Monday, September 02, 2019

If not debt, then equity?

Given that my last post discourages entrepreneurs from raising debt apart from a few specific cases namely:-
1. Very high ROCE low risk businesses - (P.s. Tell me if you are in one of these)
2. Quick Flip businesses where you are adding value to an asset,

Let us go to what then an entrepreneur needs to do to get his business adequate capital. If not debt, then the corollary is essentially Equity capital. Equity capital is where an investor invests capital and in return takes ownership of a chunk of the business - e.g. 1mn USD for 30%. Now debt is a simple proposition - most entrepreneurs understand that if they were to borrow from a private individual the rate of interest would probably be higher as compared to the rate of interest were they to borrow from a financial institution and likewise an investor would also intuitively guess that if a bank were to give him x % per annum for his money, he should get x+++% for his money were he to lend to a business. However, this intuitiveness usually breaks down when it comes to discussing an equity investment. Both investors and entrepreneurs seem to not have a clear sense of how equity should be valued.

So here are some of my thoughts on the same:-
Firstly, I feel eventually all businesses tend to be valued based on the DCF method. Of all the methods that I have found this is effectively the method I feel is logical, scientific and pretty much accounts for most things I feel should be accounted for.

For the sake of my analysis, let us assume that you were in a zero risk business that would with clockwork precision every year keep paying you 100$ on the anniversary of that year. It would pay you this forever - How much would you sell this business to me for? To answer this question, you would need to know the prevailing bank interest rate - because effectively the only other investment that would be comparable would be a term deposit. So if the bank interest rate was 10% - you could tell me that this is a great alternative to putting 1000$ in a term deposit. If the bank interest rate was  1%, you could justify selling it to me for 10,000$ as a replacement for a 10,000$ term deposit. However, there is no way that I would pay 1010$ if the bank interest rate was 10% or 10,010$ if the bank interest rate was 1% if I was a logical thinking person.

To keep it simple, let me now touch on the reason behind the discount in the DCF. Essentially money today is worth more than the same money if given to me in the future as if I had that money today, I could put it to work - at the worst case by putting it in a bank and in the best case by putting it into other speculative investments. As such, I would discount next years earnings by a %age - minimum the return I would get from a bank - and I would discount 2 years forward earnings by the same %age compounded twice and so on so forth.

To complete this simplistic analysis of DCF we have to factor in that businesses grow or decline - so for instance if a business was growing - the earnings shareholders would benefit from would grow and if it was declining the earnings available to shareholders may decline or else they might have to put in further capital if it were to incur losses. Either ways, we have to factor in the growth or decline in future cash flows.

Lastly, businesses are always uncertain and are affected my many external factors - as such both entrepreneurs and investors have to look at the probability of the business reaching a particular scale and then maintaining that scale for a significant amount of time.

Now coming to valuation - to figure out valuation let's take a live example -
A young company requires 1mn USD. It's cash flows are projected to look like below:-

Y1 - -500,000$
Y2 - -300,000$
Y3 - -200,000$
Y4 - 50,000$
Y5 - 100,000$
Y6 - 200,000$
Y7 - 500,000$
Y8 - 500,000$
Y9- 500,000$ and so on so forth.

On the face of it, this is a great business - the company has consumed only 1,000,000$ in capital and is throwing out 500,000$ in cash per year. However, let's look at it from the view point of the investor who is being asked to invest 1,000,000$
Step 1:- What is the prevailing interest rate? If the interest rate is 10% - the maximum that he could value the business throwing out 500,000$ in cash in perpetuity is $5,000,000.
As such, the first call the investor should make is how long he expects this 500,000$ to last - so let's say if he had a crystal ball - and could look sitting in year 0 as far beyond as Y 15 - he could say that the company would generate 500,000$ for 6 more years so till Y15.
Now he would have to calculate the present value of these cash flows discounted by at least the interest rate - 10%. This would look like this
Giving a value of $1.8mn for these cash flows.
Put in another way - for investing 1mn $ - the investor should own 1/1.8 or at least 55% of the business. This is only if he is 100% certain that the business will generate such cash flows as per the projections. In life nothing is certain and so it's wise to discount by 25% - and so the investor would reach a valuation of 1.35mn USD or to put it differently - his stake for investing 1mn USD should be a minimum of 75%.

