tantrums, you may get away with a few extra ones, but it is best if you do not push your luck all that hard.

DARE.CO.IN

/cover story

Can’t afford key skills

isery. You need a speciﬁc niche skill without which your offering is incomplete and that particular skill is not available to you or is too costly to afford. In 1983, Apple, which was looking for someone with a good marketing background, made an offer to John Scully, who was then the President of Pepsi-Cola USA. The legendary offer had two parts—the ﬁrst and the often-

quoted one is the challenge from Steve Jobs, the co-founder—“Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” The not-so-famous part is the pay package that was on offer. A million dollars a year—in 1983—plus a million dollar joining bonus, plus a million dollar golden parachute option (beneﬁts if employment is terminated) plus

3.5 lakh shares in the company, plus the difference in cost to buy a house in California. Depending on how critical the skill you are looking for is, and how the demand for that skill in the market is, you need to offer a challenging deal to the candidate. And as was the case with Apple, it is not just the money or just the challenge that did the trick. It was the combination.

8 Markets do not accept your product

he idea was yours, the passion was yours, the belief was yours and the execution was yours. What if nobody has any use for it? Sounds crazy? Seriously, more products and companies fail because they have no relevance to the market than for all the other reasons. Another rea-

son is that they are overpriced for what the market can bear. All that I can say here is that you would be foolish not to adapt to market realities and to create a product in the conﬁnes of an ivory tower. One of the reasons startups (and most others) shy away from market research

is because of the high costs. Market research need not be all that costly. There are methods that are fairly cheap or even cost less. Methods like Delphi (asking a few experts) or dipstick surveys are fairly quick and easy to execute, while remaining easy on the pocket.

Sun Startup Essentials Jumpstart your Startup For more information log on to: http:/in.sun.com/startup © 2007 Sun Microsystems, Inc. All Rights Reserved. For information on Sun's trademarks see: http://www.sun.com/suntrademarks. All other trademarks mentioned in this document are the property of their respective owners.

APRIL 2008

DARE.CO.IN

/cover story

Money runs out Markets change

ow many of you remember the medical transcription business? It was the forefather of the current BPO business. In the not-too-distant past, it was growing faster than anything around. And then, one ﬁne morning, poof! It collapsed. What happened? Technology changed. Voice recognition systems became more accurate. Compliance issues changed. New rules like the HIPAA (Health Insurance Portability and Accountability Act of the USA) came into being, market dynamics changed and all these together pulled the plug on the entire business. Many companies just wound up. And the few that survived today bear no resemblance to the original medical transcription agencies that they once were. Market changes and technology changes are part of the business cycle and like the buggy whip company immortalized in marketing folklore, you need to change your business to be able to survive and prosper. The Tabulating Machine Company became Computing Tabulating Recording Corporation in 1911. CTR became International Business Machines and that is now IBM. The PC drove the typewriter companies out of business. Remember Remington Rand that had a 75% market share for typewriters in the country? Remember the song Video Killed The Radio Star? The lesson is simple. Those who change with times survive and prosper. Those who don’t, become a footnote to history. 54

APRIL 2008

oney running out is another standard reason for many startups to shut down even before their products have seen the light of the day. Ninety-nine out of every hundred startups get their ﬁnancial estimates wrong. They usually go conservative in estimating the costs (particularly the marketing and market development costs) and get too aggressive on income ﬁgures. As a result, moneys run out way too fast. Once a business plan is made and approved (by the funding agency) most entrepreneurs would like to forget its very existence and are reluctant to make any changes to it. The business plan is not the Ten Commandments written on stone. As the business environment changes and as you get a better understanding of

the business, change the business plan, at least for yourself. Along with making realistic or even conservative estimates, one should bear in mind Narayana Murthy’s advice in the very first issue of DARE. “In services, two principles are very important. Have an idea which is so good that the customer is willing to pay advances. Secondly, create milestones every month so that there is a steady cash flow. If it is a product idea, then obviously you need venture capital.” One variant of this is the economy going bad and the promised money not coming in. This is what we are going through right now. Many a startup has had its funding plans deferred or cut down significantly. Good old belt-tightening is the medicine that the doctor ordered.

11 You give up W

e started off with the sobering thought that nine out of ten startups will not make it big. What if yours is one of the nine? Do you give up? It might be worth our while to remind ourselves of those immortal words from the Bhagawad Gita: Yada yada hi dharmasya, glanir bhavati bharatah Abhyutthanam adharmasya tadatmanam srijamyaham Paritranaya saadhunam vinshayacha dushkritam Dharma sansthapanarthaya sambhavami yuge yuge (Whenever and wherever righteousness is in danger; and the unjust rises its head; I manifest myself To protect the right and to destroy the wrong; to reestablish righteousness, I happen millennium after millennium) If God has to take rebirth again and again to successfully complete his objective, who are we, mere mortals, to give up after one try, or two for that matter? If you happen to fall in the nine that do not make it big, there is no need to lose heart. Try again.

DAR E

DARE.CO.IN

opportunity/infra

An earthmoving opportunity The construction equipment rental business is at a nascent stage and is a mere 2% of the total equipment market. However, this is projected to grow to 25% by 2010, thanks to the rising demand for machinery from the infrastructure sector /Vimarsh Bajpai

nfrastructure is the backbone of any economy and India is no exception. The country’s construction, housing and real estate sector has been growing at 10% in the last ﬁve years, employing more than 30 million people. The sector, which covers rural and urban infrastructure, roads, airports, sea-ports and commercial and residential establishments, has got a major impetus in the last ﬁve years, thanks to a host of government projects, such as Bharat Nirman, Pradhan Mantri Grameen Sadak Yojana and airport modernization. The Eleventh Five Year Plan (200712) envisages the total investment in the infrastructure sector to touch 9% of GDP towards the end of the Plan period, from 5% of GDP in 2006-07, according to the Economic Survey 2007-08. Based on this projection, the Survey adds, the investment in physical infrastructure alone from 2007-2012 is estimated to be $500 billion. Massive construc-

DARE/quick points

DARE/machinery demand ($ billion)

• Investments worth $500 billion to ﬂow in infrastructure between 2007-12 • Construction equipment industry to grow ﬁvefold from $2.3 billion to $12-13 billion by 2015 • Construction equipment rental business is a mere 2% of the total equipment market at present; projected to touch 25% by 2010 • Global demand for construction machinery to jump 6% per year to $130 billion in 2011 • Major players in rental business: Quippo and Sanghvi Movers, both entrepreneurial ventures tion projects would translate into multiple downstream opportunities for several other sectors, such as cement, steel and construction equipment.

200 177 150

131 97.7

100

71.4

57.2 47.7

31.7 17.2

2001

2006 Global

2011

2016

Asia-pacific

SOURCE: Freedonia Group

The Rental Business Large construction projects require deployment of heavy equipment such as cranes, bulldozers, loaders and dumpers. Purchasing such equipment only adds to the costs of construction companies, who are already battling soaring commodity prices, particu-

DARE/construction equipment product range Earthmoving Equipment Backhoe Loaders Excavaters Loaders Bulldozers Skid-steer Loaders Wheeled Loading Shovels Wheel Loaders Motor Graders Motor Scrappers Dump Trucks Wheel Dozers Draglines

Concrete Equipment Concrete Breaker Paver Finisher Concrete Batching Plants Concrete Pumps Concrete Mixers Hot Mix Plants Slew Cranes Tower Cranes Conveyors

56 APRIL 2008 SOURCE: India Brand Equity Foundation-KPMG

Material Handling Equipment Telescopic Handlers Crawler Cranes Mobile Cranes Truck Cranes Forklifts Pick & Carry Cranes

Material Preparation Crushing Plants Jaw Crushers Pavers Demolition Equipment

Road Construction Equipment Construction Equip Vibratory Rollers Boring Equipment

Construction Vehicles Dumpers Articulated Haulers

Tunnelling and Drilling Rotary / DTH Drilling Hammer Track Drill

DARE.CO.IN

opportunity/infra larly those of cement and steel. Many companies thus look around for such equipment on lease. This has helped in the growth of construction equipment banks, which provide machinery on rent and make it easier for developers to contain project costs. Two companies dominate India’s equipment rental business—Quippo, promoted by SREI, an infrastructure ﬁnance company, and Saghvi Movers. However, there are several smaller players in the unorganized sector. The launch of Quippo, the country’s largest infrastructure equipment bank, in 2002, coincided with the start of the Tenth Five Year Plan period. The company made the most of the big opportunities in renting equipment not only with the construction sector but also with power, mining, ports, telecom and oil and gas. Besides, Quippo also provides value-added services such as trained manpower and maintenance facilities. Sanghvi Movers is another major player in the business with special focus on cranes. Operating with a ﬂeet of 300 medium to large cranes, the company boasts of an impressive lineup of clients such as Suzlon, Reliance, Enercon, BHEL and L&T.

DARE/major manufacturers (global)* Company

Country

Caterpillar

Komatsu

Japan

Volvo

Sweden

Hitachi

Japan

Liebherr Intl

Switzerland

Deere

Terex

* in 2006 SOURCE: Freedonia Group

‘ECE Vision 2015: Scaling new heights in the Indian Earth Moving and Construction Equipment Industry’, a study conducted by McKinsey for CII and the Indian Earthmoving, Construction Industry Association (IECIAL). Construction equipment rental is one of the emerging growth areas of the Indian construction equipment industry, besides exports, and refurbishing of used equipment and services. “The services segment in the construc-

DARE/major manufacturers (India) Bharat Earth Movers L&T Case L&T Komatsu Ingersoll-Rand India Tractors India

The Market

Telco Construction Equipment

The earthmoving and construction equipment industry has the potential to grow ﬁve-fold from its current size of $2.3 billion to approximately $12-13 billion by 2015, growing at 24% compound annual growth rate, according to

JCB Godrej & Boyce Mfg Escorts Construction Equipment Action Construction Equipment

tion equipment business is still nascent and presents good opportunities for growth,” says a study carried out by the India Brand Equity Foundation (IBEF) and KPMG. Currently, equipment rentals contribute just about 2% of the market. This is expected to grow to about 25% by 2010, the study says. In the US, the rental market is 65% of the total construction equipment market. Globally, the demand for construction machinery will jump 6% per year to $130 billion in 2011, says a new study from The Freedonia Group, the US-based industrial market research ﬁrm. In 2006, the demand stood at $97.7 billion. The study says that China, India, Mexico and Russia will register some of the largest sales increases, with China alone accounting for 31% of all additional construction machinery demand through 2011. The demand will be fuelled by healthy economic growth, ongoing industrialization efforts, rising population and higher standards of living in a developing world leading to increase in spending on construction. While India and China are on an upswing, the US, however, could see a slump in its construction equipment rental business. This is because of the fears of recession looming large over the world’s largest economy and the ongoing trouble in its housing market. Less construction of houses translates into lesser demand for cranes and dumper trucks among other earthDAR E moving machinery.

APRIL 2008

DARE.CO.IN

funding/angel

The DNA of an Angel Angels are not your average calculator-wielding, ratio-obsessed hard-nosed investors; a closer look reveals. /Sreejiraj Eluvangal

ver the last decade-and-a-half, economic reforms have unshackled the Indian economy, liberating India from the infamous 3% growth rate the country was used to after independence. While perhaps not comparable in terms of impact, the period saw the emergence of a new class of investors—the angels—with dynamics of their own. Unlike traditional investors, the factors that motivate angels are unlikely to be found in any textbook on economics. Unlike traditional investors, their method is more an art than a science. From patriotism to altruism, to fear of forgetting one’s hard-earned skills, today’s angels are motivated more from their heart than their head. Saurabh Srivastava, founder of IIS Infotech (now Xansa) and one of the earliest first-generation entrepreneurs and angel investor says the peculiarities of this class of investors arise from their origins. “Traditionally, businesses in India were run by families. However, such people always invest their money into other businesses owned by the family. Only people who have been first-generation entrepreneurs, who don’t have a vast family-business set-up, invest in other people’s companies. Only they have the requisite experience to help others like them,” he points out. “It is only in the last decade or 15 years that you have had people who have set up their own companies, have done well and have money. For the same reason, 15 years ago, there was no angel investing in India,” he remembers. Srivastava is credited with playing a crucial part in setting up two forums for such investors—the Infinity Venture Fund in 1999 and the Indian Angel Network

58 APRIL 2008

DARE.CO.IN

funding/angel a year and a half ago. The Network, by far the biggest investment platform in the country by a number of investors, currently has around 70 members. “In another four months, we would hit 100 members, two years after we started,” Srivastava says. The investors are drawn from across the spectrum, like academecians, CEOs, former entrepreneurs, lawyers, finance professionals and retirees. What sets them apart from the usual investors—VC and PE funds—is the motivation. Impelled by an urge to share their knowledge and expertise, angels typically invest in business areas they know about. “I am not a guru in everything,” says Vikram Upadhyay, the youngest of the three sons of a professor at Allahabad University who went to Japan to study and work, but stayed on to partner with his brother in running a software business. Thirty-two-year-old Vikram, who started investing only a few months ago, displays the ‘patriotic urge’ typical of many angel investors. “Why is India not able to create world-class products? Why has India not been able to create anything like Google or Facebook? I decided to start investing because I realized there are people who can create such products, but they don’t find the support, not just financial, but all round,” he says, “I want to share with Indians whatever I have gained in Japan in ten years, but I can’t just say ‘hey, I have learning, take it...’ More than money, I am investing my knowledge and my experience”. Sanjay Bhasin, formerly head of Nokia’s mobile base station business in Finland and now CEO of Essel Propack, shares his sentiments. “I know this is a bit far-fetched and a bit emotional but this is what it is,” he says, “I want us to take small steps for India to be the global powerhouse in innovation and new venture creation, to create a path so that some day a Google or a YouTube or a Facebook may be created out of India”. While a desire to seek better changes in the community is a strong motivation with today’s angels, a similarly strong urge is to preserve

SANJAY BHASIN CEO, Essel Propack

“I want us to take small steps for India to be the global powerhouse in innovation and new venture creation, to create a path so that some day a Google or a YouTube or a Facebook may be created out of India.” their hard-earned knowledge, skills and relationships. “I have had a very long and satisfying career,” says 62-year-old angel investor Arun Duggal, who retired from the Bank of America as an investment banker seven years ago and “accidentally” got involved in angel investing soon after. “It started with friends and family, and then a couple more were referred to me by friends,” he remembers. Duggal considers angel investing as an extension of his natural inclination to share the knowledge he has cultivated over the years. “Even if someone just came to me and said I need some advice, I would probably help him out. It is natural for me to use my skills, knowledge and contacts to help others. Angel investing is an extension of that, with some ﬁnancial help thrown in,” he points out.

