How Long Can Your Startup Survive Without a Full-Time CFO?

The value of a CFO for a young company is a hotly contested topic. Many argue that they are unnecessary add-ons and that a small, savvy, well-trained financial team can satisfy the business’s needs. On the other hand, CFO’s bring a deeper and more strategic financial perspective that can help companies prepare for the future and optimize their current operations.

The crux of the predicament is that whilst CFOs add significantly greater value than a more “junior” financial team, they are expensive resources.

For a business to successfully navigate this dilemma, it first requires understanding which roles, needs, and paths the business is likely to encounter. Eventually, most successful businesses will outgrow their initial accounting staff and need greater depth in the ranks as the number of dimensions in the financial function increase. If they understand what their eventual needs will be in advance, there are many ways that businesses can hedge their risks and get what they need, when they need it, without financially overcommitting.

The real question might not be how long can you survive, but how soon will you start benefitting from the contributions of an experienced financial leader. In my 15+ years of experience as a finance director and financial consultant, I have found that the best way to judge whether or not a company needs to hire a CFO is by assessing where they stand on “the hierarchy of needs,” which I explain below. The following analysis will help businesses identify where they are in the hierarchy and be a guide to hiring options that best address their current needs and how to move to the next level.

The Hierarchy of Needs

Much like Maslow’s Hierarchy of Needs, a business has a hierarchy of financial management needs. These are displayed in the chart below.

The more basic the needs, the more basic the skills needed to perform them. As the needs progress so do the skills, as well as the insight required to satisfy those needs. The basic needs are clerical and can be met with technical training, but the more advanced needs add a strategic component that is best met by someone with extensive business experience. Different businesses’ needs grow at different rates based on industry, market opportunity, ambitions, and resources. One need cannot be met if a preceding need is left unmet.

Level 1: Transacting

The most basic need of a business is the ability to conduct transactions. By conduct transactions I mean buying and selling goods and services and entering into contracts.

Basic transactions require basic record keeping – what I refer to as checkbook accounting. This can be done by anyone in the business and requires no accounting or financial knowledge. It usually involves a business only recording transactions in the checkbook and then using the change in the opening and ending balance(s) to judge its success and financial health.

The advantages of checkbook accounting are clear. It’s cheap, and it requires little effort. It can be done quickly, and it doesn’t require a specialized resource to do so. Businesses that are just getting started are therefore likely to resort to this type of activity, which makes sense. Nevertheless, even with only basic transactions, many businesses find themselves in serious trouble because they have conducted such transactions without graduating from using checkbook accounting to using “real” accounting.

A fledgling business may find that it can get by operating this way for a short period of time, but it is not sustainable and will not work for any business that intends to survive, much less thrive.

Level 2: Record Keeping

Real accounting is built around the need to record transactions correctly and can be performed by either a bookkeeper or, as the transaction complexity increases, an accountant. An owner can certainly fill this need as time and skill allow, but should be aware of the opportunity cost of doing so.

The role of a bookkeeper is to record activity from transaction sources, such as bank balances and inventory. Usually, a bookkeeper requires management and is overseen by an external accountant or the business owner. Using an outsourced bookkeeping service gives the business better flexibility but requires more detailed communications and review.

While both a bookkeeper and an accountant are focused on recording historical transactions and activity with varying degrees of accuracy and compliance, an accountant differs from a bookkeeper in that they are trained to higher professional standards. This training and education gives them the skills to better guarantee that the completeness and timing of financial activity has been properly recorded. Accounts prepared by an accountant should be prepared in compliance with GAAP and should meet the more stringent reporting requirements of a company that will one day seek external financing.

I recently worked with a client who not only had very good, GAAP compliant record keeping for an early stage business but also surprised me by having a complete catalog of all of their contractual obligations. While there weren’t many, their founder was a former CFO and knew that when the time came, lenders and investors would require full disclosure of all contractual obligations. By recording their contractual transactions from the start they are in much better shape for an eventual capital raise.

For businesses that want greater oversight without significantly greater costs, it often makes sense to use an external resource to periodically review the bookkeeper’s work, especially if, unlike my client, the leadership doesn’t have accounting experience. This can be bundled with tax preparation work or by a retained fractional CFO.

Fortunately for cost-conscious firms, the ability to capture transactions has changed significantly in the past decade. No longer is it a manual data entry world. Much of this has now been replaced by software applications and other IT resources. This of course has implications on a business’s cost structure (the point being that software replacing labor helps to save costs).

Generally speaking, businesses that are at this level in the Hierarchy of Needs can get away with not having a CFO. After all, the principal requirement is just a correct recording of the transaction(s) that the business is performing. Since this task is still fairly basic and can be done either with in-house trained labor, or by hiring part-time external labor, it will likely not require the services of a more expensive, dedicated CFO.