Remember that we have here discounted by 25% for all risks such as:-
1. The product not having a market.
2. Competitive forces outgunning the business.
3. Economics of the business degrading.
4. Management and litigation risk.
5. The business raising further capital diluting the investor and thus diluting his share of future cash flows.
6. Team friction and other reasons why the business could implode.

As such, in general it is apt to discount by 75%.

Given all of the above, it is the responsibility of the entrepreneur to first introspect if his business firstly has the potential to generate the sort of cash flows that account for a brutal valuation exercise as given above. If he feels so, it is his responsibility to then construct a deal that leaves enough on the table for the investors. How can he do this?

Rule 0: Do detailed math and raise with some margin of safety. All projections go haywire if your investors get diluted in a distress situation.
Rule 1: Be Frugal and capital efficient. This will ensure that the profits are significant in comparison to capital invested.
Rule 2: Focus on speed. Remember the discount is compounded by the number of years. Time will kill investor returns if you are not mindful.

So having said this what do you value a business at - I like to think of the following as a typical example of cash flows:-
Y1-  -400,000$
Y2 - -400,000$
Y3 - -200,000$
Y4 - -200,000$
Y5 - 100,000$
Y6 - 500,000$
Y7 - 1000000$
Y8 - 1000000$
Y9 - 1500000$
Y10 - 1500000$

A business like this I would typically take the positive value of 10 years of cash flow - so in this instance Y5-10 (6 years) - and calculate the NPV of the same - and assign that as the valuation of the business - In this case it would be 2.5mn USD - If I felt the business was highly probable to not meet the projections - it would be a no go. As such my advice to an entrepreneur who arrived with the above projections - 1. Do more with less capital. Try to burn less money in the initial days. 2. Try to innovate so that Y10 cash flows remain steady and growing for maybe another 15 years - giving both him and me more upside given that we both would make very limited money in the present construct.

I hope this has been useful.

Some Thoughts on Debt

Remember as an entrepreneur the music stops if you don’t have access to cash so in general, you must always ensure that you have cash on hand - whether that cash is equity or debt makes no difference - the only two areas that it makes a difference are in figures of IRR and in taxation. Taxation is real and IRR is virtual.

However the basic principle is for every business venture you have to measure ROCE - Return on Capital Employed - ROCE for startup businesses is essentially profits divided by the total capital required - debt + equity. In general, you must have ROCE very quickly - ie within 3-4 years touching 40-50% for a startup to be viable. Of course the trick here is that many startups will use very little capital and so 40-50% is no big deal so if you want to think big you have to look at trying to create a business which will have ROCE of 40-50% while using at least 1cr and then moving to 5cr and then going onwards to 30-40cr in capital. This is the first place where many entrepreneurs fumble - they are able to create ROCE of 40-50% but at a very small scale. Their abilities and management skill don’t allow them to imagine how to employ larger amounts of capital with sustained ROCE.

Now onto debt and why it is interesting. Debt is interesting as it is essentially someone’s else’s money and so if you have a high ROCE business you can expand your capital employed by using other people’s money and supercharge the return on your money. Let me give an example - if you had a business with ROCE 30%. Let’s assume the business was able to employ 3cr. If you put 1cr if your own money and borrowed 2cr at 15% per year - the business would turn 3cr into 0.9cr in profits and you would pay interest of 30L in interest on the 2cr and so you would have made 90L -30L = 60L on your 1cr in that year - a whopping 60% return on equity.

Note that if you could borrow at 10% per year your interest payable would be 20L and your return on 1cr would become 70L or 70%. If you could borrow at 5% you would make 80L on your 1cr.

So effectively for a business person, your aims have to be:-
1. Find businesses that have high ROCE
2. Design them to be where they can employ larger and larger amounts of capital as they scale and you are confident of the results.
3. Ensure you can borrow at the lowest possible rate so as to supercharge the return on your equity capital.

