Entrepreneur August 2011 by Infomedia18

Will

kill

AUGUST 2011  VOLUME 2  ISSUE 12  Rs 100

THE BUSINESS OF

APPS How you too can build one and make millions

ARJUN MALHOTRA on what it takes to be a serial entrepreneur DEVDUTT PATTANAIK on how belief systems can impact you

PHIL LIBIN

has built a proﬁtable venture around a notetaking app

table of contents 18

APPS SPECIAL 44

INSIGHTS 17 THE VALUE OF FAILURE

Christopher Hann on how to avoid the most common mistakes while buying or selling a company.

18 TO PROFESSIONALIZE OR NOT

Mitali Bose on how owners of family owned businesses struggle with the thought of bringing a professional on board.

20 ROLE OF EQUITIES

Ranjeet S. Mudholkar on role of equities in financial planning which aims at the optimization of returns and their protection in a financial planning portfolio.

22 HOW TO BE A DOWNER Jennifer Wang on a better way to deliver unwelcome information and save you the drama of becoming the enemy.

IN CONVERSATION 24 IT’S ALL IN THE FAMILY

Marnix van Rij, Partner, Ernst & Young and tax expert, talks about Indian family businesses, the pitfalls and the ideal approach to ﬁnd a successor. By Pranbihanga Borpuzari

SOCIAL ENTREPRENEUR 46 YOUR APP. YOUR BUSINESS

Apps represent the fastest-to-market opportunity. All it takes is an idea. If you have an idea, it probably can be made into an app. By Ankush Chibber

54 PLEASE TAKE NOTE

Can you build a successful business around apps? The positive answer to this maybe in the form of Evernote. By Ankush Chibber

6 Entrepreneur + August 2011

58 IT’S A HIT FIT

The founders of fitness app developer Abvio share the secret to their super-fast success. By Gwen Moran

28 RURAL ROUTE Rashmi Sawant’s Culture Aangan cashes in on the rural Indian way of living to generate livelihood for the locals of Sindhudurg. By Sriya Ray Chaudhuri

60 CAMERA+: AN APPS TO RICHES STORY

How Lisa Bettany went from struggling photographer to an app evangelist. By Rosalind Resnick

SUCCESS INC 32 STRIKE 3

After co-founding HCL and Techspan, Arjun Malhotra is all set to call it a day at Headstrong and start a new company—the third for him. By Team Entrepreneur

RISING STAR 38 CONFIGURED TO GROW Born in a small town on Rajasthan-Haryana border, Narendra Bansal has gone on to create one of India’s fastest-growing IT hardware companies—Intex. By Team Entrepreneur

SPECIAL REPORT 42 FAMILY BUSINESSES: WHAT’S THE SUCCESS FORMULA With most big names in India Inc being family managed businesses, and others following their footprint, only 30% go up to the second generation . By Team Entrepreneur

ROLE CALL 32

62 "WE ARE NOT OBSESSED WITH PLANNING" Devdutt Pattanaik, Chief Belief Officer, Future Group, believes in the relevance of values in a corporate setup. Don’t be surprised by his designation. He will make you believe in it. By Pranbihanga Borpuzari

NEWS WORTHY 64 BSE LAUNCHES SME EXCHANGE

The BSE SME Exchange’s vision is wealth creation by small and medium enterprises through inclusive economic growth. By Team Entrepreneur

SUCCESS STRATEGIES 62

70 BUILDING ON A START UP BUDGET Perky Jerky’s creation story is arguably as wacky as its name. Read on to know how the caffeine-infused recipe was taken to the masses. By Jason Fell 72 FROM PAYCHECK TO PAY DIRT

First-time business owners starting a venture in unfamiliar waters face a special set of challenges. Here are three who tackled them with success. By Gwen Moran

76 REBOUNDING FASHIONABLY

The year 2008 saw the US economy nosedive and cash problems ﬂow in. Read how a fashion startup survived cash-ﬂow problems and redesigned itself for a comeback. By Kelly K. Spors Entrepreneur +August 2011 7

table of contents 78 HOW TO MAKE HEROES

119

Most marketers put the focus on their product. Try ďŹ&#x201A;ipping that around and showing your customers how they can be successful. By Chris Brogan

79 LURE TOP TALENT FROM BIG BUSINESS One in four entrepreneurs faces trouble recruiting quality candidates. Five easy tips to help you get the creamy layer that can compete with big businesses. By Carol Tice

THE ULTIMATE HOW-TO BUSINESS GUIDE

TECH DEPARTMENT

112 Form a joint venture

80 ARC OF TRIUMPH

Sony Ericsson has almost pulled out a winner after a long time, save a few kinks. By Ankush Chibber

114 Track productivity

82 A WEEK WITH PLUS

120 Get foreign investment

116 Prevent cybersquatting 119 Motivate your employees

What is Google+ all about and how does it work? By Ankush Chibber

85 HOSTED WITH THE MOST Many small-business owners want the ďŹ&#x201A;exibility of hosted voice-over-IP but not the lack of reliability and call quality. We asked a tech geek: Is there a way to get both? By Dan Oâ&#x20AC;&#x2122;Shea 86 SALES CANDY The problem with data is that it is pretty difficult to wrap your head around. A delight to work with, Roambi is an app that every sales manager should have. By Ankush Chibber 87 RESPONSIBILITY: ITâ&#x20AC;&#x2122;S WHATâ&#x20AC;&#x2122;S

FOR BREAKFAST Easy and broad digital access has made everyone a content creator. Make sure you know how to behave online. By Erika Napoletano

88 ANGER MANAGEMENT

How digital commerce platform Shopify helped Angry Birds creator Rovio Mobile spread its wings into licensed merchandise sales. By Jason Ankeny

8 Entrepreneur + August 2011

92 ARE YOU FUNDING YOUR EGO You should draw up a skeleton of the funding needs and not ďŹ ll in the ďŹ&#x201A;esh when starting up. By Gautam Sinha 97 THE SECRET TO A RICH LIFE

STARTUPS HOT STARTUP OF THE MONTH

100 THE SHOW STOPPER Ajit Andhareâ&#x20AC;&#x2122;s Colosceum Media is disrupting the normal ďŹ&#x201A;ow of things in the TV industry. By Ankush Chibber 105 KNOWLEDGE ON TAP How Simpson built a formidable one-man business around his knowledge of beer. By Matt Villano 106 FARM FRESH

Town Essentials has organized grocery supplies for the B2B segment in Karnataka. By Shonali Advani

108 BUCKS FROM A BEVERAGE How 3 entrepreneurs got together to unbottle a business of drinks. By Shonali Advani

SPEND IT

Can money buy happiness? Turns out it canâ&#x20AC;&#x201D;to an extent. By TJ.D. Roth

124 HOT KEBABS ON A RAINY DAY Foaming sea and a plateful of kebabs, thatâ&#x20AC;&#x2122;s what draws the crowd to Kebab Korner. By Sriya Ray Chaudhuri

OFF BEAT

126 MOVE OVER

98 THE POWER OF HARRY POTTER

His marketing potion can be applied to your business as well. By Jason Fell

Does the Hyundai Verna have the Honda Cityâ&#x20AC;&#x2122;s number? By Sirish Chandran

REGULARS

ď&#x201A;&#x; ď&#x201A;&#x; ď&#x201A;&#x;

THE BUSINESS OF

APPS How you too can build one and make millions

ARJUN MALHOTRA on what it takes to be a serial entrepreneur DEVDUTT PATTANAIK on how belief systems can impact you

As mobile data plans move to a pay-per-use model, you and your business will have to learn to work around them. By Rich Karpinksi

MONEY DEPARTMENT

91 THE END OF FREE

123 Market a social enterprise

100

COVER DESIGN

ARKO PROVO MUKHERJEE

10 FEEDBACK 11 RESOURCES 12 SME DOCTOR 16 STUMPSPEAK 130 BACKSTAGE

ď&#x201A;&#x; ď&#x201A;&#x; ď&#x201A;&#x;

% & # & # $ #! " !&# % "$ %! ! " '

5$3%2+$' 40 /42'12'/'52 40&#8 #/& : /& 054 *07

BOOTSTRAP

/42'12'/'52 /&+# 3 : 234 .#)#9+/' (02 '/42'12'/'523 #/& 3.#-- $53+/'33'3 +3 *'2' 4 $2+/)3 805 # 7'#-4* 0( +/(02.#4+0/ 2'3052%'3 %0/4#%43 #/& 342#4')+'3 40 *'-1 805 35%%''& 0 )'4 # %018 &'-+6'2'& #4 8052 &00234'1

five others AJAI CHOWDHRY and string and turned it started HCL on a shoe e behemoth into a Rs.27,000 cror

YOUR BUSINESS

5$3%2+$' 07 40

an 6 Steps to a Smart B-Pl it Flipkart- How We Did Small 5 Secrets of Starting Money Making Good with no

! !

