Paul Graham on How to start a start-up

To follow-up on my earlier post on “Young Entrepreneurs“, Paul Graham has an excellent article that talks about the initial years of any start-up. “How to start a start-up“, PaulGraham.com. Paul accurately describes what exactly can stop a nascent company dead in its tracks. He also covers some of the oft-used terminology. To add to his article, I have learnt a few things over the past few weeks (from other experienced entrepreneurs).

Entrepreneurs might decide to maintain full control of the company and the idea initially and provide the seed capital from their own pockets. On executing the model successfully and having it pay for itself, the company could then decide to involve VC’s. Apart from retaining control on the idea and the model, the entrepreneur also enjoys the advantage of not having to showing potential investors that the idea does work. Naturally, this might not work in all situations. For example, the start-up may require a lot more ready cash than the founder can provide himself. There is an alternative, start-up’s could seek strategic investors for exclusive contracts and equity in the company. Unlike a VC or an angel investor, a strategic investor is also a direct beneficiary of the proposed model who is attracted to invest based on the potential of the idea. The company can then continue to retain IPR over the idea. Inviting angel investors might potentially seed friction in the future. When inviting subsequent rounds of VC funding, VC’s might propose to wipe out existing angel investors for a larger share in the company for themselves. Since angle investors are usually family or friends, accepting such an offer would invite disaster. (Thanks to Shridhar)

I really like Paul’s advice on how to determine sweat equity awards to each of the founders, it makes sense because the founders do need to stay hungry to see the company through.

The problem is, for the company to exist, you have to decide who the founders are, and how much stock they each have. If there are two founders with the same qualifications who are both equally committed to the business, that’s easy. But if you have a number of people who are expected to contribute in varying degrees, arranging the proportions of stock can be hard. And once you’ve done it, it tends to be set in stone.

I have no tricks for dealing with this problem. All I can say is, try hard to do it right. I do have a rule of thumb for recognizing when you have, though. When everyone feels they’re getting a slightly bad deal, that they’re doing more than they should for the amount of stock they have, the stock is optimally apportioned.

India’s Hybrid Automobile: Mahindra Scorpio

Thanks to Vinod I was able to pull up a story on India’s bid to build a Hybrid Automobile. I kid you not, we are looking at an almost production quality Mahindra Scorpio.

Main story: “Mahindra & Mahindra showcases hybrid Scoripio and HY-Alpha Champion“.

Vinod’s complaint is, such news does not even make headlines anymore, it is so common place. Now I just wish Infrastructure would catch up just as rapidly.

Encouraging Entrepreneurs in India

I ought to be watching the NASSCOM newsline page more closely. India has it’s own set of incentives for entrepreneurs in IT. While I cannot think of a reason why the incentives would change in the near future, I would still watch it closely.

No prior permission of Government of India is required to set up IT/ Software units in India. Moreover, to encourage units in this sector, Government of India has announced many schemes:

* Domestic Tariff Area: When the primary focus is to sell in the domestic market in India. This unit can be set up anywhere in India. All normal laws apply. No concession is available on import duties. Exports are permitted. A special Export Promotion Capital Goods (EPCG) scheme of Ministry of Commerce can be availed. This scheme allows import of capital goods against export obligations at a concessional duty rate of 5 percent.
* Special Economic Zones (SEZs): SEZs are areas where export production can take place free from plethora of rules and regulations governing imports and exports. Units operating in these zones have full flexibility of operations and can import duty free capital goods and raw material. The movement of goods to and fro between ports and SEZ are unrestricted. The units in SEZ have to export the entire production. The first two SEZs are being set up at Positra in Gujarat and Nangunery in Tamil Nadu. At the same time, Santacruz Electronic Export Promotion Zone, Kandla Export Promotion Zone, Vizag Export Promotion Zone and Cochin Export Promotion Zones have been converted to SEZs.
* 100 Percent Export Oriented Unit (EOU): This is similar to SEZ scheme. But in this scheme, there is no need to be physically located at SEZ. All other incentives are same as provided to SEZ units.
* Software Technology Park (STP): This is a very special scheme under the Ministry of Information Technology. STPs are located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad, Bangalore, Chennai, Bhubaneshwar, Jaipur, Mohali and Thiruvanathapuram. This scheme offers zero import duty on import of all capital goods, special 10 years income tax rebate, availability of infrastructure facilities like high-speed data communication links, etc.