While patriotism, a desire to give back and share may all contribute to the ‘angel’ movement, for sold-out entrepreneurs, helping a bunch of youngsters start out on their own is an essential part of keeping in touch with their roots. “I like their ‘can do’ attitude and it somehow helps me retain that attitude in me. As you get older, you tend to accept things the way they are, your conviction to be able to bring out change is a bit lesser,” says Bhasin. “Entrepreneurs enjoy creating companies, but running one tends to be boring,” says Srivastava, “After doing it two or three times you don’t want to do it again. At the same time, they want to enjoy the process of creating a new company. In short, with angel investing, entrepreneurs move from the role of the captain to that of the coach”. So, are angels really investors? How come nobody mentioned money so far? “Of course, money is there, if the company becomes successful,” says Rohit Chand, one of the Saurabh’s compatriots from IIS Infotech and an angel investor. “But it is there somewhere in the background. The main motivation is that there is a joy in creating or helping to create. It gives a different type of satisfaction,” he adds. “As an angel, you don’t calculate the returns that much,” says Ajoy Khandheria, who quit his career in telecom and IT ten years ago to become an entrepreneur. Over the past ten years Khandheria has been an entrepreneur, a professional investor investing other people’s money and an angel investor. He draws upon his experience to bring out the difference between normal venture investing and angel investing. “As an angel, you are investing your own money. So your desires and criteria are different, you are investing in someone you know or in a ﬁeld you know. And you are less likely to say even if 7 out of 10 fail, it’s okay. An angel has a personal involvement and wants each one to succeed. He relies much more on gut feel, less on market research and he does not calculate DAR E IRRs [internal rate of return]”. APRIL 2008

DARE.CO.IN

funding/strategy

Sateesh Andra

DFJ Ventures Sateesh Andra is a venture partner at Draper Fisher Jurvetson (DFJ) focusing on Investment activities in India. DFJ has allocated $75 million for investing in India over the next three years from its Fund IX of $600 million. DFJ essentially focuses on Information Technology, Nanotechnology and Life Sciences, and Clean Energy Technologies.

60 APRIL 2008

DARE.CO.IN

funding/strategy

ow big is the DFJ team in India; what are the areas of focus? DFJ in India is a team of three people. It has Mohanjit Jolly (Executive Director) and Anurag Jain (Analyst) based out of Bangalore, besides me in Hyderabad. As for focus areas, DFJ is interested in companies that are in the areas of consumer services, technology, cleantech, life sciences, and healthcare. For the allocated $75 million for investment in India, what kind of companies are you looking at? The current set of investments we have made in Asia is largely in sync with DFJ’s global strategy. Among Internetbased companies, we have invested in ClearTrip (travel) and Seventymm (movie DVD rental). In the mobile space we have mCheck in the payment space, and mGinger that is an SMS-based mobile platform for targeted advertising. We have also invested in Live Media which is in the out-of-thehome (OOH) media space. Reva, the electric car company, is also in our investment portfolio. We have not invested in the life sciences or nano-technology space here in India yet. However, for all our focus areas, we are looking for excellent teams to invest in. Even ﬁrst-time entrepreneurs are welcome. We are very open to taking a lot of risk and get ourselves involved in some very early-stage ventures that are not big but have great teams running them, and in very interesting markets at that.

he needs to have entry barriers and advantages that others will not be able to replicate very easily. Looking at the current market ﬂux, has there been a change in your investment objectives or methodologies? Not really. I know people are talking about recession in the United States, and investors in India are being wary and cautious. A majority of our investments are at an early stage, typically having a 3-5 years’ window, and a lot of them are going after local markets. Of course, we also do some late-stage investments in companies with revenues that run into tens of millions of dollars and are set to go public in a horizon of the next 12 to 18 months. We believe in the growth story of the Indian markets. We have already seen the telecom sector doing business of a billion dollars plus in several large local markets. Similarly there are other sectors, like ﬁnancial services, retail, manufacturing, consumer services, and. My belief is that events such as the current US market recession do not affect venture capitals as much as they affect the private equity (PE) and private investment in public equity (PIPE) investors. This is not to say that VCs would not be affected at all; of course VC investments will be made more cautiously and sparingly.

investor of the month What do you look for in an entrepreneur coming from the nano-tech or cleantech sector? In this ﬁeld, we have not seen much fundamental research happening in the country. In India, it is mostly applications of these technologies that happen. So, we are looking for entrepreneurs who have some intellectual property (IP) in these areas. We are also open to entrepreneurs who may not have the IP, but have access to the right set of properties; IP from elsewhere but that which can be applied in an Indian context. This would enable quick growth and scaling up of the business. Having said that, we are looking at teams that understand technology, beneﬁts of the applications, and applications in the Indian context that would create critical mass quickly. Does your set of requirements differ from, say, IT companies as compared to those from nano-tech and cleantech companies? Technology investments or enterprise applications are more IP focused, and of course, a great team is needed in a market that is growing. In cleantech we are okay even if the entrepreneur hasn’t invented anything new here, as long as he knows how to apply what is already available. However,

Do aspiring entrepreneurs, especially in IT, have a reason to be worried by the current market flux? No. We have been through such situations even in the Silicon Valley. There was this huge market crash resulting in a nuclear winter for a couple of years, post the year 2000. Anyway, I think, this is a good time for startups to build a business. Because, it would take at least nine to twelve months to get the product or solution ready, roll it out in the market, and then commence getting customers and partners. So this is the time when your business expectations and even the expectations of your employees are reasonable. It is in such times that you will try and make all the right moves, such as building your product or solutions in the right way, managing the burn rates on a monthly basis, not overspending money assuming windfall profits as soon as you roll out, and so on. Often, these are the best times to build businesses as long as you have the discipline. In addition, venture capitalists look at opportunities and investment windows of three to five years, not just the next six to nine months. My belief is that the aspiring entrepreneurs need not be worried about fund raising. Yes, one will not see that many investments happening at the moment, but just because the market is going down, investment opAPRIL 2008

DARE.CO.IN portunities are not going to be turned down by venture capitalists. From a startup’s perspective, this may be the best time to build it because of all the realistic expectations from the employees, board, team, investors, etc. In late 2005, Tim Draper said that DFJ will look at launching a $200 million fund for India. What is the news on that? We are re-evaluating our India strategy. As you know, DFJ has offices in more than 33 cities. It has a combination of its own team plus a network of partner funds. DFJ has its core team members in the Silicon Valley, China and India, and partner funds in the rest of the places. Once we have re-evaluated, the fund size is definitely going to be a big step up from the earlier $75 million allocation. We are also looking to increase the team size. We are also increasing our ticket sizes. In ClearTrip, for instance, we invested $10 million. Whether the India fund size will be $200, $150, or $225 billion, I do not have a number as of now. It is, however, definitely going to be bigger than the current $75 million fund size. What are the key elements that you look for in an entrepreneur who approaches DFJ for funding? The first thing we look for is the background of the entrepreneur. Second, we look at how passionate he is about his business idea. We look at the fact that an idea that is discussed is not just another idea, but an idea that he has already taken steps on. Like, creating a prototype or putting a team together, or working on it on weekends even if he has a 9-5 job, or already incorporating a company, etc. Basically, we evaluate how serious he is about that particular business plan. Thirdly, for entrepreneurs in the early stage, we also look at whether and how he has done market validation, whether he has identified some potential customers, and what are the key partnerships and market strategy. Has he done a lot of competitive analysis of the targeted ecosystem? Lastly, does he really understand how much money and resource he will need to create the right set of matrix, create value and take his company to the next level? We know that no entrepreneur has a crystal ball showing how the business will look like in the years. But does he have a gut feel about how will the business shape up in the next one year, based upon looking at the trends, analyzing other markets and correlating that in an Indian context? For entrepreneurs in the mid-stage, the set of key elements differs a little. This is because they have got the product out, have customers, partners, etc. So, we try and learn more about what the company is all about and which market sectors it is playing in. We then analyze what were its assumptions to begin with, its learning from the market and whether it has tweaked its business model based on his learning. We also look at: How soon can the business scale up? What are the critical success factors for the company? So the focus for mid-stage companies is really on more such aspects such as the pipeline, deal closure, customers’ references, ROI for the customer, and scalability. 62

APRIL 2008

funding/strategy For late-stage companies, we look at the revenue margins, cost of sales, market leadership, competitive landscape, the traction—all these are very critical. Then, there is a lot of emphasis on due diligence on ﬁnancials, sales, customer references, pipeline, partners, leverage, IP if it is a technology-focused company, and the team itself. After deciding to invest in a company, how much time does it take to complete the process? The thought process that goes behind making an investment is simple: Whether this company has something that excites me to begin with, and then if this company gets my partners’ excitement levels high too, such that we all can go and take a bet on such a company. For us to decide that we do not want to invest in a company takes not more than 10 to 15 days. However, if the answer is yes, it may take anywhere between four to six weeks. And then there is the normal due diligence, which is a simple process if it’s an early-stage startup because there is not much that we need to look at. Basically, four to six weeks to get a verbal yes, and another four to six weeks to complete the rest of the process before the money is transferred into the bank. For mid-stage and late-stage companies, this would take two to four more weeks. This timeline also depends upon where the company has been incorporated, e.g. Mauritius, Cayman Islands, US etc. Depending on all these factors, a typical time frame to complete the process is about two months for an early-stage company, and three to four months for a mid-stage or late-stage company. What sort of continued involvement should one expect from the team of DFJ pot-investment? We invest in businesses that we understand very well and to which we can add value. Of course, in early-stage companies we have to roll-up our sleeves as board members and investors. In them, we participate actively in things such as hiring the team, product validation, getting the early pilot customers or channel partners, etc. However, in mid-tolate stage companies, we look at things such as what are the key matrix for the business to scale up, etc. We do involve ourselves in hiring at times. We also follow on ﬁnancing and work out how to arrange more funds. We analyze whether the company is on an IPO or M&A path and more such things. Typically how long do you remain invested in a company? We remain invested till the company either goes public or we conclude that the business is going nowhere. What kind of returns do you expect when investing in a particular company? There are not set expectations when we go in. Of course, if we put in 2 million, we may want to make 20 million. What we look for is that whether we can create success and value such that the company is either the number one or the number two player in that sector, and build a large business.

DARE.CO.IN

funding/strategy Just to give some examples, DFJ has been one of the early investors in Hotmail (acquired by Microsoft), Baidu (the Chinese version of Google), Skype (acquired by eBay), Overture (acquired by Yahoo), and EnerNOC in the cleantech space which went public. DFJ has invested in great companies across the world and the goal in it is not doing a lot of math to ﬁgure that we want 3x or 5x. The way we go is, will the companies be market leaders in their segment, and how big can they get and then is there a potential IPO or M&A with healthy multiples. Typically how do you plan an exit in investments? We can’t plan. The exit is entirely decided by the entrepreneur, CEO and his management team. It is them who will have to decide where the business is going, whether the expectations and assumptions in business plan are being met, etc. It is the team that decides whether it is enthused and wants to take it to the next level. It could also happen that certain assumptions are not panning out and there is a great offer put out on the table. As a team, if they think that this is the right thing for the company, we as board members and investors end up listening to the company, as opposed to taking our own decisions about an exit. Based on the team’s gut feel, pulse and inputs, we collectively make a decision. What kind of exit do you prefer at DFJ? If the company can go public, that is great for everyone—the team, the entrepreneur, and the investor. Many believe that an IPO is the end event. The fact is that an IPO is just the beginning of a company’s journey. Of course, there are lots of challenges that the company will have to be prepared for as a public company. For instance, you have got to have a great price-earnings ratio (P/E ratio), which depends on the earnings per share (EPS), to have a good market capitalization. Sometimes even M&A scenarios play out well, where the company has built value, and then a bigger player decides to enter the game. Companies like Cisco, Microsoft, and Google are all acquiring companies, because from their

perspective, it makes more sense to buy a company already doing something they want to get into to get the time and market advantage as well as a team that has already done it, rather than do it on their own. However, we do not get into a deal thinking that this company is going to be acquired sooner than later; we do not have that crystal ball. What If the market goes down? Then the market capitalization of these potential acquirers will also go down. In this case, they may delay the acquisition or not acquire the company at all. You would end up getting caught between a rock and a hard place if the business has been built based on an assumption that it is going to be acquired very soon. Do you see Indian companies reaching the level of say, Hotmail, Skype, etc? What will take for an Indian entrepreneur to build his company to that level? I would say we are at an interesting stage. We have not seen any significant success stories yet. Naukri.com is a great success story; they went public and have a healthy market capitalization and good market leadership. However, we don’t have many case studies yet. Now, we are seeing an entire ecosystem being built around entrepreneurs in an Indian context. So, my belief is that we will see more and more case studies in the years to come. I think in the next three to five years, we are definitely going to see a couple of big success stories. For Indian entrepreneurs to make it that big, I would say, they have to play in a market that is growing very fast. For instance, look at online travel and online jobs—these definitely have huge growth markets. It did take time for that market to evolve. The question is, can the entrepreneur spot that right market opportunity that is going to grow very fast and be a market leader? If possible, you should have a global outlook, as a local outlook is just not sufficient. The opportunity initially may lie in India but then eventually if it becomes global, then growth will be even faster at that point of time. Such opportunities are the ones that will scale faster and create value for entrepreneurs as DAR E well as investors.

SMS “DARE <your comments, questions or suggestions>” to

56677 or

Email us at dare@cybermedia.co.in APRIL 2008

DARE.CO.IN

strategy/co-founder

Finding a co-founder It is quite like a matrimonial hunt. Though you take different routes for both, you still have to satisfy the same concerns /Vimarsh Bajpai

hen Debjani Deb decided to start her own business of knowledge outsourcing after having worked for 14 years with a host of consulting and technology companies in the US, she looked up to her childhood friend Shoma Bakre in India. The two had known each other since their school days in Shillong, and Deb was sure Bakre would be her best bet as a co-founder. So, when Deb visited India in early 2004, she could not resist pitching the idea to her prospective co-founder, who readily agreed. “To start a business where you would have an offshore set-up, you need somebody who you can trust absolutely, and Shoma was the only person I would trust that far away,” says Deb. Besides trustworthiness, it

APRIL 2008

was Bakre’s “single-mindedness and a perfectionist attitude” that impressed Deb. The duo later got two more people on board as co-founders—Kyung Han in the US and Sangeeta Joshi in India. Deb knew Han as a classmate in the US, while Joshi came as the fourth partner through a different source. “That made our perfect foursome,” says Deb. They together founded Empower Research, which has grown "150% year-on-year" and is now 200people strong with two ofﬁces in the US and one in India. On the other hand, when Michael Jansen founded Satellier, which provides value-added design support solutions to the architecture, engineering and construction industry, he could not ﬁnd a suitable co-founder

because of the nature of his business. “I could have done with a co-founder. Unfortunately, the business that we were in was so unique that I never really found anybody who would have made sense,” he says. So Jansen decided that instead of getting the wrong person onboard, it was better to do it alone. To meet the requirements of various complementary skills needed for his growing business, Jansen hired a core management team, of whom none of the members were either his ﬁnancial partners or major shareholders in Satellier. Although, Jansen does not have a co-founder, his core team has worked just as well in taking his business forward. Both Deb and Jansen reﬂect the two sides of the same coin. For some

DARE.CO.IN

strategy/co-founder GAUTAM RAJ JAIN Senior Professor, MICA

When a team of entrepreneurs establishes an enterprise, they bring together complementary skill sets, resources and networks. entrepreneurs, co-founders can do wonders, as they bring with them new insights and a host of complementary skills, while for others a core management team can ﬁll in the gap without sharing any equity with the founder. But an unstable, indecisive and a poorly motivated co-founder or a core team can sink the boat. It becomes important to take your time and look around for the right person or a group of people with whom you can share your business instead of taking a hasty decision only to regret it later. In this story, DARE tries to enumerate the qualities and synergies to look out for in a co-founder, and also the issues partners must discuss before going in for a formal tie-up.