The Illusion of Fintech

As financial and operational data is drawn from many sources into hosted accounting systems, the focus has shifted from manual data entry to ensuring and assessing the quality of the data and how it is captured.

However, when not properly implemented, these software applications can mislead businesses into believing that just because the data is in the system, it is correct, when in fact it isn’t.

In many ways the adoption of Fintech has become the new Checkbook Accounting for some businesses – the accounting data being the shoebox of receipts, in the system but not adding value.

As a result of this, the accounting systems and the operational interfaces need to be set up by someone with a strong understanding of the accounting principles. Quickbooks, one of the most popular accounting software solutions around, says so itself: “As your business — and revenue — grow, managing your financials may become a task you don’t have the time or knowledge to manage. Specifically, when it comes to avoiding legal and compliance issues, accountants can be worth their weight in gold.”

This is a time where it would make sense to a company to pull in an external financial consultant to ensure that the applications are integrated properly and that there are policies setup to ensure that the usage of the applications supports the financial reporting function.

Another company that I recently consulted with needed to fix a faulty inventory tracking software implementation. The company had experienced significant growth in its first four years of operation but had failed to properly set up sales tax schedules and taxable items. This resulted in incorrectly reporting a rapidly increasing amount sales tax over a period of years.

I worked with the business to fix the implementation, and file the corrected returns. Unfortunately, for many months, the cost of the penalties and interest exceeded the actual sales tax due. While fixing the implementation, other opportunities for improvement were identified and implemented. The client is now able to better report real-time profitability by product line through their accounting system. It has also used this to make adjustments to its product mix at a significant savings to the business.

Nevertheless, the project served as a great example of the potential problems related to Fintech. Even an adequately connected IT-based financial system will require a regular review of the data and account reconciliations. These activities require not only a good understanding of accounting but also an ability to assimilate operational data into the financial records.

Level 3: Trusted Reporting

With transactions being properly accounted for, a business can start reporting on the activity of the business. The key difference here being that the reports start to take the shape of business lines (e.g. the sales department’s revenue and costs) or specific business tasks (e.g. customer service), as opposed to simply just reporting the transactions of the business (e.g. revenue).

Again, FinTech has made it so that comprehensive reporting is more affordable and robust than ever before. Business schools have been evolving in recent years to ensure graduates have a strong understanding of Fintech and its myriad applications. Dedicated courses have even been popping up.

That being said, it is important to know how the reports are going to be used prior to putting in place a reporting system. Although accuracy is always a requirement, reporting for internal purposes doesn’t need the same approach and level of review as reporting used for external purposes. Depending on how the activity was captured, the reports can be presented in a number of ways but always with the caveat: “Garbage in = Garbage out.”

The main purpose is to communicate transactional information in the appropriate level for the audience in question. If this can be accomplished by the bookkeeper and/or accountant, their job is done. If not, the business will need to have someone who can properly convert the accounting information into meaningful communications.

A common problem I see with earlier stage businesses is that they use disparate systems as sources for their reporting, and as a result, they are never really sure if they have captured the data properly in their reports.

Not having a single source of data leads to either capturing less than 100 percent of what was intended, or in some cases, duplication and more than 100 percent of activity gets reported. Successful reporting needs to be thorough, accurate, and complete, especially as these early stage businesses are preparing to raise Series A funding.

It is usually at this stage in the Hierarchy of Needs that a CFO starts to become more relevant. After all, taking the records of transactions and slicing and dicing them to start to satisfy and guide the business’s day-to-day involves deeper knowledge and judgement. Nevertheless, one common option here is to seek part-time help from an external CFO. In my experience, this is usually when I get involved with the business. It is also where I find I can start adding the most value.

Financial Reports, Ends or Means?

Every business owner who has been handed a stack of financial reports by their accountant will tell you that financial reports on their own are frustrating and of little value. In most instances, they actually create greater ambiguity for the owner, and make their job more difficult.

Reports on their own are not the end goal. They are supposed to be a means with which to understand business activity. For example, it’s not enough to know that the ending cash position for the period changed by a certain amount if you can’t identify which activities drove the change.

Earlier on in my career, I worked with a client who didn’t understand that being a seasonal business caused sizeable fluctuations in the working capital needs as accounts receivables and inventory positions grew during peak periods. Their bookkeeper provided them with cash balance reports but with no explanation. I worked with them to identify metrics, such as inventory turnover and days sales outstanding that they could track to give a better reflection of how the business was doing and to also help forecast future cash positions.

As mentioned, reports created for external use serve a different purpose than management reports, which are created for internal use. If they were created for internal use, they are the means by which the business learns about its activities and uncovers opportunities that can be acted upon.

A business is more likely to thrive when reports are generated by a person who is skilled at analyzing and interpreting the financial data contained in the reports. This person can identify when standard reports need more details and can create ad hoc analyses when it makes sense. Knowing when to take this next step and how to go about it only comes with experience.