1 and 2 are an art in themselves and require luck and persistence in seeking opportunities. 3 let us analyze in some more detail:-

Kinds of debt:-
1. Secured against liquid capital. I would call this more of tax planning - the lowest I have been able to get is 1 month ago at 7.9%. I doubt if anyone can get a lower rate.
2. Mortgages - typically you can get 8.75% with a very strong credit rating.
3. Personal loan - 11%
4. Business loan - 11-14%
5. Real estate loans - 15-18%
6. Unorganized sector loans - 24%

What are low ROCE businesses:-
1. Real estate / hotels
2. Capital goods
3. Finance businesses

As such entrepreneurs who get into above businesses with debt - esp high-cost debt are dead in general unless they are very lucky. Even then they are enriching the bank. So in general taking on debt to deploy into such businesses is a bad idea. The only way in which the above businesses are viable is if you are into flipping the capital asset and you have a very strong thesis for why it will appreciate. Even then, you have to be able to flip fast or else the debt overhang in my opinion will kill you.

So bottom line:-
Whenever you design a business, do the math on what ROCE you expect.
Build reputation, credit worthiness, relationships where you are able to get debt at the cheapest possible interest rate.
Only take on debt if you are confident of high ROCE. Even then balance it with equity.
Be very conscious of time when debt meter is ticking.

Friday, October 29, 2010

First Column for Times Property

IBM TypeWriterImage via WikipediaHi Everyone, I'm happy to post the first of my articles that will be appearing in the Times Property - a supplement of the Times of India - the world's largest selling English language newspaper. This being the first article, I tried to cover a basic set of tips when purchasing a holiday home with the view of generating income from the same. We've released the article first on the owner blog. You can read the article here. It's titled "10 Things to consider when researching your dream Holiday Home." I hope you all like it and please do send me your feedback. We have been progressing steadily in our mission to make - the leader in the Holiday home Rental business in India. As part of that we have realized that by virtue of being the pioneer, it is not enough to be the largest - we already are - We need to grow the industry, ensure that we educate buyers and encourage more families to make an informed decision to buy a holiday home. This is part of that effort. We will also be launching a new line of business shortly towards that goal - within the next 1-2 days. In the meanwhile, enjoy the article.
Enhanced by Zemanta

Sunday, June 27, 2010

Part 2: Online marketing - How to make sense of Google Adwords, SEO, SEM and all that jargon

Search-Engine-MarketingImage by Danard Vincente via Flickr
Sorry everyone, know I promised to post the rest of the post the next day but was reading my own article after I posted it and I thought that I would change track a bit. I think in Part 1 I was able to explain some of the challenges but not clearly outline some suggestions. As such I'll quickly go through one more challenge and then put down a quick laundry list of stuff that every web entrepreneur must do in order to get results from online marketing.

The last challenge:

7. Directing user behavior in a very distracting environment.  The internet is a very distracting environment. Unlike when you advertise or market on television or else in print or one on one in a meeting, you have no psychological upper hand and the user feels no need to pay you any attention or let you make your case. In a sense it is like he is window shopping but inside the shop and in multiple shops at the same time (does that make sense?) It is also a unique medium (only maybe teleshopping compares) where you can convince someone and make him buy your product immediately. It is also the one medium where you have a storefront for which you may no rent, have no utility cost and where your sales are primarily under your control. Having said that the biggest challenge is to get users to follow a 'sales funnel' where you take them through a typical buying process without them explicitly feeling that they are being taken through the same. The way you do this is to continuously improve your usability as you mine data and figure out the typical buying path that customers are taking. Something easily said but very difficult to do.

So here are some things I feel every online entrepreneur must do:

1. Keep search very broad and implement filters on search results. Techies have a tendency to use advanced search and this is a valuable tool which must be put under an advanced search button. However, in your initial days, you will not have enough variety to satisfy users. Putting a very detailed search is akin to putting up a sign saying restaurant and not having a menu. Customers will come in ask for truffle and cake and other exotic dishes and you will return zero search results. In the initial stages it is much better to offer a broad search and maybe a direct category browse or graphical browse of featured products. Make sure you put the price on the featured products and choose products that are good deals. As you get more information about what customers are searching for work furiously to add to the catalog and feature those products. Make sure that on the search results page you have an ability to further filter these results based on the parameters that you usually would put in the advanced search page.

2. Do an excel sheet SEO exercise as outlined in the previous post. As mentioned take an excel sheet and list out all the keywords and going one by one take each keyword and reword content on your website to ensure it contains these keywords. Obviously, user experience is key and don't do anything that will look or feel stupid and as if you are stuffing garbage into the website but go through the exercise.