THE NEED FOR A CO-FOUNDER Starting a business needs a lot of thinking; strategizing and behindthe-scenes activities to give your idea a concrete shape. Just a good idea is worth nothing if it is not properly executed at different stages of the business cycle. This is why you need a cofounder or a group of co-founders who can work in tandem with each other to make the enterprise a success. “You

need professionalism from day one,” says Gautam Raj Jain, Senior Professor, Entrepreneurship Development Centre at the Mudra Institute of Communications, Ahmedabad. “In the era of globalization, an entrepreneur needs multiple skill sets and multiplicity of perspectives on markets, technology and finances in the local and global context. Thus, when a team of entrepreneurs establishes an enterprise, they bring together complementary skill sets, resources and networks,” adds Jain. Skills apart, when it comes to approaching an angel investor or a VC, two is always better than one. Most investors back excellent startup teams even if the idea is a bit hazy. Agrees Sanjeev Aggarwal, Managing Director, Helion Venture Partners. “Typically, we like to see a team with complementary skills. There is one guy who brings marketing expertise and the other guy who brings technology expertise or it can be that there is one very external CEO type of a guy and the other is a very internal COO type of a fellow.” The strategy is no different in the case of a service startup, as most investors want one partner to have thorough domain knowledge and the other with the capability to scale up. But this by no way means that investors close their doors on solo founders. Aggarwal clarifies that if the founder who is just by himself approaches them with the “intent” to bring on the team at a later stage, his case could also be considered favorably. This is because, “sometimes, a few risk-averse guys sit on the fence and they would come on board only if the funding is established,” he adds. Does it mean that you cannot succeed if you do not have a co-founder? “No,” says Kartik Varma, Co-founder, iTrust, a financial planning firm. “But then you have got to have enough resources and smart people with you (for a core team),” he adds. Varma cites the example of the American e-commerce giant Amazon.com, founded by Jeff Bezoz in 1994. The 17,000 people-strong company posted $14.84 billion in revenues in 2007. Similarly,

DARE/some famous co-founders

Larry Page and Sergey Brin: The founders of Google met as graduate students in computer science at Stanford University in 1995. According to Google lore, Page and Brin were “not terribly fond of each other” when they ﬁrst met. Larry was a 24-year-old University of Michigan alumnus on a weekend visit; Sergey, 23, was among a group of students assigned to show him around.

N R Narayana Murthy & Team: A former employee of Patni Computers, Murthy, along with Nandan Nilekani, N S Raghavan, S Gopalakrishnan, S D Shibulal, K Dinesh and Ashok Arora, all software professionals, founded Infosys in 1981 with just $250. While Arora left the company in 1988, others continued to make what Infosys is today, a global leader in IT and consulting.

Steve Jobs, Steve Wozniak, and Ronald Wayne: The trio founded Apple Computers on April Fools’ Day in 1976 at Jobs’ home in the US. Wayne was given a 10% stake in Apple, but relinquished his stock for $800 only two weeks later.

Jerry Yang and David Filo: The Stanford graduates founded Yahoo, the internet services giant in 1994 but the company was incorporated a year later.

APRIL 2008

DARE.CO.IN KARTIK VARMA Co-founder, iTrust

Look for a person, who has the complementary skill-set and network, someone whom you can use as a sounding board and share workload with. R Subramanian, an IIT-Chennai and IIM-Ahmedabad alumnus, founded the Subhiksha chain of retail stores in 1997. From a single outlet in Chennai, Subhiksha now has 1,000 outlets spread across more than 90 cities.

A QUESTION OF HOW MANY There is no set number that guarantees success. While it would depend on the lead founder to decide on the number of people he would want on board, the requirement becomes clearer once the idea enters the implementation stage. Most people this writer spoke to voted for a small team, particularly because it eases the decision-making process in the company and also prevents too much dilution of equity. “Sometimes more than two cofounders can make things difﬁcult,” says Arvind Rao, co-founder, OnMobile, a content provider for valueadded services on mobile phones. Rao founded the company with Mouli Raman in January 2000. Today, OnMobile is 950-people strong, with operations in 20 countries, and is listed on the Bombay Stock Exchange. Rao believes that one of the reasons why his startup could grow so fast was because there 66 APRIL 2008

strategy/co-founder were only two co-founders at the helm of affairs. The success of Infosys, however, debunks the myth of big teams doing badly. Seven software engineers came together to start the IT and consulting company in 1981 with just $250. Today, the company is an IT behemoth having posted revenues worth $3 billion in 2006-07. But it may be noted that two things probably worked for Infosys—one, all the seven members came from a similar background, having specialized in computers, and two, N R Narayana Murthy was their unanimous leader. Therefore, a big team would invariably require the identiﬁcation of a leader, who would hold the veto power in the case of disputes among the founding members.

QUALITIES AND SYNERGIES “I am working on a Web 2.0 product, which is approaching completion. I need a passionate, technical dude to be my co-founder for this project and take it to a larger scale. Experience in design/ architecture/technical trends for Web 2.0 & SaaS tecnologies is what I need, e.g ror, ajax, scalable systems, SaaS platform.” Thus reads a note posted on a top social networking Website. In many ways, looking for a cofounder is like searching for a life partner. While you would want that “perfect match”, complete in all respect, you still decide to settle for some key qualities that you deem necessary to run a long-term relationship. There is nothing in the world as an “ideal match”, therefore, entrepreneurs should give importance to compatibility, complementary skills, a shared value system along with the much-needed passion and energy to achieve business goals.

an online marketing services company. His first venture, WhizLabs, which he started with two co-founders (Kapil Nakra and Purvesh Sharma) didn’t work out well, thanks to the dotcom bust. The situation was so bad that they could not even draw any salary for the first 16 months. Yet, the strong bonding among the co-founders kept them afloat. “The only thing which worked in our favor was the relationship we shared with each other—at all points one of us would want to give up and quit but the two would pull the one up,” says Chopra. Later, Chopra and Nakra exited WhizLabs and started OMLogic Consulting with two more founders (Kapil Gupta and Suresh Arora). A high level of trust is important for the relationship to be successful. If you doubt the intentions of your co-founder, you are most likely to hide some crucial facts from him, which could prove detrimental to the financial position of the company. No wonder, “complete dependability and like-mindedness” is what Deb votes for. It is always advisable to pick someone whom you know for a long time and can trust with key responsibilities and finances.

Complementary skills While chalking out the business plan in 2000 for starting Daksh, one of India’s leading BPO companies, which was

MICHAEL JANSEN Founder, Satellier

Compatibility The very reason why most co-founders are those who have either been together in school or college or at workplace is compatibility. “The critical quality one should look for in a partner is chemistry; the relationship shared by the founding team is the key to a successful business,” says Pradeep Chopra, co-founder, OMLogic Consulting,

People can be different but they have to be aligned to the same vision.

DARE.CO.IN

strategy/co-founder A VC’S TAKE ON CO-FOUNDERS When we meet with the team, one criteria that works well is whether the team has worked together well in the past. So, that matrix is very helpful when we are meeting a brand new team. If it is an existing company, then obviously how well they are functioning, are there any underlying ripples, what are their long-term views of how they want to see the company pan out, how are they thinking of exit, do they want to build a built-to-last type of a public company or they plan to sell SANJEEV AGGARWAL out, is there one clear leader if there are Managing Director, Helion Venture Partners several founders or is it a loose coalition where all of them are an equal. For the latter, we certainly have an allergy because you need somebody in the company to make the final decision. If they say, we are equal in all respect, then that is also a red flag for us. We would like to have a team with complementary players but there is got to be a single leader. to be later acquired by IBM, Sanjeev Aggarwal and Pavan Vaish discovered that they needed a strong operations person and a strong customer acquisition person if they were to make their venture a success story. To fill in the gap, they inducted M J Aravind, who was at that time the Country Head of Compaq and was responsible for its supply chain and manufacturing operations in India. “Then Aravind, through a common friend of his got to know Venkat Tadanki, who was not a close ally but had already done business in the US and knew the law of the land,” says Aggarwal. Identify the missing skills, just like Daksh co-founders did, and look around for them. Spread the word in your friend circle or on networking Websites and keep your eyes and ears open. You can even get a perfect stranger to be your co-founder provided he shares the same vision as yours and is fit to fill in the gap.

Perseverance There could be times when the cofounders would have to go without taking salaries, may have to stay back in ofﬁce for days or travel for weeks at a stretch. This is where perseverance comes into play. In such a situation, you would surely want to have your

co-founder to walk with you hand in hand, and not run away leaving you in the lurch.

Value system As long as two people share similar values and goals, it does not matter what personality type each is. Ethical issues can sometimes make or break a relationship. This could be about issues such as corruption. While one partner may see nothing wrong in paying bribes to get work done, the other could think otherwise.

Passion and energy The feeling of inequality among the cofounders when it comes to sharing the workload in a startup ﬁrm could derail a smooth run. Thus it becomes necessary that co-founders give in their best with equal passion and energy. "The founder should try to observe the energy and level of enthusiasm of the prospective co-founder by working on short-term project/s. During interactions, the co-founder’s sense of ethics should be assessed by visualising open-ended situations and seeking their advice," says Jain.

Other qualities Building a business from scratch involves taking decisions, both big and

small, on a regular basis. Therefore, a certain level of strategic thinking is called for. With this in mind, you might want to appreciate the foresight and lateral thinking capabilities of a person while taking him on board. “Just a pure execution type of thing” may not be desirable for a young company. Most startups face the challenge of hiring and retaining people. Thus a co-founder who is also a good manager can be a big asset to your startup. Similarly, the networking skills of your co-founder can help your startup win customers, and in the long run make your company a brand name in the respective industry.

ISSUES TO DISCUSS UPFRONT Equity sharing/Compensation It could be one of the most uncomfortable issues to discuss, but leaving it to imagination can sour the relationship between co-founders sooner or later. Most entrepreneurs, particularly those who start their ventures with their cousins or close friends avoid talking about equity sharing, fearing that the other person would feel bad about it. To prevent such a situation, Jansen suggests a way out. “If people don’t like to talk over the phone or even verbally utter a number, I ask them to send me an e-mail with their expectations. It allows them to think through and it gives

DEBJANI DEB

Co-founder, Empower Research

The most important thing is to spend time to build trust. APRIL 2008

DARE.CO.IN me the time to think and respond,” he says. “The issue of compensation is best sorted out in the beginning. One has to look at what one brings to the table. Just saying that we are ﬁve people, so we are going to be equal partners doesn’t necessarily make sense,” says Dhruv Agarwala, Co-founder, iTrust.

Roles and Responsibilities Charting a clear route with regard to roles and responsibilities will smoothen the functioning within the startup. But one person must emerge as the clear leader in the form of a CEO. This makes it easier for the delegation of responsibilities. As the company grows or traverses through various stages, the roles and responsibilities of each co-founder could change. Enough space should be left for negotiations on this issue.

Exit plan Some entrepreneurs start off with the clear idea of selling the company after some years while others decide to build a large corporation. The co-founders should talk about the various possibilities right in the beginning. However, most entrepreneurs do not have a clear idea about an exit at the time they are putting in place a startup. The situation remains ﬂuid in the case of startups as no one knows how

ARVIND RAO

Co-Founder, OnMobile

Sometimes more than two co-founders can make things difﬁcult. 68 APRIL 2008

strategy/co-founder things will pan out. But an informal discussion from time to time can reduce the possibility of a surprise stand by any of the co-founders. “You may start out thinking it may not be a big company and look for a potential sellout but may quickly realize it may be a very large engine. So at different points of inﬂection, the discussion should be done with a lot of objectivity and not with preconceived notions,” says Aggarwal.

PRADEEP CHOPRA

Co-founder, OMLogic Consulting

Formal Agreement It is always advisable to pen down the details of equity sharing, roles and responsibilities and tenure within the company in a formal agreement to avoid any misunderstanding at a later stage. “Once the VCs come in, they would want everything penned down and all that gets formalized. So rather than have the VCs force you to do it, it is better to get it done yourself,” says Agarwala of iTrust. Another option is to try and work together for some time to get a good understanding of each other and of the business before signing the formal shareholders’ agreement.

MAKING PARTNERSHIPS WORK Getting a good co-founder is not enough. The onus of making the partnership work rests with all cofounders. The best way to ensure this is to talk on every issue that concerns business. In fact, spending time with each other can help give valuable insights into the aspirations of each other. Co-founders must put the interests of the company above their personal interests. While it may sound a bit of a cliché, this is true in the case of Infosys. While addressing a group of entrepreneurs at a conference in New Delhi recently, one of its co-founders, Nandan Nilekani, said at his company, whenever there were divergent issues, the co-founders always put the interests of company ﬁrst before anything else. It made decision-making faster and smoother. Each co-founder must show a level of maturity by respecting each other without intruding.

The relationship shared by the founding team is the key to a successful business. “The co-founders should believe that they would not rescind on promises made. Therefore, the most important thing is to spend time to build trust,” says Deb. Like in any other relationship, the one between co-founders could also see ups and downs, more so in the case of startups as the initial challenges can sometimes be too much to bear. There could be conflicts related to the direction of the company, hiring of key employees or potential exits. The startup team must have a conflict resolution process in place. The cofounders should sit across the table and discuss issues threadbare. If that does not help, the CEO or the leader of the team should take the final call. “In the worst case scenario, one should use the board,” says Aggarwal. “Typically difficulty arises when things are not going well and the other partner may want to leave. Therefore, having some type of an informal commitment to work for some x number of years together even if things start to go wrong, could be a good idea,” says Agarwala of iTrust. But then, there is no magic formula to find the right co-founder, and work happily ever after. As Jansen puts it, “It's like marriage, some of them work, DAR E some of them don’t”.

DARE.CO.IN

funding/markets

Funding in volatile markets When you’re upto your neck in hot water, sing like a kettle. But what can startups do to boost the conﬁdence of investors when the hot water has singed their skins off?

/Arunjana Das

acbeth, startup-CEO from the Shakespearean era was doing just ﬁne until he met three bears on the road. They hailed him as the Fallen One. He took no heed and went on messing up his capital structure in a bull-market running purely on the steam of hubris—pride and greed. Hence, when the fall did come, the bears were sitting right on his head. The term is Bear-Stearned. A market-crash happening at any

point in history and at any place has propagated either a ripple effect throughout global markets or has atleast sent after-shocks. The story is uncannily same everywhere. The characters could run the gamut of Bear Stearns to Northern Rock. Big fish are floundering and the cash-crunch net is such that the holes might not allow even smaller fish to escape. Investor's are not looking to fish in such troubled waters. Or are they?