In particular, businesses experiencing rapid change cannot afford to skip interpreting the information contained in the financial reports. In fact, they should be strongly relying on these (and on things such as dashboards of KPIs) to help them navigate their way. But creating meaningful dashboards is not as simple as it sounds. It requires understanding what factors drive the business and what signals they send off. Some KPIs may be purely financial whereas others might be a mixture of operational and financial data. An experienced finance leader will know how to pull together this critical information or direct others in doing so.

Level 4: Financial Planning

With an accurate record of historical activity and analysis of the factors that influenced successes and shortcomings, a business can use the information gathered to develop financial forecasts. As the cliché goes, “You can’t know where you are going until you know where you have been.”

The process of creating a forecast is nothing like the steps for recording accounting activities and requires a different set of tools and skills.

Companies with rapidly changing business models benefit the most from regular forecasting and again, should not be skipping this step. The faster the business is changing, the greater the risk associated with not planning, and the greater the need for frequent updates on progress toward the plan.

A forecast ideally would be a rolling forecast and should always be projecting 12 months out at any given time. This is especially true for seasonal businesses. The forecast should include three financial statements: profit and loss, capital expenditures, and cash flows. Leadership can then work with the rest of the business to ensure that the business has sufficient resources to meet its goal-based needs. The finance team seeks to scale business resources to meet the plan with no more and no less than what is needed, so that opportunities and/or resources are not wasted.

Companies that are at this level of the Hierarchy of Needs will almost certainly require a CFO. As mentioned above, a part-time CFO may be enough, but there would need to be a close working relationship and collaboration with management in order to achieve meaningful, and hopefully accurate, financial forecasts.

Level 5: Strategic Partnering

Businesses that aspire to continually grow and improve will seek the most from their financial management team. The ultimate deliverable of the financial management team is strategic partnering, where the financial function partners with other areas of the business and is an integral part of the strategic planning process. This can only be achieved once the business understands where it has been and where it is heading.

Strategic vision includes long-term pricing decisions, scenario analysis, international expansion, acquisition decisions, as well as many other higher level decisions. Strategic partnering results in the assimilation of new frontiers into the long-term financial goals of the business.

A seasoned finance leader who can partner with the business to create a financially viable strategy is a must at this level.

Choose Lean Finance

In today’s business environment, lean organizations are proving that with the right financial discipline, companies can achieve significant results with far fewer resources than what was once possible.

As noted by Christian Gheorghe, the CEO of Tidemark, “Even a mid-level finance pro can move an organization’s planning, budgeting and forecasting processes beyond Excel spreadsheets so managers have the data and analytics needed to understand those ‘what-if’ scenarios and utilize predictive analytics and forecasting.”

By increasing the yield from labor and financial resources, high growth businesses are more agile and better able to respond to changing business conditions. While FinTech does have limitations, it is becoming a tremendous enabler. It for instance gives the business the ability to embrace remote working which allows for it to retain higher quality talent at a lower cost of compensation. Software that manages accounting and finance better supports the use of outsourced shared service centers.

Collaborative technology has made it easier for businesses to hold off on hiring full-time finance resources while still having access to a worldwide pool of highly talented individuals. Businesses can now engage fractional CFO’s and advisory boards and get around to hiring a full-time CFO later, while still meeting their needs for more sophisticated financial leadership.

That being said, as concrete milestones approach, a seasoned finance leader, who can create a financially viable strategy, is a must. This is especially true when a business is trying to rapidly grow through a series of external financing rounds. While advisors, VCs, and consultants can get a company through early stage investments, waiting too long can result in the CFO not having sufficient time to learn the business before pre-IPO activity begins.

Finding the right CFO, who is willing to join the venture, can take some time. Paul Holland of Foundation Capital said that “It’s not uncommon, for it to take several months to execute on a high-quality CFO hire. The ideal time frame in which to make that hire is 12 to 18 months before the IPO.”

Another challenge for companies without a CFO in this environment is to keep track of regulation. As an example, ASC 606, when it goes into effect, will require businesses with external investors to report revenue differently from how they may have traditionally done.

In conclusion, whilst hiring a CFO need not be a top priority at the earlier stages of a company’s lifecycle, if the business continues to grow and its ambitions also increase, a CFO is required to effectively manage the business’s growing needs.

Five Questions to Ask When Building a Finance Function

Here are some key questions that a business should consider when staffing their accounting and finance function:

  • Will you be seeking outside investment? If so it is important to put the proper accounting process and policies in place as early as possible.
  • Is your business rapidly changing? A historically focused transactional mindset will be limited in its ability to help identify opportunities and threats. Additionally, as the business changes, the accounting processes too may need to change.
  • How much financial management skill do you have and how much time can you afford to spend on this? Even if you are proficient with accounting and finance, every hour you spend on the finances is at least an hour you can’t spend doing what you do best.
  • How much financial buffer can you afford to keep ready in case of surprises? With less visibility and planning, surprises are more frequent and larger. You will need a larger cash reserve.
  • How complex are your operations? Like machines and most everything else, the more complex your operations and finance the more skill and experience your business will need to adequately record, report, and plan.

