The truth about startups

THE TRUTH ABOUT STARTUPS
SESSION AT IIM TRICHY,
SEPTEMBER 2015
Jithamithra Thathachari

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

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AGENDA
 What do you really need to start a company?
 Let’s build a venture

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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

SO, WHAT DO YOU NEED TO START A COMPANY?

jitha.me
WHAT DO YOU NEED TO START A COMPANY?
Passion
Vision
Dedication
Brilliant Idea
Business Model
Tons of MoneyRisk Appetite
No Competition

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Passion
Vision
Dedication
Brilliant Idea
Business Model
No Competition
None of these are needed to start a company!

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Business Model
No Competition
Passion
Vision
Dedication
Brilliant Idea

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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.

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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

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

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

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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

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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

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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

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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.

WHY DO YOU NEED A BRILLIANT IDEA?

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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

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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

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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

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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

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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?”

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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

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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?

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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

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STEP 1: A DECENT IDEA
A Decent Idea
Further Reading: How to create a million dollar business this weekend

DO YOU HAVE ANY BUSINESS IDEAS?

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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

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STEP 2: EXPERIMENT AND LEARN
A Decent Idea

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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,

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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

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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

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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

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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

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

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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

The truth about startups

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The truth about startups