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The truth about startups

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My presentation at Indian Institute of Management (IIM) Trichy on what you really need to start a company. You don't need any of the usual suspects - passion, vision, a brilliant idea - to start up. Just a decent idea and willingness to learn will do - the presentation shows you how.

The truth about startups

  1. 1. THE TRUTH ABOUT STARTUPS SESSION AT IIM TRICHY, SEPTEMBER 2015 Jithamithra Thathachari
  2. 2. jitha.me WHY WE ARE HERE  Separate the reality of startups from the hype, and understand what goes (and what doesn’t go) into building a business  Understand how to build a venture from scratch
  3. 3. jitha.me AGENDA  What do you really need to start a company?  Let’s build a venture
  4. 4. jitha.me QUICK INTRODUCTION  Co-founder of Rouse Digital – building Smart Saver, a platform where consumers can get rewards on their daily purchases  Writer on startups, business and strategy at jitha.me – Featured in YourStory, Rediff, and other publications – Curate two widely subscribed newsletters – The Startup Weekly (primarily startup-related articles) and So it Goes (entrepreneurship, business and strategy)  Ex-Project Manager at Monitor Group (now Monitor Deloitte), a strategy consulting firm started by Michael Porter  MBA, IIM Ahmedabad; B. E. Computer Science, Mumbai University
  5. 5. jitha.me AGENDA  What do you really need to start a company?  Let’s build a venture
  6. 6. SO, WHAT DO YOU NEED TO START A COMPANY?
  7. 7. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition
  8. 8. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition None of these are needed to start a company!
  9. 9. jitha.me Business Model No Competition WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Tons of MoneyRisk Appetite
  10. 10. jitha.me WHAT IS PASSION? passion (noun) a state or outburst of strong emotion More mildly speaking: an intense enthusiasm for something Typical usage: You need to be passionate about your idea, for any chance of success.
  11. 11. jitha.me SO WHAT WERE THESE GUYS PASSIONATE ABOUT, EXACTLY? Helping everyone express themselves in 140 characters? Helping people store their information online? Helping everyone…err…schedule their tweets? Helping people send vanishing messages? OK, there may be some “passion” involved here
  12. 12. jitha.me SO WHAT WERE THESE GUYS PASSIONATE ABOUT, EXACTLY? Helping everyone express themselves in 140 characters? Helping people store their information online? Helping everyone…err…schedule their tweets? Helping people send vanishing messages? OK, there may be some “passion” involved here All these founders saw an interesting market to serve, and built a product for it
  13. 13. jitha.me PASSION COMES MUCH LATER The Startup Curve (7-10 years) (Source: Paul Graham) Initial success creates passion Need passion (and dedication) to pull through Initial success creates passion…Not the other way round Source: Business Insider Further Reading: Passion is Overrated and Goals are for Losers, Scott Adams, Ben Horowitz’s Best Startup Advice “Don’t follow your passion… Follow your contribution instead.” – Ben Horowitz
  14. 14. jitha.me Business Model No Competition WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Tons of MoneyRisk Appetite
  15. 15. jitha.me STARTUPS DON’T GROW IN A STRAIGHT LINE The main factor in startups is uncertainty – “things change”. You start with a hypothesis about the market, and then prove it. Or disprove it and pivot.  Odeo created a podcasting platform, but didn’t find much traction. An employee created a side project. – You may have heard of it – Twitter How important is vision or passion to starting, if startups pivot from their first vision anyway? “They drove a clown car and fell into a gold mine.” – Mark Zuckerberg  Have you heard of YouTube, the video dating website?  The founders created Hotmail to talk about their previous startup idea Source: The Real History of Twitter, Zuckerberg on Twitter, Mashable, Further Reading: “Don’t Take Advice” and More Startup Advice
  16. 16. jitha.me STARTUPS PIVOT AT ALL STAGES OF THEIR LIFE Pivots don’t happen only at the start, when founders are ‘figuring things out’. Even companies with strong investor traction, and in some cases public companies, frequently change direction The Flickr founder was trying to start a gaming company, and pivoted to a photo-sharing community As a wise and successful entrepreneur, he tried to start a gaming company again, and even raised $12M. But he had to pivot again, and created Slack – the fastest growing startup ever Oracle started in 1977 as a databases company. Ten years in, it started focusing on applications. In 2010, it bought Sun Microsystems to become a hardware company Android was already creating an OS when it was acquired by Google. But for cameras. Building a successful company is not about ‘vision’ as we define it. It’s more about executing well and constantly learning from your mistakes Source: Mashable Further Reading: The Arc of Company Life and How to Prolong it
  17. 17. jitha.me SURE, COMPANIES WITH VISION / PASSION SUCCEED… …but most of them fail. And you only hear of the ones that succeeded – no one writes about those passionate visionaries who held steadfast on their path to failure According to one study, 92% of startups fail. And 74% fail due to premature scaling – investing strongly behind a vision that may not be completely right Source: Startup Genome Report; “What percentage of startups fail”, Quora Answer Further Reading: Survivorship Bias, Wikipedia
  18. 18. jitha.me Business Model No Competition WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Tons of MoneyRisk Appetite
  19. 19. jitha.me WHAT YOU WORK ON MATTERS FAR MORE THAN HOW HARD YOU WORK Startups follow a power law – what you do matters far, far more than how well you do it. Too much persistence in the wrong direction, and you’ll systematically “achieve failure” Unlike normal distributions, in a power law distribution a small proportion of the sample accounts for most of the value; the majority of sample points create very little value The more dedicated, persevering and passionate you are towards your initial idea, the less likely you are to be listening to the market’s lack of interest Willingness to learn and pivot are far more important in a startup’s early days Source: The Power Law, or why working hard is not enough Further Reading: Zero to One, Peter Thiel, Winners don’t do things differently. They do different things.