%# "# &#

$*'

% % ((* (

%+ ' '! `

" !

* ( '!&)!%$ !( %*$) '! `

/ !'#23 5$3%2+14+0/

( ,%*# #!" )% * ( '! )% $)' &' $ *'

ď Ł +335'3 ` ` ` ď Ł +335'3 ` ` ` '4 2'' /$% '2+'3 " 8%00/3 6& #%,

024* `

% * + & / $ * * &-% * * &"+ ,"'& $ + + & %1 '(1 ,' ď Ł +" & ď Ł 3 "& $1 ," # '&$1 '& "$"& * ++ ",1 , , "& ď Ł

ď Łď Łď Łď Łď Ł

$ (!'& ' "$ % "$ $ + 2 & & $'+ ! )-

&' * /& '& & % ' &# , '* ` .'-*"& & '% " "%", ( 1 $ , -% "

! * %1 ď Ł ď Ł +, * * ď Ł % *" & 0(* ++ * ' ď Ł

ď Łď Łď Ł ď Łď Łď Łď Ł ď Łď Łď Łď Ł ď Łď Łď Łď Ł

* 0("*1 , ď Ł

ď Łď Łď Ł

, " & ,-*

Magazine Subscription Made Simple

Subscription Department: INFOMEDIA 18 LTD : â&#x20AC;&#x2DC;Aâ&#x20AC;&#x2122; Wing, 2nd Floor, Ruby House, J K Sawant Marg, Dadar (W), Mumbai 400 028. s 4OLL &REE : 1800 200 1021 s #ALL : 022 30034631/33 s &!8 : 022 30034499 s %MAIL : customercare@infomedia18.in 4O SUBSCRIBE ONLINE LOG ON TO http://eshop.infomedia18.in

Terms & Conditions: Your subscription will start from the next available issue. No cancellation will be entertained after commencement of the subscription. Infomedia18 reserves the right to extend, cancel or discontinue the offer. Though Infomedia 18 Ltd. will take utmost care to dispatch the copies safely Infomedia 18 Ltd does not take the responsibility of any postal delays and damaged copies dispatched. For more information contact Infomedia 18 subscription department. The company at its absolute discretion and without further notice may discontinue, publication of the magazine and in the event of such discontinuation, we shall refund the subscription amount for the unexpired term only, without any interest, caused and consequence.

INSIGHTS MONEY MANAGEMENT XXXX

The Role of Equities These are known to have the highest risk amongst asset classes. By Ranjeet S. Mudholkar

inancial planning is all about managing the long-term financial goals of your clients through investments in various asset classes in a prudently defined asset allocation. The risk profile of an individual principally determines an appropriate asset allocation. Equity is one of the main asset classes, others being debt, liquid and real estate. Equities are known to have the highest risk amongst asset classes; the risk in the simplest terms here is the volatility of expected returns. Financial planning does not aim at obtaining the highest return available in a given time frame from the representative asset classes. Though, the optimization of returns and their protection in a financial planning portfolio in order to achieve a chosen financial goal is an objective sacrosanct to financial planning.

representative portfolio when seen from the perspective of servicing a chosen financial goal such as retirement or childrenâ&#x20AC;&#x2122;s higher education. The table (on the facing page) gives average inflation numbers along with returns from equities as measured by Sensex returns over different time periods.

CHECK FOR INFLATION

Here, the protection of value generated in the Financial Planning portfolio gains higher priority. For short-term goals, 1-3 years, equity returns are attainable with a much higher volatility with risks of erosion of capital being a chief concern. Nonetheless, a small monitored exposure to equities is required with higher emphasis on protecting the capital and hedging the returns.

EQUITY It can be observed that for longterm financial goals, tenure exceeding 10 years, a higher exposure to equities shall give sumptuous and inflation beating returns with low volatility. However, for medium-term goals, to be achieved in 5 years to 10 years, a measured asset allocation approach helps with equities still in prominence. The band of the annualized returns, therefore, expands with a higher volatility of returns.

SHORT-TERM GOALS

â&#x20AC;&#x153;The dividends from equities and from equityoriented mutual fund products are tax free in the hands of investors.â&#x20AC;?

Inflation is an important consideration while planning for a financial goal and constructing an investment portfolio, especially for goals to be achieved in the distant future. It is imperative that the returns to be targeted should beat inflation hands down. No wealth to be created shall have a competitive value unless it satisfies the purchasing power of the specified time in the future. The average inflation, as measured by the Consumer Price Index for industrial workers, has been in the region of 8 percent in the independent India. The latest inflation numbers are touching 9 percent. An asset class which is unable to generate posttax long-term returns enough to beat such numbers will, therefore, erode the investment value of its

20 Entrepreneur + August 2011

BENEFITS OF EQUITY It may, however, be of importance to note at this point that the income generation in the portfolio should be enough to edge out the effects of inflation for the period of the financial goal. The equities currently are the best tax-efficient vehicles in which you can generate and sustain long-

Averages of annual rolling returns

Time period (From present)

Average inflation

Average Sensex returns@

Highest/ lowest Sensex returns@

Average volatility of Sensex returns#

20 Years

7.89%

16%

17% / 14%

1.78%

15 Years

6.95%

13%

16% / 10%

2.12%

10 Years

6.57%

12%

18% / 5%

5 Years

8.69%

15%

36% / 2%

3 Years

10.42%

17%

51% / -2%

12%

1 Year

9.77%

23%

56% / -12%

34%

@ Representing 3-year moving averages of annual rolling returns for the period since 1988 # Applicable to 3-year moving averages of the annual rolling returns for the period term wealth. The dividends from equities and equity-oriented mutual fund products are tax free in the hands of investors.

REVISED DTC The same is true for Long Term Capital Gains (the holding period exceeds one year in this case) for such instruments. In the revised Direct Taxes Code (DTC), however, which may come into effect from April 1, 2012, the long term capital gains shall be applicable from the end of the financial year in which the equity asset is acquired and, after allowing for a specified deduction, balance gains shall be taxed at the rates applicable to the tax payer.

THE INDIAN MINDSET The Indian scenario of equity investment is not too exciting with just about 5 percent of household financial savings per annum being routed to equity and equity-oriented investments. The financial behavior of Indian masses is ridden with a ‘safety conscious’ syndrome. This behavior asymmetry, however, transforms in times of market euphoria to a ‘greed and fear’ psychosis.

WHY OPT FOR FINANCIAL PLANNING The financial planning way of investing moderates to a large extent these twin traits as the objective is to achieve medium-to-long-term goals through systematic investments in various asset classes including

equity without worrying about everyday market movements except when nearing a goal. This augurs well for your financial planning. The optimally arrived at asset allocation pursuant to a carefully analyzed financial situation and risk profile of an individual by a financial planner, preferably a certified financial planner or CFPCM professional, actually sets the rule for equity exposure in a financial planning portfolio for achieving the defined financial goals.

PLAN WELL The equity investment in a planned manner is desirable in every financial planning portfolio, even in a portfolio post-retirement, for wealth building as well as for combating inflation over the desired period. It is good as well for the economy at large as the industry gets easy access to long-term funds. The ruthless nature of market retribution for nonperformance imposes a self regulated accountability and better corporate governance in the system.

The views expressed here are personal and do not necessarily represent those of the organization. RANJEET S. MUDHOLKAR is working with Financial Planning Standards Board India (FPSB India) in the capacity of Vice Chairman and CEO. The views expressed here are personal, and do not necessarily represent that of the organization. FPSB India is the sole marks licensing authority for the CFP marks in India, through agreement with U.S.-based FPSB Ltd.

