At least we don’t ask “Should we?”

Business Plans are an important and highly debated artefact in entrepreneurship. Since I teach and research this subject, I get asked this very often. I am one who believes that “planning” is more important than “plans” and have advocated this to all my students. There are enough opinions for and against writing business plans, but I think this article caught my fancy. The main message is — don’t plan early; don’t plan for too long; and keep planning alongside other activities.


I liked this article for a few reasons:

  • It moves beyond the “should we?” debate
  • It is a research based work and not an opinion
  • It shows that it pays to plan
  • It shows the pros and cons of planning for entrepreneurs

I think entrepreneurs must read the article. More importantly I think entrepreneurship educators must read this article.

Hope you enjoy reading it.


Free Book on Entrepreneurial Cognition

Happy to share a 2018 book on entrepreneurial cognition! I have met both the authors of this volume (Professors Dean Shepherd and Holger Patzelt). They are inspiring academics! Both are well known scholars in the field of entrepreneurship. When they put together a book, it should be compulsory reading. For those interested in the psychology of entrepreneurs – this is a must have book.EC Book Cover

The book (in my opinion) is aimed at researchers, doctoral students and educators in entrepreneurship. It provides a good source of available knowledge and numerous future research areas.

This open access book is available for free download at the link below:


A new journal for entrepreneurship education research

Last year I visited Peru, South America and helped start the ‘Diploma in Innovation and Entrepreneurship” run jointly by CIDE-PUCP and Future Startup Heroes. I spent almost three weeks in Peru visiting number of cities helping promote the culture of entrepreneurship. Here are some photographs capturing my Peruvian memories.

Before leaving Peru I promised the participants of the first batch of the diploma program that I would send them every month, two “readings” on entrepreneurship education. I kept my promise and this month I am sending them the fifth and last installment. As I was putting together the readings I realised that I had an opportunity to not make it the last mail from me (entrepreneurial educator?).

Last week, the United States Association for Small Business and Entrepreneurship (USASBE) launched a new journal with a focus on entrepreneurship education. It is called “Entrepreneurship Education & Pedagogy” (EE&P). Its name and form confirm its sibling status to “Entrepreneurship Theory & Practice” (ET&P) – a premier journal for entrepreneurship research. While I was enjoying the articles from the very first issue of this new journal, it occurred to me that I should share this with my friends who will be soon completing their diploma and becoming entrepreneurship educators.

Would they not benefit from having access to a spring, instead of a glass?

Therefore instead of sending two articles as I have done in the past four months, I decided to turn this into a blog post and send it to them. I hope they read all the articles in the first issue of EE&P (for this month) and continue to look up this journal from time to time. The journal has research articles, cases, instructor resources, and games. This will help them as they embark on their journey to being world class entrepreneurship educators!

Peru is an entrepreneurial country and with a host of entrepreneurial educators the nation can catalyse its entrepreneurial journey.

Good Luck to every one of them.

How are you finding opportunities?

Having been involved in ‘entrepreneurship education’ for close to a decade, I can tell you one thing — the weakest part of any entrepreneurship program is the ‘opportunity’ piece. Let me illustrate with a recent experience.

I met up with a few students who had undergone a complete year of entrepreneurship education. They had to do a two month market research on a product / service and write up a report. Based on the discussions with their faculty, they narrowed upon two ideas: (i) food distribution and (ii) nutrition bars. After worrying about how to go about doing a market research, they walked up to me (not sure why!), and asked ‘Sir, can you help us choose one of the two ideas?’ I did what I normally do – asked how they arrived at these two ideas / opportunities? They said many things but ultimately accepted that it was through ‘imagination’. So what they basically now wanted to do was ‘validate’ (which meant) ‘prove’ that their idea / opportunity was worth creating a business on. I spent the next 30 minutes explaining to them why this was wholly wrong. The surprising part – the two kids quickly latched on the idea of searching for opportunities, rather than spending two months validating one. My belief that students are really smart was proven once again.

How do you (aspiring entrepreneurs) find opportunities?

Opportunities can be either created or discovered. Discovery means going out to the world and identifying gaps. Creation means coming up with a need/want that is not yet felt. As an entrepreneur you got to choose which route you wish to take to finding opportunities. My rule of thumb is – if you are trying to figure out which route, take ‘discovery’.

Discovering opportunities means finding out gaps. The easiest ways to begin is to start out by identifying gaps in the industry side or the market side. On the industry side one can quickly draw out the value chain and start looking at ways to fill / improve / disrupt / etc what exists. On the market side, one can identify which needs are not fulfilled, which are underserved, and what can be better delivered. While none of these are exhaustive ways to locating opportunities, it is a good beginning.