Market turmoil and investment deals The market crash has had unforeseen consequences on the funding opportunities available for startups at various stages. The ilk of investors affected directly from the dipping stock prices are angels, high networth individuals (HNIs) and those investing in equity funds. The investment sentiment is varied even across these categories. Angels and HNIs who earned their money from the exploding real

DARE.CO.IN

funding/markets DARE/investometer Availability of funds for startups at various stages

PRAVIN GANDHI Seedfund

STAGE

NATURE OF INVESTMENT

Seed / Early

Angel

Mid

Venture Capital

Late

Private Equity Funds

Mid / Late

IPO

Early / Mid / Late

Project Funding

Available funds

Available with tighter criteria

STATUS

Taken hits

The Long and Short of it - PE funding will be tough to get. - Valuations have gone down. - This is not the opportune time for IPOs. - Angel funding is available for early-stage startups. - VC funding is cautious and sparing.

“We are looking for great ideas and committed teams. Valuation is the only thing that has been affected by the market downturn as far as investing into startups is concerned.” estate and infrastructure sectors are now stuck with stocks that are trading at or below par. Whereas a few angels are adamantly biding the wee until the Sensex touches stability around 18,000-19,000, a few are seeking fresh grounds to invest. These fresh grounds are not new stocks at the moment but startups running on sturdy business models and involving lesser risks. “What is happening in the market is a temporary phase. Angels are still

looking for sturdy startups to invest in. A few may be somewhat cautious as to investing in new ideas, but as a whole, angel investing is green in the country,” says Pravin Gandhi of Seedfund, a veteran angel investor of the country. Private equity funds are getting fatigued. PE deals are still happening, but not on the scale that they used to during the market’s prime. This is partly because most PE ﬁrms in India are based in the US, where they acquire their funds from. In the event of the US investment system breaking down, funds have started to dry up. HNIs, who have been known to invest in such funds, have also stopped lending to them in keeping with the market sentiment. For the moment, there are no more fresh pastures for them. IPOs have borne the brunt of the market. The two worst calamities have been the IPOs of EmaarMGF and Wockhardt Hospitals. Hoping to ride in

on the wake left by recently concluded successful IPOs, both these companies priced their respective IPOs somewhat aggressively in the beginning, but later, commensurate with the market sentiment, ended up lowering the price bands and extending the offer periods to pick up pieces that the falling market could afford them. The plans, however, fell apart with the former canceling the IPO when subscription fell to 0.195 times and the latter at 0.43 times. In addition to the valuation, it was the mass-negative sentiment that the real-estate and health sectors have been lately witnessing, which turned out to be the nemesis of the two companies. Surrounded by a few more notso-successful and under-subscribed IPOs, IRB Infrastructure Developers was a refreshing winner. It garnered Rs 945 crores ($240 million) and was subscribed 4.3 times, which would qualify it as a successful IPO. With giants such

DARE.CO.IN

funding/markets

DARE/statistics PE and M&As As ascertained by a recent study, this year January alone saw 56 M&A deals and 60 PE deals, worth $3.01 billion and $2.05 billion, respectively; that is, 116 deals worth $5 billion for a single month. The last time this happened was exactly a year ago when a total of 101 deals were concluded in the same month. Analysts claim that the deal rate averaged out to around one a day. A few large PE deals involving over $100 million were those of Edelweiss Capital, Mahindra & Mahindra Financial Services, Ballarpur Paper Holdings, Jaiprakash Power Ventures, Akruti City, Peninsula Land and Vatika. The 3% equity sale of Reliance Entertainment to George Soros, the global investor, for $100 million falls within the same spectrum, except for the reported $5 billion that Soros valued it at!

DARE/tangible market Tangible Market-Fallouts on investments 1. Lower benchmark ratios 2. Lower valuations 3. IPO plans mostly shelved for the moment

NIREN SHAH

Managing Director, Norwest Venture Partners

Figures taken from Thomson Financial.

as DLF and Unitech trading at or below par, the success of IRB Infrastructure was nothing less than heartening! The least bothered, relatively of course, are venture capitalists, who stay invested for around 6-7 years; it’s the long-term gyrations of the market that they are more concerned about. Traditional exit strategies still ﬁgure in the deal equations. Investors might be somewhat queasy about IPOs in the given circumstances, but the longterm is a different ball game.

Funding decisions

“Do what you do best—build strong companies with great teams.”

IRB Infrastructure Developers scored over EmaarMGF, which at the peak of the market’s prime could have been subscribed 15-20 times, because of the reasonable value that it had put for itself. Post the EmaarMGF and Wockhardt ﬁasco, and a few other failures, IPO is still as much of a dreaded word as it was the cynosure of all investing eyes pre-crash. Although the pre-crash landscape was marked with ridiculously high valuations rising even higher,

most of them riding on the strength of soaring stock prices, post crash, both expectations and valuations seem to be plummeting. Most listed companies that chose to raise funds through secondary offerings such as qualiﬁed institutional placement (QIPs) have been affected adversely following the valuation assassination. The most pervasive effect of the troubled currents is visible on PIPE deals (private investment in public equity). PIPE has been designed for private equity investors who wish to buy a piece of the action (read stock) of a much-coveted listed company at discounted rates without driving the stock prices through the ceiling by making mass-purchases of the same in the open market. A market touching the heights of Olympus, hence, pulls PIPE valuations up as well. As a contingency measure, investors go for, what are called, structured PIPEs, incorporating certain trigger terms that grant them more booty of the stock if the shares don’t perform as expected.

DARE.CO.IN

funding/markets

Sandeep Singhal Nexus Capital India

What is your investment strategy during market turmoil? We invest in early stage, high growth companies led by passionate entrepreneurs that are building long term sustainable companies. In that context, a short to medium term market turmoil does not impact our investment strategy signiﬁcantly. We will look at potential investments to understand how they can grow during a period of slow macroeconomic growth and use this opportunity to either create or solidify a market leadership position. What would you have a potential investee do for acquiring investments from

you during such times? The key for any company to be successful is to have a strong and passionate leadership team, is already a market leader or has the potential to be a market leader, is targeting a large market and is creating some means of differentiation/defensibility. That is applicable at all times, including times of market turmoil. Good entrepreneurs are adaptable and see such market conditions as opportunities rather than challenges. This could include winning clients organically, acquiring weaker competitors, and hiring talent that becomes available when markets are not growing as fast. We are looking to back such entrepreneur-led companies. A few tips for boosting conﬁdence in a startup from the perspective of an investor.. The critical factor for any startup is to focus on building your business taking into account market circumstances, and adapting your strategy and business practices accordingly. In an economy that is growing slower, it is important to deploy resources judiciously and ensure that the company conserves cash to last through a downturn in case things get much worse before getting better. You don’t, however, have much option with a Bear-Stearned company whose shares touch an abysmal low of a fraction of a dollar. Post-crash, hence, most PIPE investors believe that for promoters of listed companies, getting high valuations is a dream that has just gotten piper! “Expect a 20-30% dip”, says Srinivasan Vudayagiri of Lightspeed Venture Partners. There are also, however, those companies who have tangible objectives of raising funds through PIPE; the objectives could be big expansion plans,

new product launches or overseas acquisitions. In a cold-sweating market, Blackstone had recently bought 10.4% stake in Allcargo Global Logistics Ltd, a publicly listed company, for Rs 242 crores. Where the market price was Rs 725, Blackstone shelled out Rs 934 per share—a premium of 30%! The money will be employed by Allcargo for setting up inland container depots and in other expansion plans. Hence, in spite of a sour PE scene, companies running on solid models have chances of getting funded.

The winds of the down-sliding market are rubbing private companies the wrong way as well. The plummeting stock-prices of listed companies in similar sectors have led to an erosion of benchmark ratios that the market forces assign to each sector. This, again, leads to an erosion of valuations of the individual private companies of the sector. The dip in valuations is not so much of bad news for startups, for the money is still coming in. Since a number of angels are looking to invest, it’s a good time to start new businesses. Contrary to the negative market sentiment, there is something nice cooking at the backyards of new entrepreneurs—new ventures. A market crash, however inimical it is to the existence of those who swear by the stock market, is still a can of worms. Open it and go fishing for ideas, and if you are an investor, for funding ventures. As a matter of fact, many investors believe that it is during such times of market downturn when new companies are born, those who are realistic about their goals and abilities. The silver lining to the cloud shrouding the market is that quite a few investors are happy as these times fetch them realistic and reasonable prices of ventures. Entrepreneurs are happy since it gives them a head-start towards coming out with the next big thing when the market takes a turn for the better, as it invariably does. Early and mid-stage startups with strong fundamentals and more emphasis on actual value and core competencies will still find funding from angels and VCs. PE firms have gone on a somewhat short hibernation until things start looking up. Late-stage startups with IPO plans are looking for

DARE.CO.IN

funding/markets

a sunnier disposition of the market to launch their offers. Funds for projects are still available. “Good entrepreneurs will continue to focus on execution and not get distracted by the markets. Markets will go up and down and it is always difﬁcult to perfectly time the markets. We believe that the long term India story is intact and we continue to have high expectations from Indian entrepreneurs!” says Niren Shah, Managing Director of Norwest Venture Partners. Given the right objectives and valuations, hence, seems like the traditional money-making instruments will work just ﬁne in a leaner market.

These are, however, not just buzzwords. They are the skeleton keys that open the door to funding for a startup. “As an investor, I will still be looking at good management with good executing skills. Thanks to the market crash, though, I will also focus on the additional factors of cash management, risk management and flexibility of the business plan of the potential investee,” says Srinivasan Vudayagiri of Lightspeed Venture Partners. Cash management is the efficient utilization of cash for applications producing income or giving returns. It involves the management of cash into and out of the firm, within the firm or mobilizing the cash for covering deficit or investing surplus. The key is to keep optimum cash balance, which is ruled by three major motives—transactions, precautionary and speculative. The first deals with taking care of transactions; the second is to accommodate any sudden demands and exigencies of cash. The third is to counter price fluctuations. Risk management is the assessment of potential risks that a business might face and an efficient coverage from the potential losses. Combined with cash management, it holds special significance in the light of a market downturn. The ground rules of raising money have, hence, slightly changed. Apart

Raising funds

DARE/cash management

SRINIVASAN VUDAYAGIRI Lightspeed Venture Partners

“As an investor, I am more concerned about the long-term gyrations of the market.”

Since the market started getting disrobed, many startups were left doing a Full Monty. While many are busy covering up, some are earning money optimizing the act! Cash management and risk management seem to be the new buzzwords.

Four steps to efficient cash management 1. Cash-budget planning 2. Managing cash flows within, and in and out of the firm 3. Maintaining optimum cash level 4. Covering deficits and investing surplus

DARE/risk management Risk Assessment and Modeling Risk Assessment: A firm is exposed to several kinds of risks, such as industry risks, market risks, management risks and financial risks. The last comprises factors such as credit risk, foreign exchange, shape, volatility, liquidity, inflation risks, etc. Risk Modeling: It uses several techniques such as market risk, value-at-risk (VaR), historical simulation (HS), or extreme value theory (EVT) in order to analyze the riskprofile of a company and make appropriate forecasts of the potential losses attributable to a variety of risks. Many organizations offer risk management software solutions that can be incorporated into the formal structure of a company. from good management, right strategy, healthy projected cash flows and the like, investors will also be looking at how dexterous you are at not only stocking up cash for a rainy day, but also how good your contingency measures are to dodge a rainy day in the first place. “Our investment strategy for startups will not change. We will continue to fund enterprises with strong management teams, which we believe will grow in a scalable manner,” says Shah of Norwest Venture Partners. Most investors are looking at the crash as a form of catharsis; the market is throwing up its excess baggage and shedding its extra adipose in the form of ballooned valuations and P/E ratios (price to earning). Hence, startups looking for funds need to get more cashsavvy and risk-efficient. The correction is as much about the value of the market, as the sum of its parts, that is, the individual companies. The market will emerge leaner and meaner. Let’s hope the investors don’t get anorexic. D A R E

25 years of

our focused

VISION To expand globally in the knowledge domain through quality media products and services

DARE.CO.IN

/blogs

Living With a Weak Greenback Exporters will have to cut costs to remain internationally competitive with the dollar weakening /Paranjoy Guha Thakurta

any Indian small and medium enterprises in laborintensive, export-oriented industries have been badly hit by the unexpected depreciation of the American currency. Proﬁt margins have been squeezed and in fact, much worse has happened. Many factories have shut down. Thousands of workers have been thrown out of their jobs. Visit Tirupur in Tamil Nadu, Moradabad in Uttar Pradesh or Ludhiana in Punjab. You will hear innumerable stories of families that were once well off, but are today struggling to feed their children. Politicians and economists used to talk about the virtues of a strong national currency. It was argued that the strength of a currency reﬂected the clout of a country’s economy, it's purchasing power and it's position in the comity of nations. These voices are no longer that loud. As the US greenback progressively weakens, the issue that is being hotly debated is whether the losses on account of the dollar depreciating are being compensated by the gains that accrue from the rupee strengthening. Simply put, India’s exports have become relatively more expensive while the country’s imports have become cheaper and it is not certain what the net gain is. It is contended that since India imports more than it exports, the gains arising from a weak dollar are more than the losses that the country has to bear. True, the appreciation in the rupee has to an extent cushioned consumers here from the worst ravages of the rise in international prices of crude oil. Also, costs of manufacturing products like computers that have high import content have come down (even if the lower costs have not been passed on to consumers in many instances). But there’s another side to the story. Union Commerce and Industry Minister Kamal Nath told Parliament on December 4 that 2 million people would become jobless in different export-oriented industries because of the dollar weakening. Although exports as a whole have grown, there has been a decline in exports of textiles, garments and leather. Other industries adversely impacted include processed agricultural products, handicrafts, sports goods, chemicals, engineering items and marine goods. A survey conducted by a senior bureaucrat with the Commerce Ministry in July last year found that at least 200,000 jobs would be lost in garments and textiles, 80,000 in Tirupur alone, famous for its internationally-renowned hosiery 76 APRIL 2008

manufacturing units. In just six leather making companies surveyed by the Ministry, profitability had crashed by threequarters and nearly 2,000 workers rendered unemployed. The problem essentially arises from the fact that on account of historical reasons, 70 per cent of India’s exports are denominated in US dollars. Many export-oriented industries operate in buyers’ markets where demand crashes when prices rise even a little. Two clear messages come through loud and clear. Exporters have to cut costs to remain internationally competitive. More importantly, invoicing patterns have to change. Exporters who have not been able to designate their transactions in euros, yen or even, rupees, are bound to suffer. If such exporters become truly competitive, they have to exert pressure on their buyers and convince them that invoicing patterns cannot remain frozen in time. Exporters of computer software and information technology enabled services or firms engaged in business process outsourcing have also been adversely affected by the dollar’s fall. But the pain such firms are going through is limited compared to the devastation that has taken place in cities like Ludhiana (an important center for manufacturing sports goods that are exported) and Moradabad (famous for its brass handicrafts). Many exporters were pampered in the past as India used to be acutely short of hard currency for nearly five decades. Successive governments emphasized export-promotion and import-substitution. The situation is now dramatically different. The country has more hard currency than it can use productively. Indians, who had hoarded dollars, have brought their illegal funds back. In March last year, the Reserve Bank of India had stopped mopping up US dollars to keep the value of the rupee artificially low. Consequently, the rupee gained against the dollar by a huge 8.5 per cent in less than 40 working days in March and April. By the end of 2007, the rupee had gained roughly 15 per cent against the dollar over a 12-month period and its value had touched a peak in a decade. Between end-January and mid-February, the rupee lost roughly 3 per cent against the dollar. However, the broad trend has not been reversed. The appreciation of the rupee is part of a conscious official policy to contain inflation at a time when rising prices (especially food prices) have threatened to rapidly erode the popularity of the government in power. The depreciation of the US dollar is not a temporary phenomenon. Indian enterprises have no choice but to live DAR E with this new reality. The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media — print, radio, television, internet and documentary cinema.

ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE RE DAR ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DA RE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR

SMS “DARE <your comments, questions or suggestions>” to

56677 or Drop us an email:

dare@cybermedia.co.in

DARE.CO.IN

opportunity/security

A secure opportunity With the growth in the aviation industry and increasing security concerns airport security is becoming a big business /Chhavi Tyagi

he growing rush of passengers at Indiaâ&#x20AC;&#x2122;s airports, whether those coming and going out of country or those traveling within, is stretching the limits of airport infrastructure. With the Commonwealth Games right around the corner, the situation is going to get worse. Or should we say better? With the increasing number of travelers, the necessity of providing security to them is also

78 APRIL 2008

increasing, and with it, the demand for the manufacturers of security equipment.

What is the opportunity? To meet the projected demand, the Ministry of Civil Aviation is taking a lot of initiatives. With the Ministry announcing 500 new airports (as of now there are only 80 operational airports in the country and approximately 30% of them handle more than 90% of the trafďŹ c) by the end of year 2020 and some of the old ones getting a face lift, airport infrastructure and security has become a hot area. Security is anyway a sensitive issue, especially in the face of a growing threat of terrorism.

DARE.CO.IN

opportunity/security According to a report by Frost and Sullivan on the Asia-Paciﬁc airport security equipment market, most of the security demand is likely to focus on high-tech equipment, such as digital surveillance technology, ﬁre and explosive detection equipment, perimeter control equipment, network technology for inspection control equipment, and warning systems.

The procedure The security equipment to be deployed at airports is bought by the airport operator. There are two kinds of airport operators—government operators, like the Airports Authority of India, and private airport operators, like in Delhi, Mumbai, Cochin, Bangalore and Hyderabad. For buying the equipment required by the airport, these operators have

DARE/estimates Projections for 2010

500 100 million 3.4 million tones

Fully operational airports

Total passengers

Cargo

DISCLAIMER: This data and analysis are indicative and CyberMedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.

to follow the guidelines set up by the Bureau of Civil Aviation Security (BCAS). BCAS is an autonomous government body that is in charge of setting the standards for security in the civil aviation industry. It is this organization that issues guidelines for airport operators to keep in mind while going for security equipment. These guidelines are generally in the form of technical specifications and parameters of security. Says HJ Dora, Head in Security, GMR, “BCAS provides us with the parameters and we issue tenders. After the applications arrive, we judge them against the parameters provided by the BCAS and list down those who meet them and also our specifications. Choosing a supplier is entirely an airport operator’s decision. No government body deals with it. The government’s role ends with laying down the parameters”. Sometimes, however, the parameters set by the BCAS can also define the number of equipment required. For instance, if the BCAS specifies that there should be a watchtower at every 100 meters, then this specification makes it clear that the operator has to have a particular number of those to follow the parameter set by BCAS. In case of small requirements mostly a national tender is floated, and in case of large requirements international tenders are floated. An airport operator cannot buy the requirements without following the procedure of a tender. Though the final selection is the operator’s prerogative, it still has to follow the process of issuing tenders. Also, insiders say that single tenders are not viewed positively in this industry. Single tendering means sending the tender to one particular party. The suppliers and manufacturers are in touch with BCAS, which makes it easier for them to manufacture equipment according to the set parameters. The process of procuring the equipment takes some time, which often leads to delay. Explains Dora, “It takes some time to procure the equipment since it is a long procedure. It happens in a phased manner”.

Airport security has become a very large business and as new technologies keep coming up and the existing ones keep getting upgraded, the demand for equipment is always there. — H J DORA EXECUTIVE DIRECTOR (SECURITY & VIGILANCE), GMR The new airports being built have an individual capacity to handle more than 40 million passengers and one million tonnes of cargo annually and the number of aircraft ﬂying is going to touch 1,100 before the Commonwealth Games begin. The need for security equipment, therefore, is growing in tandem with the growth in the number of airports and travelers. The demand is not limited to the new airports. From time to time, airport operators have to upgrade the equipment to keep abreast with the changes in technology. Says Dora, “Airport security has become a very large business and as new technologies keep coming up and the existing ones keep getting upgraded, the demand is always there. All the airports are constantly upgrading their security and equipment, and this forms a major part DAR E [of the demand]”. APRIL 2008

DARE.CO.IN

interview/INSEAD

A pan-Asian VC’s perspective on India /Philip Anderson

he venture capital industry has expanded dramatically in the last few years, and DARE has brought you insights and advice from several India-based investors (for example, see “What is your VC looking for?” in the March, 2008 issue). In addition, more funds with a pan-Asian or even global scope are devoting attention to India, sometimes operating from offices in the country while in other cases reaching out from Europe, the US, or elsewhere in Asia. Do they use similar investing criteria? How do they compare opportunities in India with those elsewhere in Asia? Byron Askin is one of the more experienced foreign venture investors in India. Operating in the region since 2003, he now oversees five India-based portfolio companies at different stages. As Senior Director and Head, South Asia of JAFCO Asia, he covers India, Southeast Asia, and Australia from his base in Singapore. JAFCO Asia has become a leading brand in venture capital since raising its first fund in 1990, with offices in Hong Kong, Taipei, Seoul and Beijing as well as Singapore. It has more than $650 million under management and has invested in more than 100 companies in the Asia region. In this comprehensive interview, we aim to give you an insight into how an experienced and active foreign investor thinks about today’s Indian venture capital scene and how it has evolved in the past five years.

How did you get into venture capital and join JAFCO Asia? I grew up in the US and earned a bachelor’s degree in Industrial and Operations Engineering at the University of Michigan before working at Whirlpool 80 APRIL 2008

as an engineer for three years. I then returned to Michigan for my MBA and spent seven more years with Whirlpool in a business development and marketing role that transitioned into mergers and acquisitions in India and China. I worked in Singapore, Hong Kong and Shanghai, and spent six months in Delhi in 1994 as part of the integration team when Whirlpool acquired Kelvinator’s operations from Electrolux. In 1998 when Whirlpool planned to send me back to the US, I wanted to stay in Asia and work in venture capital. My father and sister are entrepreneurs and my father thought I should be one too. I think venture capitalists tend to be a bit entrepreneurial, and I picked the sector because I had M&A experience and I like working with young companies and seeing them grow.

When and how did you and JAFCO Asia start investing in India? I spent my first five years with the firm starting our venture business in Israel, operating out of Singapore. We had a number of good exits there including one NASDAQ listing and a number of trade sales. Eventually I decided it was too far from Singapore and I wanted to build something new. India seemed like an incredible opportunity that no one was looking at and I had experience there, so I founded our venture business there in 2003. JAFCO Asia was originally a growth capital investor that shifted in 2000 to earlier stages with a technology focus. We invested in an India private equity fund in the mid-1990s to help us develop deal flow and contacts. But at that early stage, we never had a dedicated team devoted to the market, so the investment pace was slow. I had quite a

interview/INSEAD

DARE.CO.IN

The ideal investment will be a company that has a defendable business model and is in an emerging industry sector. I like companies that have passed some of the early difďŹ cult times and have proven the business model to some degree.

JAFCO Asiaâ&#x20AC;&#x2122;s Byron Askin APRIL 2008

DARE.CO.IN bit of experience in traditional venture investing in Israel, and pointed out to my partners that we were investing aggressively in places such as China, Korea and Taiwan but might be missing an opportunity in India.

2003 was a bit early for pan-Asian funds to come to India. Why did you start investing then? We realized in 2003 that we just could not pass up the India opportunity. We were seeing good success in China, and given our Asian mandate, it made a lot of sense to get more active in India. We timed things right, missing the dot-com bust, and began to see increasingly interesting opportunities with few players in the market because we were ahead of most other participants, especially the American ﬁrms. We have always had a pan-Asian view, so we had our eye on India and the year-over-year growth in the IT services sector was very exciting. We were inﬂuenced by what was happening in China and we felt that India was a similar story, transitioning from export-led growth to more domestic consumption.

Why didn’t you open an office in India? We wanted to build a base of investments first, and Singapore is quite close. I have worked in India for more than 15 years and have a network there. We felt we could explore opportunities in India in a low-risk way, and the flight time from Singapore to Bangalore is no different from the flight a board member would make from, say, California to Chicago. I think at some point in the not-too-distant future we’ll open an office in Bangalore or Mumbai, but I would argue that reaching India from Singapore is not like flying from the US or London.

How has the India venture capital investing scene changed since you started investing in 2003? One of the biggest changes certainly is a dramatic increase in the number of local venture capitalists and the local teams of global VC players who have set up in India. The amount of venture 82

APRIL 2008

interview/INSEAD money available is much, much larger. I think it has been true that there was a shortage of early-stage investors, but it seems reasonably well-balanced right now. I don’t see a need for a lot more money in India at this stage, though in 2-5 years the amount needed will change a lot. If more money came into India now, it would be detrimental to the market.

What changes have you seen since 2003 in the Indian entrepreneurial companies you meet? Earlier, the deal ﬂow was much smaller and was limited to more traditional

I think there is a strong herd mentality in my business. In the dot-com era everybody had to have certain types of companies in their portfolio. The key is to look for businesses in which you really believe there is money to be made. Indian IT sectors such as business process outsourcing and IT services. Now I see all kinds of opportunities ranging from the Internet to software to semiconductors and many other sectors. This is good for the venture ecosystem and will foster more rapid economic development for India. In addition, it is rare now to see companies that focus only on India. You see a lot of US-India platforms that might also have an operation in Europe or somewhere else. There is a trend for bigger companies in India that are funded by private equity to look for acquisitions abroad, and for earlierstage companies to talk about using acquisitions to grow faster and gain market access.

Are the entrepreneurs themselves different from what you were seeing in 2003? There are more people returning from abroad. A lot of people who were in the US for 10-20 years are coming back and are happy about that, both from a personal point of view and because they see great opportunities in front of them in India. We are also seeing more entrepreneurs who have done it before in India, but in a smaller way. In the past, there were a lot of real entrepreneurial companies that had to get profitable or go out of business; the tradeoff is that such companies usually grow slowly. Today you can build a business in the venture model, where you raise capital and invest more aggressively, resulting in more rapid growth. I am seeing more complete teams now than I did in 2003. There is now a segment of people in India who want to work for a more dynamic company instead of being just a number in a big company, so we are just starting to see more firms that have a supporting cast with industry experience. It’s a slow process, but it’s definitely happening. I think the Indian venture opportunity is still in the first inning; it is still very young and there are tremendous opportunities for entrepreneurs in India today.

What do you look for when deciding to invest? JAFCO Asia is a technology investor and we are more focused on information and communication technology (ICT). We still like the services sector but prefer ﬁrms that are moving up the value chain or have a unique business model around services instead of providing generic IT services. A plain vanilla offering won’t work today from an investment point of view. Vignani, one of our portfolio companies, is a good example of what I like, a company that provides mechanical and electrical engineering services for the semiconductor capital equipment industry that has a unique, specialized value proposition. The ideal investment will be a company that has a defendable business

DARE.CO.IN

interview/INSEAD model and is in an emerging industry sector. I like companies that have passed some of the early difficult times and have proven the business model to some degree. I am not looking to invest at the “bleeding edge” of technology in India. I particularly like investment opportunities where growth is derived from increasing Indian domestic consumption, rather than exports. Where I have invested in businesses that are linked to domestic demand, they grow faster than those that are more export-oriented. For example, Microqual, is the fastest-growing firm in our portfolio because they benefit from rising demand in India’s mobile telecommunications.

How do you structure your participation in the deals you back? A typical investment round for us will raise $8-$15 million in total of which we’ll put in $3-$5 million. I’m openminded about the stage of the company. I have funded both pre-revenue and larger, later-stage companies that were already proﬁtable. It’s more about the attractiveness of the opportunity, from the terms of investment to the quality of the business itself. I like to lead every investment we make and play an active role on the board. Leading a funding round allows me to structure the investment in a way that will lead to a good result for the investors and founders. I have been in venture capital long enough to know the kind of structure I want. There are some structures VCs have put into place from time to time that I don’t like because they are too punitive toward the founders.

where there is a limited copper wire infrastructure. There is very little broadband in India, and Wimax is the logical way to roll that out rapidly. When you combine Wimax with low-cost PC’s, we think we will see rates of growth that will remind us of how mobile phone subscriptions expanded. Microland is a Bangalore-based company whose third round of funding we joined in August, 2006. It was founded by Pradeep Kar, a famous serial entrepreneur, to do outsourced IT infrastructure management, which is an emerging sector in India. We manage all of GE’s email servers, for example, and the company is growing very nicely. Vignani Technologies in Bangalore focuses on providing mechanical and electrical engineering services to the capital equipment industry, with an initial focus on the semiconductor capital equipment sector. They do outsourced

engineering for companies such as KLA and Applied Materials and are growing very nicely. We led the series A round in September, 2006 because I was convinced by the entrepreneur and the concept. He had set up the Indian operation for a large semiconductor capital equipment company and had the whole package: good seed investors, a supporting team, and quite a number of marquee customers, though they were not yet large accounts. It is also growing very well. In June, 2007 we co-led the series A round for Microqual Techno, based in Mumbai, which makes passive microwave components used in mobile telecom base stations. As the number of subscribers in India grows, there is a dramatic need to increase the number of towers and cell sites, so they are leveraging the rapid growth of the country’s mobile phone network. They were a young but proﬁtable company that

What Indian portfolio companies have you chosen to invest in? We invested in Telsima in December, 2004. They are headquartered in Sunnyvale, California, with operations in Bangalore and Slovenia, and are now one of the leading Wimax equipment companies in the world. I led the series C round as the investment thesis was compelling. The company has strong leadership and a unique business plan focused on Wimax for India, APRIL 2008

DARE.CO.IN had good customer relationships and a strong order backlog, so I could talk to customers and conﬁrm they had the business they said they were going to have. We led the B round of funding for Mistral Solutions in January, 2008. They are a Bangalore-based company that designs embedded software that sits on a semiconductor and helps it run within a consumer electronics device, defense electronics system, or automotive electronics setting. The company has grown each of the past ten years and has been proﬁtable each of the last four years. I saw that with some additional capital, we could help expand its growth rate, and it links nicely with our position in Taiwan, Korea and China, where they have customers.