Entrepreneur + August 2011 21

in conversation

ITâ&#x20AC;&#x2122;S ALL IN THE FAMILY Marnix van Rij, Partner, Ernst & Young and tax expert, talks about Indian family businesses, the pitfalls these face and the ideal approach to ďŹ nd a successor. By Pranbihanga Borpuzari

24 Entrepreneur +August 2011

ENTREPRENEUR (E): To what do you attribute the success of Indian family businesses in recent times? MARNIX VAN RIJ (MVR): We conducted a research on Indian family businesses and were intrigued to see that such businesses have been growing by 30 percent between 2001 and 2009. This is much more than the 15 percent growth rate of multinational companies. In fact, it is almost a double growth for family businesses which shows that there is sustainable growth and profitability in this sector in this country. Indian entrepreneurs consider sustainable growth to be very important. According to Indian entrepreneurs, it is vital to have a bold strategy. To rise in such an economy, one needs to have a vision and a bold strategy in place. There has to be a proper succession plan in family business as well. Most of the Indian

family businesses are first generation ventures. Few are second generation and very few others are third generation businesses. I have been dealing with family business and related questions for over 25 years now. I often ask my audience if they have made any legal and tax arrangements for themselves and their families. This is asked to find out if there is an apt successor for the business. Most entrepreneurs sideline this aspect because all their attention goes towards building their present business. At E&Y, we developed a DNA gross model. When one talks family business, the private and the corporate side of it have to be balanced. As far as the private side goes, the family has to take care and preserve all its wealth and it has to be managed well. For the corporate side, the essential government rules have to be in place and the business has to perform well. Â&#x161;

PhotosÂŠ Neha Mithbawkar

To read more, grab the August issue ofEntrepreneur Entrepreneur + August 2011 25 To Subscribe, visit www.entrepreneurindia.in

success inc [Made IT]

Arjun Malhotra has, over the years, earned the title of being the man to approach when the chips are down and a turnaround is needed. After co-founding HCL and Techspan, Malhotra is all set to call it a day at Headstrong and start a new company— the third for him. By Team Entrepreneur

STRIKE F

or Arjun Malhotra, space was the final frontier. As a child growing up in Kolkata, Malhotra dreamt of joining NASA. But fate had other plans in store for him. Passing out with a degree in electronics from IIT Kharagpur in 1965, where he was the gold medalist, Malhotra was all set to go to Stanford for his PhD but love happened. A PhD degree would have taken him about seven years to complete but the family of the girl he loved wanted her to get married to someone who was established and had a job. In the meantime, his mother sent a newspaper cutting about an opening at DCM. “I usually falter when someone applies logic, and my mother is a very logical person. She told me that interviews are like exams, the more you appear for them the better you get at it. I appeared for it, went through the process and got the offer letter,” says Malhotra. At DCM, Malhotra met the rest of the co-founders and gradually this meeting led to the formation of the hardware company by the name of HCL. “Once we had made up our mind to leave DCM, many meetings took place over tea and samosas at my grandmother’s barsati at Golf Links. By 1976, HCL was born and within the next few years it went on to become a very successful company in the IT hardware space,” says Malhotra. 32 Entrepreneur + August 2011

About 10 years into the company, Malhotra started feeling bored and all of a sudden was not having fun. “I could not figure out why and felt I should go back and do my PhD and work out things in my head. My co-founders insisted I go and do a management program and in 1985 I went to Harvard to do the Advanced Management Program. This actually cleared up my head and I realized what I was going through was a mid-life crisis,” says Malhotra. He got back to HCL at the end of the program and decided to take up only new projects and initiatives. “The co-founders also wanted me to take care of any group company which got into trouble and help it turn around, to which I agreed. We and Modi Xerox were selling copiers and at some point they started taking the market completely away from us,” says Malhotra. At that time, the reprographics division of HCL became a loss-making unit from being a profit-making one. At a board meeting, it was decided to sell off the unit but Malhotra observed that it would not be wise to get rid of an asset when its value was depreciating. The board saw his view and Malhotra was given the responsibility to turn the business around. Only a year later HCL was doing more sales than Modi Xerox and Malhotra went to the board to sell off the unit. Seeing the profits

“I WANTED THE PARTING [WITH HCL] TO BE AMICABLE SINCE I HAD WORKED WITH THE SIX CO-FOUNDERS FOR 23 YEARS.”

Photo© D.R. Lohia

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

cover story

44 Entrepreneur + August 2011

IllustrationÂŠ Nirmal Biswas

THE BUSINESS OF

APPS

If you have an idea, it probably can be made into an app. By Ankush Chibber

you are an iPhone or an Android user, we are sure you have also had the forehead-slap moment when you tried an app and wondered why in the world had you not thought about it? If you also paid for that app, we are sure the slap would have been much harder because you probably just made that app-maker a better businessman than you. â&#x17E;&#x153;

Entrepreneur + Augusrt 2011 45

cover story The business of apps is a real one, no matter what the dinosaurs from the bricks and mortar days tell you. There is real money to be made over a long-term period. Successful, sustainable businesses are already there based on nothing more than one or two mobile apps. If you were to ask any of the market research guys, you’d get the billion dollar outlook, which would vary depending on who you ask. According to the most authoritative voice in the market, that of research firm Gartner Inc., apps downloaded from online stores will be a Rs.2,61,000 crore worldwide business by 2014, up from the Rs.23,400 crore spent on apps in 2010. In 2011 alone, there will be 17.7 billion app downloads this year, more than double the 8.2 billion in 2010 across platforms. Another prediction, this by Markets and Markets, the total global mobile applications market is expected to be worth Rs.1,12,500 crore by 2015 up from about Rs.30,600 crore in 2010. Whichever prediction is closer to the bull’s eye, at least we know there is a billion dollar pizza on the table. Now, what is stopping you from taking a slice?

AN IDEA IS ALL IT TAKES Apps represent the fastest-to-market opportunity even if you are nothing more than a serial thinker of ideas. Your idea could be anything—perhaps you want to do something for Indian med students studying in Russia; or want to spread your love of Bengali food into homes, or want to take Indian board games to kids overseas, or even make a Pacman 2020. Apps are not the toughest software you would ever develop and make a business around, once you know your idea. A good example to give here would that be of David Estes, a University of Washington student, who created SoundNote last year, a Rs.225 iPad app that lets you take audio notes. As a budding journalist, Estes knew the pain in going back into your recordings and looking for a detail you might have missed. Since SoundNote matches your notes with the timeline of the audio recording, you can just click on a word in your notes to jump to the related point in the audio. Estes developed this app solo with just a lot of tinkering around and nothing more. In the end, it is about finding your sweet 46 Entrepreneur + August 2011

FACE THE FACTS

AS OF MARCH 2011, THE TOTAL NUMBER OF FREE APPS IN GOOGLE ANDROID MARKET EXCEEDS THAT OF THE APPLE APP STORE FOR IPHONE BY MORE THAN 10,000. iPHONE AND ANDROID MOBILE PHONE USERS REPRESENT 74% OF MOBILE APP DOWNLOADERS. THEY ALSO HAVE APPS ON THEIR PHONES IN COMPARISION TO OTHER SMARTPHONE USERS, WITH AN AVERAGE OF 48 APPS ON IPHONES AND 35 APPS ON ANDROID PHONES. BLACKBERRY USERS ONLY HAD AN AVERAGE OF 15 APPS ON THEIR PHONES.

spot. Much like Estes, whose practical experience directed him towards SoundNote, Punebased Rolocule Studios Pvt Ltd was founded on the back of a love of games and fulfilling a gap in the games offered on the Apps Store. CEO Rohit Gupta and COO Anuj Tandon were both avid gamers and techies who always wanted to make games. Thinking over their first product, they saw that there was no game for the sport of Squash on the App Store, while there were others for lawn tennis and Infographic© Arko Mukherjee

THE BUSINESS OF

APPS

Source: Xcube Lab

THE STATE OF THE MOBILE APP WORLD

BILLION Apps were downloaded in 2010

BILLION Apps will be downloaded in 2011

HOW THE APP ECOSYSTEM WILL SHAPE UP IN FUTURE No. of Apps 400,000

371,675

350,000 303,113

332,114

By the end of June 2011, Android Market was predicted to have only 40,000 apps less than the Apple App Store for iPhone, and will close the remaining gap before the end of July 2011

Jan, 2011 June, 2011

350,000 250,000 200,000

151,036

150,000

Blackberry App World will double-its size over a six-month peroid.