I do wish the government would identify software for Indian markets for special incentives. The outlook for software development for the Indian market is upbeat as this story suggests [“The Indian Software Products Sector: a Slow, Yet Steady Rise To Prominence”].

From the story, according to Professor Madanmohan’s study, there are at least 346 indigenous companies involved with product development. While I am unable to locate the study itself, the article optimistically suggests that the market potential is around US $7bn. Phew! The article goes on to identify key challenges to indigenous product development and what incentives would be nice to have. I am just going to paste that down here.

Facing The Challenges
While the product software segment in India is currently constrained by multiple factors and challenges, it is the young start-ups within the industry that face the toughest hurdles. For these companies, internationalisation and developing new revenue streams are the biggest roadblocks. Funding and access to capital is the other constraint these young organisations face, reflecting the fragile nature of their cash flows and nascent stage of venture capital. Being small in size and not so well known, these companies also had problems in attracting key personnel (especially developers with product orientation).

For software product firms in their expansion phase, the key challenging is managing growth and retaining leadership.

Organisations operating within the product domain are also challenged by the lack of industry-institution linkages, the absence of a consortium approach to R&D and the paucity of global-class talent.

Some of the other challenges facing product companies include the following:

* Access to capital and key technologies
* Lack of a domestic market to experiment and develop product capabilities
* An acute shortage of equity (risk) capital, to support the development of the industry (both large and small) and infrastructure outside of the government
* High entry barriers, including relatively larger investment and resources, a gestation period, technological complexity and endmarket and marketing knowledge
* Lack of resources for brand building

Providing The Growth Drivers
Clearly, the industry and the government have to work closely to provide a fillip to the product software segment.

A host of initiatives can be jointly undertaken to catalyse the growth of this emerging industry. These include the following:

* Improve the level of seed funding and encourage networking between the
* seekers and givers
* Increase the talent pool of target areas and initiate higher degree programmes at the IITs, IISc and institutions of higher learning
* Increase the access to test and development facilities at Defense and other national scientific organisations
* Increase tax and other incentives to develop and market โ€˜Made in Indiaโ€™ software products and standards
* Introduce policies that foster a balance between innovation and facilitate technology diffusion
* Encourage innovation to ensure global competitiveness
* Make investments in frontier technologies such as nanotechnology, SOA, Seamless mobility, bio-informatics and others.

Clearly, a lot can be done to place the Indian product software companies on the global map. By overcoming challenges related to funding, brand building and talent availability, the government and industry can ensure that the software product business become a viable growth opportunity for Indian companies.

Encouraging Entrepreneurs

Source: “A Chinese Welcome for Entrepreneurs” – Business Week.

The article examines how China is beginning to warm up to entrepreneurs by offering a conducive environment and economical incentives. The focus is on returning Chinese citizens who are the main driving force behind the 25 million small independent companies in China. This number is growing at an exciting 15% annually. To a certain extent, this description also applies to India (post 1990). Not only are returning expatriates a significant force, those still abroad play a significant role by funding ventures back in their land of origin through friends and existing social networks. The article also warns against a copycat culture which is also prevalent in India.

I think the strength of any nation in this century will be it’s ability to redefine itself and realign its strengths to global changes. Rapid shifts in dynamics and flow will ensure that.

Pune traffic and roads

The situation: I happen to run into a number of people who complain about Pune’s traffic situation (“Pune in the Fast lane? No way!” – Times of India). The roads are bad, pot-holed and congested to no end. I understand their frustration. I categorize most folks into 3. Those who want to do something about it, those who don’t care about it much and finally, those who just want to leave the city and its problems behind.

I intend to get in touch with friends and citizens of the city interested in solving this issue. The idea is to try to come up with an overview of any long-term plans in the pipeline relevant authorities (Central Institute of Road Transit?) might have, analyze them for deficiencies. If there isn’t such a plan, then we need to make sure the authorities sit up and take notice. Perhaps if the situation were to remain in constant public focus, a lot more resources would be devoted to solving the issue.