3. SEO internal pages. The way to do this is to rename links and ensure content on every page is SEOed and not just your homepage which will be actually the most difficult page to SEO effectively given that it has the most generic content. I'll give you an example if you are a seller of books it is rare that someone will come to your website after typing in 'online book seller india' - Instead it is more likely that there are a larger number of users who will type in particular authors names or the names of particular books e.g. "Selling the wheel" and you want those keywords to not point to your homepage but to an internal page for that particular product. Hence you must use these keywords and the authors names for your detailed page for that book.

4. Contribute to the internet. Create proprietary content which is not present anywhere else on the internet. This is treated favorably by search engines. Try and stay focussed to your business and create a depth of content which your audience will find useful. More importantly, try and syndicate the content to other websites who have higher Page Ranks and ask them to link back to you. This will ensure your page rank moves upwards. 

5. Direct user behavior by keeping the number of pages to the minimum.  Here is what I mean by this. Typically most websites will have a search results page and then on clicking on the search results you go to a product detail page. I would recommend instead of redirecting to a product detail page, try and see if you can replace the same with a HTML5 pop up. This is where there is no new page but a section pop out on the page itself and disables the background page. The popup must have all the information for the user to make his purchase decision and a two action buttons - to either close and go back to search results or else to purchase. This is called providing a strong funnel and I would recommend everyone do this.

6. Build an engaged audience and encourage contribution. This is really the toughest part of internet marketing. Build an engaged audience and get them to contribute to their website. Some of you might have seen on my About Me page that this is something I find very important ("businesses which can get more valuable not by attracting customers but by what customers 'leave behind') - I feel this is because a lot of websites feel that the way to get user generated content is to get user reviews and ratings on the website. This is not gonna help you get customers as it will be something that kicks in only after you have a large number of disgruntled customers :-) - Get inspired by Wikipedia. Is there a way to get other content on the website enhanced by the users?? Spend significant time and energy on this as it is a non trivial problem to solve. However the payoff of doing this is immense - you will build a great and loyal community and search engines and other directories will notice and reward the dynamism as part of their algorithms. 

7. Use alt tags for images. A simple tip but one that not many webmasters do. Remember images cannot be read by bots. The only thing that can be read is the meta data about them i.e. the alt tag. Ensure the alt tag is well formed and has content that is relevant to the particular image. Don't stuff it with crap. 

8. Spend time to figure out your facebook and twitter strategy. I will do detailed posts on using each of these tools and so at the moment I will not say much but to say that these are powerful tools and ones that cannot be ignored in todays internet. However, there is like all things in life a world of difference between the obvious and insight. Don't do stuff without spending some time to understand the implications of your actions and mapping out your goals from these exercises. 

9. Use Search Engine Marketing to get immediate results. SEO can never give you results in the same way. SEO is a gradual process. Search Engine Marketing or Online Advertising guarantee you immediate results at a price. In a sense it is like paying to get to the top of the queue. Use them effectively and you will be able to grow your business quickly and effectively. However, very few people understand how to use Online Advertising effectively. My view is that you need to prepare a business plan and ensure that you start with traffic that is coming vritually entirely from Online Advertising and gradually trending to where it is 40-50% of your total traffic. I say 40-50% of your traffic should come from online advertising as I feel you must grow your revenues by 100% every year. If you are able to get a base traffic from regular customers and SEO, then online advertising should be able to get you to this figure. However, remember with SEO that you must set a goal and dollar values and probability figures for every step of the selling process. Here you are spending real money and you need to get tangible results i.e. money in the bank. I like to think of SEM as pushing the gas on the accelerator because you don't have a lifetime to waste. Personally, I strongly advocate Search Advertising as opposed to Facebook, Display and other forms of Advertising. I have found it to be value for money.

10. Research creating an affiliate program. An affiliate program is where you partner with other websites, bloggers and online communities to promote your program in return for a success fee. Think of it as similar to online advertising but in a different format. A great affiliate program is the one from Amazon where once I sign up as an amazon affiliate - I get an affiliate code and then whenever I like a book, I can blog about it and my readers can click a link to view details of the book on - If they purchase the book, I get a commission from Amazon - as simple as that. I have used a simplistic example of a blogger as an affiliate but there are many managers of large passionate online communities whose primary income stream is affiliate programs they participate in. Have a focused approach to creating a win-win affiliate program and reaching out to the right affiliates and recruiting them to your cause. 