100,000 50,000

25,782 36,787

40,671 19,439

0 Apple App Store for iPhone

Google Andriod Market

table tennis. Touch Squash hit the App Store in 2010 and became one of the fastest downloaded racquet games. Gupta tells us that their eventual aim with Rolocule is to make games for console platforms like the PS3 and the Xbox, and that the App Store represented an important stepping stone towards that aim. He agreed that the entry barrier to the business of making and selling apps is low, but the ceiling for success is high.

Nokia Ovi Store

At this current growth rate, the WP7 Marketplace will be larger than the Ovi Store and BlackBerry App World

BlackBerry Appworld

6,856

26,211

Windows Phone7 Marketplace

A READY ROUTE According to Rohith Bhat, Founder and Chief Executive Officer of Udipi-based Robosoft Technologies, the best bit about apps is that your channel of distribution is ready. Robosoft is a maker of apps for the Mac and iOS platform. “Unlike with other IT products, you do not have to cross legal, marketing and sales hurdles of the aspirin-taking kind to get your product to the market,” he says. “In fact, once

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

cover story

TAKE NOTE PLEASE

Can you build a successful business around apps? Oh yes, you can. By Ankush Chibber

or many critics, mostly from the old bricks and mortar type of ventures, the business of apps represents a sort of laziness of the new skilled and educated professional. Real businesses are built with real hands, they would say; making apps does not count for the same. One of the bigger points they make is that at the ridiculously low prices that most, at least mobile apps, sell at, from Rs.44 to Rs.222, it is practically impossible that anyone is building any scalable business anywhere. The question, in other words is, can you make a profitable business around one app? The positive answer to this question maybe in the form of Evernote, a web and mobile app made by Mountain View, California-based Evernote Corp. Essentially a note making app, Evernote claims to be an extension of the human memory, letting its users clip everything from text, web articles, photos, video, and voice memos up to 60MB a month for recall and use later. It is pretty basic in its premise, but hugely exciting in its usability. You could use it to record voice notes at an interview to recall later or make a video note of the painting you saw at a gallery. Evernote Corp gives all that for free. And it is also one of the more profitable businesses in the valley. Evernote, the company, came into formation by the merger of two smaller companies that were working on something similar. In the summer of 2007, Stepan Pachikov, a Russian-born engineer who had been heading an R&D team on handwriting recognition and input, was working on the earliest avatar of Evernote in the valley. Around the same time, across the country in Boston, a serial entrepreneur named Phil Libin too was working on a similar human memory project after founding and exiting successfully 54 Entrepreneur + August 2011

two other companies. Pachikov and Libin met the same summer, and decided that it was better to join forces rather than compete with each other, a wise decision that probably can be backed up by one or the other management theory. Thereafter, the Evernote Corp was born in late 2007. Libin, who is now the CEO (Pachikov is listed as the Founder), tells us that the common concept was that of the human memory, and that no one is happy with it. “We just felt that no person is completely satisfied with the scope of his memory and wanted something to expand it. Our opinion was that there was now a technology infrastructure to be able to expand the memory in the sense of recollecting many more things than humanly allowed.” Libin agrees that it is not a unique idea and for sure, there must have been others who thought about it and acted upon it previously as well. “But we felt that our timing was right with the backend of smartphones, laptops, phones and faster broadband to provide a product of that ability,” he adds.

THE FIRST HARD STEPS When they were starting out, though, the business environment in general was not the best to launch any product in. Around the time the business plan was completed and Libin looked around for funds, the U.S. economy melted down and the money evaporated. Somehow, with a combination of funds from friends and angels, Evernote the application was launched in 2008. For the first two years, Libin’s team ambled along on these funds and did not receive its first venture capital funding till at least two years later. By then, Libin says, the team had a demonstrable product that was working in the market

THE BUSINESS OF

APPS

and gaining users. This time the investors came, and with much better terms than before the crash. “This experience is a good example for app developers who may want to develop and put their product out in the market first before going for funds,” he says. “It is the best way of going about building a startup around apps because apps let you reach the market faster and more easily.” Three years after its launch, Evernote has remained in the top productivity apps downloaded across platforms. Most importantly, it is ranked 10th on all productivity apps downloaded on Apple’s App Store, the benchmark app store. In an environment that sprouts up copycats the fasted when compared to other sectors, the feat of staying at the top is impressive, to say the least. By July this year, the company had notched up 11 million users for Evernote, and is adding 30,000 users every day. This was achieved without any form of advertising or marketing; just via pure wordof-mouth and recommendations, Libin tells us.

MEMORY GAMES: Serial entrepreneur Phil Libin, CEO, Evernote

THE USER IS KING According to Libin, the first thing that developers of apps must learn is that the most important cog in the wheel, when it comes to the business of apps, has to be the user. The user is the biggest marketer, evangelist and salesman that you could ever get and it is important to treat him right. He gives an example from their startup days. Libin and his team were working on a Rs.4.4 crore funding that looked more than certain. But the day the term sheet was to be signed was the very day Lehmann Brothers collapsed. The investor could not bring his pen to paper.

“BY JULY THIS YEAR, EVERNOTE NOTCHED UP 11 MILLION USERS, ADDING 30,000 USERS EVERY DAY.” The company was now in a soup. Libin and the management were banking on this funding and there were now funds left in the bank that could not make the company last beyond a few weeks. “We desperately tried to look for more funds, but the meltdown had by now scared all money off the market.” Sitting in his home one night, Libin says, he went to sleep with the despairing thought that

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

role call

“We are not obsessed with

planning” Devdutt Pattanaik, Chief Belief Officer, Future Group, believes in the relevance of values in a corporate setup. Don’t be surprised by his designation. He will make you believe in it. By Pranbihanga Borpuzari

the country’s largest retail company, Future Group, Devdutt Pattanaik holds the unusual post of Chief Belief Officer (CBO). He left Ernst & Young to join Kishore Biyani three years ago when Biyani was looking for someone who understands the Indian viewpoint. “We were introduced and he instantly developed a liking for my ideas. Biyani’s job is to do business. He is a master at doing it. But he did not really possess the art of articulating to people what he does. Biyani was looking for someone who could make people understand what he was doing and I was the chosen one,” Pattanaik reminisces. Sharing his trade secrets, Pattanaik says there are two ways of looking at the world— one is to think all humans are the same and, therefore, they will practice business in the same way and the other is to know that there are different cultures across the globe and everyone has a unique way of looking at life and doing business. If one has to do business in India, one has to understand the Indian mindset. This way, Pattanaik gets to grow the business enormously and gets investment funding easily. He celebrates ‘Indianness’ and states this as the reason for his success. But, a Chief Belief Officer? Well, this is how Pattanaik answers this one: “No one questions the designation of a CEO or as to where the term CEO came from. Any wisdom 62 Entrepreneur + August 2011

which has come from the west is often not questioned. I am generally asked what belief systems are. The term Chief Belief Officer itself gets anyone to ask very fundamental questions. Most people do not realize how much belief systems impact a business.” An uncommon understanding of life is what creates business, Pattanaik believes. Talking to people and generating new ideas is what his job is about. “We all know who we are, how we want to live and what we should engage ourselves in. This shapes our decision making. My job is to make people ask these questions,” he adds with pride. Talking on how values can affect balance sheets Pattanaik says that as per belief systems, if you always look for safe-cushion jobs, you can never be an entrepreneur. “If I have a company that is growing fast, I would want people to believe in the entrepreneur. As an entrepreneur, it is always good to find people who have the entrepreneurial trait and the risk appetite.” It’s here that the dichotomy lies. On one hand you want people to have an entrepreneurial mindset and on the other hand you want them to work for you. “This is where the beliefs and value systems come into play—to determine and understand who suits the company best,” he explains. “Future Group is a fast-growing company. We look for entrepreneurs and we need them.