The cause: I came across this article on Suresh Kalmadi’s web-site (“Dealing with Pune’s sloow traffic“) that stated the following reasons for poor/congested traffic flow:

  1. Heavy vehicles using the city as a transit point, they usually slow down and congest traffic.
  2. Inadequate parking infrastructure.
  3. Enroachments on footpaths, poor pedestrian discipline.

It appears that the focus has been to build wider roads, build highways that bypass the city entirely and to enforce better discipline (I don’t see much of that claimed enforcement around these parts). The current approach has helped alleviate the conditions, but it appears that the growth in traffic originating within the city will easily outpace both road-widening attempts, flyovers and other attempts to improve the city’s existing roads.Somehow, parking infrastructure has been neglected entirely, people are still allowed park along most roads, even those that are critical arteries for the city. The roads are also in very poor shape and probably cost the authorities a fortune to maintain, aggravating delays and congestion.

I am of the opinion that Pune’s roads have been stretched far and wide enough.

Some Internet aware organizations exist that also want to solve the problem. Their focus lies with self-discipline, observing traffic rules, minimizing pollution by making sure vehicles are tuned and so on (Save Pune Traffic). While road discipline is important, I don’t think one can ignore the core problem – the existing infrastructure cannot support the volume of traffic.

Initial thoughts: Cheap Mass transit, rail, below ground maybe. I think Pune Municipal transport buses are also a big part of the problem. Get the citizens off the roads, off their two wheelers, out of their rickshaws and onto tracks on trains or trams. The idea is to maintain the trip between any two points within the core city area to within 10 minutes by rail. Important areas would include, main-City, Nal-stop, parts of Cantonment, Shivajinagar, Deccan, University and other congested areas.

At first, the idea seems to be an expensive proposition. Rail will also never be able to rival PMT’s extensive service coverage of popular destinations and the accessibility of PMT bus stops. Building a rail network will probably take ages while Pune traffic will continue to congest, pollute, delay and harm citizens. Despite the negatives, I think that a radical change in mass transit is necessary to ensure that the city’s growth does not outstrip its existing transport infrastructure.

Perhaps this idea has already been discussed and labeled as not feasible. But the need still remains. A long-term solution is needed that moves massive number of people efficiently and beats the use of surface roads. If you have any feedback or relevant information, I would look forward to hearing from you.

The Internet always REMEMBERS :-)

My Brother and I were discussing resume writing. Joel Spolsky’s post on do’s and dont’s of resume writing (see “Getting your resume read” – Joel Spolsky) just had to come up. The first time I read the article, the one point that stuck in my mind were his views on correct spacing. The specific line read something like this:

“Attention, the entire population of India: whenever you have a comma, there is always exactly one space and it’s always after the comma and never before it. Thank you.”

Thankfully, Joel changed it to read as follows,

OK, this one really bugs me. Learn where spaces go in relation to other punctuation. Whenever you have a comma, there is always exactly one space and it’s always after the comma and never before it. Thank you.

Unfortunately, the Internet never forgets. I suspect that it was key feedback from Raj Aryan that got Joel (and the others on Joel’s forums) to rethink their atitude towards English and nationality. The discussion topic can be found here on Joel’s forum.

At one point during the discussion, someone wrote back that he has come across material in India where there was a space before the comma. I suspect it was Joel who thought that it is culturally acceptable in the country but that he later realised it was a mistake.

The specific line in Mr. Spolsky’s rant I had intended to address was “Attention, the entire population of India: whenever you have a comma, there is always exactly one space and it’s always after the comma and never before it. Thank you.”

While I wasn’t born in India and certainly haven’t traveled through the entire sub-continent of India, I have been in half a dozen cities there over a period of three weeks and I recall seeing such variants in printed material I encountered. I’ll search through my photos and see if I can find a picture to post as an example.

I regret not focusing my point of contention more narrowly since in not doing so, I was essentially guilty of something similar to what I took issue with in the original article: the blanket nature of the above-quoted statement which still seems rude and overly general at best.

To clarify, a space before a comma is not accepted practice in any nation that speaks the Queen’s English or any other variant of the language. No respected, well-known publisher in India would allow spaces before a comma knowingly. In any case, Raj Aryan then replied with his thoughts which I rate as very humourous, I suggest reading it!

