Wednesday, October 24, 2007

What I like in business ideas

So I’m blogging after a really really long time. I mean I’ve been doing some chota mota blogging every now and then but nothing real that I’ve put some effort into. So I’m here sitting on a rare day when I don’t have too much to do and thinking hard about a good topic to blog about. Finally I thought I should write a bit about Ideating. I know – it’s an esoteric topic and one that probably I’m not very qualified to speak about but I thought let me anyhow give it a shot. I see quite a few business plans and am a sounding board for quite a few friends who are starting their companies so I thought it would be good for me to crystallize what impresses me when I see a business plan. So here it goes:-

1. Real Technical Innovation. This is the techie in me. I like seeing a simple, elegant solution to a problem as the crux to the business plan. It might sound easy and in some ways obvious but you’ll be surprised with the number of plans I see that just don’t have this. I sincerely feel a new company that’s getting started has to have a better way of doing things or else it really does not stand a chance against more established players.
2. Concentrated Experience in the Founders. This in my opinion is the most reassuring part in the business plan. It’s nice to see founders who have worked together for years at a stretch or who have been in companies which are market leaders in related areas as I feel by virtue of being in senior management positions at another company that was a market leader, the founders firstly have perspective into a problem that comes from being at the center of the vortex and secondly they come in with a rolodex of contacts and an understanding of industry processes that will just help them get their new business off the ground faster. What do I mean by the above? A simple example would be if a senior person in the land acquisition team at Raheja or DLF or Hiranandani properties were to come in and say that he wanted to start a new company doing property development, I’m sure his insights just from being an insider would be valuable.
3. A realistic understanding of pre-revenue costs. Again, It’s surprising but very few business plans I have seen are realistic. While I am willing to give the entrepreneur credit if he misses his revenues, I feel an entrepreneur who is unable to project the amount of money he needs to get to revenue has a lack of understanding of what it will take to get to Point B. It’s important for the entrepreneur to be able to draw out a detailed project plan and budget realistically what it will cost to achieve the plan. If an outsider in the business is able to see obvious flaws in the budget, I feel the entrepreneur does not know the business well enough.

Moving on to more complicated things I like in businesses.

4. Businesses where reputation and network effects enhance profitability. I like businesses where over time as long as you are delivering quality services, your reputation grows and you can charge a premium as you become a magnet for the best people, partners, vendors etc. putting the company into a sort of positive momentum so that it can escape the gravitational pull of typical business pressures. Good examples of these businesses are Hospitals and schools. I also like businesses where by virtue of their network, they get more valuable with time by being able to build higher margin value added services into the service. Examples include Telecom, banking etc. and I love companies where technology is used effectively to drive these network efforts further.
5. Aggregation Businesses i.e. businesses built on the back of many small customers who look pretty similar and to whom similar processes can be applied supported by simple technology tools i.e. the internet, call centers, central processing units etc. This is in some ways similar to my earlier point about network effects but not really so felt it should be mentioned on its own.
6. User Data generating businesses. I like to summarize this by telling my friends – it’s not about how many users are coming to your website but about what they’re leaving behind. I’m a big believer in User Generated content, user generated data, user trails etc. and I feel this businesses that generate valuable data esp. at valuable times.
7. Instant gratification. I like businesses where there is a limited barrier to customers buying the product. In other words, customer likes, customer buys and then he can start using your product pretty immediately. I don’t like businesses where customer engagements can stretch and the variance of deploying at different customer engagements is large, deployment time is more than 7 days.
8. I like companies that bet on progress. I feel it’s the easiest way to make money. Human beings have been shown to behave in a certain manner in some countries. I’m reasonably willing to bet that they will behave in similar manners in other countries. This is not the glamorous way to make money but I feel this is the easiest and most obvious way.

1 comment:

  1. very interesting ... pretty profound actually.


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