Raj's Lab

Strategy and Entrepreneurship


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How to make an idea valuable?

Ideas are not so valuable; at least that’s what most people seem to say. While ideas in their nascent form are not so valuable, at some point they turn tremendously valuable. Booking Bus Tickets online is a very common idea with almost no value, but redbus.in was tremendously valuable – Where does the difference lie?

An idea becomes valuable when we turn ideas into commercially viable and valuable products or services. Turning an idea into something that others can experience, interact, use, and benefit from, is what makes an idea valuable. The more number of people who value a product or service, the more value attributed to it. Hence it is not surprising that with demand for a product or service, the value of the company grows. This actually means that the value of the idea keeps growing with certain actions effected on it. Is that what we mean when we say – execution is more valuable than ideation? In fact both pieces are important, and putting them together is what creates value!

The entrepreneur’s job is to constantly make an idea valuable. This means, he or she has to take up a lot of ideas, and attempt connecting them to opportunities. Once there is a good “Idea to Opportunity Map” (I2O Map as called in the book), it is time to design it into a potentially viable business. The reason to turn it into a viable business is to first ensure that the product or service actually has real demand. Once the company tests the viability of the business in the marketplace, it is then important to start looking at increasing the value of the idea. The way to increase value of an idea is to look at increasing demand for the product. Good Need / Opportunity identification along with well implemented innovative solutions create the possibilities of entrepreneurial ventures. Once this is done, the one thing that can truly catalyze this possibility is good quality marketing.

Ideas by themselves in their nascent form have no value. But when ideas are transformed into products, services or solutions that people love, they instantaneously become valuable. Only innovative and entrepreneurial people can give the idea its due.

Think about it!


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Experience, not age matters in entrepreneurship

Have you ever been asked this question: What is the right age to start a company?

As a teacher and workshop leader on entrepreneurship I keep getting this question asked to me many times. Across India, this one question is asked again and again by aspiring entrepreneurs. Here is my rational to why age truly does not matter when it comes to starting up?

History is proof to the fact that people can turn entrepreneurial at any age. In fact there have been cases of extremely successful entrepreneurs who have started off as early as age 20 (Apple and Microsoft); at age 30 (Twitter and Amazon); Walmart (age 44) and McDonalds (age 53). While we can always do analysis to find which is the age that correlates most with starting up and declare a certain number, the truth is, it should discourage anyone from trying. All of the above examples are only the popular ones, to ensure people trust that age and entrepreneurship are not necessarily closely tied.

Instead there is one thing common behind all of these entrepreneurs who started the above start-ups and many more smaller companies. What is it? “Experience” If we read the biographies or interviews or books about/ on the people or companies mentioned above, it is quite interesting to know that these people constantly kept gaining experience in their areas of interest and business from an early age. They constantly gave more of their attention to the work than theoretical inputs. They spent more time gaining hands on work experience, however small, disconnected and inconsequential. This experience is really the bedrock of what makes one entrepreneurial. An experience can turn one entrepreneurial. But that experience should be sought. In seeking that experience one gives life to passion. Through the experience gained, one gains the happiness and thrill of experimentation. This leads one to become an entrepreneur.

Every entrepreneur need not start-up. But every person who is hit by quality experience can turn entrepreneurial.

So the next time you hear yourself asking this question or hear someone ask you this question – you will have one more perspective to provide. One more reason to not avoid entrepreneurship. One more reason not to avoid freedom.

Think about it!


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Vedanta and Me: Celebrating What: Life or Events?

I had a moment to celebrate this week, but as my tendency to stay quiet took the better of me, I told my dear friend not to celebrate. I told her that the very wishes and her happiness itself meant a lot to me. She was quite put off by my response. I had to explain my reasoning. But it rests on some serious philosophy, which can bring some peace to life.

It is often quoted in the scriptures that life should be a celebration. But sadly this is either totally missed or totally misunderstood. Lets look at both these lapses.

Celebrating is not Life: There are many people who don’t enjoy things in life. There are even schools of belief that life must not be enjoyed. Many belonging to this realm treat enjoyment as sin. They even put down any form of comforts in life. They spend their lives taking on pain and suffering. They believe that life is nothing but pain and suffering.

Celebrating Life means enjoyment: There is another group that does the opposite. They simply want to celebrate everything. All they need is a chance, not even a reason, to celebrate. While this looks close to an evolved stance, it actually only mimics it. Celebration does not mean making noise or going to parties. Inevitably we find that the people who do all this are also the ones who go through depression and loneliness. Much of the lifestyle problems are experienced by those who belong to the upper echelons of society. Hence this also seems wrong.

Then what’s the real understanding? Let us understand that there is a huge difference between celebrating life and celebrating events. This is what makes the difference. Think about it. If we celebrate events, then we are bound to see some events that we may not like so much and hence we have to court suffering too. But if we remain away disconnected from events in the first place, then chances are high that we can remain away from both joy and suffering. But once you hear this, you feel that a life like that is all boring. Sadly this is untrue. There is a way of celebrating life everyday. What is that? Celebrating that you are alive today! Celebrating that you were given the chance to see, hear, eat and receive help! Celebrating the chance to serve someone! Celebrating the chance to see success equally as courting failure!

