The Beginning of an Inclusive Startup

 

Last week, I talked about how Silicon Valley and the tech industry, in general, is biased against women.

It was to battle this that myStartUpCFO was started. In August 2013, we began with the social objective of integrating women back into the workforce, without robbing them of family time. We actively work towards closing the stark gender gap, where a woman is not made to choose between a booming career and an equally demanding personal/family life.

Over the years, we’ve observed that women often quit work to raise their family. As they move out of the workforce, they tend to lose part of the skill-sets that they had earned with so much effort: negotiation, analysis, math, logic, and collaboration. As a result, the company loses a dedicated employee, mainly because of domestic difficulties. She also ends up unhappy because she had to give up a thriving career to bring up her family. Why choose when both are possible?

At myStartUpCFO, we believe that the idea of working along a timetable is an industrial era concept and doesn’t work in today’s digital world.

As a result, we provide a virtual and flexible office which helps women stay in the workforce, even when family or other externalities demand more of their time. Our workforce is predominantly women and they have complete flexibility to work from home. This also allows us to tap into talent outside of a 100-mile radius.

If you can’t trust your employees, why hire them in the first place?

This is where it all begins. We enable our employees to work within the framework of the company guidelines but with the ease of timings that suit them.

The benefits of such a setup are manifold:

One, it tells our people that we believe in them, and we trust them to do a competent job without a lot of handholding. This pushes them to deliver, to be resourceful, and figure out problems on their own without escalating everything to their supervisor.

While building higher capacities, it also maximizes productivity and minimizes attrition: two of the biggest challenges most companies face.

It also brings our overheads down, the ones pertaining to a physical office space, allowing us, in turn, to offer the cost advantage to our clients.

However, I’ll be the first to admit that this setup is not without its share of challenges.

With about a hundred people spread across the globe, it’s difficult to foster a close-knit culture and encourage open communication. People often don’t feel a connection to the entity and lack an informal channel to share.

We are actively focusing on initiatives that will encourage conversations: from a company newsletter bringing the latest on-dits from our different units across the world, as well as Google+ Communities to mentor, guide, and foster a deeper connection.

If any of you here are dealing with the challenges of a remote team, or has questions about how this would work in practice, I’d be happy to talk, and help avoid the pitfalls that nearly got us the first time we did this!

At myStartUpCFO, we are proud of the supermoms that work with us, and we happily tell our clients to expect crying kids and barking dogs in the background when on a call with our teams!

6 Mistakes Founders Make When Raising Funds

Raising money for your startup doesn’t have to be an impenetrable mystery, like whether your fridge light stays on when you shut the door. Every week, I meet people who still haven’t figured it out. In this article, I’ve shared some common mistakes I stop people from making.

The fridge light turns off. Next topic, fundraising.

  1. Too little, too late: In an earlier article, I mentioned that startups should raise more money than they need, or else risk becoming a #BurnRateZombie. We are part of a volatile ecosystem. It’s good to be prepared, especially when you’re starting out.

What most entrepreneurs also seem to forget is that raising funds takes time.

Even if you strike a deal, it could be months before the money is transferred into your account. Don’t ever stop raising funds. Continue to network and interact with the right people, even if you don’t need the money right away.

Most importantly, be mindful of your burn rate and runway. It’s easy to get so consumed in growing the business that you lose track of critical financial numbers. Watch your runway like a hawk so you can have your investor outreach strategy ready when you need it.

2. Too much, too soon: When it comes to fundraising, too often, people focus on the how, and not enough on the ‘how much’ and ‘when’.

We’ve heard horror stories of promising companies that get massive funding early in their life cycle only to die a quick and humiliating death. Color started off as a photo-sharing app that raised a whopping $41 million in 2011. This was before it had added a single user.

What happened?

It shut down months later in September 2012. The team was acqui-hired by Apple, but there was so much negative publicity around the app that Apple never even bothered with an announcement! Experts proclaimed that the product did not resonate with the customers. In other words, a bad product-market fit.