People who look for stability will be very uncomfortable in Future Group because systems and processes change every day,” he adds.Today, the Future Group is a Rs.10,000crore entity which stood at Rs.100 crore 10 years back. Pattanaik attributes the huge leap to value systems. “The rapid growth was possible because we have entrepreneurs who think differently, take challenges and do things in the way in which those were never done before,” he says. Talking about Biyani’s success Pattanaik claims that Biyani does not come from a business background but today he has more shops than the Tatas, Birlas or Reliance. “He succeeded in retail because his thought process was different. After the liberalization of the economy, one has to think unique to attain success, to rise as an entrepreneur,” Pattanaik explains. Hailing Indian entrepreneurs for being comfortable with change, ambiguity and uncertainty Pattanaik says, “We are not obsessed with planning. We do not seek stability. We are not so structured and we are fine with that.” Endorsing the fact that Indian businesses can make 10 times more money than what Photos© Neha Mithbawkar

they are actually making, Pattanaik insists on having clarity of thought. “If I were to guide people in business, I would like to tell them to have clarity of thought. Unless one is clear about who he or she really is, one can never be clear about the market. Indian businesses tend to struggle because they follow fully developed western models of business.” The CBO also believes that the methods and techniques applied to any Indian business have to be home-grown, and not adopted from the West. “Indians have lost faith in their own country. All Indian managers pass out from business schools which follow western curriculum. This means that we Indians do not believe that our country has any value to offer,” laments Pattanaik. The realization dawned on Pattanaik when he saw Indians being embarrassed of their own way of doing business—by adopting western methods. “Indian management principles are primitive, these are oral and not in the written form. Hence, people do not have access to them. This is where my job role comes in. I make these principles available to our people,” he signs off.

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

LURE TOP T TALENT ALENT

TOP

FROM

BIG BUSINESSES Here are ﬁve easy steps to do this. By Carol Tice

uring the height of the downturn, many small business owners were too cash-strapped to hire workers, even if they saw the opportunity to grow with more staff. The economy is a bit less sluggish now so business is improving for some entrepreneurs. But a new study points to an irony: Apparently, the improved economy is making it hard to hire, too. Corporate-information portal Manta reports 57 percent of SMEs plan to hire this year in the U.S. But one in four of those entrepreneurs say they’re having trouble recruiting quality candidates because they cannot compete with big businesses. Top applicants are turning them down; holding out for big corporate jobs. Here are five ways to find great hires for your small business:

1. NETWORK Rather than posting a Craigslist ad and getting 2,000 resumes to wade through, let colleagues, family and friends know what you are looking for in a new hire. They may know someone who’d prefer a small-business environment to that of a larger corporation. Nearly 60 percent participants in the Manta study found their hires through their network contacts.

for grads in ages. If you have a position you could train someone for, then you could nab someone with great potential.

3. ALLOW TELECOMMUTING This is an angle that attracts younger workers. A study from freelance marketplace Elance found more than half of Millenials consider telecommuting options important in selecting a job.

4. CREATE A FLEXTIME POSITION Many workers need to work odd hours so they can pick up their children from school or attend certain classes themselves. If you offer some flexibility in your work hours, then you might improve your chances of getting a quality hire.

5. OFFER MORE RESPONSIBILITY AND REWARD

2. CONSIDER RECENT COLLEGE GRADUATES

What can you offer an employee that a giant company cannot? At a large company, an employee often is a tiny cog in an enormous machine. Smaller companies can consider offering a small equity stake as well as the chance to have a greater say in company decisions, provided these are worthy of implementation. Both are things workers often cannot get in “corporate America” or “corporate India.”

Recent graduates are often hot to find good work and thus pay off their student loans —and it’s one of the toughest hiring markets

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

tech department [Cool ways tech can help you grow]

! 7%%+ 7)4( 4(% 0,53

What is Google+ all about and how does it work? By Ankush Chibber

WHAT DOES IT MEAN FOR FACEBOOK? The timing of the Google+ launch is very interesting, considering the number of social media companies looking to go public. Zynga has just ﬁled its IPO, which is obviously a precursor to the Facebook IPO. If Google+ does affect the Zynga IPO, in turn it will have a disastrous impact on the Facebook IPO. It could have the potential to slow down the growth of Facebook or delay its IPO plans, the impact of which would be ever-lasting. Google+ is a few days old, as far as social media is concerned; it is still the ant that is challenging the elephant. However, we all know the Indian story on the same…

EVERY NOW AND THEN we get a new killer amongst our midst; our midst being those associated and interested in the tech world. Think about it, how many killers have you known in the past few years? There have been iPhone killers, Flip killers, iPad killers etc etc. The newest entrant on this list is the Facebook killer. Yes, somebody has finally decided to take on Zuckerberg in full frontal battle. The killer comes from that laboratory of many experiments, Google, with a very simple moniker—Google+. Launched not more than a month ago, the social network is the hottest new thing going around. When entry was restricted, we heard of invites showing up on eBay. Flaunting invites to give away was also a nice way to get many quick followers on Twitter. We got ours pretty quickly thanks to a benevolent friend based in Silicon Valley. We have been decently skeptical of all Google has come up with in the networking space. The less said about Buzz the better, but to be honest, we were very buzzed about Google Wave when it first came out. As one of the first ones to get an invite, we too knew what it felt like to be God for a day. We liked the Wave, and even recommended it to our users. Sadly, Wave has been retired. It is not yet fully explained why it did not work. THE MECHANISM Perhaps, in technology, it’s not as much about if you can make it, but if people are ready for it. Google+ may have got that right. People are in the know about what a social networking tool can do for them personally and professionally. For businesses, it has been about the closest contact that they could ever hope to make with their audience.

86 Entrepreneur + August 2011

Google+ is not vastly different in mechanism from Facebook, in terms of you making a network of the people you know for yourself. That is the basic premise, but how you make friends with them and share information with them is its differentiator with Facebook. In Google+, your Google/Gmail account is your gateway into the Google+ realm and the way you end up connecting to people. Invariably, the contacts that Google will suggest you add or invite would be from your Gmail contacts list. In that sense, you will immediately replicate your professional and personal contacts on to Google+. Till here, the network pretty much replicates Facebook, but with one crucial difference. Facebook clamped down on using Gmail as a valid service to find friends from on its Friend Finder feature sometime ago as part of a titfor-tat (if that was the tit, we do not remember what the tat was). Given that everyone worth his nickel lives on Google to some extent, that does give Google+ a clear lead. THAT CIRCLES THING One of the greater peeves about Facebook has been how it pushes you to share information with friends, which makes you slightly apprehensive of making new friends. Actually, the question of sharing dictated whom you made friends with. But then, why add them? What if you did not accept their request, what would they think about that? Sure, there is the limited profile bit, but again it functions in all-in, allout fashion, and is tedious enough to tailor it for different individuals. Again, here we are forced to club all in or out together. The Circles feature in Google+ solves that quandary beautifully. Here, you can add

everyone you know into predefined and selfcreated circles. You can create any Circle. Someone has a “Chicks I dig” circle too. Here is the beauty of this feature. Everyone you add knows that you have added him or her to his circles. But they do not know what circle you may have added on to them. On the sharing information bit, you can preset what information you would like to share with which circles as far your profile information and photos go. While updating your status stream, you can further decide what circles can be privy to that bit of information. ALL THE OTHERS Once you have your circles up and running, you would have a working stream like Facebook. You can post text, photos, links and even your location via the status update bar. The good bit is the instant upload option. Compared to the way Facebook lets you upload video and pictures, this one feels like Simone White singing to you by the seaside. Awesome. But there is also a problem here, as Google+ does not let you share from your profile, but from the home page only. User interface FAIL. Your stream will be a mix of videos, links, pictures, text rants. You can also +1 whatever that you come across the net, and that will be shared across the stream too. One of the better things about Google+ is that it lets you turn off sharing or commenting on your posts. So, that way, a rant against your girlfriend might never reach her, though we advise against it. What you could do to make it more interesting is use Sparks, a feature that lets make a special stream with news on your area of interest. You can choose any of the prefixed usual ones or make your own. This is a good feature but fails on two fronts—for one, it only feeds me what we could pull from Google News via the Alerts route or just by searching on Google. The second bit it fails on is that it is not integrated with our regular stream. Why can’t it show up on my newsfeed, as it would if I like a page on Facebook? The last interesting new feature with Google+ is the hangout function, which is essentially a big group chat thing. You all get on your cameras and talk to each other. Everyone can see everyone and voila, you are hanging out on Google+. It’s a fun function, and teenyboppers might like it instantly.