Hope this was useful and I will write posts dedicated to facebook and twitter in the near future. Welcome comments and other feedback from others!! 

Enhanced by Zemanta

Thursday, June 24, 2010

Part 1: How to make sense of Google Adwords, SEO, SEM and all that jargon

dotcom.comImage by hober via Flickr

So everyone knows I have for a very long time been a product creator and innovator in the Telecom and Payments space. I have been very comfortable with the technology and business side of GSM, CDMA, USSD, GGSN, MSC, PCI, ISO and what not. I have never run or managed a dotcom and so running has been a new and learning experience for me. I started the website on a lark without major commercial expectations and then being ambitious decided to try and run it as a business. Along the way, I've been learning how to run a pure online business and it has been one hell of an experience. I've just started and so I am sure there is a lot more to learn but I thought I must record some of my learnings as a means of sharing the same with others who embark on similar emarketing initiatives in the future. I will not cover the use of facebook and twitter in this post but I intend to do future posts to cover those in the near future.

So here are some of my learnings:-

Firstly, Overall my major learning is that selling a product online requires a very different mindset from selling an enterprise product or producing a physical product and marketing it. In other cases, you essentially are able to run the company in different silos albeit interconnected at the top but for the most part operating in silos. So typically in other cases, you conceptualize the product, you build it and once you have the product it is turned over to the sales team who then 'sells' the same. The sales team gathers feedback which is communicated back to the product team which then starts work on the new version of the product. There is clear distinction between engineering and the website which is essentially marketing. Now with an online offering there is no such distinction - the product is the marketing and the sales channel and so essentially there is no sense in having multiple departments and hence every individual working in the company has to work closely with each other and their individual functions need to be looked at in a holistic manner. Easier said than done. I am battling daily with having to change this mindset and will try below to share how I have tried to do it.

1. You Should Do It Yourself first: This is the first thing I wanted to emphasize. Today there are a large number of companies who specialize in emarketing and while many of them are very good, it is important that you start off on your own to understand what it takes to run this department and arrive at some key metrics so that you can keep an eye on these providers. The tools and ecosystem were built by many of the bigger players - google, yahoo, facebook etc. to provide a level playing field and enable a small business to reach out directly to customers without the need to hire expensive consultants and agencies. They add tremendous value but beyond a certain scale and I would never recommend hiring them when you know absolutely nothing about emarketing and metrics. Once you have done it yourself for a while, it may be worthwhile to save time and outsource the same to a professional.

2. Google Analytics is very simple yet powerful. Spend significant time playing with it and getting to use all its features. Without doubt, my search has shown me multiple analytics providers but none can compare with Google Analytics. It has its flaws but it is still the best tool there is and I would highly recommend that you use it to track visitors to your website. Some of the points below will emphasize the importance of certain statistics that are shown in google analytics.

3. SEO - how to go about it? SEO is the first real time when you will notice clearly the need for Product Development and Marketing to work together. Search Engine Optimization as the full form suggests is ensuring that your website ranks highly on the results page when someone searches for specific terms on google. I want to emphasize that only someone who knows nothing about SEO will be able to promise you that you will get ranked highly no matter what is typed into google. The best way I have found to improve your SEO ranking is to take an excel sheet and type out all the keywords users who you want to show up on your website may type. Ensure that these are keywords that demonstrate 'intent' and not just that the user is in your target Audience. Now the best way I have found is to go one by one and going over all content on the website ensure that you are using these keywords or are renaming link names and content text to include these terms instead of other words which may convey the same meaning but are not so commonly used. Repeat this process for every keyword and ensure that all dynamically generated pages have the same keywords autogenerated. Also make sure you autogenerate Alt tags for images which make sense. I would caution here against keyword stuffing -i.e. putting really large number of keywords into the meta tags and alt images - these will be ignored and will be penalized by many search engines so avoid the same. Think creative and think from the perspective of an user.

