What are high value startups? Who is capturing the value in creating high value startups, is it the R&D Scientist, VP of Engineering or Entrepreneurs? Does innovation for high value startups come from countries of startups or can innovations be imported?
Deepam is a Scientist & an Entrepreneur who has started three startups. Having done an MS, MBA and working in one of the cutting edge research lab in US. He found that the value created by R&D labs are not necessarily captured by the scientists or the VP’s of Engineering. The real value was getting created by entrepreneurs who were taking the inventions to the market. Some of these entrepreneurs were not necessarily the best educated, but had a keen insight into what the market might need.
After having invented a new iris scanning technology and raising forty million, the basic questions of who is the customer, does he need it and will adopt it came into question, which were not necessarily asked by the investors. The target customers of bank users were not too keen on getting their iris scanned to withdraw money from ATM’s, most preferred cards. So having a great technology, great funding and a hundred member team does not always mean that the customer will adopt it. The next interesting point is that the same technology is now being used at airports for security,so even a great technology might always have applications in a far broader field that what it has been designed for by the entrepreneur.
The next insights was the growth rate of technology and the stages of value creation, starting from exploiting natural resources, manufacturing, people services like BPO, Out- sourcing and the latest being technology product companies. The exponential curve or non- linear growth could be witnessed only by product companies. The revenue per employee is a key metric, for example firms like Microsoft 0.6 million, Google and Apple at 1.0 million are far ahead of 40k per employee of Infosys and Tata. So these are high value startups that create value much higher than IT services firms which need to double their employee count to double their revenues.
The most important point is that startups in India need to start from the needs of India. The number of diabetes patients, the issue of water shortage and purification, the issue of energy are in such large scale that the innovations to meet the needs of these issues will have to come from India, as the western model does not have problems at such a scale and will not innovate to solve these problems. So the startups that start from finding large problems to solve and work from there to create solutions, will be much more successful that firms that might invent some thing new and then start searching for markets for their inventions.
Now how do entrepreneurs identify markets? Is it just by market research and asking questions to customers. Here we see some insights shared based on Steve jobs. the science and art of finding the context of a product used by the customer is as important as the features or benefits of the product. i.e. most smart product innovators pick up “the drivers of the need” around the product solution. the value created would be at the intersections of multiple needs. so how does one define customer value, it could be the ratio of customer benefit to customer cost. The product should offer exactly what they need and no more.
Few points about team and sharing equity is about understanding if you are into a life- style startup or a scalable startup. Lifestyle starups might remain in just 50 lakhs revenue even after 5 years. But a scalable startups can reach upto 50 crores in five years. The most important point is that if you are in a lifestyle startup then please be aware of that and do not try to act like a scalable startup that raises capital and shares equity to the team to build a large business.
Make sure one understands one is an lifestyle startup or a scalable startup and do things that fit each of them and not try to be both. A lifestyle startup you keep the equity and own a grape where as in a scalable startup you share the equity and get a slice of a large watermelon.
The fact that most startups are a learning experience for most entrepreneurs and experi- enced mentors add value . If you are not successful the first time then you learn, if not the second time then you still learn and you may earn the third time. The learning’s on the way down is the most important part of a failed startup, one needs to learn why things did not work and not do the same mistakes the next time, be it either in selecting a service or product model, building first or finding a big enough need, or sharing the right amount of equity to keep the team going for either a lifestyle or scalable product.
Iterative Framework for Creating High Value Startups
- Is the Customer Need Real
- Is the Offer Differentiated
- Will this Cause a Billion Dollar Business Do I have the Right Ream
- Am I Sharing Enough Equity