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Saturday, 7 May 2022
How do I start a startup?
Questions about Starting Up
I was fortunate to partner with Harshita early in my journey, to start Cogno AI. We started in the 4th year of college itself, and today, we’ve grown to a 100+ member team, which recently got acquired by Exotel. Many of my friends and juniors from college reach out to me asking questions related to Entrepreneurship and my journey of building Cogno AI.
In this article, I will try to cover some such questions. The idea is to help college entrepreneurs take some decisions which will help them over their journey.
How to choose the startup idea?
Before you go about choosing your startup idea, find out what are your goals from the Startup. Basically, why are you starting up? Is it for money? Is it because you want to build something that changes the world? Is it because you like coding?
What exactly are you trying to achieve from the startup?
Let’s take an example. Let’s say you want to start a startup because you want to make money. Let’s say, you want to make some Rs. 10 - 15 crores (about $2 million), and you don’t want to make something super big, like a billion-dollar company.
In such situations, you can find small niches in a large space. When I say niche, I mean a small area that larger companies are not looking at, because they don’t care about $2M worth of value. An example would be to build a music player for exercise enthusiasts in India. Now, there are a lot of music player apps in the market. There are some big ones. What you are trying to do is to find out a small customer segment to which these big, generic apps are not serving.
I mean, an exercise enthusiast may want to hear upbeat songs which help them get energized. An exercise enthusiast may want some other features which a generic music player may not have. However, the space may not be very large. Let’s say there are about 10 million exercise enthusiasts in India, of which only 1 million people are willing to pay 2$ per year, then you cannot build a business larger than $2 million per year.
So, if you are looking to build a business of Rs. 10 - 15 crores worth of revenue, this is a great market to tap into. However, if you are looking to build a $100M revenue company in this segment, it may not be a great idea at all.
By the way, the above example was purely for giving a perspective on what I am trying to explain. I have zero idea of the exercise enthusiast market in India and I am sure the market is much larger than what I have mentioned above.
So, the first thing is to find out what is your objective from the startup and then find out pockets of opportunity in the market that fit your goals.
Another important point is that for a smart person, it is more important to decide what not to do rather than to decide what to do. A smart and capable person can do everything and so, they may end up falling into the trap of “shiny object syndrome” where everything seems to be a BIG opportunity.
I have seen many people fall into this trap. Because they are chasing everything, they end up doing nothing. The reason is simple - we humans have limited time and limited mental energy and so, we should put them to use only on things that have the maximum impact.
So, if you are a programmer, who likes to program and doesn’t like the Sales domain, no point getting into an Enterprise SaaS space. You are better off writing code. Obviously, you are smart and so, you can learn anything and everything. However, you need not fundamentally change your course just because your friend told you that the Enterprise SaaS space is hot.
Having said that, if you do want to get into the Enterprise SaaS space and you don’t want to sell, but rather want to focus on writing code, get a co-founder who can sell.
That brings us to the next question.
How did you find your co-founder?
Harshita was not my original co-founder at Cogno AI. I started Cogno with a friend of mine from IIT Bombay. However, Harshita and I ran a small content writing business while in college. We both knew each other well and knew our respective strengths and weaknesses.
When my previous co-founder quit the startup, I was in a difficult situation. I knew my strengths - conversing with people, taking big risks, building a plan and relentlessly executing it, storytelling and building a vision, and convincing people to join the vision. At the same time, I also knew my weaknesses - focusing on details, not thinking about the downside when taking risks, operations, project and product management, etc.
As my new co-founder, I was looking for some person who can stay in the office and manage the team while I am meeting customers. I wanted someone who is empathetic, can stay in the office and get the work done, manage people, and get the product built. At the same time, I wanted the person to be calm, intelligent, integrity-focused, hard-working, and patient.