FYI, Instagram had raised a $500,000 seed round.

3. Selling yourself too low: Another drawback of raising too much too early in is the high probability of a low valuation. You’ve given away some equity as well, which would mean you no longer have complete control over your new business. You now have a lot of money, an iffy product, no real proof of concept, and someone you are answerable to. How would that work for you?

Remember this: A startup operates in two phases — the build stage and the growth stage. Funds fuel growth.

During the build stage, it’s important to stay lean, and not be controlled by VC money because it can often complicate things.

The problem is, when entrepreneurs raise millions, there’s pressure on them to spend it. VCs did not give them the money to accrue the savings interest. However, until the founders fully understand the market and how their solution fits into it, they can’t spend it in the right direction.

4. More money, more mistakes: When you have limited resources, you are forced to look deeper and make tough choices. It pushes you to negotiate harder on your office lease, or perhaps take a more frugal space. It teaches you how to stretch a dime to a dollar, and make each dollar work for you the right way. It will force you to keep salaries palatable in an inflated market, and will constantly push you to take decisions that bring you closer to your revenue model. These are hard decisions, and these hard decisions make for a solid foundation.

5. Don’t spray and pray: Don’t make the mistake of reaching out to every investor you’ve heard of. Do your homework. I’ve heard of startups at seed stage pitch to investors who don’t invest in companies that size or in that industry, only to be disappointed in the end. Save yourself the heartbreak and look for funding in the right places. Know your audience and speak their language. Are you trying to pitch a food delivery service to Mark Cuban? Chances are he will decline.

6. Consult an expert: Talk about being penny-wise and pound foolish. Some entrepreneurs decide not to get legal and financial help when signing term sheets to save a few thousands. How does that end? With a raw deal that could cost you a lot more than what you were trying to save.

Understanding the right valuation, pre- and post-money, in case of multiple funding rounds and what terms are actually good for your company requires specialized knowledge. Even before you speak to an investor, work with a good financial advisor to help understand what you need and deep dive into the numbers.

Got a question? Leave a comment.

Image Source : http://bit.ly/2ny4Rgk

Are You Smarter Than A Fifth Grader?

After speaking with hundreds of CEOs, I realized that burn rate isn’t as Startup101 as I had thought. There are still a lot of things that founders understand incorrectly when it comes to being a #BurnRateZombie. But before we get into it…

Let’s take a pop quiz!

Once upon a time, there was a CEO running a very promising startup. The company was all set to join the ultra-exclusive Unicorn club. It was valued at $900M, and this is how their cash inflows and outflows looked:

(FYI, Singapore fifth-graders’ are expected to take one minute to answer that.)

Thinking $62M? Well, your math is as good as the fifth graders, but you should know better.

Jason realized after all this burn that he doesn’t have a business model. His company had become a #BurnRateZombie, so he sold all inventory, cut the staff, and finally offloaded the company for a special clearance price of $15M. Jason hems for a living now.

Burn Rate is very complicated. See if you understand this.

Burn rate = Money that comes in — Money that goes out

No, don’t mock. It’s tougher than it looks. In fact, I’ve had this talk with so many founders that I created this burn rate calculator to better illustrate my examples.

You can run your numbers at this link: BURN RATE CALCULATOR

Don’t know what numbers to fill in? You need to talk to us.


Jason wasn’t paying attention to the red flags. But here is what you should be doing:

  1. Sit regularly with your accountant and deep-dive into your numbers (I hope you have an accountant!). Beyond the bean counting (what’s coming in and what’s going out), you should have an overall sense of your financials. One thing about numbers — they don’t lie. Know your top five buckets of expenses and analyze them for patterns. Look out for unexplained numbers and unusual variations in expense lines. Grill your accountant on and make sure she/he knows the stuff.
  2. Ruthlessly track KPIs. Track your Key Performance Indicators and tweak your strategy based on what they are telling you. Do not forget that B2B and B2C businesses track different KPIs. For example, as a SaaS company, do you track your company’s magic number? A lot of disciplined operating KPI tracking goes into this number. But once you have the systems in place, the resulting insight for your business are priceless.
  3. Keep your eyes and ears open. Keep an eye out on the market indicators for funding. For example, if the market is down, raising funds might take longer than what you’d earlier accounted for. If you are not prepared for it, that could be fatal. Don’t die mid-keystroke. Die trying. But above all, avoid dying at all.