 

Originally posted at :- https://www.toptal.com/finance/cfos/cfo

Blitzscaling 03: Session Notes[Michael Dearing on Capitalism, Creativity, and Creative Destruction]

This is my second blog on the notes and my interpretations on the Blitzscaling session. In the fall of 2015, Reid Hoffman began taking session called Technology-Enabled Blitzscaling at Stanford University.Blitzscaling is what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale. And its also about why organization culture is important for blitzscaling. Because when you’re growing an organization very fast, you have to make people accountable to each other on a horizontal or peer-to-peer basis, and not just vertically and top-down through the hierarchy.

Session 03 has given inputs and insights which probably I have never seen in past 5 years of my start-up journey. One day I would love to meet Michael Dearing. Without taking much of your time, here are the notes from the session:-

  1. Entrepreneurship play an incredible role in growing industrial output and human wealth. But manager working for these entrepreneurs play’s an equally important role as they amplify the creative and execution genius of those entrepreneurs . These observations were first highlighted by  Alfred D. Chandler, who played an important part in founding and studying business history at Harvard.
  2. Money that comes to silicon valley that fuels innovation doesn’t largely comes from wealthy families. Most of it comes from first or second generation successful entrepreneurs who are able to scale & build profitable businesses. So if are trying to build a start-up and can or will be able to build a successful one, you will be helping future generations of entrepenures & will help in generating and enhancing human wealth.
  3. Michael shared the story about Daniel Macallum who was probably the first manager in the history of human mankind highlighted the problem of how to align people to organizational goals and priorities and how to make them more accountable for their work. It will be a complete injustice if  I write about the efforts of Daniel Macallum in few lines. I will be writing an entire post of this.I will be writing a full blog on this shortly.
  4. What is the right kind of idea that you can pick up for execution:- It’s the one which you cannot keep to yourself and share it with friends , colleagues and peers. And you are giving your irrational time , money and other resources to understand more about how you can make this idea work.  Another way to evaluate the idea is when your friends , colleagues and peers keep coming back to you and saying that your idea is awesome.
  5. To validate that your idea is worth anything is to find the smartest person who can act as the biggest critic of your idea. And then yu have to give him/her full rights to rip-off your idea apart.
  6.  Your competition will never be about what if the big companies create something similar to your product, but about what is the alternative of your product.
  7. Why big companies fail to innovate is because they become slaves to the product/services that are acting as the cash cow.
  8. To allocate resource on new product development or new feature development, the decision should be on the economic value of the new thing rather than on the ego of the founder or senior executives of your team. Net Present Value(NPV)  can be used here to evaluate the economic value. Along with this, held people accountable to the economic value of few features for better decision making
  9. Founder’s need to be the editor-in-chief of the product roadmap. They should listen to every idea, but take decisions on their own.
  10. Founders should have frequent discussion of why they are building what they are building.
  11. Having a contrarian view om your start-up help VC’s understand how entrepreneurs mind work.
  12. Turn your insights(either technical or functional) to product and business. You have to move very fast from insight state to product state to business state. Spending too much time on insights stage will turn your idea into science product.
  13. How good founding team looks like:- Its a combination of balck/white thinker with grey thinker. Black/white thinker have a very strong view on product,people and everything else in the word. Grey thinkers are rational thinkers who act as shock observers for balck/white thinkers.
  14. During the initial years of start-up, hire people who are aligned with the passion of what you want to do. And the one’s who can pick up multiple things to do. In the nutshell avoid doing shopping on hiring multiple people for single thing.
  15. First few people of your start-up comes from your network. So avoid hiring any recruitment agency initially.
  16. Once you have founded team and hired few people from your network, next challenge for the rest of your start-up life is to answer
  17. Things you should ignore in the first few years of start-up
    1. PR to show that you are a rockstar founder
    2. PR to hire people
    3. Board of advisors
  18. Respect the ownership you have in your company & bring those people or VC’s who can add value to that ownership & have skin in the game which is beyond money.

Manager need to be better coaches

99% of the time managers are bothered about numbers and delivery dates. But they fail to coach their team which leads to low performance and attrition. If you are a manager, right away think when was the last time you had a word with your team members about:-

  • What they want to achieve in their life
  • Are they enjoying their work or not
  • And what you can do to enable them to be better professional

Image credit:- whatedsaid.wordpress.com

As a manager, your growth depends on the growth and progress of your team. It’s your team who will achieve those number which will lead to the achievement of your numbers. So I have given you enough reasons why you should be coaching your team. Let’s understand what type of managerial coaching works really well.