Celebrating Life is more important that Celebrating Events. It can lead you out of this short term joys and short term sorrows. Life is to be celebrated and this is where a philosophy like Vedanta comes in and helps. It asserts that Life is to be celebrated, but this is all about celebrating the chance to attain freedom, liberation. It is not about those petty distractions (joys and sorrows) in life.

Think about it!


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Start-ups must leverage market-places

For most small businesses in India, the launch of large format stores, especially ones from the big corporate houses sounded scary. In parallel when online stores started expanding their logistics and marketing, it looked like doomsday. But incidentally there has been some revival in hopes!

While large format stores are able to give cost benefits to customers, they are not able to match the customer intimacy of a corner store. I am sure this applies to a lot more small businesses than ‘kirana stores’. Hence this threat has, in reality, turned out to be a lot less threatening than expected.

On the other hand, the online stores have actually enabled a lot of small businesses to expand their businesses. Everyone is surprised! Instead of a flipkart.com or amazon.in / jabong.com / ebay.in (amongst others) killing small businesses with price gains, they have actually enabled small businesses reach more number of customers. Unless you are one of those small businesses which is still outsmarting the customers who are unaware of cost differentials or are information starved, all others are actually benefitting from this trend. If you are one of those who is still exploiting your customer simply because of information challenges, then you deserve the onslaught from good quality competitors. For all others who truly add value to customers in some fashion, the online market places seem to be a boon.

You can now see reports of how small businesses are gaining because of their listing on the above mentioned online stores. It is also interesting to note that the above stores especially flipkart.com and Amazon.in are aggressively trying to bring on board a lot of small businesses. Read a sample news on this: http://economictimes.indiatimes.com/industry/services/retail/small-vendors-net-big-gains-as-e-tailers-spread-wings/articleshow/37491429.cms

As a start-up are you trying to still duplicate the above businesses and fight them or are you leveraging them enough? Building it is useless, unless you have a very clear reason to do it!

As a digital start-up are you leveraging the market-places available to you? Why build something that is already available for a variable fee?

Think about it!


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Budget 2014 and Start-ups

It looks like the current Finance minister likes the word “start-up” more than any finance minister of the past! Otherwise why will he make reference to it so many times during the Budget speech 2014! We can boldly say that the government is definitely seeing the start-up community, the MSME’s in India as a powerful contributor of socio-economic development. There are many interesting things that the Finance minister mentioned in his talk, here are some of the key items of interest to the entrepreneurial folk:

  • A 10,000 Crore Fund for fuelling entrepreneurship in the country. This fund should find itself being distributed as equity, soft loans, etc
  • Strengthening the nation wide network of incubators and accelerators: This should go a long way in improving the early stage support that entrepreneurs badly require
  • A 100 Crore Fund for encouraging entrepreneurship in our villages called the Village Start-up Fund: This is absolutely needed if we don’t want our cities to break down. It is also important for us to tap into the real potential of India. Rural Entrepreneurship is an absolute must in a country like India.
  • A 200 Crore additional funding for supporting entrepreneurship among the SC/ST youth. This is an interesting way to move the backward communities out of that status.
  • A special focus on helping build the next generation of technology product companies – something that India has really fallen behind in, especially in the IT Industry. A 500 Crore Fund to support potential software product start-ups is a great boost – hopefully we should see some Google, Apple, Microsoft, Facebook, etc come out of these initiatives!

While there are many other things that could be of interest to the industry, the start-up ecosystem in the country, especially the entrepreneurial youth of this country should be cheering.

In the past, plans have been made along similar lines, but not so specifically to tap into entrepreneurship. Hence we (all those involved in Indian Entrepreneurship) are all hoping that these policies will be turned into actions and they will truly reach those who need them the most. If the government can implement this, India can truly reap the benefits of her demographic dividend!

Yes, one more thing which has got missed in the large numbers is: The plan to ease the bankruptcy framework in India. Now, if there is one thing that can truly catalyse the entrepreneurial spirit in this country, it is this. Because, if it is easy to close down a failing enterprise, people will be more open to experimentation. This can also make the long held baggage (‘social stigma of failure’) become lighter and hopefully go away.

Over all I think this budget has been very pro start-ups and I think the government has read the pulse right. The entrepreneurship and small business ecosystem in this country badly need a boost. They can create the millions of jobs that India urgently needs.

With the budget fairly interesting and forward looking, all are now eagerly waiting to see how these policies are going to be rolled out. This requires policy to be turned into actionable plans and then staffed through the right people to ensure they see the light of day.

Well begun is half done, but half done isn’t really great either! Let’s all work along to make entrepreneurship thrive amongst the youth across the country.

