How to keep the team lean and motivated when funding takes longer than anticipated

Shayak Mazumder, CEO of Eunimart, shares his personal experience. Eunimart is a cross-border ecommerce company that is specifically catered to sellers in India.

If you’d like to share, please contact us at [email protected]

—

Pay a million dollar-

you have me by my collar.

I will give you a feel,

of reinventing the wheel-

We both will be bosses,

& together make the losses.

An army, we shall hire

to put the market on fire –

& then measure the burn

hoping that tides will turn.

When shit hits the fan,

we just change the plan-

we write a blog on glory

and mail it to YourStory.

 

Honest elevator pitch (or a rap!) by an Indian #Entrepreneur to an #Angel-Investor

by Anirban Sengupta

 

Raising funding is the holy grail of being a startup entrepreneur. Admitted, there are many entrepreneurs out there who have made it on their own without having to raise funds. There are large companies who have never raised “funding”. However, there is hardly any company out there which has never ever taken a loan and loans are funding too! Most traditional businesses call this “leveraging” their business and it is common practice in many industries to highly leverage their businesses. For most early stage businesses raising funding is actually an euphoric moment as it gives them time to properly plan and implement their business.

 

Let’s break the process of funding down a bit before we proceed. There are 2 types of funding:

 

1. Debt funding. Raise funding from banks, funds, individuals, etc. against either collateral or an approved business plan. One of the most commonly raised debt funding is a Working Capital Loan which is extended against the Working Capital Requirement of a company, in most cases by keeping the assets as collateral. For most small businesses without significant capital or access to collateral, this is rather difficult to access. Another kind of debt funding very common in practice is Venture Debt which is raised against a string cash flow business model. There are many other kinds of debt funding which are raised such as Bonds, etc., which do not apply to startups or early stage businesses
2. Equity funding. In this case, you barter a share of your company in exchange for funds. You need to be able to substantiate your valuation.

 

It is best to understand that debt funding would be preferable for most entrepreneurs as they would not have to dilute their shareholding and, in most cases, the growth of their capital is way higher than the interest rates applicable, if the capital were accessible. However, given that most founders do not have access to large collateral, or strong cash flows in early stage startups, they are forced to access equity funding. Also, access to good investors is worth far more than the money they invest and, in the case of early stage startups, active investors act more as an extended team providing valuable insights, contacts, access to technology and people. Equity funding is risky for investors as well, as startups are required to pay of debtors first and, only if it makes profits or next round investors agree, do they get to see a return on their investment.

 

Given the risk associated with equity funding, most investors also prefer to invest in startups where some of the following holds true:

• The founders have prior deep experience in the business they are building
• The founders are working full time and have known each for some time
• At least one of the founders is very well versed with the technology
• The business model is either scalable or can show exit in the near future
• There is a strong demand in the market for this business model proven either through your market research or your revenues growth rate
• The technology is unique or the use case is truly unique

 

Given the above, it is understandable that most startups never actually reach the stage of funding without having to go through a significant stretch of struggle. It is not every day that you will wake up with a unique business model, neither will you reach the stage of creating a sustainable barrier to entry or a strong revenue model without having spent a long time on the road, understanding your customers and their needs very well. In the absence of the above, most founders make do with passion, hard work and a certain amount of hyperbole. Most early stage founders are dreamers and, as is wont with dreamers, they see the world different from other people. In my experience I have found that structuring your thoughts in the following process makes a lot of sense when working in an environment of uncertainty without funds.

1. Know yourself well. This seems intuitive but in most cases we tend to overestimate our abilities and fool ourselves into believing we can achieve the impossible. If you are a techie and getting into your first business, make sure that you have someone on the team who knows how to sell and get revenues. Also, make sure that you have good mentors who can connect you or help you to build your strategy. If you are a freshly minted MBA, please go out and get some real experience on the field by meeting your prospective clients and just talking with them to understand their pain points before you even get started on building your model. Also, it is very important to have a very good technical guy on your team once you start building the product, even if you are going to outsource the development (unless of course you are about to white label some other product)

2. Your team will be your Oxygen. Everyone says we need to have the best team. No one actually tells us what this means. In my experience, you need a very good mix of senior and junior employees. I prefer to hire the best freshers directly from colleges by conducting campus recruitment. I also, don’t like to hire middle management, instead hiring the best people in the industry to lead a team while they get their hands dirty doing the work they are best at while training the next batch of intelligent juniors. However, what is more important than anything else is the loyalty of your team. You do not earn loyalty overnight. History teaches us that one of the best ways to motivate people and create loyalty is through strong ideologies. Typically, a business model which adds value to people’s lives and a stated goal of changing the world for better is something that is sure to make people more loyal. Military history also teaches us that leaders who lead from the front inspire loyalty in people. I find that when you can prove yourself to be the first among your employees, yet treat them as your equals, you get their respect and subsequently their loyalty. Open yourself up to being challenged by your employees every day, open up to hearing what everyone has to say and make sure that you never make people feel small for sharing their ideas and they will always be loyal to you.

3. Be stingy. Be very stingy. Most people will hate you for saving every penny you can, but no business was built by lavishly spending when your bottomline is still negative. There is no shame in working out of a dingy office, not having AC in sweltering heat, sleeping in your office to save money and time, taking local transport instead of an Uber, eating in food courts and calling your customers to meet you in cheap restaurants. Every penny that you save is a penny that will serve you in time.

4. Revenue Centre and Cost Centre. Make sure that you know which of your functions are revenue centres and which ones are cost centres. Once you clearly identify these, the next step is to minimize the expense in cost centres and maximise the revenues in revenue centres. Another way is to try and convert a cost centre into a revenue centre. This helps your HoDs to also think structured terms of what to focus on and how to get to the targets. When we ran out of funds, I actually converted my entire Onboarding team into a revenue centre by opening up their services to people who would pay for it.

5. Process, flexibility and innovation. Unless you identify the right processes through continuous testing and evaluation, you will continue to make the same mistakes, lose customers and revenues. A leaky cauldron makes no soup. At the same time, do not lose sight of the fact that a startup is all about flexibility. Be open to changing the process when needed. In certain departments, more than in others, such as marketing and technology, you need to encourage innovation and shackling them with process might actually be counter-intuitive. So, be clear what your end objective is as this is the secret to staying super lean in times of duress.

 

Everyone talks about downsizing, staying lean and focusing on priorities. Very few define what this really means. Not having fat in your team means having the right number of employees who can do the required tasks in the given timeframe where everyone is fully utilized. Being lean means knowing your processes, revenue and cost centres and then having the least number of people to get only the highest priority work done. Focusing on priorities means only doing what is absolutely needed to keep you afloat. There will come a time in almost every entrepreneur’s journey when they run out of money. More than anything else, it is your tenacity and doggedness, and your ability to learn from failure that will keep you going. Else, we always have the poem I quoted in the beginning of this blog!