The basics of starting up — pointers by GlobalGyan’s Srinivasa Addepalli

August 13 saw a bunch of enthusiastic entrepreneurs and startup founders assembled at Mumbai’s Cuckoo Club for a two-hour-long session with Srinivasa Addepalli, Founder and CEO of GlobalGyan Academy of Management Education.’. Formerly the Chief Strategy Officer of Tata Communications, Srinivasa, through GlobalGyan, helps business leaders, startups, and students navigate difficult business situations. Although about three years old, the company has been incorporated only nine months ago. With the recent team expansion, the focus is on B2B, and while they do produce online content, it is exclusively for participants that are an active part of their corporate programs. Their first online course for individuals should be launched by October. Srinivasa spoke to the assembled group about the basics of starting up and the journey that follows.

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“What I’m going to speak about is the business of being in the business. In India, it has become the in thing to quit your corporate job and run towards the startup dream, which is well and good, but the only problem is that unlike the West, India has very little past experience to offer a stable future for these new businesses. But it’s a good thing that more people are trying to create new businesses.”

To him, based on the models described by Bill Aulet, there are two distinct types of businesses that one can start up. The first model is that of a small or medium business (most Indian corporates have followed this model, for instance, most IT companies) and the second is an innovation-based business. A lot of the businesses we see today belong to this latter category. Following are the main takeaways from the intensive talk on the A–Z of starting up.

Small and medium businesses vs innovation-based businesses

The two businesses can often be mistaken for one another. However, a small business is most often a services business; BPO, IT, fashion, and restaurant businesses all fall in this category. Even those that offer products, are often manufacturing or retailing standardised or commoditised products. This is different from an innovation-based business, which are either platform businesses or technology creators’. “You won’t really have an Innovation business today without technology being involvedhe says.

Scope of the business — local or global

The scope of a small or medium business is local and at the most regional. Not too many of them become global players, because there is a high degree of localisation, which is either in the form of manufacturing or services. For instance, it is not easy to go and create a new global beverage today , but you could successfully launch a new beverage in India, in some markets.

With an innovation-based business on the other hand, the scope is almost always global. For instance a Whatsapp or a Pokemon Go is global from the day it is launched. These don’t need to be gradually taken from one market to another, as compared to the former. “If you don’t achieve global competitiveness, you won’t survive — a problem that a small, local business will not have since you have your own market, niche, clientele, etc.,” he says.

If you are aiming for a global reach but haven’t managed to get there yet, the trick for an Indian company could be to focus on making your local business so impactful that a global player will take note and wish to acquire you to gain access into the Indian market.

Growth and capital

When it comes to growth,  small/medium businesses typically have a linear growth with time and capital. In these instances,metrics like revenue, number of employees, and cash-flow generation, grow linearly with resources or capital allocation, and that shouldn’t be frowned upon.. In contrast, in an innovation-based business, you will see what's called the hockey stick curve. In fact, there will be a big negative initially - your capital will just drain but the expectation is that of exponential growth in future. There is a long gestation for the innovation side.

Coming to capital, that allocated for small/medium businesses is usually small, raised with the help of friends and family. Innovation-based businesses require “venture” capital and large amounts of capital for achieving scale. Risk-wise, small/medium businesses have a smaller risk than their innovation-based business counterparts, of course, risk and reward go hand in hand.

Customer and competitor

For a strong business story, you need to focus on two things —1) How do I produce value to my customer? and 2) How am I unique from my competition?

You have to decide who your customer ought to be and determine why the customer should find you attractive enough to come to you. You may not have the money or the time to meet everyone’s requirements, so you need to focus on the type of customer you wish to target.

Competitors also include alternatives and substitutes. There are very few businesses that go after totally unique and unknown needs. Most businesses take existing needs and create products and services that tend to them better. So there will always be competition, because everyone’s presenting an alternative to whatever you’re offering.

“The three questions to ask ourselves when we are in a business are — How do I win? What is the profit model? How do I execute?” When you have clarity on these three things, you should actively get into a business to make it successful, says Srinivasa.

It is important to figure out an equation for your business from the very beginning, so even if your entire model changes later, you still have a base to start with and move forward from. Even if day one doesn’t see too much cash inflow, you need to know what it will take for you to make that money and whether the market is ripe for you to make that money.

In conclusion

Starting a business has always been about building a good team because it’s rare for an individual to singlehandedly pull off everything needed. There will be a lot of times when you feel like you have reached rock-bottom, especially when your business is in the scaling stage. “You’ll be frustrated enough to want to quit and at times like these you need another person to be there who can say, ‘ You know what, take a day off. Let me handle this,’” he says.

Startups also fail because they can’t balance between control and delegation. To build a culture that will scale, you need to adapt a mindset of delegation, where you need to put faith in your employees’ abilities without whizzing over to take total control. Do not get taken up by the hype of an innovation business, and never try and force what might essentially be a successful and profitable small business model to “pivot” to a scale story. You need to go by your revenue, resources, and access, and not give it up just because an angel investor or a fellow entrepreneur condemned it by calling it a ‘traditional or lifestyle business’.

“Ultimately, we need to create good businesses that create large employment and superior customer satisfaction,” finishes Srinivasa.