Really, entire population of India suck in English, there English is very poor, but who would make these American CEOs understand that they would get such a bad English in India!

By the way, why don’t Americans (with there much better English) apply for jobs in India?

Raj Aryan
Monday, January 26, 2004

Raj’s comments sparked a flame war. The conceited geeks were schooled by him. Lesson learnt. If you see some geek railing and ranting about how all Indian programmers suck, or why their command over written and spoken English are poor, don’t stand for it.

Raj,
I presume the grammatical errors in the last comment were deliberate?

John
Monday, January 26, 2004

What eroors?

Raj Aryan
Monday, January 26, 2004

Raj the fetid troll asked:

“By the way, why don’t Americans (with there much better English) apply for jobs in India? “

Because India doesn’t have a H1-B program for Americans and other non-Indians like America has for foreigners.

George
Monday, January 26, 2004

> the fetid troll

Is that English? I told you my English is poor, can you be simpler?

> Because India doesn’t have a H1-B program for Americans and other non-Indians like America has for foreigners.

Thats because Americans are welcome anytime, just try!

Raj Aryan
Monday, January 26, 2004

Raj,

American Software programmers are some of the most broad minded and informed people when it comes to other cultures. Yes, George is right in saying that Indian labo(u)r laws are a lot more protective when compared to american laws. Also we have to thank THE Raj (pun intended ๐Ÿ˜‰ ) for our perfect English speaking skills!

A note to American Programmers : If genome research picks up in America tomorrow, all us Indians/Chinese would be getting our *third* masters degree in Genomics :-p. There are some Indians whose English speaking skills are really good and some whose skills will never be perfect. Don’t judge people based on the way they dress up / talk. Its as silly as comparing cocks. A good number of us are geeks too and just want to have fun!

Thanks,
Sriram

PS. Can none of you spell ‘grammAr’ right?

Sriram
Monday, January 26, 2004

> American Software programmers are some of the most broad minded and informed people when it comes to other cultures.

You mean they have oblong or recantagle shape minds, unlike Indians! ๐Ÿ™‚

> Yes, George is right in saying that …

Yeah, Customer (especially an American one) is always right!

> A note to American Programmers : If genome research picks up in America tomorrow, all us Indians/Chinese would be getting our *third* masters degree in Genomics :-p.

I guess what you are saying is that American parents should start encoraging their kids to major in Genomics! ๐Ÿ™‚

> There are some Indians whose English speaking skills are really good and some whose skills will never be perfect.

Oh come one, most of the Indians are poor at English, they don’t know a squat, its ONLY because of cheap labor (or is it labour) the get American jobs.

Raj Aryan
Monday, January 26, 2004

The comment is a specific one; it appears that misspacing of commas is so common among Indians that the OP thought it was a legitimate regional variety.

Non-Indians don’t make that mistake so often, so why include them.

Indians are notorious for missing out the definite and indefinite articles. Spaniards, French and Germans don’t do that so you wouldn’t need to overgeneralize.

Stephen Jones
Tuesday, January 27, 2004

Stephen, Stephen, Stephen …

> it appears that misspacing of commas is so common among Indians that the OP thought it was a legitimate regional variety.

OP is not thinking!

“legitimate regional variety” – what kind of crap is that? how many Indian resumes are there in market at any given point in time and out of that how many freakin Indian resumes you or anybody have seen? If somebody thinks that they have seen enough to give stupid statement like “misspacing of commas is so common among Indians”, don’t hire that person!

> Non-Indians don’t make that mistake so often, so why include them.

Some more bullcrap, hunh …

Non-Indian = Everybody on freakin earth minus Indians.

Do you really think you have seen THAT MANY resumes.

> Indians are notorious for missing out the definite and indefinite articles.

Oh boy, you don’t stop do you? You must be a known racist Mr. Jones!!! Say no more.

Raj Aryan
Tuesday, January 27, 2004

The case for “Made in India, for India”

Over the past few weeks, my post on Game Development in India accounted for about 50% of the hits on my page. I average about 20 hits a day, so in a larger perspective, that is not a huge amount of interest. Nevertheless, it is motivating enough for me to want to follow through. I am going to guess that those who hit the story are interested in the Indian technology industry.