My advice to these students was – identify a sector of your choice (interest); look at it deeply from either the industry side and/or market side; use all available secondary information first; identify and speak to at least 30 people involved in the sector; analyse all the information; and create a list of 25 hot opportunities in the sector. Create the report.

Do you think they will have spent their summer usefully?

Do you think they will have located more opportunities than they knew off before?

Do you think this is a better way to deliver entrepreneurship education than quickly fixing the idea and evaluating / validating it?

Share you thoughts! It matters!

Startup Valuation: VC Method

In an earlier post I had shared that there are number of methods used to value startups. I had promised that I will detail the methods. Here is the first of those methods listed – ‘The Venture Capital Method’ or VC Method.

The introduction of this method is attributed to Professor William Sahlman, who wrote about it in a 1987 case study. Professor Sahlman is famous for his widely used article ‘How to write a great business plan’ in the Harvard Business Review. I have used it as reading in some of my courses too! That’s enough for background and validity!!

The VC Method

The formula used in this method are simple:

Pre-Money Value = Post-Money Value – Investment

Post-Money Valuation = (Terminal or Harvested Value) / (Expected Return on Investment)

Now you need to know what these terms mean, isn’t it? Here they are:

Terminal or Harvested Value: This is the value that the investor expects the startup to have when his/her stake is sold. Now, this could be the next round of investment or after a couple of rounds of investment or when the company goes public or it gets acquired by another company. Whatever be it, the investor must know what will be the value at the point of sale. Usually early stage investors stay only till a couple of rounds of investment. Hence they consider only the value until then.

How do we calculate Terminal Value?

Ans: Any usual finance text book will teach you methods to do this. Simple back of the envelope methods include: number of times sales or Industry P/E times Profit, etc. You can get these data from industry analysts or reports or historic datasets or even from angel associations. Recent investment records from new items can also provide pointers. Always use more than one method and then take average to improve your odds.

Expected Return on Investment (ROI): This is simply the rate of return that the investor expects to make on his/her investment. While it may be easy to think it terms of percentage, strangely investors of this category (startups) think in terms of ‘number of x’s’ or number of times they expect their investment to multiple. For ex: 10x means 10 times, 20x means 20 times and so on. In Angel investing, it is normal to see investors talk about 10x-30x returns. It varies a lot. But considering the risky nature of these investments, one is bound to expect high multiples.

Post-Money Valuation: The value of the startup including the investment made by the investor.

Pre-Money Valuation: This is the value of the startup just before the investment is made by the investor.

Investment: This is the amount of money invested by the investor into the startup.


A startup in software wants to raise 10lakhs. It expects to touch a revenue of 10 Crores in 2 years.

Knowing that software startups are valued close to 2 times sales, the investor expects the harvest value to be about 20 crores. Assuming an average return of 20x, the investor calculates post-money valuation to be = 20/20x = 1crore. Therefore pre-money value is 1Cr – 10Lakhs = 0.9Crore.

Deviation: Lets just understand pre and post money valuation here: If investor considers 1Crore to be post money valuation, then it includes the investment (10lakhs) too. Therefore entrepreneur’s share is 90% and investor’s share is 10%. But if the investor considers the 1Crore as pre-money valuation, then the post-money valuation becomes 1.1Crore. Then the entrepreneur’s share becomes 88.9% and investor’s share becomes 11.1%. Hope you get it!! While the difference seems too small, the trouble is not in the present. Just imagine when you become Infosys at its peak or Flipkart at its peak. Do you think 1.1% ownership can make a difference? I hope I don’t have to clarify this 🙂

Continuing with our example:

So, considering that this company in our example is valued at 1Crore post-money valuation, how much percentage should the investor seek to get his 10Lakh investment. It seems that if he takes a 10% stake in the company for his investment and everything goes as per his / her calculation, they will get a 20x return when they exit after 2 years.

This method gets complicated when there are more rounds of investment before harvesting! The current investor will need to factor the new investments too before deciding on how much value the company will have and what stake they will need to keep prior to making an investment. It mathematics. As one of the practitioners suggests, one of the quick methods is to reduce the value by the level of dilution expected in the future rounds. If you intend to dilute 50% before harvest, then decrease value by 50% and so on.

While one can keep on complicating the math, I hope entrepreneurs will get an overview of the method. As with any skill, once you make a beginning (and if it is your cup of tea) you will enjoy the complexities and play the game. I hope this blog will help you move closer to playing the real game.

