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What are High Value Startups? ( Are they different from Life Style & Services Companies? )

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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
Thank You 
Praveen Singh
posted Sep 6 by Praveen Singh

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Airbnb

Was a packed room, with over 50 folks (90% guys) were packed in large room at YS office this afternoon. Here are the main points. Was good to hear from a successful founder and know they are also normal just like us.

Sree and I walked in when Joe just started his talk. There was enough room only to stand near the door. there were folks like Ravi from Mobstack, Sid form Rubymonk, Augustus from Gaglers, Satya from Yourbus and Lalit from Commonfloor.

Joe started off by sharing about the weekend hack to share some space, where the found 3 people who wanted to share their space (i think, pls correct if wrong). Which had one Indian named Amol from Delhi studying Industrial design in SF.  After they hosted these 3 guests for couple of nights Amol was very insistent to Joe that they need a website so that more people can find and share a place to stay. they were solving of problem they had and not trying to solve a large problem. Turns out lots of people have the same problem.

The next question was, Joe and his other founder were designers, where to find a tech guy. The answer was a person who had shared an apartment with joe, who had a tech degree and was also into startups.  The main point stressed by Joe was to find the right/Special some one who will round out your founding team, he said it is worth the many months it takes to find and work with a great co-founder.  Now after a few months they had a few entries on their site. around 50 listing. Joe and team shared that they were willing to do lots of work which is not scalable early on, such as vising each and very home in SF and taking great photos of their home for listing. The main point was that this set the culture for the rest of the listings in other cities, since the photos of the listings were great, the users of other cities were very conscious about putting up bad photos and the whole culture was set on their site for high quality photos.

After this they did four major launches at events, first  was SXSW , hoping to be like twitter and other products that launched there, but hardly got 30 users from this event. (Not sure if the following story is after they got into YC) -  they saw a huge spike when Obama was sworn in and 100k visitors landed to city with 20k room capacity. the disappointing part was that they went back to almost a flat line of traffic just after a few days of this event. Joe also shared that he was introduced to 20 angels, the best 20 in the country at this event, they got 20 intros, 10 replied and 4 people meet them, finally got zero investment. He said the investor get interested when the two gears of product and market start to come closer and start to move. i.e. a slight growth in numbers every month, shows you have something that is working/growing.

Now after a few month of flat or very little growth of their user base, they got into YC. Before this Joe shared that they had no money for PR, adwords or fancy events. The first question Paul G asked them was the most important in the success of Airbnb. He asked where are your users, Joe and team replied our small but active users are in New York, then Paul G asked what are you doing in SF? well duh we want to be in YC, but they listed and got on a trip to NY. On this trip they were sitting to one of the airbnb users and got lots of insights from him. The was another main point from Joe, you cannot learn about your users through a computer screen either survey or metrics, the early user experience of thoughts can only be got by talking to your most active and passionate users.

Once in NY, they followed the most important three words for a start-up "Correct and Continue", this is what they did, with every conversation to their users, they saw improvement in usage and traffic. this was growing gradually and not a spike like earlier events. Next came the cracking or understanding of how to grow a city. ie. how to grow airbnb in a city. This they then applied to 10 other cities to grow organically.

The most interesting part of the story of how network effects kicked in, once a user books a room in a new city, he goes back to his own city and lists his home/room on airbnb. Next he travels to other city and books a room there. So travelers going from one city to the next grew airbnb organically across the world.

Then were questions like how are you different from craigslist, some US states it is illegal to share rooms, for this Joe went on the history of mankind, that humans have always been sharing space, since BC. How does the wishlist feature work.  Wishlist was interesting, he said once a user Wishlists a place, for example a Place in India, and shares on FB, the traffic and organic branding is huge. i.e. your friends are curious where you want to go next.

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