'Remember to pick a mentor, with whom there are one or two degrees of separation.'
'Any more than that, you are wasting time.'
In recent months, India has seen a steady rise in the number of start-ups, some of which have successfully entered the unicorn club valued at over $1 billion.
At the same time, start-up funding has been on a decline globally with several firms and businesses reporting losses and drop in net profits.
While entrepreneurship comes with its fair share of risks, according to Silicon Valley techpreneur and author Sanjeev Chitre, there are several reasons why even successful start-ups with multiple founders fail.
"It is critical in any start-up to have no more than three founders," he says. "Egos play a major part in young founders and toxicity can be crippling."
"Never get an unknown person in the team as a part of the founder. This is a guaranteed formula for failure," Chitre explains in the concluding segment of his interview with Divya Nair/Rediff.com.
How to be a successful entrepreneur with minimum risks?
One can follow the four essential criteria as follows.
1. Ask yourself, 'is the market need which your product will address established or confused'?
If the market is established, the chances of the start-up succeeding is non-existent.
If the potential customer has several options and appears confused the probability of success for a new venture is high.
2. Do you have a differentiated solution?
If yes, the risk of failure is further reduced.
3. What is the size of the market your differentiated solution is addressing?
The larger the market, the lower the risk of failure.
4. Do you have a strong team for executing the solution to be identified problem?
It is critical to have a harmonious working team with sound expertise.
For any start-up the first few people you hire -- the core team -- is what will drive the business. What hiring tips would you like to share with founders/recruiters?
It is critical in any start-up to have no more than three founders.
Egos play a major part in young founders and toxicity can be crippling.
Also, never get an unknown person in the team as a part of the founder. This is a guaranteed formula for failure.
It is not advisable to use 'recruiters' in the early stages of the company.
They are purely financially driven and do not know or care about the culture that is helping form the company.
The founding team must pick people themselves, get to know each other so that together, they can adapt and respond quickly to the market need without blaming each other.
My recommendations are as follows:
1. Hire the people you know, trust them, and help them be successful.
2. Allocate responsibilities with targets to achieve and don’t interfere. Ensure progress through periodic written reports.
3. Don't hire hot shot executives that you have not worked with or don't know. They have no skin in the game.
4. Engage with a potential customer as early as possible to create the solution.
5. Always get people better than you are, to build a strong company.
What are some of the mistakes to avoid while raising funds for a start-up? Also, how can one prioritise and ensure the funds are appropriately allocated and not misused?
This is what my book is all about.
Raising funds for a start-up has to be based on targets to be achieved. However, it always takes longer to achieve results than estimated.
My recommendations are:
1. Never raise money in small amounts, assuming you will get greater valuation.
Raise more than adequate capital for 12 to 18 months of operational lead way. This allows you to focus on building business than raising money.
2. Seek sources of non-controlling capital in the initial stage, from a potential customer or family and friends.
3. Always be aware of 'time to money' (the time it takes to get the money). If not, you will negotiate under duress.
4. Make it a team effort. Use mentors to help establish your credibility.
5. Dilution of your ownership stake is an important factor but always remember, 100% of nothing is nothing.
6. Never raise capital with multiple sources simultaneously. Close one and then go for the other. This is especially true with two different term sheets.
Priority of expending funds must always be driven by meeting customer needs, as efficiently as possible.
Misuse of funds is typical due to pursuing unnecessary façade and building image.
The best image you can build is a happy and engaged customer.
In a country like India where women leadership is poor, what suggestions would you like to share with aspiring professionals to make smart decisions and be successful?
In my opinion, women will be more successful as entrepreneurs than men. They are focused, dedicated, humble and more sensitive to the needs of potential customers.
However, men have had a historical advantage simply because they have been 'out' more and received capital and recognition.
Books like What Not To Do are especially helpful for women entrepreneurs; they can expedite the learning curve to become successful.
One big advice would be that women are afraid to ask for help; they must begin if they want to be entrepreneurs. Mentorship is easily available for the asking.
Women are not comfortable with dealing with money and transactions outside the household. They must train themselves to be comfortable handling and operating in the world of business.
Women tend to think emotionally and part of this may be genetic wiring. They must think with logic, because business is logical not emotional.
How important is the role of a mentor for a start-up? Your tips on how to pick a good mentor?
A first time entrepreneur or even a serial entrepreneur in a new space of business has no credibility, is unaware of nuances of the business space, does not know the market needs, or the customer.
Hence, s/he must absolutely leverage the Mentor Network with open arms and humility.
Experienced executives as mentors will help the start-up save valuable money and time and shorten the learning curve.
I personally prefer formal mentorship rather than on as-needed basis. This is achieved through establishing a high-quality board of directors, board of advisors or even hiring subject specific consultants.
Mentors also help build credibility in the marketplace, with potential customers, with investors and with new employees or management of the enterprise.
Remember to pick a mentor, with whom there are one or two degrees of separation. Any more than that, you are wasting time.
Always seek a mentor, not for his name, accolades, or his position but for the emotional engagement s/he is willing to have.
Fairly compensating the mentor is critical. Most mentors understand that cash position of the start-up is always lean.
Provide them with adequate stock incentives to recognise their value.
Contact them often, preferably through scheduled calls or meetings.
Make them feel a part of your venture.
Mentors are your GPS (Guru Positioning System) to the destination of success.