But we see a larger role for it in being able to facilitate conference calls for professionals and businesses. Our wish would be to see it work with Google Apps users, which could mean team members talking to each other via video. WHERE DOES IT STAND? The aforementioned leads on to our biggest grouse with Google+. How does a small business use it? Where are the rivals of the pages, groups and social adverts? If they are there, why don’t we know about them? We hear that “Business Profiles” are on the way and with them a host of opportunities for businesses in search, e-commerce, customer service, analytics etc. But in putting businesses second, Google+ may already have lost that battle. Though we hope to be proved wrong. So, will Google+ kill Facebook? No, because that would need the single biggest migration of humans on earth, physical or virtual. Sure, Google+ has notched up users like crazy, 10 million at last count, though that is because Gmail is a convenient entry and network expansion gateway. But with the host of other services like YouTube and Picasa, the base is already set for the men at Mountainview to accomplish that goal. In all probability, both networks will learn to co-exist, with Facebook being ahead thanks to its first-mover advantage. So, more Bond and Bourne and less Batman and Superman. We do feel bad for Superman, though.

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 87 To Subscribe, visit www.entrepreneurindia.in

tech department [Cool ways tech can help you grow]

!.'%2 -!.!'%-%.4 How digital commerce platform Shopify helped Angry Birds creator Rovio Mobile spread its wings into licensed merchandise sales. By Jason Ankeny

FOWL PLAY Angry Birds’ Niklas Kari (right) and Ville Heijari

92 Entrepreneur + August 2011

THOSE BIRDS MAY BE IRATE—you would be too if evil green pigs stole your eggs—but Angry Birds creator Rovio Mobile is laughing all the way to the bank. With more than 100 million in total downloads and around 40 million monthly active users, Angry Birds is the signature hit of the mobile app era, spinning off certain sequels (Angry Birds Rio, a tie-in with the 20th Century Fox animated family feature Rio) and landing Espoo,

Finland-based Rovio a Rs.189 crore Series A funding round in March 2011. The worldwide popularity of Angry Birds and the striking character designs of the game’s pleasingly plump, fine-feathered heroes made it inevitable that Rovio would expand its flock to include branded merchandise. “Our strategy was to make a hit app, build the brand and capitalize on that success,” says Niklas Kari, Rovio’s head of retail. In the summer of 2010, Rovio began working with New York Citybased manufacturer Commonwealth Toy & Novelty to produce a line of plush toys. But Rovio is a mobile application developer, not a retailer, so the startup teamed with digital commerce solutions provider Shopify to get a virtual storefront up and running to sell the toys. The Ottawa, Ontario, startup targets small and mediumsize businesses seeking a simple approach to digital sales: Shopify offers more than 50 free and premium online store themes, as well

as inventory management and editing tools, payment acceptance features, analytics data and also a dedicated support team. No less important to Rovio, Shopify works fast: After the two companies finalized their partnership in late October 2010, Shopify and web designer Mark Dunkley turned around a fully operational Rovio storefront in about 72 hours, which let the gaming firm start selling its Angry Birds toy line in time for the lucrative holiday shopping season. “We looked at a number of different options, but Shopify made the most sense,” Kari says. “We had strong recommendations from other partners, and setting up the store was actually quite easy.” The Angry Birds shop is one of more than 13,500 Shopify-powered storefronts, joining the ranks of those spotlighting brands that range from technology conglomerate General Electric to hip-hop pioneers Beastie Boys. Premium subscriptions (Shopify’s primary revenue source) begin at Rs.1,305 per month; there’s no setup fee, the bandwidth is unlimited and retailers can cancel their subscription at any time. Shopify stores generate more than Rs.675 crore a year in gross merchandise volume, and the platform is adding more than 1,000 new stores each month. “We’ve reduced the barriers to e-commerce,” says Harley Finkelstein, Shopify’s chief platform officer. “If you have 15 minutes and you know how to use e-mail, you can build a store on our platform.” And you can oversee that store via smartphone: The Shopify Mobile app for iPhone (there’s an Android app on the way) offers a

complete set of remote management tools, including analytics updates and push notifications for new orders. “A lot of our users aren’t doing this full time—maybe it’s a hobby, or they have another full-time business, or they’re testing the waters to see if they should quit their existing job,” Finkelstein says. “All of those people need to be able to run their Shopify business on the go.” Shopify Mobile also enables storefront access in the event conventional web connectivity is unavailable. “We travel quite a lot,” says Rovio “bird whisperer” (i.e., marketing head) Ville Heijari. “Anything that we can do without a Wi-Fi connection or a computer makes our life that much easier,” he adds. At last count, Rovio Mobile has sold more than 2 million plush toys since its Shopify storefront went live late last year, and the company promises new Angry Birds merchandise is ready to hatch in the near future. “We’re expanding quite heavily,” Kari says. “But we want to be sure we have quality stuff. We don’t want to associate our brand with anything quick and dirty.” Makes sense. An angry bird is one thing, but if there is an angry customer, that is something else entirely.

FLYING HIGH The website of Shopify; and (right) Angry Birds is a huge success story

©Entrepreneur July 2011 by Entrepreneur Media, Inc. All rights reserved. JASON ANKENY is a writer in Chicago is the executive editor of Fiercemobile content, a daily electronic newsletter dedicated to mobile media, applications and marketing.

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

money department [Where to get it, how to make it, how to keep it coming in]

You should draw up a skeleton of the funding needs and not ﬁll in the ﬂesh when starting up. By Gautam Sinha

he funding for your business should reflect what the business needs and not what you need as an individual. As startup finance is the most expensive “equity” that an entrepreneur ever raises, make sure that you raise just enough to prove your concept, not to feel safe. Legendary Indian cricketer Sunil Gavaskar often comments that when a batsman who has just scored 100 runs comes in to bat in the next innings he needs to keep telling himself that this time round he is starting at zero! This ability to refocus and tell yourself that each-time you start something new you are at zero, no matter how much you have scored in your “previous innings,” is what separates a champion from a successful cricketer. I believe this is what holds the key to a successful entrepreneurial career post having worked as a professional for some years of your life. Let me explain this some more. When a mid-career executive wants to start a business, amongst the many problems/dilemmas that he/she faces the biggest one probably is the battle with self-image or self-worth. As a mid-career executive there are certain things that you’ve already started taking for granted; air travel, your office cabin. But the biggest one is the fact that you are used to having people who “report to you” and so the necessity to do things “yourself" is low. Further, as you are a high achiever in your company, you start seeing success as a having floor “value” (pretty much like the 100 runs a batsman made in the previous innings). Now, when you want to start something of your own, you need to start from scratch. So it is back to the days when you started your career i.e. two-wheelers, public transport, AC train travel, small cubicles and, most importantly, executing most things yourself. Again, as it is a startup, there is no track record of previous success (which you have in your job and could have quoted when you were applying for another job). So, what actually happens? The reality of a startup at the bottom starts conflicting with the self-image of the person. You feel that as you have already climbed four steps in the corporate ladder you need to start at the fifth step and not at the first. So, usually when such aspiring entrepreneurs start writing a business plan and the consequent funding requirements which follow the business plan, most of what he/she ends up putting in the Excel sheet as the fund requirement is actually the ego requirement of the person! There are two types of people here—first, those who “do not want to get 96 Entrepreneur + August 2011

their shoes dirty” and the others are those who do not have shoes on the ground. Ironically, both actually then end up walking on air!

NOT WANTING TO GET YOUR SHOES DIRTY The biggest head of expense on most funding sheets is salary and with large self egos you need to have people who can execute your ideas as you cannot do it yourself. As they need to be paid market rates your funding need for salaries start sky-rocketing. This gets disguised by elevating potential employees to ‘rock star’ status who bring skills without which you cannot do business. (I am really tempted to then say that maybe I am better off funding this person rather than you!) If you start adding office and other costs then this excel sheet starts becoming really heavy, not with actual requirement but with your ego. Or, in this case, even laziness.

SHOES NOT ON GROUND

“THE REALITY OF A STARTUP AT THE BOTTOM BEGINS CONFLICTING WITH THE SELF-IMAGE OF THE PERSON.”

Such people are those who feel that just because they’re professionals with 10-15 years of experience attempting an idea, less than one that generates Rs.100 crore revenue in five years is a waste of time. Good so far, but the trick here is that with no proof of concept this person wants to raise Rs.4.5 crore or even more? If you want to reach Rs.100 crore in five years, please go ahead but first you must calculate what you need for the first crore. Don’t take that for granted just because in your previous job you were handling a Rs.100 crore-a-year target.

WHAT ALL YOU ACTUALLY NEED TO START A BUSINESS: 1.

