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dreaming up a web that works.

Tag: economic outcome

Founders, Pay Yourselves First

by Santosh

Santosh Dawara.

I occasionally get a cry for help in my inbox that goes something like this – “Hey there, I’m not sure if I’m going to last the next few months. I’ve got only 50k left over in the bank. I can’t build my venture out!”. It happens to the best** and there’s nothing wrong with desperation. And yet we know that it’s pitifully far from where we really should be going.

The answer may lie in a maxim I read recently, “Pay yourself first”*. The reason it sounds so out-of-place is that we’ve been encouraged to believe that somehow business people are greedy. On the other hand, the way a founder thinks will often determine how his startup will fail.

If you believe in capital first, fixed payouts, followed by payments to vendors, followed by pay the government, then pay yourself last – if your venture takes a tad longer to get off the ground then trust me, you could be writing an email just like this one.

If on the other hand, you believe that you will have to pay yourself first, there’s a chance that you will build a very different company, one where responsibility lies squarely where it should. Perhaps one that is both grounded as well as one that exceeds the wildest expectations of yourself, your investors, customers, employees and everyone else.

If you believe that founders that think this way don’t make it big – that’s simply not true. The most oft-cited examples are of Google.com, eBay.com. Each of them were making a couple of million annually before their second year of operation. What also needs to be mentioned is that one of them found a hugely successful business model a little later in its lifetime and promptly switched over to it. The Indian business climate blessed both RedBus.in and Flipkart.com, both having made cash-flow milestones within the first years of operation. For sure, revenue-first never stunted the future size of your venture.

If you’re uncertain about ‘how’ or ‘if’ your venture will make revenue, that’s really a good thing because it’ll compel you to think about the outcome, about your position in the value chain. It will also help your prospective customers to be decisive. It reinforces the boundaries of your experiment so that you can distinguish between true success and failure.

If you’re certain that your venture isn’t destined for early revenue – also read as ‘we’re a media company’, that realization is important and a certain outcome of revenue-first thinking. You can then be sure to have to look for another source of cash-flow, or divi-up your resources for offering consulting, or services and integrate it into your venture.

The kind of thinking I’d like this post to shape is that of a founder being creative with both what he is personally capable of and what’s necessary but beyond him. If you must, think of it as a game where you rack up points. Markets have traditionally measured ventures by their ability to efficiently generate cash and it won’t be the same game if we gave up on that fundamental.

I recall a founder, close friend who gave in and licensed his technology out after much consideration. His buyer simply had access to the market while he didn’t. He shared that it had been an ’empowering’ choice. It had compelled him to acknowledge that his runway was limited and that he had to build out his own capacity to self-sustain. It certainly delays his dream but it was better than having to write that final email.

After having gotten to cash-flow, you’ll find that even though you’re not perfect (what of profit? what of margin?), your confidence is greater at being able to maneuver your venture towards those same ideals. I hope that email will read – ‘we’ve gotten this far and are trying to figure out how we can go from here …’. In essence, it’ll bless you with better compatibility with the unknown that all ventures face.

* “Rich Dad, Poor Dad” – Robert Kiyosaki (get it on your kindle, or with flipkart).
** Also see, “Ecomom, And a Grave Financial Error“.

The Personal Side of Ventures: The Exit

by Santosh

Santosh Dawara.

This month two close friends were offered a liquidation event in their respective ventures. A liquidation event, for the uninitiated is when your stock paper in a company is converted to actual money and is usually tied to going public, or to the sale of the company. Both events were vastly different. One event was here in India, another overseas. For employees and founders, the event is very welcome. Even if you’re tied into your venture for the long run, at some point you will spare a thought for where you’d want all of this to lead up to.

Apart from the economic upside of such an event, there is a deep personal side. Think of it as an outcome tied not only to have worked hard, but also to having made the same decisions differently. As I recalled the decisions one of my friends made that led up to the outcome, there were visible choices – many times having said ‘yes’ to a path, other times having said ‘no’.  The decisions where you refuse a path are usually the critical ones.

To help understand this better, I remember discussing a job option with one of them where in hindsight, the employer would’ve clearly hired him simply for his skills and nothing else. In many cases, we won’t know what we’re losing out on having simply made the size of the paycheck pivotal to the decision. The friend in question bravely said no to the option at hand and instead decided to wait for his blue sky opportunity. Shortly thereafter he joined the company that gave him the liquidation event we’re celebrating today a good five years down the road. His choice was vindicated and handsomely. But we could not have known that for sure.

I’d admit that luck had a role to play only if I could alter the definition of luck to include his aspirations and the actions he took to go towards them. Then that is a viable definition of luck. In my book there isn’t much room for overnight successes. In addition to those decisions, working at a startup demands a self-rewarding nature amongst other things. Why so? It’s hard to take on a challenge where your role inherently requires you to convince others of something you believe in and can’t tangibly show, engineers being no exception. There will be confusing times where ideas are orphaned, thoughts aren’t clearly spelt out, where the product is  vapor ware while you work to make it more compelling. At these times only you can reward yourself and keep things going.

Finally, while you won’t be able to precisely determine what size your exit will have but you must believe that it can be big enough to tie up all of those little decisions together. When it does happen, never mind all that could have gone and did go wrong. Simply congratulate yourself on a job well done.