4. Figure out the whole Page Rank thingy:-  Page Rank is at the core of Google's technology and the single most important thing that affects the placement of your page on search results. Simply put, google assigns every page on the internet a PageRank. The more influential your page is the higher your page rank. The more number of people who link to you the higher your page rank. The more influential the person who links to you the higher your page rank. As such, focus on improving your page rank. The ways you can do this:- Be aware what your page rank is. There are nice toolbars which you can install on your browser which will show you the page rank of every page you visit. A good way to increase your page rank is to create original content and give it to other high page rank blogs or websites with the understanding that they will link back to you. The other option is to participate in a link exchange program or submit your website to directories etc. However, I have low confidence in such mechanisms.

5. Assign Dollar Values to Customers and segment the buying funnel into milestones with probabilities but no dollar value. This is another very important aspect to keep in mind with Running an online company. You must be able to say that if a customer gets to a particular point, it is equivalent to making x USD. As clear as that. You have to be clear that the metric must be well defined so that you can go to a crowded marketplace and yell - go to my website do so and so and I will be willing to pay you  75% of x USD. I like to make sure the metric is one which puts money into my wallet and I recommend you do so too but many web 2,0 companies will assign a dollar value to a user and so on and so forth. (I don't agree with this but thats the subject of another blog post). Now that you have defined your metrics, you can assign intermediate steps which tell you the probability of getting the x USD. Remember here you are assigning a probability to the steps but no dollar value. The value of a customer who gets to the final stage and drops off is still zero.

6. Keep tweaking your website to improve the drop off and bounce rate at every step. The bounce rate is the %age of visitors who come to your website and then decide that this was not what they were looking for and move on. The Drop off rate is the %age of visitors who drop off at every probability linked stage of your buying funnel. You need to measure each of these percentages using google analytics and make changes in the website usability to improve steadily and stabilize these percentages. This is an amazing exercise and something that should be done daily and on an ongoing basis.

Since this is a detailed subject, I have decided to break it up into two parts. Watch for the next part tomm.

Enhanced by Zemanta

Tuesday, June 15, 2010

Focus: The great entrepreneur virtue

As readers of my blog might know, I recently started a website called which quickly took off and became India's largest Holiday Home rental website. The sudden growth has taken me by surprise and as I'm building the business, I'm simultaneously building deeper relationships with mentors / advisors. Had a meeting with one of them today - I'll refrain from naming him as we've not officially announced our advisors but he's one of the founders of arguably India's most successful and loved travel company and someone whose inputs and advice I have grown to respect.

I'll set some context to our discussion: I'm grappling with the fact that Holiday Homes are owned by only a small minority in India. This is slowly changing with quite a few people having bought second homes in the past few years and over the next 5 years, a significant number of Indian families will get possession of their Holiday Homes. This is a big thing for us as it will significantly expand the number of Holiday Homes available to list on our website while also ensuring they are in clusters and so easier to manage as opposed to the stand alone farm houses and villas that presently populate our website. We have a series of challenges to navigate between when an upper Middle Class family decides to buy a second home to when they can list their property on our website and we can start displaying the same to travelers who can then book the same and go and vacation in them. It's tough being patient and esp given my character, I felt we as a company should ensure we do something and encourage or participate in the scaling of some of these challenges so that we could take control of our destiny (or hasten the arrival of the pot of gold at the end of the rainbow).

Mr. Mentor gave me some good advice which I felt I must share (with some summarizing and some of my own narration thrown in):
1. Figure out what would be core to your business when the business is in steady state. Only focus on that aspect even now and ensure that the 'business works' - this means transactions are happening, the customers are happy, the suppliers are happy and you can measure, monetize and analyze things easily. 
2. Focus on the existing low hanging fruit and the existing market no matter how tiny it is. You will be surprised as to how large even the existing market is. Focus on dominating the same.
3. Ensure you are building a community with the existing users and existing stakeholders while the market grows - when you are the de facto leader, the new stakeholders who come in will also gravitate towards you. 
4. Doing things to get to the mirage at the end of the road does not change the facts - there is no mirage. It's an optical illusion.
5. Studiously choose product and stakeholders that will position you in the light you want to be positioned and though of. Avoid products that will cause any friction or a bad experience for any set of stakeholders. 
6. Be patient. You cannot grow a market faster than it will grow. 
7. Position yourself as the leader. Ensure you are respected for your views, insight and business practices by all stakeholders. 

I am happy to have been able to attract some of the advisors we have and will continue to share some advice for the benefit of the larger universe. Please feel free to comment and give me your own advice!!