I called up Harshita and explained the situation, and the opportunity and convinced her to leave her job and join me as my co-founder. I knew that she almost perfectly fits the requirement. I knew that she is not someone who would like to do field sales but would rather be keen to do product management, would be focused on minute details, and would be execution-oriented. I knew this from our content-writing business days because she use to read each article 3 times to make sure that there are no mistakes in the article.
Obviously, Harshita had her own set of reservations about joining me as a co-founder. But then what I was good at was convincing and storytelling. I showed her the big opportunity and how Cogno AI as a business can help her fulfill her goals. She understood the big picture and resigned from her job to join Cogno. It was the best decision for her as well as for me to join hands together in building Cogno AI to what it is today.
The key point here is that:
I knew my strengths
I knew my weaknesses
I had clarity about what the business needs from the second co-founder
And so, I leveraged my network to find a person who fit the criteria.
In fact, this is a general template to do anything and everything in your startup. That brings us to the next question.
I am a techie. Should I learn soft skills?
Absolutely not! Go and get a co-founder who has great soft skills! If you enjoy writing code, don’t unnecessarily push yourself in a different direction. There are enough people who would love to be a part of a startup, taking the non-technical responsibility.
Soft skills are indeed extremely important in any kind of business and if you want to learn them, you should definitely go ahead and do that. What you should not do is fundamentally change your course and do something which you are not good at and you don’t like.
If you are good at writing code, keep doing that because you will be a great technical co-founder. For soft skills and the non-technical stuff, you can always get onboard a co-founder or a senior team member. Like you saw in the example I mentioned above - I was more interested in selling a product than getting into the details of Software and Product Development and so, I got a co-founder who wanted to do that.
In your entrepreneurship journey, you should find out what you enjoy and what you want to do for a long-term period. However, there will be many things that you will have to do as a part of your startup journey, which you may not like, or which you may not be capable of doing. To do those things, you need to:
Hire - get a co-founder or a team member who will do that work.
Outsource - get a service provider who is an expert at that.
Mentor - who can guide you in learning that skill.
I will provide an example of each of the points above.
Hire - I had to sell to my customers and so, I needed to get someone to manage recruitment and so, I hired an HR to do that work.
Outsource - I am not an expert in managing agreements. So, we have outsourced our legal work to a law firm. The law firm is an expert in the agreements which Cogno requires - Service Level Agreements, Non-Disclosure Agreements, Master Service Agreements, Partnership Agreements, and Employment Agreements. During the acquisition of Cogno by Exotel, we wanted a law firm that is an expert in M&A transactions and so, we hired another law firm for that.
Mentor - As a young entrepreneur who is chasing large banks as customers, I needed help in opening the doors. Basically, I needed someone to help me get that first meeting with a CXO of a large Financial Institution. I onboarded a mentor who was a private equity veteran, with huge connections in the Financial Services industry. I realized that our mentor can be immensely helpful in business development activities and so, we got him onboarded as a shareholder in the company. He helped us acquire some of the leading banks, insurance companies, and mutual funds as our clients. That helped us get the flywheel rolling and acquire more clients.
One needs to have a good network to be able to hire, find service providers or mentors. My presence on Quora and LinkedIn really helped. In fact, many of Cogno’s early team members had read my Quora answers and that’s why they applied to us.
Obviously, many times when you partner with someone (hiring, outsourcing, or mentors), things may not work out as expected. There might be a mismatch in expectations.
That brings us to our next question.
Does the startup journey have a lot of stress?
The answer to this question really depends on 2 important factors:
Your stress handling capabilities.
The market in which you are operating.
Some people call “working 16 hours a day”, stress. I won’t at all consider that as stress. The definition of stress will vary for every person. For me, that’s not stressful at all. I mean, I have faced so many ups and downs at Cogno:
A co-founder exit
Customer not paying money on time leading to cashflow issues
Team members not performing to the expectations
Some random jealous person talking demeaning stuff about me on LinkedIn
Vendors trying to extract money from us
Why will I stress about working 16 hours a day?