Try it. Its fun.

Finding opportunities – a skill for entrepreneurs

It is not uncommon to hear entrepreneurs constantly worry about the lack of data! In fact on of the weakest parts of any business plan is the description of the “opportunity”. Even trainers who facilitate business plan and entrepreneurship programs find it difficult to teach opportunity identification. But as Peter Drucker said, studying changes leads to finding opportunities. I have found it very helpful in teaching my students the skill of noticing changes. It has helped many of them kickstart successful start-ups. Many faculty who attend my ‘Faculty Development Programs on Entrepreneurship” also ask me how we can teach this aspect. So when I saw this news item I could not hold myself but share it.

Link to article:

TRAI reports are filled with information on the telecom space. This provides enough details to understand the changing trends and patterns in the telecom market. Companies, start-ups and others will know who is adding users, where, how many, amongst others. This could give hints as to whom they should collaborate or partner with for reaching potential customers. Looks like this information combined with increasing number of smart phone models below 5000/- would usher in the mobile commerce business much earlier than what many predict. Also the number of people requesting for number portability is also increasing. The amount of data usage on mobile devices is increasing. What kind of services do you think can be offered to this growing base of subscribers? Are there offline services that can be viable opportunities? How are many of these people consuming information? How many of them actually go for repairing their mobile handsets? Is servicing handsets a good business? Where are these new subscribers getting added? Are these people actually consuming data services or are they voice based customers? Hundreds of questions can be raised around these. Ask and you shall end up with the real opportunity in a while.

While each of these may be only data by themselves, entrepreneurial minds should consume all of this information and attempt to make connections. This will lead to fresh opportunities for their existing businesses as well as absolutely new opportunities as well. Reading reports and details related to market trends is a good place to identify and locate opportunities earlier than others. Learning to do this come through practice. This, then becomes an entrepreneurial skill that budding entrepreneurs should pick and existing entrepreneurs should sharpen.

Entrepreneurship Educators will do well to include activities like these into their programs and workshops. Inclusion of data / reports relevant to the area in which opportunities are being sought can bring about a different flavour to your course. Participants are bound to go back from the program with specific ideas and opportunities. Discussions around them could also bring out the sweet spots for business model innovations, new product innovations, service innovations, etc.,.

Identifying and exploiting opportunities is the most exciting aspect of entrepreneurship, but is also the least taught. But if we make attempts to experiment with datasets like these and futuristic reports, it could lead to the creation of some new pedagogies. I think so!

Lets all try and share our experiments so that we can make teaching entrepreneurship more fun and fruitful.

If you have any experiences around teaching / learning entrepreneurship, please do share and lets learn from each other.

Ideating on ‘wearables’ as an opportunity in class

When we teach entrepreneurship one of the topics that is truly difficult to cover is ideation and opportunity identification. Most teachers find it difficult because students seem to be more aware about trends than teachers, and rightly so. But what teachers should do is enable students look deeply into trends and changes taking place in the society. One such trend is – wearables.

Google Glass has inspired enough individuals to try their hands at wearable devices. People are now wearing more smart devices than ever before. While I was teaching entrepreneurship to a group of textile engineering students, I was amazed at the number of innovations students could come out with in something as simple as clothes. I decided to push them further and hence divided the class into smaller groups and asked them to come up with what individuals would like of their clothes and if clothes could respond to them. Each of them amazed the entire group by coming up with so many innovative ideas, from simple temperature handling clothes, to color changing clothes, to mood enhancing clothes. My God! I wondered if I would ever buy a shirt that will adjust the temperature on the inside based on the temperature outside. But the truth is, we completed the course with much more technology enhanced solutions to clothes than just changing the fabric and designs. One even designed a dry washer for these smart clothes.

If you are wondering if all this sounds like science fiction, believe me, it is not going to be for long. Could you have imagined what Skype is doing to our lives? Could you have imagined how ‘Uber’ and ‘Airbnb’ have changed the way we travel and find hotels? Like all new technology changes, they are bound to have their teething troubles, but it will all be ironed out. So, if you are a teacher of entrepreneurship, you would do well to bring changes taking place in the environment and dissect them in the class for opportunities. You will be amazed by what you see as output from your students. They only need direction – they have the speed, agility and creativity, to come up with innovative business ideas. We need a lot more of them. Let us (all educators) inspire and create the next set of technology driven entrepreneurs.

Try it in class and please do share your experiences! Let us all improve the way we teach entrepreneurship, together.