Most of the time managers are involved in reactive coaching. Reactive coaching means you are giving your inputs or reactions after the outcome. Please note that outcome may or may not be complete. Example of reactive coaching

  1. Sales manager:- “This is not the type of prospects you should reach out”
  2. Marketing manager:- “These are not the channels which will help us generate more leads”
  3. Technology/Product manager:- “This is not what customer is expecting from our product”

Proactive coaching means you are giving your inputs or helping your team-mate in defining what can be done to achieve the desired outcome. As a manager, here you are not spoon feeding or doing micromanagement, but giving directions that this is probably how we should approach the problem in hand. Example of proactive coaching

  1. Sales manager:- “These are the type of prospects you should reach out”
  2. Marketing manager:- “These are the channels which will help us generate more leads”
  3. Technology/Product manager:- “Here are the high-level requirement and use case customer is expecting from our product”

You are a manager because you have seen more in world than your team mate. At least that’s what companies assume or your team-mates perceive. Now let’s talk as manager, what are common barriers in providing the proactive coaching:-

  • As a manager you are not on top of your team members work, tasks & to-dos , work partners and challenges.
  • Your team member is expecting coaching in area where you lack experience.
  • As a manager, you are so much evolved and skilled that you can’t imagine what could go wrong or what could be challenges faced by your team member.

 

Following proactive coaching in my team has shown results for me. My team is more engagement and performing far better compare to when I was the reactive coach.  Unless you keep yourself into the execution and NOT onto the execution, you will never realize the importance of coaching and enabling your team to achieve more than what is required.

What I learned in Asia’s biggest techHR conference

Last week, we at team qilo participated in the Asia biggest techHR event. We got an amazing response for our cloud-based technology solution. But rather than talking more about how it went for us, let me share top 10 learning from techHR -2016.

Screenshot_5

 

  1. Gerry Crispin, one the recruiting industry veteran, shared that “give a good experience while hiring,  and get more candidates. Give a bad experience, and you’re losing candidates before they even apply”.Start treating your prospective employees in a way you will treat your first customer, and you will start attracting awesome talent.
  2. Josh Bersin shared his views on how new age technology tools are changing the way people are managed, assessed, engaged and learn at the job.
  3. More and more business and HR leaders in India are realizing the importance of people focused technology solution and how it can enhance their business success.
  4. Organizations are adopting cloud-based solution more than the in-house solution to reduce the time and cost in implementing the technology.
  5. HR technology 3.0 is on the way and big ERP vendors are not able to invent and innovate at the same speed.
  6. New age solutions need to be employee-centric and should be habit-forming products which enhance day to day professional experience of the employee.Design think is what is missing in all the tools which are today consumed by employees.
  7. Performance management is changing for sure. It has to a continues process, more meaningful , should enable managers to become coaches and enable employees to be more productive.
  8. People analytics solutions are improving at a very fast pace. And rather than just showing vertical bars and pie-charts, technology solutions should throw meaningful data to the leadership of organizations to drive their talent strategies.
  9. Employee engagement needs to move beyond the surveys. It has to be real time and it has to bring impact at the bottom of the pyramid.
  10. Organization who will understand the way people want to work,engaged and deliver will succeed in future.

And by the way, did I mentioned that we got High-fives from Josh Bersin, the guru of HR technology. Josh’s word’s like “this is the kind of solution organizations needs and I am glad that startup’s like you are doing it here in India” was music to our ears.20160804_145853

Importance of sense of urgency in execution

It remains one of the most discussed topic internally at our startup Qilo. Sense of urgency should always be there on all fronts , be it:-

a) In product delivery

b) In recruitment

c) In acquiring customers and generating revenue

d) In getting funded

e) In decision making.

Lets see what happens if you don’t executing fast enough :-

1) Most of the startup ideas are not truly innovative in nature. Most of the time you are NOT bringing something totally NEW to market. You might be giving one to ten percent twist to an existing idea OR you are bringing something which is way cheaper then existing product OR you are just copying a product/idea which is successful in developed economies. This means that your idea which you think is unique, might be getting executed or about to go in execution phase by so many other aspiring entrepreneurs out there. One of the parameters which decides who will win depends on who comes to market first. And that can only be achieve if you execute fast. If you DON’T execute fast, it means you will launch late and might miss the opportunity or what is called as right timing.

2) Most of the startup ideas has very low entry barriers. Are you thinking that completing the development of your tech platform will make you next rich guy? Even a high school students can now days code and develop  one. If you don’t execute fast enough, you soon will see your competition increases and you will end up in pricing war OR will fail to capture enough customers to create a sustainable business.

3) Launching product late or going to customer late or generating revenue late means you are delaying the epiphany of product/market fit. To understand what Product/Market fit is, check this post.

4) Delayed execution means that you are not learning fast enough. Not learning fast  enough means you will not be able to success-ed faster OR fail fast.