  20. 20. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition
  21. 21. WHY DO YOU NEED A BRILLIANT IDEA?
  22. 22. jitha.me YOU DON’T NEED A BRILLIANT IDEA?  Just like the company vision, most ideas change as soon as you hit the market  Therefore, the shelf life of your initial idea is very short; the ability to experiment with it and make it better are far more important  So, you don’t need a brilliant idea – a decent one will do – It’s far easier to come up with ten USD 100K ideas than one USD 1M one “The best laid plans seldom survive first contact.” – Helmuth von Moltke, military strategist “Everyone has a plan, till they get punched in the mouth.” – Mike Tyson, renowned philosopher “Startup ideas are worthless.” – Paul Graham, Y Combinator Further Reading: Ideas for Startups, Paui Graham
  23. 23. BUT WHAT ABOUT COMPETITION?
  24. 24. jitha.me IS LACK OF COMPETITION IMPORTANT?  You don’t need a market with no competition – Greater probability of success lies in taking big markets, where there are already players that have demonstrated that users want the product – A crowded market is actually a good sign, because it means both that there's demand and that none of the existing solutions are good enough.  It’s hard to find and target an incredibly large market that no one else sees – Much easier to target a slightly smaller market with obvious need – Differentiate from competitors by focusing on specific market niches 1 2 A market with competition is often BETTER than one without Competition is a factor, but not in the way you’d think Source: The Only Competitor that Matters, How to Get Startup Ideas Further Reading: In Technology, Small Fish (Almost Always) Eat Big Fish, Why it’s nice to compete against a large, profitable company
  25. 25. jitha.me BUT HOW DO DIFFERENTIATE? WON’T COMPETITORS COPY YOU? You can build a sustainable competitive advantage even in crowded markets, by focusing on under-served market niches and tailoring all aspects of your business model to them Key Partnerships Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost structure Revenue Streams 1 2 3 4 59 6 8 7 The Business Model Canvas Source: Business Model Canvas
  26. 26. jitha.me FOCUS AS A COMPETITIVE ADVANTAGE Several companies have used this concept of focus as a competitive advantage, to build lasting differentiation in crowded markets Source: Sometimes, good old focus can be a competitive advantage Further Reading: Good Strategy / Bad Strategy: The difference and why it matters, Richard Rumelt Apple targets premium customers through its choices across the value chain – closed product system, app ecosystem, branded stores, tailored marketing, etc. Ikea focuses on DIY furniture buyers, across its furniture assortment (ready to assemble), inventory management, branded stores, selling strategy, etc. Has a pre-eminent position in “fast fashion” with its quick production runs, limited stocks, design focus Offers health-oriented users the freshest smoothies, with its fresh fruit sourcing, production for short shelf life, faster cold chain logistics, etc. Peers can’t copy just one aspect to compete; need to coordinate actions across their entire business model to offer any competition – which is very difficult to do
  27. 27. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition
  28. 28. jitha.me NO, YOU DON’T NEED A BUSINESS MODEL A business model or monetization plan is not the main bottleneck to success; it’s whether you can get millions of users or not Build a product that enough users want, and you can use any “off-the-shelf” business model to make money Advertising On-Demand Subscription Freemium Value-Added Services Source: No, you don’t need a business model. Further Reading: Stop asking “But how will they make money?”
  29. 29. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition
  30. 30. jitha.me MOST STARTUPS TODAY DON’T NEED HUGE INITIAL INVESTMENT It’s relatively inexpensive to start most technology companies today; once you see consumer traction for your first product, you can begin investing more (or raise funding) 1 Server Outsourced coder (1 month)1 Facebook Ad Campaign1 1 Website = INR 5,000 = INR 2,000 = INR 50,000 = INR 10,000 Therefore, you can keep running inexpensive experiments with different product ideas till you find traction with one, and then try and raise funding Note: 1 USD = 66 INR as on Sept 15, 2015 Source: Your Minimum Viable Product can be more ‘minimum’ than you think Further Reading: Will it sell? Ask Twitter
  31. 31. jitha.me SO, THERE’S VERY LITTLE RISK TO STARTING UP Given the low initial capital investment needed, you’re not risking much on starting a business  The only risk is not getting a job if your startup fails – Most of us will be able to go back to a corporate job if our startups fail – Entrepreneurship often gives you unique skills and experiences, which make you more, not less, employable  You’ll miss 1-2 years of corporate salary, which you can make up easily over a 30+ year career, especially by leveraging valuable experience from trying to build a company  If you do it right, you don’t even need to quit your job / academics till you see real and strong traction There’s no risk to starting up. Only opportunity cost – which you can mitigate. Source: Have a great business idea? Don’t quit your job yet. Further Reading: The Craigslist Method, When should I leave my job to start a company?