I enjoy the work that I do here at Cogno and these ups and downs are there in every kind of business. Problems happen all the time. The job of the entrepreneur is to not sweat about these problems and rather find solutions. An entrepreneur is nothing but a persistent problem-solver. If the founder himself is worried about committing their time to the business, then how will the business thrive?
Anyway, the definition of stress varies from person to person. Some founders may actually find it intimidating to work for 16 hours a day. To solve for that, one should operate in a market where they don’t have to work for 16 hours a day.
For instance, let’s go back to our example of the music player for exercise enthusiasts. If one is a smart programmer and has an idea of the solution, they can build this in 10 - 15 days of time. If the app launch goes successful, or some popular journal picks it up and writes about it, one may actually not require working 16 hours a day.
Again a disclaimer, I am taking the music player only as an example to give the readers an analogy. I have no idea of the music player or exercise enthusiasts industry and I am sure a lot more hard work would be required to build a solution in this space.
Basically, one must know the definition of stress for them and choose the business idea and the market accordingly. If selling is a stressful activity for you, either get a co-founder who can sell, or operate in a market where you don’t have to sell. Solve the problem and move on. Don’t stress about it, else you will not be able to create a business.
We are now at our last and final question.
Should I go for funding?
Investors fall under the bracket of “hiring”. If one broadens the definition of hiring to not just hiring employees/team members, but rather “partnering” with someone for some specific business objective, then investors can also be considered as “hired”.
With that definition of hiring, one should ask the question - why do I need to hire investors?
Investors typically bring 2 things to the table:
Connects, and network
Some investors bring more to the table - support for recruitment, mentor network, etc.
Anyway, to answer the question about whether or not one should go for funding, one should ask - do I need money in the business at this point in time? Or, do I see the business requiring money in the next ~6 months? If the answer is yes, then go for funding. Otherwise, don’t spend time talking to investors.
When we started Cogno, our clients were willing to pay for our products and so, we didn’t require funding. We didn’t have a business model where we had to spend money to acquire clients who will pay in the future. Our business model was simple - sell the product and get customers to pay for the value that they are getting. Also, since Harshita and I carried the skills of building and selling the product, we didn’t have to hire a lot of people to do that and so, we didn’t require capital.
When the customer flywheel started rotating, we got more customers and more money came in and so, we further didn’t feel the need to raise external money. So, we never went to the investors and never raised any funds.
Having said that, there are many businesses that require capital. Take an example of CRED. CRED is currently in the user acquisition phase. Their big plan is to acquire a lot of users who have good credit scores and later, sell them products and services like personal loans, investments with good returns, etc.
They need funding because currently, they are focused on acquiring users as against making money from them. The CRED founders know that once they have a large user base, they will find out 10 different ways to monetize the business and they have been able to convince the investors for the same. So the investors have paid them money to cover the team building and for the customer acquisition cost, that CRED will incur in the near future before they start monetizing.
Does your startup have a similar business model? If yes, then go and raise capital. If not, then focus on customers and business, and don’t spend time talking to investors.
If you’ve read the article carefully, you’d realize that each of the above questions has essentially the same answer - find out what the business wants and go and get it.
You don’t have the skills to do something? Get a co-founder
Don’t know how to make decisions? Get a mentor
Need money to grow the business? Get investors
Is the business stressful? Do something else
Don’t know how to sell? Hire a salesperson
Don’t know how to write code? Hire a programmer
Find out your gaps and fill them using external support. What an entrepreneur really needs to know is Hiring and Storytelling. One should be really good at getting the right talent to join their journey and for that, one needs to have a strong story. People are inspired not just with money, but also with the long-term vision and the big plan. Go and build that.
Final disclaimer: I have zero idea of the music player and the exercise enthusiasts industry and so, I have taken it merely as an example. I am sure that the industry is quite large and one can always build a multi-billion dollar business with hard work and patience. My objective of taking the industry as an example was to merely show perspective to a reader.