At a same time I want to provide clarity on sense of urgency in execution. This should not get confused with you end up working 18 hours a day or making your team work like crazy. If you will do that, you end up getting sick or create a team culture where no one will be willing to work for long term. With sense of urgency in execution, I mean :-

  1. Not sitting on decisions or waiting for the time to take perfect decision
  2. Not delegating the work which you should not be doing
  3. Waiting for the communication from others to complete the job in hand
  4. Not focused enough for the job in hand
  5. And not waiting for the perfect product to start selling.

Faster execution is what makes a startup different from big organization. Faster execution is required consistently for a long duration of time.Faster executing is what  has made Steve Jobs and Apple different from other companies. Executing faster is what made Elon Mask challenge big organization like NASA and Boeing in Space/Rocket launching industry. If you read and listen to co-founders of failed startups or successful one, they will tell you how important sense of urgency is in execution.

Fire co-founders or employees who don’t understand this and trust me you will move closer to success in your startup.

 

Technology platform for your start-up

Intended audience:- This blog post is for those non-technology founders and idetaors who want to understand which technology they can chose for their platform.

Many non-technology founders struggle to find the answer of this question “Which particular programming language or technology stack they should choose to build their application on”. And the answer is, there is no particular one programming language you can choose. And every programming language has few advantages over other and few dis-advantages. So there is nothing called best programming language. This article assumes that you are not developing a simple website, but a full-fledged web or mobile application.

Architecture of any technology platform is usually divided into three layers. Let me explain this to you in very simple terms:-

First layers is called database layer. This is the layer where your data will be stored. There are primarily two types of database now days which are widely used.

  1. RDBMS systems, example of these are MYSQL /Postgress etc.
  2. NoSQL database systems, example of these software includes MongoDB /Casandra etc

Second layer is called backend layer. This is the layer where your code related to how data should be stored in your database, how it should be read and how it should be sent to your client layer. Languages like PHP, Java or NodeJs is used here. Current trend involves writing your backend logic and code in such a way that it’s exposed as web services to the layers above it.

Third layer is called client layer. This is the layer where your code related to User Interface will go. User usually talks to this layer only and is not at all aware of database and backend layer. For web application, there are many programming languages/frameworks which can be used here. Personally, now days JavaScript based UI framework work are used more. Check this link to get the list of JavaScript frameworks available to us.

But now many people ask , this is fine Vikram. Can you pls give us quick recipe at a same time. So my criteria of choosing a programming language or technology are that it should enhance the productivity of team at a same time give required performance.

For Web applications:- If you are developing a B2C or SaaS application which doesn’t involve much mathematical calculations, chose AngularJs for client layer. Choose NodeJs for backend layer. And choose RDBMS such as MYSQL.  AngularJs and NodeJs are both Javascript based frameworks. So if your developers know JavaScript, they can work on backend and front end coding at a same time. If you are not comfortable with NodeJs or your backend coding involves mathematical calculation, choose either Java or PHP.

For Mobile applications:- There are three type of mobile application which you can develop. Application which will run inside mobile browser. Hybrid application, which is developed using Javascript framework and we use software like PhoenGap to deploy it on Android and iOS platforms. And the third type of application is Native application developed using SDK(Software development toolkit) of Android and iOS respectively. Again at server end you can use either NodeJS or Java or PHP and exposing all server side code as web services. RESTFUl web services(a type of web service) are most widely used these days. MySQL or NoSQL can again act as DBMS. For client side, to develop Hybrid application, we can use AngularJs/Ionic(type of frameworks). To develop native application in Android, you have to use respective SDK’s. For Android you primarily do coding in Java and XML. To develop iOS application, you write code in Objective-C.

At last, this article must have given you a high level overview of the complexity involved in choosing and working with various technologies when you want to develop your technology platform. Thus its very important to find a technology co-founder for your idea. Just hiring technical guys will not solve your problem.

Communicate my fellow founder

As a founder and leader, you always and should be spending considerable time in communicating your vision and thoughts to your

  1. Co-founders ,
  2. Fellow team members and
  3. More importantly to your customers.

When I was leading my first startup, though I was talking to my customers , but I was not talking and giving required time to my co-founders and team members. I was talking on phone for few hours/minutes a day(we all were working from homes) and thought that all of us understood the vision and priorities. But I was wrong, we should have worked from same place alteast thrice a week to better understand each . And more then that I should have spent more time in listening to team member’s why they are not able to put 200% percent .Phones and emails are not right tools to communicate about vision, about understanding your team strengths and limitations. This has resulted in many  problems and misunderstanding for long period. And end result was dis-engagement between founders and team member’s.

Not going to Work

Not going to Work

This will Work

This will Work

 

 

 

 

 

 

 

Another bigger problem is when you start thinking that “Customers don’t know what they want”. And you day in and out keep putting in efforts to improve your platform based on your understanding. And you keep assuming that one fine day customers will click on that “Pay” button and you will get your first revenue. Sorry my fellow entrepreneur, that is not going to happen. Talk to them, understand what problems they face on your platform, what they will pay for, how they want to pay for your product/service, and then pivot your platform and pricing model accordingly.