Which sectors do you see as particularly promising in today’s India? I like the consumer-related sector in India and still believe that the services model has a long life left. The dramatic growth of the middle class is driving a lot of increased consumption that is insulated from currency fluctuations. I have mixed views on Internet-related businesses, since broadband penetration is still quite low in India, but retail is pretty interesting if there is a technology angle or a mix of online presence with bricks and mortar. It moves in the right direction with the increase in salary levels in India. Export-led IT services businesses are hurt as salaries go up, but that trend means there is more income to spend on consumer businesses. I think services companies in India have moved beyond delivering just cost arbitrage. They are experts in their fields that can still deliver value at lower cost. One issue is increasing wage rates, but companies are only in the early stages of moving out to parts of India where wages are still attractive, and it seems to me there is still a large underlying supply of talent available. Companies in the West still need to reduce costs, and Indian companies are finding more clever ways to cut costs in India. Knowledge process outsourcing in areas such as real estate, legal or other professions is growing nicely. 84

APRIL 2008

interview/INSEAD Many foreign venture capital ﬁrms have not been too successful in India. What should they focus on to succeed in this market and contribute to India’s growth? I am not sure foreign VCs have performed poorly—I think it is too early to say. I think there is a strong herd mentality in my business. In the dotcom era everybody had to have certain types of companies in their portfolio. The key is to look for businesses in which you really believe there is money to be made. It may sound simplistic, but even in India I have heard VCs say that “we had to have one of these in our portfolio.”

I think services companies in India have moved beyond delivering just cost arbitrage. They are experts in their ﬁelds that can still deliver value at lower cost. In my view, the key is to put special emphasis on managing risk. I believe there is no reason to take too much risk in a market that is growing 8-10% a year. The key is to invest into growing businesses with moderate risk levels. One key risk to avoid is investing too early in a company—let it develop a little. Another risk to avoid is trying to predict too rapid changes in consumer behavior or behavior in general. Ideally I’d like to see a company reach a point where it’s commercial and you can see how behavior has changed, because it always changes more slowly than people think. A third key is not investing on too much technology risk. Investors shouldn’t try to force an IP-driven venture model onto India. Doing that too aggressively is a way to lose money. Let’s not forget that we got where we are on a services model and lower-cost structure. A gradual shift toward more

IP-based value creation is natural, but for me it will be at a measured pace. It is not easy to create products and it will take time. You need people and experience sets for that kind of venture.

How does JAFCO add value to your portfolio companies? We have a great network in East Asia, which is a strength most VCs don’t have. We have operations in China, Korea, Japan and Taiwan and can help Indian companies work with these markets. Intra-Asia trade is increasing at a rapid pace and is where younger Indian companies should focus. As the types of businesses in India change toward product companies or higher value-added services, East Asia becomes increasingly relevant. For example, chips might be designed in India, fabricated in Taiwan, packaged in China or Vietnam, and tested in Singapore.

Since JAFCO invests throughout Asia, what are India’s strengths and weaknesses compared to other countries in the region? The East Asian markets have proven themselves to a greater degree. The exits out of China in recent years are astonishing. In general, I believe that companies in East Asia move at a faster and more efﬁcient pace. But ultimately, I believe Indian companies will create much greater value. Indian management is especially strong, and there is a greater focus on IP creation. This will result in an incredible level of wealth creation in coming years.

What advice would you give Indian entrepreneurs who want to start businesses today and get on your radar screen as they grow to the size that suits your investment proﬁle? Build relationships with proven entrepreneurs and business people. Solicit their advice regarding your business plan and give them an incentive to stay involved in your business and help you. I think it takes a strong eco-system of friends and close business contacts to build a company rapidly. Be aggressive, not overly conﬁdent, and thoughtfully DAR E manage business risk.

SMS “DARE <your comments, questions or suggestions>” to

56677 or Drop us an email:

dare@cybermedia.co.in

DARE.CO.IN

tips/startups

What’s in a

name? A lot by the looks of it! That’s what we found when we went about asking the rationale behind entrepreneurs’ naming their businesses

/Shilpi Kumar

he ever so classical quote from William Shakespeare’s Romeo & Juliet may sound sweet to the ears, but naming businesses is a completely different ball game. For many entrepreneurs, choosing the ‘perfect name’ seems to be more difficult than the thought of rolling out their business. While some stick to the obvious, others prefer bringing in philosophy, or just simply playing with words. Then, there are some really interesting names such as Apple, Orange, Virgin, Sun, etc that made it really big. Apparently, there is no thumb rule in arriving upon a perfect name. This piece walks you through different lines of thoughts, and might just help you when you set out to name your company. Ask Rana Kapoor, founder of YES Bank, about the thought process behind naming his bank and he says, “For a greenfield venture, significant strategic thought-process and investment are required to create and establish the brand name as a financial trust mark. This is crucial, particularly in the context of financial services”. The name YES Bank was apparently conceived after many rounds of brainstorming and was put through rigorous market research. Kapoor explains the chosen

88 APRIL 2008

name, “YES is an afﬁrmative word that has a huge positive attached to it. It implies action and dynamism and in summary creates a philosophy within the bank that is customer-centric. Apart from all of this it gives an international feel and is yet very simply understood in all parts of the country and the globe”. Talking about bank names, the reason behind naming Dena Bank (give) is more obvious. The name SpiceJet came into being with a simple thought. “The inspiration for the name and the logo was the traditional spice-box that is found in Indian kitchens. The colors represent burnt chili, saffron and turmeric,” says Deepa Dey, GM, Communications and Organizational Culture, SpiceJet. “The word spice is an intrinsic part of Indian

culture, while jet deﬁnes the industry in which we are and also brings with it a sense of movement, speed and abundance of energy,” says Dey. If you think the name Vishal Retail has something to do with the owner, you are mistaken. Vishal, in Hindi, means huge, and stands for the dream and plans of Ram Chandra Agarwal, Founder, Vishal Group. On the other hand, Emmay HR, a recruitment company, did derive its name from the initials of its entrepreneur, Monisha Advani. The reason, mentions Advani, is a promise she had made to herself as a child to start a company and name it after herself to act as a legacy to leave behind. Coming to online networks, Orkut was simply named after the Google

DARE/basic checklist • Simple to remember and recall • Flexible for growth into other areas • Speaks about your target niche, philosophy, etc • Clariﬁes what your business does • Can be trademarked • Does not have a negative connotation in any other language • Should not sound like any other name

DARE.CO.IN

tips/startups engineer who developed it, Orkut Buyukkokten. “Orkut is easier to spell and pronounce than Buyukkokten,” they say on their site. The online photo sharing website Flickr has a much different tale. Founder of Flickr, Stewart Butterfield mentioned the following in an interview with CBSNews: In an age of curious-sounding website names, Flickr came largely by accident. The domain owner of flicker.com wouldn’t sell, so Caterina, Butterfield’s wife and cofounder, suggested Flickr, which Butterfield says made the service stand out. “We always had to spell it out for people, which helped make it stick,” says Butterfield. Indian online community networking website ibibo was named by abbreviating their baseline “I Build, I Bond”, informs Vivek Bahl, General Manager, Community Marketing at ibibo. The name also suggests the paradigm of the next wave of Internet and a shift of power in the hands of the consumer. Some examples of interesting names in the Indian travel and transport industry are those of Meru and Forshe call-taxi services. According to ancient Hindu texts, it is believed that a mountain called

Meru is the epicenter of the entire universe and is the abode of Lord Brahma as well as several other gods and goddesses. When the sagar manthan (the churning of the oceans) took place, it was Meru that withstood all the turbulence. Thus, Meru, the brand for V-Link Taxi Services, symbolizes the company’s promise of unshakeable reliability to its customers. On how and why Forshe became the name of her company, Revathi Roy says, “Our brand was earlier called Forsche, which was a play on the German car Porsche. We pronounced it as for she. Later, we changed it to For She. The service is for women, hence the name”. Like Meru, there are many companies whose names originate from mythology and ancient languages, like Sanskrit. EKA Software is a provider of commodity trade and risk management software. The name Eka is actually derived from the word Ekam, which means uniﬁed or integrated in Sanskrit. It signiﬁes the organizational intent to provide a single-platform solution for managing trade and risk across commodities, industry verticals and business segments. Avhan Technologies, which is a technology and software provider to call centers in India, also gets its name

DARE/names gone generic A few brands that have become synonymous with the product category they represent. Brand

Company Name

Generic Name

Aspirin

Bayer

Acetylsalicylic acid

Band-Aid

Johnson & Johnson

Adhesive bandage

Dalda

Hindustan Lever Ltd

Vanaspati

Frisbee

Wham-O

Flying disc

Ipod

Apple

MP3 player

Jacuzzi

Jacuzzi Inc.

Hot tub

Kleenex

Kimberly-Clark Worldwide, Inc.

Facial tissue

Post-it

Sticky notes

Surf

Hindustan Lever Ltd

Washing Powder

Xerox

Photocopier

Agarwal Sweets

Various

North Indian Sweets

YES is an affirmative word that has a huge positive attached to it. It implies action and dynamism and in summary creates a philosophy within the bank that is customercentric. — RANA KAPOOR FOUNDER, YES BANK from Sanskrit. Anand Awasthi, founder and CEO of Avhan, shares his thoughts, “Avhan means challenge. We had no experience in business and everything was going to be a challenge for us. Being first generation entrepreneurs, conducting business itself, was going to be a challenge. Also, we were attempting a business in an area (software product) that was not explored in India earlier. Avhan fit the bill perfectly!” Fashion, apparel and accessories entrepreneurs obviously show their creativity not only in the work they do, but also in their take on names. Says Dilip Kapur, president of HIDESIGN, “When I started the company I had in mind the design aspect of leather. Hence it started as Hide Design and I liked being able to graphically combine the ‘de’ twice. The playful tension on whether it should be Hi Design or Hide Sign is fun and interesting”. APRIL 2008

DARE.CO.IN

tips/startups

DARE/names changed over time International Business Machines Corporation

IBM

Imperial Tobacco Company of India

ITC

The Associated Cement Companies

ACC

Industrial Credit and Investment Corporation of India

ICICI

Kentucky Fried Chicken

KFC

Deepti Panuganti, the founder of Ask Why Not fashion store, wanted to convey a series of questions to her customers, through her store’s name. She explains, “AWN is not just another wild name. Its about questioning why things are the way they are. Why are clothes either too simple or too garish? Why are they either great and unaffordable or affordable but mediocre? Why do we purchase clothes by rejecting the ones we dislike and not by selecting the ones that we love? Can it be otherwise? We said ‘ask why not?’ And here we are… a store with multiple offerings for women!” For Amit Ladsarla, director of Turtle, a men’s apparel brand, the name was all about symbolic representation. The name was chosen because turtles symbolize longevity, strength, endurance, wisdom, patience, shielding, perseverance and slowing down to enjoy life. “No matter how tough things become or how extreme the situation, the turtle always stays calm. And if you are calm, you live longer. The turtle is self reliant, creative and plans its steps out beforehand. There’s no hurry, things will get done, but are done right the first time,” he says, “This is what our company and our brand stands for — endurance, strength and balance, mixed with a quiet simplicity. This is why the name Turtle stands apart from the rest”. Kryzliz is a design firm based in Gurgaon. The entrepreneur behind it, Mahesh Sharma, was looking for a name that would convey to his customers that the firm can bring beauty to any kind of content. The name is derived from chrysalis, the process of a caterpillar growing into a beautiful butterfly. The spelling was modified with K and Zs 90 APRIL 2008

to make the name unique and make it stand apart. We saw some more unique thought processes of Indian entrepreneurs in choosing the name for their companies. Evoma is a hotel with business incubation facilities for startups that do not have their own office. Kameel Vohra mentioned searching the web for a unique name for this venture. He came across a directory of business names that did not mean anything specific, and weren’t being used anywhere else. “We wanted to have a name that is unique, because we wanted the word to mean nothing but our business name,” says Vohra. Aloke Bajpai, founder of iXiGO, was looking for an abstract name too. “We wanted our name to be strikingly different from the existing clichéd names in the online travel world. We also wanted the name to reflect the Web 2.0 philosophy of our product. Having a name analogous to ‘easy go’ conveys the intuitive ease of use of our product, with the ‘go’ underlining the spirit that an innovative travel search engine needs to have,” he said. Incidentally, the name does read like I X, I Go. Then there is Ask Laila, an Indian local information service. The story behind their quirky name lies in their belief that like an individual, every company gets an identity from its name. The name encapsulates the attributes and services of a company and helps in brand recall. Laila, they say, resembles the girl next door, neigh-

DARE/web 2.0 abstract names Del.icio.us

ibibo

iXiGO

Digg

Jaxtr

Syndic8

Flickr

Orkut

Zooomr

Our brand was earlier called Forsche, which was a play on the German car Porsche. We pronounced it as for she. Later, we changed the name to For She. The service is for women, hence the name. — REVATHI ROY FORSHE TRAVELS AND LOGISTICS bor, philosopher, guide, obsession or a friend who has answers for all your city-related queries. Raghav Kher of Seventymm wanted the company to have a name that was very ﬁlmy, catchy, and easy to remember, and also wanted it to convey the largeness of the concept. “We looked at quite a few options—Seventymm, Funush, Chilldil and Chilldom, ” he recalls, “We took the internally shortlisted names to a cross section of potential consumers across multiple cities and got their opinion on each one of them in light of the product concept. The name that stood out was Seventymm. So, we all agreed — Seventymm it is!” These are only a few gazillion business names that exist out there and each one has its own underlying story, philosophy, dream, or logic. If you are looking to name your startup and struggling with the idea, just remember that there is no set criterion. All you have to do is let your thoughts loose and think out of the box. D A R E

DARE.CO.IN

/straight talk

“

Can creativity be taught?

”

Raman Roy

“ I

Chief Executive Officer Quatrro BPO Solutions

think creativity is more of a mind game than something limited to being creative to ﬁnd a

”

particular solution. It goes right in to basic things like what you eat and how you eat, how you

dress and how you live. There are standard exercises that make people ﬁnd creative solutions to day-to-day issues.

APRIL 2008

SMS “DARE <your comments, questions or suggestions>” to

56677 or Drop us an email:

dare@cybermedia.co.in

“ “ “ DARE.CO.IN

/straight talk

ﬁnd people are naturally creative, but many lock it up inside themselves. Formal creative exercises can help them loosen up. I start off by giving people creativity tools that will make them hang their head on. Tina Seelig Brainstorms, metaphors and mind mapping Executive Director are effective ways of stretching their Stanford Technology Ventures Program creativity. Unlike a workplace, where people are more risk-averse and therefore less creative, an academic course provides a controlled environment where they can experience and experiment being creative without any fear of a downside. We start the course with focus on individual creativity and then extend it to creativity in the organization. We give them something different to do everyday. We do everything from traditional case studies to a lot of experimental work, including projects and ﬁeld trips. In addition, we make them maintain a creativity portfolio where they record a list of things that trigger creativity in their environment. We also have research assignments that cover creative companies, and we encourage them to make their presentations as innovative as possible.