2. 3. 4. 5.

amounting to Rs.20,000-Rs.25,000 per month. All this adds up to Rs.90,000-Rs.1.1 lakh (if you are not taking a monthly living allowance) or Rs.1.4 lakh-Rs.1.5 lakh (if you are taking an allowance). Now, to build a funding plan, you need working capital for 18-24 months and that is an amount between Rs.15 lakh and Rs.25 lakh. This is what you need to start your business and prove your concept. This should also take care of some of the capital expenditure although one should also try and finance most of it from debt and not actually use equity money for things for which debt is available. With some revenue thrown in (even though you don’t break even before 24 months) you should have enough cash to run your business for 30 months or are good to go. I happily concede that the numbers that I have given above are not cast in stone and each business has its own investment and working capital cycle. However, the point that I am trying to make here is that as an entrepreneur, it is your job to make sure that you have drawn up a skeleton of the funding needs first and not really filled in the flesh. As I meet more and more people during my current career as a professional seed investor, my first attempt is to understand this aspect and see which ego state (if any) the person/entrepreneur is in. It is at these times that I understand the significance of Sunil Gavaskar’s statement, which I mentioned at the very outset of this article. Remember, as an entrepreneur you are starting out at the zero level and no matter what your designation, lifestyle or achievement was in your previous job, it does not matter anymore in your new set up. Plan for this as you would have done when you started your career as a rookie and, in most cases, you will not end up being disappointed. Happy starting!

Living allowance for yourself and your co-founder— this number should be between Rs.30,000-Rs.40,000 per person, per month (in fact, if there are two founders then certainly not more than Rs.30,000 pp). If you are a mid-career executive starting a business then this should be zero. Work space costs that should not be more than Rs.10,000-Rs.15,000 per month. Overall salary bills which should not be more than another Rs.40,000-Rs.50,000 per month. Vendor fees (outsourced expertise) of Rs.20,000Rs.25,000 per month. Costs around travel, communication and promotion

GAUTAM SINHA is Partner, MyFirstCheque, a seed fund that writes the “ﬁrst check” for Indian startups.

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

money department [Where to get it, how to make it, how to keep it coming in]

You should draw up a skeleton of the funding needs and not ﬁll in the ﬂesh when starting up. By Gautam Sinha

their shoes dirty” and the others are those who do not have shoes on the ground. Ironically, both actually then end up walking on air!

SHOES NOT ON GROUND

“THE REALITY OF A STARTUP AT THE BOTTOM BEGINS CONFLICTING WITH THE SELF-IMAGE OF THE PERSON.”

WHAT ALL YOU ACTUALLY NEED TO START A BUSINESS: 1.

2. 3. 4. 5.

GAUTAM SINHA is Partner, MyFirstCheque, a seed fund that writes the “ﬁrst check” for Indian startups.

To read more, grab the August issue of Entrepreneur Entrepreneur + August 2011 97 To Subscribe, visit www.entrepreneurindia.in

money department [Where to get it, how to make it, how to keep it coming in]

The Secret to a Rich Life You don’t want to be rich. You want to be happy. The question is, can money buy happiness? Turns out it can—to an extent. By J.D. Roth

here’s a strong correlation between wealth and happiness. Rich nations tend to be happier than poor nations, and rich people are happier than poor people. But money’s impact on happiness isn’t as great as you might think. If you have clothes to wear, food to eat and a roof over your head, more money has only a marginal effect on your sense of well-being. Other factors are important. In a 2005 issue of the Review of General Psychology, Sonja Lyubomirsky, Kennon Sheldon and David Schkade looked at years of research to determine what contributes to long-term happiness. They found that about half of our happiness is biological, determined by a sort of happiness “set point.” About 40 percent of happiness comes from the things we choose to do, like exercising, setting goals and building friendships. Only about 10 percent of our happiness is based on circumstances like age, race, gender—and, perhaps surprisingly, financial status. Although your financial situation plays just a small role in your overall happiness, it does affect it. According to a paper published in the April 2011 issue of the Journal of Consumer Psychology, some financial habits bring greater satisfaction than others. “If money doesn’t make you happy, then you probably aren’t spending it right,” write authors Elizabeth Dunn, Daniel Gilbert and Timothy Wilson. They offer some principles meant to maximize happiness, including:  Buy more experiences and fewer things. Material goods depreciate. The day after you buy something, it’s probably worth less than you paid for it. Experiences, on the other hand, appreciate. Your memories of the things you do—vacations you take, concerts you go to—tend to become fonder with time.  Use your money to help others. Personal spending has only a small effect on happiness, but pro-social spending—money donated to charity or used to buy gifts for others—consistently produces strong, positive feelings.  Buy many small pleasures instead of a few large ones. In the words of the authors, people are happy with “frequent doses of lovely things than with infrequent doses of lovelier things.”  Pay now but consume later. Buying today but paying tomorrow leads to debt—and to unhappiness. Deferred gratification

3 2 1

makes us happier, and not just because we manage to avoid debt. It builds anticipation and usually leads us to make smarter choices.  Beware of comparison shopping. If you’ve read The Paradox of Choice by Barry Schwartz, you know that people tend to be happier with fewer options. Then you’re less likely to make a “mistake” while shopping, and therefore less likely to suffer buyer’s remorse. Plus, it can be tough to know which features actually matter most. Find a good option and go with it. What’s the best way to be sure money will make you happy? At the 2010 Berkshire Hathaway annual shareholders meeting—also known as “Woodstock for capitalists”—Warren Buffett’s business partner, Charlie Munger, shared a pearl of wisdom: “The secret to happiness is to lower your expectations.” If you can’t be content with what you have, you’ll never lead a rich life, no matter how much money you earn. ©Entrepreneur July 2011 by Entrepreneur Media, Inc. All rights reserved. J.D. ROTH is the founder and editor of the personal ﬁnance blog getrichslowly. org and the author of Your Money: The Missing Manual. e-mail him at jdroth@ getrichslowly.org.

To read more, grab theAugust issue of Entrepreneur Entrepreneur + August 2011 To Subscribe, visit www.entrepreneurindia.in

101

how to [... do just about anything]

Form a Joint Venture A JV involves companies pooling assets together to create a new enterprise for a speciﬁc business purpose. By Pranbihanga Borpuzari

oint ventures (JV) are mainly for mediumto long-term duration and are undertaken with a view to work out the synergies between two existing companies. Though the JV represents the coming together of two or more companies to create a new entity, all the participants continue to exist as separate firms. A JV can be organized as a partnership firm, a corporation or any other form of business organization which the participating firms choose to select.

WHY A JOINT VENTURE Joint ventures are often an integral part of reorganizing companies, industry or sector. It helps companies access new markets which may have been hitherto unavailable, enter and develop new product markets, work out synergies between companies, streamline efforts and be 116 Entrepreneur + August 2011

at the forefront of new technology-driven value activities. Smaller firms may also use it to come together or align with market leader to balance market mix. They can also be used by smaller firms protectively as an element of long-range strategic planning.  The main motive is to share the risks. Two or more companies working towards a common goal means lesser load on the individual companies.  A JV may also look at acquiring technological or knowledge mastery. The Hero Group entering into a JV with Honda of Japan is a perfect example. In this case a participant seeks to learn more about a relatively new product market activity.  A small firm which has a new product idea that involves high risk and requires relatively large amounts of investment capital is likely to Illustration© Chaitanya Surpur

form a joint venture with a large firm.  Companies looking to get a foothold overseas or vice versa also take the JV route. While the local partner contributes in terms of local market knowledge, the foreign partner may bring in domain-based knowledge.