So stop bothering about whether platform building is on track(as per your understanding) or and start bothering about what your co-founders, your team members  and your customers are saying.

Learning from India’s biggest startup event

This weekend I attended India’s largest start-up event. And has taken up few notes from the same.
IMAG0374

Here are the high level notes:-
1) Key Ingredients for a startup to get funding from VC’s are
a. Team
b. Initial Product
c. Some organic Transaction
2) Iterate fast and make sure you know metrics used to measure progress of your technology product. For example, for a web based B2C applications, its about “Unique Monthly Visitors”, “Bounce Rate” and “Real Transactions”. For a mobile app its MAU(Monthly active users). DAU(Daily active users) etc.For SAAS application, it’s about how many sales you have done. You should keep eagle’s key on these metrics and pivot based on the data coming from them.
3) Read this book if you are looking for raising funds for your start-up
4) To get connected with investor, reach them through founders they have already funded. Chase existing founders, and get your start-up recommended by them.
5) Many small paying customers is better pricing model compare to few customer paying a bit bigger amount of money. This is because it shows that business is less risky.
6) Perseverance is required for the product you have developed. Success is not going to come overnight. You will fail and you will fail multiple times. More you fail, odds of getting successful increases.
7) Understand your customer. Read about them, spend time with them and if possible sleep with them.
8) Ecommerce start-ups in India will fail as for how long you will be able to sale something below cost price.
9) For India, we need 10 million entrepreneurs to create required jobs in next 5 to 10 years.
10) Sharpen the gut feeling of your idea by listening to people around you.
11) As a founder, be a very good listener.
12) India is cost sensitive market. Playing volume game with low pricing is the strategy.
13) Most of the founder focus on chasing VC’s rather than focus on making a fundamentally strong business. Its about getting revenue, generating profit rather then getting into valuation game .
14) Its team and people that makes idea successful. Focus on creating A team and execute fast to increase probably of your success.

15) Its Mobile all the way. If mobile strategy is missing from your start-up, you are going to loss traffic, transactions and VC focus.

Oh entrepreneurial mind, relax please

Many times when you start with your entrepreneurial journey, you face many challenges like co-founder issues, revenue challenges,  frustration of not able to execute or execute it slow. But believe me, bigger challenge is to making your mind stable and able to make it focus on one thing at a time. Mind keeps jumping from one branch of thought to another. Many times you keep thinking about what will happen in future:- will your idea work, will you be able to make it big, what if your idea will fail, what people will think if you fail? And if these thoughts are coming to you just before the bed, you will end up spending entire night awake. Happen to me many times and still happen.

And all this mind play do effect your physical health also. So what’s the solution? Let me list down few solutions which I see working for me:-

  • Meditation & Yoga:- No, I haven’t started meditating because I came to know that Steve Jobs used to do it. I started doing it because want to calm down my hyperactive mind and achieve better physical health. It’s better to learn Yoga and Meditation under guided supervision.     yoga There are many organizations out there who teaches you how to properly do yoga and meditation. But don’t get settle down till you find a mentor that makes sense to you. DO NOT expect that you will be able to see Lord Shiva or anything like that once you start doing mediation. Meditation is a great tool to start learning to observe your mind, to start practicing mindfulness(living in moment).
  • Organize yourself better:- It is difficult to get organize. There are n-number of tools out there that help you create to-do list. Though no one worked from me till date. Yes, but what worked is when I start my day with a high level task list(in my mind or simply on notepad). todoAnd  don’t open whatsapp/facebook or take phone calls when you are in mid of your work (here again mediation helps). Get into routine and try to stick to it. Checkout below blog for details on how to create routine when initially you are building your product.(pls go there once you finish up here 🙂 )

http://seanonstartups.co/2015/04/08/the-founders-schedule/

  • Do a physical activity:-Hitting a gym, doing summing, running or picking up a game help in increase your focus. A healthy mind lives in a health body. I was always able to solve complex programming problems after I am back from gym.  physicalactivity    Now days job needs more and more time of your sitting on computers and under air-conditions environments. Do you remember, when was the last time you sweat out?

 

 

You have to observe yourself closely and see what works and what doesn’t work to you. Remember your Focus always needs Focus.

My experience of running Edu Tech startup and why it failed

Are you thinking about starting your own startup? If yes, it’s most likely that you may start with an education technology or education related idea.

My first startup was also in education technology space. I was trying to solve the problem of employability among college students using MOOC (Massive Open Online Classes) concept.