”

built the foundation of my creative career in National Institute of Design, where I was exposed to different streams of design. More than the skills, I am grateful for the exposure it has given Preeti Vyas Giannetti me. Grateful for breaking boundaries. Chairperson and Chief Creative Officer I didn’t just see till the next yard, I saw Vyas Giannetti Creatives across countries, across continents and deep within my own culture. It was a very intellectual process. It encouraged me to take responsibility for something much larger than doing a little piece of prettification design. I think it is the thinking and analytical capabilities that I picked up at NID that have brought me this far. I learnt the real skill of creativity from Mohammad Khan during my four year internship at Contract Advertising. It is difficult to teach. Creativity is an abstraction. You may find something creative which I may not or he may not. But at some point we all tend to agree that yes, this is sparkling. To be able to teach that is difficult. You can only teach that by osmosis.

think courses in creativity are good for a

”

fundamental reason. I would treat them as holiday breaks. It helps you to get away from what you are doing. More NEN Straight Talk available at www.nenonline.org 94

APRIL 2008

R Balakrishnan (Balki)

”

National Creative Director Lowe India DAR E

DARE.CO.IN

Going Green: The buck stops here Young people capitalize on sustainable development Hey You / Don’t you give up / It’s not so bad / There’s still a chance for us…

emember this song from the Live Earth concert? Would you have ever believed that Material Girl Madonna could actually compose a song to save Planet Earth? Or that leading venture capitalist Vinod Khosla could be cleaning up water supply? Not so long ago, environment preservation was the bastion of tree-huggers. Today, it is not World Wildlife Fund and Greenpeace but New Ventures Inc and Cleantech Ventures that are spearheading the Go Green movement. What has triggered this change? The answer is obvious. Environmental concerns are no longer limited to geologists anxious over shrinking continents and changing climate; it’s crossed the doorstep and entered our lives. Whether it is the fast depleting energy resources, or unchecked carbon emissions, or indis-

criminate tree cutting, we are all being affected by it. Ironically, in India it is the rapid economic growth and new wealth that is fuelling these problems. The quest for a better quality of life without compromising on the environment quotient is the biggest challenge we face today. The search for solutions has created enormous business opportunities. Recently, Nobel Peace Prize winner Al Gore predicted that India could lead the world in renewable energy technologies. Agreeing with him is Nicholas Parker, Co-founder and Chairman, Cleantech Group, who in a recent article cited: “The Indian cleantech market is primed for substantial growth, especially within the clean energy and water sectors.

NEN is India’s leader in entrepreneurship education, with over 350 academic institute members, and reaching more than 3,00,000 young people. New and future entrepreneurs can access NEN’s support through. www.nenonline.org

NEN Announces Entrepreneurship Week India 2009 It’s not every day that more than 2,00,000 young people turn out to support entrepreneurship. Maybe one could expect it for a concert; maybe a demonstration; certainly a world cup match! But entrepreneurship? The sheer volume of participation in Entrepreneurship Week India 2008 awoke in all of us – across the NEN community – a heightened sense of responsibility: Towards these young people, and towards the future. The question raised by many was: How can we use the power of E Week to tackle the hardest problems, and help future entrepreneurs prepare for the best opportunities? The proposal was that each year, E Week should focus on a sector presenting us with some of the greatest challenges, and therefore the greatest opportunities of our time. Therefore, we are delighted to announce that the next Entrepreneurship Week India, to be held on February 7-14th 2009, will challenge us all to: Go Green! Because the world is our business. Rapidly growing economy, an increasing population, and limited availability of natural resources are leading India to a pivotal point, where the environment and clean technologies converge to become the driving force behind every aspect of Indian business.” Venture capitalist Mohanjit Jolly of Draper Fisher Jurvetson is seeing a momentum towards go-green via both push and pull mechanisms. According to him, companies want to be seen as proponents of the go-green movement because it makes good business sense and it could lead to new segments within existing businesses. Also, consumers are leaning towards brands and businesses that they perceive to be on the right side of the eco universe.

96 APRIL 2008

DARE.CO.IN A student of Pailan School of International Business shares her concern about the environment through a poster

Take the case of ‘green dating’. Young couples are now excited about making eco-friendly proclamations of love. By selecting an eco hotel over other vacation options, by choosing to take public transport over driving a car, by gifting saplings instead of ﬂowers, they have created a brand new market. Success stories around ecopreneurship are being steadily written. Dlight Design is creating an efﬁcient LED lighting and power management system for the rural populous. Deeya Energy has developed an energy storage system as replacement for diesel-guzzling gensets. Bangalore-based com-

pany Biodiversity Conservation India Limited has now created a novel system that allows air cooled in pits below the ground to circulate within buildings, thus providing a cheap and renewable replacement to air-conditioners. Electric car Reva has been a hit globally. According to its founder Chetan Maini, bringing down pollution levels was just one of the beneﬁts. “We realized that building sustainable solutions focused on environment made the most long-term business sense,” says Maini. Ecopreneurial thinking is reaching campuses as well. With environment related opportunities set to get bigger

and better in the near future, students who are aspiring to be entrepreneurs understand its scope. There is a lot of innovation that can be done in manufacturing techniques and mass market applications for clean water, power, transportation, manufacturing and waste disposal (which can be turned into fuel). “The need for sustainable solutions will get stronger in the coming years. Going green will pay in the long run,” says Nambiraj, a student of SRM School of Management. Students are already preparing themselves to lead the green movement of tomorrow. NSHM Knowledge Campus in Kolkata has formed an Ecopreneurship Club whose agenda is to promote biodegradable products. Mount College and Jyoti Nivas College in Bangalore have set up units that recycle used papers to develop notebooks. Jai Hind College students in Mumbai have come up with a business idea of packaging mineral water in a matka instead of a plastic bottle. Another group is building an Eco Box, a solid waste management system that aims at reducing and reusing plastic trash. Rucha Joshi, a biotechnology student at Kolhapur Institute of Technology is now patenting her low calorie biscuits, made out of banana peels. She got her idea from the large garbage dumps at her neighbourhood vegetable market. Meanwhile, Vijay Gophane of Centre for Management Research and Development, Pune has started his own venture producing sucrose and ethanol using eco-friendly processes. Students of SRM School of Management in Chennai are experimenting with ﬁre-free cooking. Jolly sees a lot of hope in young India. “India is a young country, and more often than not, the changes in behavior are catalyzed by the young who are not set in the old ways, cause change to happen, and adapt to change a lot more easily. I feel we will be at the forefront of not only eco-innovation per se but also the mass deployment of ecofriendly innovations, products, procDAR E esses and services,’ adds Jolly. Content provided by NEN APRIL 2008

Organizations DARE.CO.IN

covered in this issue, in alphabetic order; ﬁrst appearance

3M...................................................... 89 ACC .................................................. 90 Acer Technology Ventures Asia Paciﬁc ........................................ 16 Action Construction Equipment ......... 57 Air Deccan ......................................... 27 Airports Authority of India .................. 26 Akruti City ......................................... 72 Allahabad University .......................... 59 Allcargo Global Logistics Ltd ............. 73 Amazon ............................................. 18 Ambassador’s Sky Chef .................... 26 Amity.................................................. 35 Apple ................................................. 89 Applied Materials ............................... 21 Ask Laila ............................................ 90 Ask Why Not ...................................... 90 Aspirin................................................ 89 Attakkalari Centre for Movement Arts...... 10 Avhan Technologies ........................... 89 Baidu ................................................ 63 Ballarpur Paper Holdings .................. 72 Bank of America ................................ 59 Bayer ................................................. 89 Bharathomestay ................................ 30 BHEL ................................................ 57 Biodiversity Conservation India Limited ...................................... 97 Blackstone ......................................... 73 Bombay Stock Exchange................... 66 Bureau of Civil Aviation Security (BCAS) .............................................. 79 Café Coffee Day ................................ 27 CAFS ................................................. 28 Caterpillar ......................................... 57 Cayenne ............................................ 47 Centre for Management Research and Development............................... 97 CII ..................................................... 57 Cisco.................................................. 63 CKS Partners..................................... 18 Cleantech Group ............................... 96 Cleantech Ventures ........................... 96 ClearTrip ............................................ 61 Comfort Homestay............................. 30 Compaq ............................................. 67 Computing Tabulating Recording Corporation ...................... 54 Contract Advertising .......................... 94 Crompton Greaves ............................ 41 CRY ................................................... 19 De Havilland Canada......................... 24 Deere ................................................. 57 Deeya Energy .................................... 97 Del.icio.us .......................................... 90 Dena Bank ........................................ 88 DFJ Ventures ..................................... 60 Digg ................................................... 90 DLF .................................................... 71 Dlight Design ..................................... 97 Draper Fisher Jurvetson .................... 96 eBay .................................................. 63 Edelweiss Capital .............................. 72 EKA Software .................................... 89 Electrolux ........................................... 18 ELICO .................................................. 9 EmaarMGF ........................................ 71 Emmay HR ........................................ 88 Empower Research ........................... 64 98

APRIL 2008

Enercon ............................................ 57 EnerNOC ........................................... 63 Escorts Construction Equipment ....... 57 Essel Propack.................................... 59 Evoma ............................................... 90 Facebook ........................................... 59 Federation of Indian Micro and Small and Medium Enterprises ........... 8 FICCI ................................................... 9 Flickr ................................................. 89 Flora2000.com................................... 37 Forshe ............................................... 89 Frisbee............................................... 89 Frost and Sullivan .............................. 79 GE ..................................................... 83 GMR .................................................. 79 Go Air ............................................... 27 Godrej & Boyce Mfg .......................... 57 Google .............................................. 19 Greenpeace ...................................... 96 HCL ................................................... 18 Helion Venture Partners..................... 65 HIDESIGN ......................................... 89 Hindustan Lever Ltd........................... 89 Hitachi................................................ 57 Hotmail .............................................. 63 ibibo ................................................... 89 IBM .................................................... 54 IIM-Ahmedabad ................................. 66 IIS Infotech ........................................ 58 IIT-Chennai and ................................. 66 Imlata Dance Company of London .... 10 Imperial Tobacco Company of India Limited .................................. 90 Indian Foundation For Art .................. 11 Indian Institute of Technology (Delhi). ......................... 102 Indigo Airlines .................................... 27 Industrial Credit and Investment Corporation of India ........................... 90 Infosys ............................................... 41 Ingersoll-Rand India .......................... 57 Intel .................................................... 18 International Business Machines ...... 54 International Business Machines Corporations ..................... 90 IRB Infrastructure Developers .......... 71 iTrust .................................................. 65 iXiGO ................................................. 90 Jacuzzi............................................... 89 JAFCO Asia ....................................... 18 Jai Hind College ................................ 97 Jaiprakash Power Ventures .............. 72 Jaxtr ................................................... 90 JKT Enterprise................................... 44 Johnson & Johnson ........................... 89 Jubilant Organosys ............................ 41 July Systems ..................................... 16 JumpStartup Ventures ...................... 16 Jyoti Nivas College ........................... 97 Kelvinator ........................................... 80 Kentucky Fried Chicken ..................... 90 Kimberly-Clark Worldwide Inc............ 89 KLA .................................................... 21 Kleenex.............................................. 89 Kolhapur Institute of Technology ........ 97 Komatsu............................................. 57 KPMG ................................................ 57

Kryzliz ................................................ 90 L&T..................................................... 57 Liebherr Intl........................................ 57 Lightspeed Venture Partners ............. 74 Live Media ......................................... 61 Lloyd’s Register Quality Assurance (LRQA) ............................ 28 Lowe India ......................................... 94 LSG Sky Chefs .................................. 27 Mahindra & Mahindra Financial Services ............................ 72 mCheck ............................................. 61 McKinsey .......................................... 57 Meru and .......................................... 89 mGinger ............................................. 61 Michigan ............................................ 18 Microland ........................................... 21 Microland ........................................... 83 Microqual Techno............................... 83 Microsoft ............................................ 18 Ministry of Civil Aviation .................... 78 Ministry of Tourism............................... 8 Mistral Solutions ................................ 22 Mistral Solutions ................................ 84 Moser Baer ....................................... 41 Motorola............................................. 47 Mount College ................................. 97 MTV ................................................... 18 Mudra Institute of Communications ... 65 Municipal Corporation of Delhi ........ 103 NASDAQ ........................................... 18 National Centre for HACCP Certiﬁcation .......................... 28 National Institute of Design ............... 94 naukri.com ......................................... 47 NeoCarta Ventures ............................ 16 New Ventures Inc and ....................... 96 Nexus India Capital ............................. 9 Nokia ................................................. 59 Norwest Venture Partners.................. 74 Nritarutya .......................................... 10 NSHM Knowledge Campus .............. 97 Ogilvy & Mather ................................. 18 OMLogic Consulting .......................... 66 ONGC Videsh ................................... 41 OnMobile ........................................... 66 Orbit ................................................... 47 Orkut .................................................. 89 Osmania University ........................... 18 Overture............................................. 63 Palladium Constructions ...................... 9 Passionfund ....................................... 19 Patni Computers ................................ 65 Peninsula Land and .......................... 72 Pepsi .................................................. 18 Pﬁzer ................................................. 47 Philips ............................................... 45 Pinstorm ............................................ 19 Porsche.............................................. 47 Post-it................................................. 89 PriceWaterhouseCoopers ................... 8 Prithvi Theatre ................................... 10 Quatrro BPO Solutions ...................... 92 Quippo ............................................... 56 Rang Vidushak .................................. 11 Reliance ............................................ 57 Reliance Entertainment to ................ 72 Remington Rand................................ 54 Reserve Bank of India ....................... 76

Reva Electric Car Company .............. 61 S&S Consultants ............................... 45 Sanghvi Movers ................................. 56 Satellier.............................................. 64 Satyam .............................................. 41 Seedfund ........................................... 71 Seventymm ....................................... 61 Shell .................................................. 45 Siemens............................................. 19 Singapore Airport Terminal Services .... 27 Sky Gourmet ................................... 27 Skype................................................. 63 Sona Koyo Steering Systems .............. 9 Southwest Airlines ............................. 47 SpiceJet ............................................. 27 SRM School of Management. ........... 97 St. Joseph’s College .......................... 30 Stanford Technology Ventures Program 94 Subhiksha ......................................... 66 Suminter India Organics ...................... 9 Surf .................................................... 47 Suzlon ............................................... 41 Syndic8 .............................................. 90 Tabulating Machine Company .......... 54 Taj Group of Hotels .......................... 27 TajSATS ............................................. 26 Tata Group ......................................... 41 TCS ................................................... 41 Telco Construction Equipment ........... 57 Telsima .............................................. 83 Terex .................................................. 57 The Casino Group ............................. 28 The Freedonia Group ........................ 57 The Oberoi Group ............................. 27 The Phoenix Mills ................................ 9 Tractors India ..................................... 57 Trikaya Grey....................................... 18 Turtle.................................................. 90 Unilever.............................................. 18 Union Ministry of Tourism .................. 30 Unitech .............................................. 71 University of London .......................... 10 University of Michigan ....................... 18 Vatika ................................................. 72 Views of India – Connoisseurs’ Compendium ..................................... 11 Vignani Technologies ......................... 82 Vishal Group ...................................... 88 Vishal Retail....................................... 88 V-Link Taxi Services........................... 89 Volkswagen Beetle............................. 46 Voltas ................................................. 57 Volvo .................................................. 57 Vyas Giannetti Creatives .................. 94 WestBridge Capital Partners ............ 16 Wham-O ............................................ 89 Whirlpool............................................ 18 WhizLabs ........................................... 66 Wipro ................................................ 41 World Wildlife Fund .......................... 96 Xansa ................................................ 58 Xerox Corporation ............................. 48 Yahoo!................................................ 18 Yatra Capital ........................................ 9 Yatra.com ........................................... 22 YES Bank .......................................... 88 YouTube ............................................. 59 Zooomr .............................................. 90