Sunday, May 16, 2010

Some Things to keep in mind

Disclaimer: I try to follow all the below and try hard. Have formulated some of these rules through the mistakes I have made. The below are from my twitter account so some words have been shortened. You can follow me @roshandsilva

Never say anything bad about anyone. The A$$h0!$$ will communicate it to the person out of context.

Treat your team members as adults and individuals. Delegate power and set easy goals, measure performance.

As a leader be gracious and magnanimous. The wins are always of the team and the failures are yours personally.

Criticize in private and defend in public. Never underestimate the value to a subordinate of a leader who bats for him.

Leader's professional life will be lonely. Surround yourself in personal life with people who love you unconditionally.

Battle cynicism and people hiding under their desks. Get everyone to come out, bat for the company all guns blazing.

Prep ur team for an iterative process of market discovery. Many CEOs don't realize how disconcerting change and pivots are for team.

In tough times, forget sales, investors, focus on your team and making sure existing customers get high quality delivery.

Never tell people what to do. Suggest and steer. Let them come up with solutions and suggestions.

Management is baggage. Make sure the producers outnumber the bean counters by a healthy ratio

CEO travel is overrated. Plan outcomes and expectations, decisions before the meeting. Meet to close not to gettoknow.

Important as a leader to belv in God. Helps to ensure you do the right thing and endure the inevitable pain!!

Never let what other people say or do upset you. Focus on bettering yourself and doing good. Have faith that it will pay off

Take things at face value without discounting for bullshit. It will ensure that in the long run people throw less of it at u.

Genuinely wish for peers to do well. Leadership similar to golf. You play only against yourself. Others achievements/ failures don't affect ur handicap. 

    Some CEO tips from Twitter

    Feeling a bit lazy on a sunday so thought I would cross post some of my tweets. Here goes the first series: essentially a random set of tips for CEOs

    • Most important rule: You might be tech/sales/BD/product guy but in a startup CEO is most imp. HR guy
    • Sacrifice air/hotl miles, spend time in office w/ team. Listen, co-ordi and measure - let others acquire miles,see exotic places
    • Imp CEO lesson: u r not a judge. Be a mavrick, treat diff. People differently based on the badges and scars they have earned.
    • Set audacious goals - imagine you are trying to overthrow a dictator. Ensure team w/ skills to scale such heights. Not done it before.
    • Ensure u connect with each individual and commit to taking care of whatever is most imp. For them so they can focus totally
    • Another lesson: Remove separation between two txns with one entity and link them together if u benefit #reliance style
    • Talk abt other party's P&L while keeping ur cashflow mind w dealin w bigcos. Few CEOs and BDguys knw tis trick& so do smll deals
    • If u r doing a deal with some1 with no cash down, can u get further with money on table. can they give u credit to give cash??!!
    • And finally - as the CEO be the good guy at the top and 'Do what you say you will do' - people must trust u to b sensible
    • Never indulge in mud wrstlin/street figtin-is not done by CEOs - startup or big co. Boardroom battles are fine ;-)
    • trust ur team.B clear that u will not police,violation of trust is death. U r after all overthrowin dictator
    For more such stuff follow me on twitter - @roshandsilva

    Monday, April 05, 2010

    A dose of Reality - Planning not to fail

    Lynne Murray and Graham Spittle - National suc...Image by Birmingham City University via Flickr
    This post is inspired by one of my friends. He's been a business person for a very long time - He's dabbled in many businesses and never been able to get a business off the ground. He's very well connected and has amazing drive and energy but ends up never being able to really build a business. Whenever I discuss him with common friends, the view is the same - he's always perceived as a trader or a wheeler dealer. I thought I should write about a few basic principles in life which could probably help those who struggle or find themselves in similar situations.

    1. Develop Competence. Competence comes from knowing stuff really really well. Much better than anyone else. Knowledge that can just not be found in books or on the internet. Competence so deep that it requires years of study and focus and perspective.

    2. Build relationships. People do business with people they are comfortable with. Don't look at every person and think "How can I make some money from the 30 mins that I am spending with this person?" Recognize that you and the other person were doing other things before the meeting and have probably a schedule planned out already for things to do after this meeting. It is possible that one out of 500 people you meet may discuss something that is mind blowingly amazing and you would want to drop everything and focus on the same, but if that becomes 40 or 50 out of 100 people you meet, you are probably not reacting rationally.