PracLabs_Image 1

 

As a technical leader in my previous organization, I was assigned to deliver a billing platform for a new telecom player in India. Customer was not sure what he needs(as always) and to make matters worst, I was given team of college pass-outs in achieving this delivery. They were struggling to be productive, so I spent nights doing all the coding. And in morning hours training new guys in required technology and teaching them fundamentals of coding. Organizational level provided training was not helpful at all. After spending couple of weeks on training with college pass-outs, I was able to deliver this project on time with new team .  And then I faced same kind of problems in  all subsequent projects I have been assigned to.  So here comes an idea, create a platform that will provide employ-ability training to college pass out graduates and help companies get trained resources.

MOOC was a new concept at that time. Platforms like Coursera, Udacity and Edx was gaining a hell lot of popularity and was seen as something that will finally disrupt higher education. Mixing the concept of MOOC and employability made sense to me. I started coding for the platform and it was ready in 2 months. And then we started creating contents using video recording software. So we were up and running with platform named PracLabs.com with courses for enrollment.

PracLabs_Image 2

Now comes the bigger challenge of getting required traction and revenue on the platform. After spending few thousands in email marketing we started getting traffic. Students were coming and enrolling in online published courses. We were happy that students are enrolling. But then data showed us that students are enrolling in online courses, but they are not spending time on platform for learning. Similar problem other big MOOC platform’s were also facing, where only 4% to 10% enrolled students complete the course. I started calling students individually to check why they are not learning and taking required online assessments. Few of the issues were related to platform usability, other were related to slow internet problem at their home causing videos to load slowly. But majority of them told me that why they should study online(what’s in for them), or will they get job offers after getting enrolled in these courses. Got the point, students need job opportunity as an end result. The next big challenge was now to get job opportunities for them. But our sales cycle was getting long. You have to chase Students, College TPO(Training & Placement Office), HR people in companies  . And as Alok said in one of its PPT’s that you should have as many less variables as you can in your sales/revenue generation cycle and managing operations.

It was time to seek expert entrepreneurial advice & mentoring. I turn up to Rajender Pawar of NIIT, Rajan Anandan and Alok Kejriwal. All of them has given different inputs and advices, which I am listing down in learning section. Money burning pressure, not getting required traction and revenue lead to more frustration and stress.

And then came the  news, other co-founder was expecting his first kid and want to get back to full time job. After few months I was diagnosed with Thyroid with TSH level reaching 398(at this level you are about of go in comma) . I ran to endocrinologist and he immediately started medication. I lost 13 kgs of weight and it was time to focus on health rather than startup. This entire 2 years journey was kind of roller coaster ride for me and my co-founder. But in all, if I look today, I have no regrets at all, and this has given me immense learning about how to start a startup, how to manage people, how to do sales and above all how to manage oneself.

Here are the key learning’s and takeaways from my journey at PracLabs:-

  • Education is difficult domain to crack and surrounded with many government regulations(Rajender Pawar).Every time you want to do something impactful and want to make profit out of it, regulations comes in between.
  • For online learning platform, you have to make content which is fun to watch and learn from. I still remember Alok said “Nakali Shahrukh ko behi 1 lakh log dekh lengey, but people don’t prefer  learning through boring online courses. You have to focus on content.” Anandan said “he is not able to find single mobile/web app which can make his 8 year old enjoy learning Maths/Science. Thus content is what makes a difference”.
  • Students don’t pay for learning. If they do, why most of them are not studying in college after paying Rs. 5 to 10 lac.
  • College TPO’s are not interested in placing students and getting them required opportunities. They are more interested in getting companies to just show up for recruitment, even if they do not recruit any student.  One TPO even said “sir 2 lakh vasey hein ley lo, bass eak company ley aao, chahey tho koi bancha maat ley key jaao”(Take 2 lakh rupees, get just one company to visit our campus, doesn’t matter if they don’t recruit).
  • Your revenue cycle should be as short as possible. And you should not have many stakeholders involved to get required traction and revenue.
  • Take care of your health and meditate. Understand your physical limitations and don’t mind in asking help from friends and family.
  • Team is very important part for start-up. You need a A team to make it. With good team comes faster execution, with faster execution comes result(success/failure/pivot).   DO NOT execute everything on your own. Entrepreneurs are naturally steroids driven, but you cannot do everything on your own.
  • Answer questions like why you want to do start-up and entrepreneurship honestly and ask your co-founder also same question.
  • Develop your MVP as quickly as possible. I should have developed a simple WordPress page and started listing down online open courses for students to enroll in. And parallel would have developed the contents and the platform.
  • Think Big and act small. I was trying to do too many things at a same time.
  • Get mentoring upfront on your idea from experienced entrepreneurs, preferably from those who have worked in the same domain. Discuss your idea with as many people as you can. Don’t worry that they will steal your idea as its execution that matters more.

India will be the youngest nation in the world by 2020 with an average age of 29.We will become manpower supplier to world and anyone who has data of trained workforce can create something very valuable.Looking at the opportunity, I still feel someone will execute and solve employability problem in effective manner.

Thanks for reading.