People DARE.CO.IN

covered in this issue, in alphabetic order; ﬁrst appearance

Ajoy Khandheria ................................ 59 Al Gore .............................................. 96 Aloke Bajpai....................................... 90 Amit Ladsarla..................................... 90 Anand Awasthi ................................... 89 Anmol Vellani ..................................... 11 Anuplal Gopalan ................................ 32 Anurag Jain ....................................... 61 Arun Duggal....................................... 59 Arun Pai ............................................. 19 Arvind Rao......................................... 66 Ashok Arora ....................................... 65 Ashok Narasimhan ............................ 16 Ashwin Mohan ................................... 10 Bansi Kaul ......................................... 11 Bill Gates ........................................... 48 Bob Dylan .......................................... 46 Byron Askin ....................................... 18 Byron Askin ....................................... 80 Chetan Maini ..................................... 97 David Filo........................................... 65 Debjani Deb ...................................... 64 Deepa Dey......................................... 88 Deepti Panuganti ............................... 90 Dhrubajyoti Baruah ........................... 30 Dhruv Agarwala ................................. 68 Dilip Kapur ......................................... 89 Ekta Capor ....................................... 30 Gautam Raj Jain ................................ 65 HJ Dora ............................................ 79 Jayachandran Palazhy ...................... 10 Jeff Bezoz .......................................... 65 Jehan Manekshaw............................. 10 Jerry Yang .......................................... 65 John Scully ........................................ 54 K Dinesh ............................................ 65 Kahlil Gibran .................................... 101 Kamal Nath ....................................... 76 Kameel Vohra .................................... 90 Kapil Gupta ........................................ 66 Kapil Nakra ........................................ 66 Kartik Varma ..................................... 65 Kyung Han ........................................ 64 Larry Page ........................................ 65 M J Aravind........................................ 67 Madhuri Upadhya .............................. 10 Madonna............................................ 96 Mahabir Prasad ................................... 8 Maharaj Inder Singh Wahi ................. 31 Maher Dadha .................................... 10 Mahesh Murthy .................................. 17 Mahesh Sharma ................................ 90 Mayuri Upadhya................................. 10 Michael Jansen.................................. 64 Mohammad Khan .............................. 94 Mohanjit Jolly ..................................... 61 Monisha Advani ................................. 88 Mouli Raman ..................................... 66 Mukesh Ambani ................................. 35 Murali Krishnan.................................. 26 N R Narayana Murthy ........................ 65

Nambiraj ............................................ 97 Nandan Nilekani ............................... 65 Nicholas Parker ................................ 96 Niren Shah ........................................ 74 Nowzer Dudhmal ............................... 26 Orkut Buyukkokten ............................ 89 Pavan Vaish ....................................... 67 Phillip Zarrilli ...................................... 14 Pradeep Chopra ................................ 66 Pradeep Kar ...................................... 21 Pravin Gandhi .................................... 71 Preeti Vyas Giannetti ......................... 94 Purvesh Sharma................................ 66 R Balakrishnan .................................. 94 R Subramanian.................................. 66 Raghav Kher ..................................... 90 Rajesh Reddy ................................... 16 Ram Chandra Agarwal ...................... 88 Raman Roy........................................ 92 Ramesh Datla ...................................... 9 Rana Kapoor .................................... 88 Rehan yar Khan................................. 37 Revathi Roy ....................................... 89 Robert V Schipper ............................. 42 Rohit Chand....................................... 59 Ronald Wayne ................................... 65 Rucha Joshi ....................................... 97 S D Shibulal ...................................... 65 S Gopalakrishnan .............................. 65 Sandeep Singhal ............................... 73 Sandip Chhetri .................................. 31 Sandra Oemrawsingh ....................... 45 Sangeeta Joshi ................................. 64 Sanjay Anandaram ............................ 16 Sanjay Bhasin.................................... 59 Sanjeev Aggarwal ............................. 65 Sanjna Kapoor .................................. 10 Sateesh Andra ................................... 60 Saurabh Srivastava ........................... 58 Sergey Brin ........................................ 65 Sharvan Kumar................................ 102 Shiamak Davar .................................. 11 Shoma Bakre ..................................... 64 Srinivasan Vudayagiri ........................ 73 Steve Jobs ......................................... 65 Steve Wozniak ................................... 65 Stewart Butterﬁeld ............................. 89 Suraj S Nair ....................................... 28 Suresh Arora ..................................... 66 Surinder Kapu...................................... 9 Tarun Tammanna ............................... 30 Tim Draper......................................... 62 Tina Seelig......................................... 94 VB Rajan .......................................... 28 Venkat Tadanki .................................. 67 Vijay Gophane ................................. 97 Vikram Upadhyay .............................. 59 Vinod Khosla .................................... 96 Vivek Bahl.......................................... 89 Warren Buffet..................................... 48 William Shakespeare ......................... 88

DARE is not an acronym. It represents the daring spirit of the entrepreneur. The red color for the R of DARE represents the ﬁre in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R. The entrepreneur dares to do things. (S)he dares to do things differently

SMS “DARE <your comments, questions or suggestions>” to

56677 dare@cybermedia.co.in APRIL 2008 99

DARE.CO.IN

strategy/HR

Entrepreneurship and Talent Management: THE FUTURE OF INDIA Startups in India are redeďŹ ning HR management practices. The riskreward perspective is in

/Gita Dang

100 APRIL 2008

DARE.CO.IN

strategy/HR

ndia is well known for its entrepreneurial and highly-educated talent base, and is the third largest pool of scientists, engineers and technicians, after the US and Russia. More and more attention is being paid to how it will continue to develop its intellectual and managerial talent and management practices in order to achieve an international standard that will take it into the future. The country’s centuries-old history of entrepreneurship across almost every industry sector has been founded on its people’s sound business fundamentals and passionate commitment to success. This article will quickly outline the competencies of top executives at startups today, and the high level of innovation and creativity required amongst HR practitioners seeking to attract and retain top talent to drive the success of nascent organizations in a globalizing Indian environment.

Profile of Successful Entrepreneurs Many startups need help identifying their true talent needs and communicating a compelling vision to potential candidates. A focus on an executive’s mindset, as it relates to their technical and managerial skills, will unveil characteristics that are mission-critical for startups compared to more established companies. Specifically, it is essential to find individuals with: 1. a high level of innovation management to create the new and different; 2. a high degree of personal commitment and courage in the face of seemingly impossible odds—requiring optimism and resilience not to get deflected by the extent of rejection and skepticism that they will inevitably face; 3. personal flexibility and the ability to inspire others around a well defined vision and purpose; and 4. the energy and drive to operate and deliver results in an inherently disorderly and chaotic environment, executing in the absence of an external “organizational” support structure for the daily routine and

mundane tasks necessary to meet the bottom line. Without these traits, otherwise sound and capable executives are rendered completely ineffective in a startup environment. But the challenge doesn’t stop there—after ﬁnding people with these criteria, it is critical for HR managers to take the time to assess their cultural and other ﬁtment with the medium- to long-term strategy of the company. While during the initial stages of operation the cultures of one startup will be quite similar to another, over time they will become more differentiated as the businesses mature, requiring senior managers who embody the corporate ethos.

Attracting and Keeping the Best People Many startups believe that they are in competition with established big brand companies for the best people, which is often an erroneous assumption. In fact, the proﬁle described above of people who aspire to join startups are vastly different from those who want to be part of an established big brand company. In fact, the real competition is from other startups with the ability to attract and retain these potential candidates. People who join startups typically have a greater risk-reward appetite that translates into their looking for a reward that is commensurate with the risk they perceive. As a result, they expect a certain level of ﬁxed compen-

“

Those who opt to work for startups typically like to challenge the status quo, creating something new and different in an environment that is perceived to be “quick and agile” rather than “safe and steady.”

sation and base pay, combined with some “sweat equity” linked directly to their contribution, either in the form of performance bonus or stocks. But beyond compensation considerations, companies must recognize that entrepreneurial employees need to continuously feel involved and engaged during the ebbs and flows of business cycles, and to accord them with a clear sense of involvement and benchmarks for success. Large corporations afford an opportunity to work in an environment that mitigates external business risk factors while providing the advantages of scale and size. However, those who opt to work for startups typically like to challenge the status quo, creating something new and different in an environment that is perceived to be “quick and agile” rather than “safe and steady.” Recognizing all of these factors, some of the most successful startups have employed the following practices to attract and retain talent in the face of any initial hurdles they may face in terms of branding or financing: • Being upfront and honest about the challenges; • Using referrals to identify likeminded candidates; • Marketing themselves as affiliated with recognized brands by virtue of investors, advisory board or business partners/alliances; • Ensuring the founders are true role models; • Recognizing that the earlier an employee joins the new venture, the greater the risk-reward at stake is; and • Not paying lip service to “sharing the gains,” but actually committing to doing so. New and fresh approaches to talent management like these will enable India to sustain its tradition of entrepreneurship well into the future. “You have been told that, even like a chain, you are as weak as your weakest link. This is but half the truth. You are also as strong as your strongest link.” DAR E - Kahlil Gibran Gita Dang is a senior client partner and the head of Korn/Ferry International’s technology practice for India. APRIL 2008

101

DARE.CO.IN

/society

Paranthewala at IIT Gate

An iconic presence at the institution, this small business is struggling to move up to the next level /Shilpi Kumar

he bustle begins as soon as the clock strikes seven. Cars stop by almost every minute, with hungry customers eagerly ordering for their choice of hot paranthas. They come so often, they no longer even have to glance at the large menu that is positioned on the trunk of a tree. As they place their orders, a team of about seven men works under a dim light, stufﬁng the paranthas and tossing it on to the steaming hot pan. Within a few seconds, the paranthas are ready and you can see the customers happily gorging on them and driving away. This is what an ordinary evening looks like at the paranthewala near the Indian Institute of Technology (Delhi). Chances are that if you live in Delhi and are a complete foodie at that, you must have made a stop to have a taste of these famous paranthas at least once. The paranthas in this area are so popular that even author Chetan Bhagat couldn’t resist from mentioning the parantha feasts in his book, Five Point Someone – What Not to do at IIT. What propels around 200 customers, ranging from students, people working in call centers and businessmen, to stop here everyday? We spoke to the owner, Sharvan Kumar, about the business and what sets him apart. Sitting on a plastic chair, he reticently tells us, “My father started the business in 1985, when I was only ﬁve years old. At that time there used to be only three paranthawalas in the area. Our paranthas became popular mostly because of the regular visits by the IIT

102

MARCH2008 APRIL 2008

students. Slowly, as the word of mouth spread, we had customers visiting us from all over Delhi”. Sharvan, who is currently 27 years old, took over the business in 1998, when his father became ill and could not run it any longer. “It feels great to have IIT alumni and customers from my father’s time come to us from far away, to grab a bite. Even those who no longer live in Delhi do make it a point to stop here when they return. It gives us a lot of

satisfaction,” says Sharvan. Comparing his business in the past to now, he says, “We used to get a lot more customers back then, since there were no police restrictions, and we used to be open till six in the morning”. Because of the regulations now, Sharvan is forced to close by 11pm. “Although we have some loyal customers who now have started coming during the day, this is a business that peaks during the night. Our peak hours have

DARE.CO.IN

/society

Sharvan Kumar making his famous anda (Egg) paranthas. been condensed from 11 hours a day to only four now,” he says. Looking at the brighter side though, he says, “But in those days customers did not look for much variety. They used to stick to the regular aloo (potato) or pyaaz (onion) paranthas. But now, with the evolving preferences, we have added a lot more variety to our menu, which appeals to more customers”. Ask him what his best-seller is and he promptly says, “Most people come

here for the anda (egg) paranthas”. Incidentally, as he was telling us this, it was all quite fascinating to watch a raw egg being cracked, between the two layers of a parantha which was already being fried on the pan. Looking at the parantha, Sharvan says, “These are so popular that we have two ways of making it—one is a simple anda parantha, and the other is the stuffed anda parantha.” Apart from the ten rupee anda paranthas, Sharvan’s menu also

consists of paranthas stuffed with aloo (potato), gobhi (cauliﬂower), paneer (cheese), chicken, as well as mutton. “The aloo parantha, at Rs 5, is the cheapest, whereas at Rs 40, the mutton parantha is the most expensive parantha on the menu. The chicken parantha is for Rs 20,” he says. Has the business been running successfully? The fact that Sharvan’s income allows him to run his family of six, including his parents, brother and sister, wife and his two year old son, shows that it has. According to Sharvan, he is the sole bread-earner of the family. Apart from that, he also manages to employ about seven workers, paying them around 2,500 rupees every month. Everything, however, is not picture perfect for this paranthawala at IIT. Even after running the business for over twenty years and being a second generation businessman, he still hasn’t been able to expand his business and have a proper restaurant of his own. “All we have is this table, on which we make the paranthas. We don’t even have a seating area for the customers. It would be great to have a proper restaurant one day,” says Sharvan. He continues by saying, “As of now, our business has been running on a tehbazari basis, where we have to pay the Municipal Corporation of Delhi (MCD) an amount of Rs 1,900 on a yearly basis”. What has stopped Sharvan all this while from having his own restaurant is that he does not want to compromise on the location of his work. “We tried running the business in Gurgaon once, but closed it soon enough, as it wasn’t attracting as many customers. I realized soon enough that it is the IIT paranthawala that we have been known as and will be known as. Our customers are so used to coming to this area now, that relocating would only mean losing out on my existing customers,” he says. Until Sharvan can ﬁnd a place in the IIT area, and be able to afford the exorbitant property rates over there, having a proper restaurant is a dream DAR E that he is still chasing. MARCH APRIL 2008 103

DARE.CO.IN

/exit

NOV 2007 OCT 2007

DEC 2007

JAN 2008

MAR 2008 FEB 2008

104

APRIL 2008

RNI No.DELENG/2007/22197 Posting Date: 5th & 6th of every month. Posted at Lodi Road HPO.

DL(S)-17/3314/2008-09-2010