    3. Understand that building a real business takes time, energy and people. All of these are in short supply. The money comes if you are lucky when a dedicated team is provided the necessary resources and kept motivated and incentivized to attack a truly great market. It is not possible for you to attack multiple such markets simultaneously.

    4. Recognize that you as someone who knows the customer is unimportant. A company who has real competence and has an acclaimed product most probably is known to customers. Even if they did not know the decision maker, they could easily get a meeting by displaying their credentials. You cannot make money without the assistance of their brand. You don't have credibility without the company who owns the product.

    5. Recognize the business that you are in. Very few people have the balls to be 'traders' - A trader is one who makes money by using capital. He buys lows and sells high (f he is astute). A distributor is one who makes money by acquiring rights to a product and distributing it to individual buyers. If you are not paying money upfront or taking a bet on the actual movement of the price of what you are selling you most probably are a distributor. A stock broker is a distributor. A stock trader who is buying / selling to generate money is a trader. If you are a distributor, focus on building your distribution network. Don't try to or expect trader margins in the distributor model.

    6. Don't bullshit / Go into Hyperbole. The world is small. Your shit will hit the fan and you will look like an idiot.

    and last and more importantly

    7. Take baby steps. Decisions makers unfortunately have to tolerate lots of bullshitters. Decide on the one thing you want to do and take baby steps towards your goal. Celebrate the small wins and build competence and your team so that you can take larger steps in the future. Winning small battles early will help you in laying the foundation of a profitable quality oriented business - fundamentals that will hold you in good stead in the future.

    Thursday, March 25, 2010

    Making the tough decisions in life

    Lots of people have told me that I've led a colorful life. I'll be 31 this year and have seen and experienced a lot courtesy my drive to not walk down the beaten path and my tendency to go with my heart and what I feel is the right decision as opposed to what is the easiest path. It however has never been the easy path. I have had multiple occasions when I've had to make tough decisions - whether it was to layoff staff, to fire people who were friends, to leave companies I founded and other decisions in my personal life. Today as I talk with friends I advise, I sometimes get a sense of deja vu as I see some of the decisions they are grappling with. I thought I would write a bit about some of the things I always try and keep in mind when I'm faced with tough decisions:-

    1. I have obviously considered the facts and am unable to decide. What is my heart telling me when I reflect deep down inside?
    2. Is the presence of loved ones and entrenched relationships coloring my decision making? Is my making the decision difficult because I know that going down the right path will hurt someone? Is that someone else rational and logical and would they have seen the merit of my decision if they were in my shoes? If so, can I work out a midway path that relieves some of their immediate discomfort as long as they let me proceed? Are they being unreasonably closed to a fair deal? If so, should I not do the right thing?
    3. I am my own person and I will make every decision independent of the baggage of industry norms, cultural norms, and societal pressures. I will give people a fair chance to make it in spite of their circumstances and will stick my neck out for the meritorious side even if that means I may have to sustain short term pain.
    4. Decisions always have consequences. It is foolish to expect that life is the same no matter what path you choose. Am I prepared to sustain financial, societal, reputational damage in order to make what I feel is the right decision? Are the people I am going to make this decision for prepared to stick by me even if the worst case scenario comes true?
    5. Lastly,  am I being consistent with all the commitments I have made if I make this decision? Have I ever directly or indirectly signaled that I will be going down a different path and caused people to be emotionally, financially and socially invested in this decision? Can I resignal?

    While thinking through the above points helps me in arriving at my decision, I also feel having an experienced friend or guide to talk things with / share a drink with or else just vent to helps me tremendously. We usually know what we need to do. We just need to hear our thoughts aloud. And we need someone to tell us what we already know - It's time to be brave and courageous.

    Lastly, this is a tip to esp. people who are facing tough decisions: Believe in God. In moments when things really get tough, it is comforting to believe that someone out there is listening to you and protecting you.

    I leave you with something from Shakespeare

    This above all, to thine own self be true,
    And it must follow, as the night the day,
    Thou canst not then be false to any man.

    Act I,. Scene 3, Hamlet

    All the best!!

    If not debt, then equity?

    Given that my last post discourages entrepreneurs from raising debt apart from a few specific cases namely:- 1. Very high ROCE low risk bus...