“If you can just avoid dying, you get rich. That sounds like a joke, but it’s actually a pretty good description of what happens in a typical startup.” — Paul Graham, Y Combinator

4. Know your burn, track your burn, control your burn. Question the expenses you’re committed to. Just because you have okayed something in the past, doesn’t mean you don’t track it’s ROI. The money you spend on networking events is a classic example of doubtful ROI. Constantly trim the fat.


Survival stories are boring. Who wants to hear about the company that didn’t die? Only our client founders, their investors, and us.

Avoid being a #BurnRateZombie by tracking your burn rate. Make your story boring again.

The best time to talk is now! Call us today.

 

Burn Rate Zombie

Are You A Burn Rate Zombie?

India’s Taxi Wars will make a great movie one day. The good guys, however, don’t always win.

Sometimes they die before the movie climaxes. Today, the leaders in India’s taxi wars are Uber and Ola. It wasn’t always so. There was another, a more scrappy competitor in the early days.

It’s 2015, Uber had been blocked out of China, and had their eyes on India, the next largest market. There were already many copycat businesses in India that were preparing for Uber’s arrival. The main two were Ola and TaxiForSure.

In anticipation of Uber going full-throttle, both Indian companies started to burn money on subsidized trips and city expansion. TaxiForSure was a well-run upstart. They had a disciplined management team, raised a round of $30M, and had mastered the art of operation and expansion into India’s chaotic market. In three months, they had already expanded to 47 cities. They were subsidizing each trip for approx $3 each and were clocking 8,000 trips a day.

Both the Indian companies needed to raise money fast. Word on the street has it that TaxiForSure considered themselves a better-run company, and was asking for a higher valuation, and so held out longer for the right fundraise. Ola, in the meantime, raised $200M from SoftBank at a valuation of $2.5B. Now they had cash to burn. TaxiForSure was down to four months’ burn but continued to burn money regardless. 

On Jan 12, 2015, Raghu, the founder of TaxiForSure, boarded the flight to San Francisco. He was set to meet 20 VCs on that trip. But as he was flying over the Arctic, his world turned upside down. An Uber driver had raped his passenger in India that night, making Uber Public Enemy #1 in a nation housing one sixth of the world’s population.

Every VC Raghu met had only one question: With the Uber incident, what’s the fate of the unregulated radio taxis in your country? The cloud of uncertainty rained on Raghu’s Sand Hill Road parade. It questioned the ethics and business policies of the heretofore unregulated $7B radio taxi business in India, and no investor wanted to touch this with the proverbial  ten-foot pole right now. With no cash and continuing to burn, he was more than dead. He’d become a burn rate zombie.

Fast forward barely two months Raghu sold all of TaxiForSure to Ola for  $200 M, which was the amount he was hoping to raise, at many times that valuation.

Knowing the importance of fundraising and a manageable burn rate is startup 101, and yet, why do so many founders fail?

‘It will never happen to me’

I have worked with hundreds of founders, and all of them assure me (and themselves!) that ‘it will never happen to me’. Yes, you understand your product, market, and product-market fit. But do you understand all the aspects of your cash burn? What can you control in the short run and what you can’t? Is employee salary a variable cost or a fixed cost?

90%+ of founders will shut down their company eventually. 100% of these closures will be because the company ran out of money.

Just one tip.

You are spending more than you think you are. And fundraising really isn’t going to happen as quickly as you’re planning it would.

What can you do?

In my experience of more than 25 years, I have observed a few bright red flags that warn of the winter to come.

Look out for them in my next post.