  32. 32. jitha.me WHAT DO YOU NEED TO START A COMPANY? Passion Vision Dedication Brilliant Idea Business Model Tons of MoneyRisk Appetite No Competition
  33. 33. jitha.me SO, WHAT DO YOU REALLY NEED TO START A COMPANY? A Decent Idea Willingness to Experiment Everything else is meaningless – your only objective is to identify a product that people want, and learn how to sell it to them
  34. 34. jitha.me AGENDA  What do you really need to start a company?  Let’s build a venture
  35. 35. jitha.me STEP 1: A DECENT IDEA A Decent Idea Willingness to Experiment Further Reading: How to create a million dollar business this weekend
  36. 36. DO YOU HAVE ANY BUSINESS IDEAS?
  37. 37. jitha.me HOW TO COME UP WITH BUSINESS IDEAS You can brainstorm for business ideas in a few different ways  Look for problems that you have yourself – your personal “Bug List”  Solve a problem for someone you know; not just a problem you think people have  If you’ve worked before – think of problems that your customers / colleagues face  See something around you that’s “too complicated”; simplify it  Use idea templates – “remove the middleman”, services for high-growth platforms, piggyback on popular products, etc. “The way to get startup ideas is not to try to think of startup ideas. It's to look for problems, preferably problems you have yourself.” – Paul Graham Source: How to get startup ideas Further Reading: How to get Good Business Ideas — The Mental Alchemy of Ideation
  38. 38. jitha.me STEP 2: EXPERIMENT AND LEARN A Decent Idea Willingness to Experiment
  39. 39. jitha.me THE STARTUP TIMELINE & THE LEAN STARTUP CYCLE A startup grows into a business in three steps; in the first step, Search, you learn and iterate your way to “product-market fit” Search Build Grow Build Measure Learn The first iteration through this loop is to validate the market by fleshing out your product concept and testing it with your target audience Source: The Startup Lifecycle, Your Minimum Viable Product can be more ‘minimum’ than you think Further Reading: The Lean Startup, Eric Ries,
  40. 40. jitha.me BUILD: FLESH OUT YOUR IDEA  Who is the customer?  What is the value proposition? How are you helping him / her?  How do they buy / use your product? In the first iteration through the Build-Measure-Learn loop, just flesh out your product concept – who are you selling to, and what are you selling? Build Measure Learn
  41. 41. jitha.me MEASURE: TEST YOUR BUSINESS IDEA  Speak with potential customers to understand the urgency and importance of their need – just “Yes, I might like using this.” is not enough  Use Google Insights / Google Trends / Keyword tool to understand whether the demand is widespread  Run a small ad campaign online to see how many users express interest – create a simple landing page and run a INR 5000 FB campaign to drive traffic Validate that your product serves an immediate and urgent need for your target customers, by asking them Build Measure Learn Further Reading: Idea to Paying Customers in 7 Weeks: How We Did It, Will it sell? Ask Twitter
  42. 42. jitha.me LEARN: MODIFY YOUR PRODUCT BASED ON FEEDBACK Based on users reactions, modify the product or pivot to fulfil more urgent and important needs for the consumer Build Measure Learn  Interpret user feedback (don’t take it at face value)  If users don’t demonstrate strong need, understand other related but critical pain points faced by users  Identify changes to the product concept to make it more useful
  43. 43. jitha.me REPEAT: ITERATE TO PRODUCT-MARKET FIT Iterate through the loop multiple times, fleshing out your concept, then a prototype, and finally your product itself, till you reach product-market fit Build Measure Learn Lean Startup Cycle Iterate till you reach product-market fit – “being in a good market with a product that can satisfy that market” Further Reading: The only thing that matters
  44. 44. ANY QUESTIONS?
  45. 45. jitha.me BOOKS / ARTICLES TO READ Books  How to fail at almost everything and still win big, by Scott Adams  Zero to One, by Peter Thiel  Antifragile, by Nassim Nicholas Taleb  The Lean Startup, by Eric Ries  See the reading list that transformed my professional life Articles  Before the Startup, by Paul Graham  The most important piece of advice for people starting their careers, by Jason Calacanis  The Ultimate Guide for Becoming an Idea Machine, by James Altucher Subscribe to my newsletters, So it Goes (entrepreneurship, business and strategy) and The Startup Weekly for more recommendations
  46. 46. jitha.me CONTACT DETAILS  Email: gt.jithamithra@gmail.com  Twitter: @jithamithra  Website: jitha.me (Subscribe here)  Weekly Newsletters – So it Goes, curating articles and books on entrepreneurship, business and strategy – The Startup Weekly, curating startup-related articles

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