What do you think about Budget 2014 and Entrepreneurship? Do share your views.


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Finance for Entrepreneurs: What are Assets?

All of us like to accumulate assets. This inherent nature exists amongst entrepreneurs as well. Hence it is not uncommon to see entrepreneurs and small business owners buy assets when they have money. But this kind of asset creation has not helped too many entrepreneurs and small business truly scale to their potential. Why do you think this happens?

First things First! Let us understand what ‘assets’ are, from an accounting perspective – they are objects that we purchase ownership to. Businesses attempt to own things – equipments, land, buildings, cars, etc.,. All of these appear on the ‘Asset’ side of the balance sheet. But on the asset side you also see such entries – cash, inventory, receivables, etc.,. While all of the above are what a company owns, they fall under two categories: short term assets and long term assets. The short term assets are also called ‘current assets’. These are assets which the business can realise value from in the near term (typically one accounting period, usually one year). For example: cash, receivables, etc.,. The long term assets are those that the business derives value from over a long period of time (multiple accounting periods, usually more than one year). For example: land, building, equipment, vehicles, etc.,.

Assets are created by enterprises by incurring expenses. But these expenses are not fully chargeable to the Profit/Loss Statement (https://rajshankar.wordpress.com/2013/11/01/finance-for-entrepreneurs-what-is-a-profit-loss-statement/ ) in the same period in which the expense is actually dispensed with. The reason for this is that, to ensure fair accounting practice. Hence it is only good to spread the cost of the asset over the period through which it provides value to the company. Lets take an example: An equipment costs the company 10 lakhs. The estimated life of the equipment is say 10 years. If that be the case, the enterprise will derive value from the equipment for 10 years, utilise the equipment to produce for 10 years. In this case, how is it fair to charge the entire 10 lakhs to the Profit/Loss statement in the year in which it was incurred. One it doesn’t seem fair because the equipment is contributing to the revenue over the ten years and second, if charged in one year will make that year’s performance look poor. This will also lead to avoidance of taxes as every year the enterprise can simply keep purchasing assets to show expenses!

Hence it has been agreed that the cost of the asset will be charged over the life time of the asset. This yearly charge is called depreciation, a non-cash expense. Only the charge that is applicable for this year is taken to the Profit/Loss Statement as expense (Depreciation). It is called ‘non-cash’ expense simply because it is not actually spent in the year in which it is charged.

What kind of assets should start-ups try to create? This requires some thinking. But a couple of simple rules can help: Create assets that can help the enterprise generate revenue in the future. Create assets only when they cannot be borrowed, begged for, or stolen. (http://rajshankar.wordpress.com/2014/05/13/entrepreneurial-skills-beg-borrow-steal/ ) Now this varies from business to business. In case of a IT Services enterprises, it could be intellectual property, or people, R&D, Organisational knowledge, etc. In the case of a clothing company, it could be machines, factory space, etc.,.

Well thought of investments into assets can help a company grow fast. If investments are not prudent, businesses will end up with assets which may become valuable but will not enrich the future revenue generation capacity of the enterprise. Example: A small IT firm invests in a large land and building. While the property will appreciate in value, it does not necessarily translate into future revenue from software services!

Think about it!


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Start-ups: Dare to price this way?

While there are innumerable inputs that one can give an entrepreneur on how to price a product or service, the one piece of advice that never shows up is: asking customers how much they would pay! Sounds strange to you as a start-up? Are you wondering if it will look crazy? Do you think they will under quote and cheat you? If you are saying any of these to yourself upon answering the question, please wash your face and re-think again.

Everyone wants to practice value pricing. But the trouble is we are not sure about what ‘value’ means. Hence it gets really difficult to identify the right price. But won’t it be easy to show case your product to chosen users and seek inputs on what exactly is their benefits or perceived value? Won’t it better if you hear from the horse’s mouth, what the potential benefit is, in tangible terms? Are they saving money as you assumed or it is that they are actually saving effort? Are they buying because it is faster and more stylish or are they purchasing because it is lighter and has longer battery life? Hearing from the user about what they value can provide valuable insights to pricing product and services.

You will be surprised at how gracious customers are. While some are mean and want to break you down by negotiating hard, most people are fair and want you to continue providing the service at fair price. They understand that their vendors cannot survive without making money, and hitting them hard is not good for them too.

Asking customers what the price should be is a daring practice. May be we need to ask them about their benefits, perceptions, etc.,. rather than price directly. But in any case, they are the best people to give us indications of what the product or service should cost to them. In fact the rational that they give for pricing should be treated with great care as it will give a start-up enough information to price at the optimum level.

This practice is worth exploring simply because, most start-ups under price themselves and stay stuck at that level. They simply cannot rise out the lower gross margins with which they start. Using all other strategies does not work, once we are perceived wrong by our customers. Pricing has a tremendous effect on perception.

Try experiments in pricing and use them as potential tools for creation of buzz! How often have you found a company asking you to decide how much you want to pay?

Think about it!

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