THE PROCESS A JV is a business deal where two parties agree to develop a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenue, expenses and assets. The companies incorporated in India, even with up to 100 percent foreign equity, are treated the same as domestic companies. To form a JV, the business of one party may be transferred to the company and as consideration for such transfer, shares are issued by the company and subscribed by that party. In other cases, promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash. Some practical aspects of formation of JV companies in India and the prerequisites which the parties should take into account are:  All the joint ventures in India require governmental approvals if a foreign partner or an NRI or PIO partner is involved. The approval can be obtained from either from RBI or FIPB. In case a JV is covered under automatic route, then the approval of Reserve Bank of India is required. In other special cases, which are not covered under the automatic route, a special approval of FIPB is required.  Selection of a good local partner is key to the success of any joint venture. Once a partner is selected a Memorandum of Understanding (MoU) or a Letter of Intent (LoI) is signed by the parties, highlighting the basis of the future joint venture agreement. The joint venture agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures. Before signing a joint venture agreement, dispute resolution agreements, applicable law, Force Majeure, holding shares, transfer of shares, board of directors, general meeting, CEO/MD, management committee, important decisions with consent of partners, dividend

policy, funding, access, change of control, noncompete, confidentiality, indemnity, assignment, break of deadlock and termination must be properly addressed. The JV agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.  Whether the joint venture company will be a public or a private limited company.  Propose a name of the joint venture company and check its availability from the Registrar of Companies (ROC) where the registered office of the company is to be situated and the company is to be incorporated.  Choose the subscribers to the Memorandum of Association (MoA), which will also include the partners to the joint venture and their nominees.  To avoid contradictions, the Articles of Association should contain the stipulations mentioned in the joint venture agreement and clearly delineate the rights and obligations of the partners. The government has outlined 37 high priority areas covering most of the industrial sectors. Investment proposals involving up to 74 percent foreign equity in these areas receive automatic approval within two weeks. An application to the Reserve Bank of India is required. Besides the 37 high priority areas, automatic approval is available for 74 percent foreign equity holdings setting up international trading companies engaged primarily in export activities. Approval of foreign equity is not limited to 74 percent and to high-priority industries. Greater than 74 percent of equity and areas outside the high priority list are open to investment. For greater equity investments, or for areas of investment outside of high priority, an application in form FC (SIA) has to be filed with the Secretariat for Industrial Approvals. A response is given within six weeks. Full foreign ownership (100 percent equity) is readily allowed in power generation, coal washeries, electronics, Export Oriented Unit (EOU) or a unit in one of the Export Processing Zones (EPZs). Foreign investment is also welcomed in many of infrastructure areas such as power, steel, coal washeries, luxury railways and telecommunications. The entire hydrocarbon sector, including exploration, production, refining and marketing of petroleum products, has now been opened to foreign participation.

CHARACTERISTICS OF A JOINT VENTURE 8dcig^Wji^dc Wn eVgicZgh d[ bdcZn! egdeZgin! Zødgi! `cdlaZY\Z! h`^aa dg di]Zg VhhZih id i]Z Xdbbdc jcYZgiV`^c\# ?d^ci egdeZgin ^ciZgZhi ^c i]Z hjW_ZXi bViiZg d[ i]Z kZcijgZ# G^\]i d[ bjijVa Xdcigda dg bVcV\ZbZci d[ i]Z ZciZgeg^hZ# G^\]i id h]VgZ ^c i]Z egdeZgin#

Entrepreneur + August 2011 117

how to [... do just about anything]

Part 1

Get Foreign India has become a hub of foreign investment today. Hereâ&#x20AC;&#x2122;s how you can obtain it. By Deepali A. Mendiratta

124 Entrepreneur + August 2011

IllustrationÂŠ Chaitanya Surpur

Investment Investment AS

the world turns into a global village, India has leaped ahead of its peer countries due to its investment opportunities, huge growth potential and favorable business environment. In the process, it has become a hub of Foreign Direct Investment (FDI). The steady growth of foreign investment for the past few years has become one of the pivotal factors in determining the pace of growth of the economy. Foreign investment in India is a vital growth driver for India Inc. The infusion of foreign funds has largely stimulated the growth of the Indian economy and with the government further liberalizing and streamlining foreign investment policies and procedures, it will hopefully play a crucial role even in the times to come.

FDI POLICY FDI is primarily governed by the Foreign Exchange Management Act, 1999 (FEMA) which lays down the broad framework under which the Government of India, through various regulatory bodies, creates, reviews and regulates the detailed provisions. The Government of India through its Department of Industrial Policy & Promotion (DIPP) releases two comprehensive FDI policies in a year vide its circulars which are effective from April 1 and October 1 of each year. The said FDI policy combines all the prior policies/regulations relating to FDI in India in a single document. Every consolidated FDI policy circular substitutes the last policy circular. The policy can be downloaded from www.dipp.nic.in.

MODES OF FOREIGN INVESTMENT IN A COMPANY Foreign investment refers to an investment in an enterprise by a non-resident, whether it involves new capital or re-investment of earnings. Foreign investment is of two kinds—(i) FDI and (ii) Foreign Portfolio Investment. Any non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI policy. The government of India has also specified the class of entities in which the foreign investment can be made and with respect to each set of entities there are separate guidelines and criteria to be followed. Indian

company being one of the recognized entities for receiving foreign investment, FDI in such entities flows through two routes—(a) Automatic Route and (b) Approval Route.

AUTOMATIC ROUTE All FDI proposals which do not require the approval of Foreign Investment Promotion Board (FIPB) are said to be investment under Automatic Route. This route is available to all sectors or activities that do not have a “sector cap” i.e. where 100 percent foreign ownership is permitted or where investment up to sectoral cap is allowed without approval.

INSTRUMENTS FOR INFUSING FDI 1. Equity shares 2. Compulsorily and mandatorily convertible debentures 3. Fully, compulsorily and mandatorily convertible preference shares 4. Depository receipts 5. Foreign currency convertible bonds

APPROVAL ROUTE All FDI proposals, wherein the proposed investment in an Indian company is above the prescribed sector caps or where the proposed investment is in such sectors where investment is allowed only pursuant to approval, fall in this approval route. There are some instruments for receiving foreign investment. This may be made in Indian companies in any of the following modes:  equity shares  fully, compulsorily and mandatorily convertible debentures and  fully, compulsorily and mandatorily convertible preference shares In case any unlisted company issues any of the aforesaid instrument, their pricing shall be determined by Discounted Cash Flow method of valuation and in case of any listed company, according to method provided by SEBI (ICDR) Regulations. In case of convertible instrument, the price/conversion formula should be determined upfront at the time of their issuance. The price at the time of conversion should not be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the valuation method as provided aforesaid. Inwards remittance by issuance of Depository Receipts and Foreign Currency Convertible Bonds are also counted towards FDI. DEEPALI A. MENDIRATTA is Manager, Corporate Professionals. She can be reached at Deepali@indiacp.com Entrepreneur + August 2011 125

back stage The art of the deal—as viewed from the other side of the bar. By Derek Brown

AN OLD-FASHIONED

RELATIONSHIP Even though it may strike you as simple advice, it bears repeating: Get to know your bartender. Of the cast of characters in your life—friends, doctors, lawyers, real estate agents and so on—bartenders rank among the most useful, especially for business professionals. Take it from someone who has seen it all: Your performance at the bar can render the old mahogany a ladder or a slide; raising your profile or eviscerating it. This truth was never more evident than when I met a soonto-be regular who mastered the art of the deal at the bar. His name was Frank. He walked in, sat down and placed an order at my bar: bourbon, rocks. He was a tall, impressive figure with an easygoing demeanor. Instantly likable. During a lull, he asked me about my favorite drinks. We got talking about a classic Old Fashioned, sans fruit—just rye whiskey, a little sugar syrup, bitters and a thin lemon peel. It’s a drink everyone thinks they know, but often they only know its fraudulent imitation, drowned in soda water with neon-red cherries and half-perished orange slices. I made the classic version for Frank and he loved it. Upon leaving, he thanked me, handed me his card (along with a generous tip) and promised to return with friends. It was a few weeks later when he did. He introduced me to his guest and asked for an Old Fashioned, which he described in detail to his companion, just as we had discussed. He railed against the syrupy-sweet mess most bars call an Old Fashioned and likened the classic to drinking a piece of history. Frank was a consultant whose business style was similar to an Old Fashioned: classic and service-oriented. To Frank, the drink wasn’t just a drink—it was an indication of quality. At that point, there was no need for him to make a pitch for the client’s business. He already had it. Frank brought in more guests. When he strode through the door, it was like seeing an old friend. The clients weren’t just there for a pitch: They were among friends. Or at least that’s how they felt. I would start the drink as soon as I saw them walk in. Within seconds, he’d have two Old Fashioneds waiting for him.It was a mutual relationship. I enjoyed Frank’s enthusiasm and being in on the deal. And, every time, he nailed it. ©Entrepreneur July 2011 by Entrepreneur Media, Inc. All rights reserved. Self-described “booze nerd” Derek Brown co-owns Washington, D.C.’s The Passenger and Columbia Room. He is a founding member of the D.C. Craft Bartenders Guild.

134 Entrepreneur + August 2011