Living here in Pune with my parents, has given me the luxury of an immersive experience of the culture and progress here. I have had the good fortune of attending at least 2 weddings in the past few weeks. Weddings have always been a great opportunity for me to reconnect with friends who I grew up with around these parts. Amongst my circle of friends who graduated junior college with me, I was the only one who picked Computer Science as my focus in College. Today, our paths have converged. Most of my friends are now directly contributing to or are employed with IT related companies in their own unique ways.

They belong to a (suddenly) wealthy current generation of Indians. This generation is offered unheard of remuneration and benefits, in many cases twice as much, some times even four times as much as their fathers earn. The growth in wealth could be correctly compared to a blindfold pulled over the eyes, an obvious dissuading influence for budding entrepreneurs and innovators. While I am not against reward, I am concerned about the lack of interest in a potentially huge local market that is waiting to be tapped.

A friend of mine pointed me to an article on the Wharton business school web-site (see “What’s behind the overseas forays of U.S. giants“). The interesting tidbit I refer to talks about eBay’s recent acquisition of Baazee.com.

Take eBay’s acquisition of Baazee, for instance. In June, the U.S. auctions behemoth announced that it would take over Baazee, which describes itself as India’s biggest online marketplace, for a reported $50 million. Amit believes that the biggest hurdle eBay will face in making the deal work is dealing with the fact that most Indian consumers don’t use credit cards. Meanwhile, though the numbers are growing, at present Internet penetration is fairly low. Eventually India is likely to be the second biggest market in the world behind China, but now the country has 17 million Internet users, according to research firm IDC. That figure is expected to increase to 30 million in 2006, but still remains paltry for a company with a population topping 1 billion.

Amit isn’t necessarily skeptical of eBay’s forays abroad, but notes the company will have to overcome cultural norms. “In many places around the world people want to meet face to face,” he says.The ability to localize a global business is one of the biggest challenges, say experts. “When you have a business model that works at home, the challenge is to find out what’s critical for success and then look for ways to localize,” says Adrian Tschoegl, an adjunct professor of management at Wharton. “You have to be cautious with the changes โ€” you just can’t start fiddling around.”

Who can be better at adopting technology for mass use in India other than the quintessential Indian technology worker himself? The article clearly highlights the challenge any entrepreneur would face in the Indian market, the lack of information network infrastructure for the common man. While Internet is still trying to catch up, the mobile rules. Trust us Indians to come up with innovative workarounds. The other day I ran into an advertisement in the local newspaper for those interested in Yoga. The advertisement aimed to create ad-hoc groups of Yoga students around Pune (and other cities). All you had to do is to SMS the name of nearest (public) park to your location against your name. Perhaps the idea was not an original one, but it does demonstrate the cultural differences and how they can be overcome.

If your an entrepreneur interested in a better India, think of services for other developed nations as a secondary goal. While I am not particularly interested in self-reliance or self-sufficiency (I think India had had enough of that upto the 80’s), I am interested in establishing our existing infrastructure, capabilities and building on our potential. If your a student engineer in an IT related discipline, think about packaging your final year project and marketing it so that it pays for itself (see “Project Aardvark” for an idea of where to begin). Finally, if your a developer like me, look for entrepreneurs like the one I just described!

Unfortunately, I can only think of a few truly Indian models that have touched the everyday life of an Indian. For example, E-Choupals, “Indian Soybean Farmers join the Global Village” – NYTimes, January 01, 2004. Time instead calls for action so that we might script many such stories and set the standard for other developing nations.

Other related stories on Sukshma.net,

Encouraging Entrepreneurs in India. While the IT Exports sector has been singled out for benefits, the local IT sector receives no such encouragement from the Government.
Promod Haque wants to invest in Indian startups. Norwest Ventures find fresh interests in India to invest in.
Services lobotimizes would-be Entrepreneurs… The story highlights the negative effect of the services industry on innovation in the Indian workforce.

Update (2nd Feb. 2006): Rajesh Jains’ page Emergic.org is an incredibly rich resource on entrepreneurship in India. His research spans several years and his accounts are very detailed.