A successful failure — My start-up journey as a first-time founder and lessons from it
So after running it for three years, I exited my start-up sometime back. A quintessential start-up journey with multiple crests and troughs. While, we got recognized by institutions such as NASSCOM and Entrepreneur India, raised investment across 2 rounds, built a solid team and acquired marquee customers fact remains that we could not scale Mficient as much we had envisioned. Steve Jobs once said, ‘The Journey is the reward’ and this journey has been truly extraordinary. Post exiting lot of people have asked me what I learned and what would have I done differently if I had to do it all over again. So I thought it would be interesting to pen down some of my thoughts. Though there are no silver bullets for the complex issues that a start-up faces, I hope some of the learnings I had, particularly with respect to go-to-market and fundraising might come handy for you in the early stage of your venture.
About Mficient — Mficient’s, Platform-as-a-Service (PaaS) product enabled organizations to cut down costs and enhance employee productivity by incorporating mobility into their existing business processes or adopt new processes with a mobile-first approach. It’s suite of products such as Rapid app development platform, Mobile Backend as a service and Mobile Application Manager allowed companies to build their own apps and integrate with their existing IT system within a matter of hours across Android and iOS platforms.
After 6 months of product development, we launched Mficient V1.0 in July ’15. A week after the launch, I got released from my last job allowing me to go full throttle on sales. I would be on the road almost entire day shuffling between sales and investment meetings as we were pushing on sales and at the same time had significant investor interest because of NASSCOM recognition. On sales front, we knew that we have built a high-quality product which was also getting validated in the initial customer interactions we were having. However it did not take us long to realize what we are up against.
Building the product and lack of selling in the MVP stage:
One of the mistakes we made was that we pushed our sales process till the time we perfected the product. Our hypothesis was that we wouldn’t get multiple opportunities with the customer hence a half-baked product might not work. Looking back I believe we should have launched earlier and done more selling in the MVP stage as selling is a prime opportunity to get customer feedback on your offering. We did customer surveys, but surveys don’t tell you whether the customer would pay for the product, it is selling that does.It also allows founders to differentiate between a desired reality and an objective one. As Y Combinator says — build things that people want. Though the final product came out really well, I believe we ended up investing lot of our time & resources in building features we could have done without. At the same time, we were left with limited bandwidth to make enhancements that might have helped us sell more.
Long journey to achieve that elusive product-market fit:
The big problem we could never really crack was getting the product market fit. We tried multiple strategies over three years targeting different market segments at different times and with some success but overall could never get it right. However, our interactions with all these markets taught us invaluable lessons (hard way though) on go-to-market.
Going after large enterprises:
We had visioned Mficient as a DIY platform. However, we soon realized the harsh reality that India is not the most favorable market for DIY tech products. On top of it, we were selling Platform-as-a-Service which turned out to be even more difficult to sell to Indian enterprises. Many industry experts I interacted with were of the opinion that PaaS is still not really appreciated in India and we should rather sell in more matured markets. However, we were committed to building the business from India (Not a good move in hindsight) and as DIY in India meant DIFM (Do it for me) we bundled our platform with services. This got us started and we acquired customers such as Axis Bank and Hindalco. These customers also helped us raise our first round of fund (Have covered fundraising experience in detail later in the post).
Though the model got us some traction, sales cycle became much longer and CACs became untenable. Not to mention other challenges that came along with servicing. Another roadblock was that SAP and Oracle were offering a similar platform and we were getting into a direct face off with them too often. Most of the large enterprises were running on SAP and integrating Mficient with SAP posed licensing issues. Fact that we were a startup also went against us (Remember no one gets fired for hiring SAP).
Targeting mid-market and acquisition offer:
So we changed our strategy and shifted our focus to mid-sized companies. The move seemed to pay off as we on-boarded three customers closing the deals in the only a couple of meetings. However, we could not retain the customers as user adoption was low without which it was hard to show the Roi and justify MRR. Also, there were some more fundamental issues.
Mid market players are used to one time contracts and are still opening up to SaaS (recurring fee ). Additionally, they are more receptive to a solution-centric approach than a platform-centric one as platforms become kind of overwhelming and an overkill for them. Also, most of the Indian SMEs look at technology as a cost center and do not consider lack of it as a competitive disadvantage.
Additionally, as far as buying IT solutions are concerned this segment is dependent on their existing ERP providers or other technology vendors. These vendors had a particularly deeper engagement in our case as we needed their support in integrating with the existing backend. Working with one such customer we got a surprise acquisition offer from a leading domestic ERP player. As we were still too early in our journey we rejected the offer but saw another opportunity here.
Working with re-sellers:
Working with SMEs, since we were frequently getting redirected to ERP providers and ISVs, we saw value in targeting them and building a channel partner ecosystem. Plan was to cut down the sales cycle time and also get access to a wider customer base. Another advantage was that these re-sellers understood the industry well and complemented our product and mobility knowledge with their industry expertise. We partnered with two big domestic ERP vendors and aggressively tapped their customer base. However, the approach did not deliver the results that we expected. First, re-sellers faced the same challenge as we did in our sales process — lack of product market fit. Second, as a startup, we could not charge a premium on the offering. This meant that both the parties were left with little margins to play with.
I believe that a re-seller model would work well once you have figured out your sales model and have reached a certain scale. Re-sellers like to sell a product that has a certain pull which is obviously not there at the initial stage. Without the right timing and approach, you’re wasting resources you don’t have.
Back to the drawing board:
Amidst the chaos, there was a silver lining. We on-boarded Dalmia cement. Dalmia was using Mficient’s platform to deploy mobile dashboards for their sales and marketing teams. We demoed these dashboards in some of our sales meetings and sensed an opening. Rather than selling the platform as a whole, we decided to focus only on mobile dashboards and only on companies with distribution channel similar to Dalmia. This essentially meant that we were selling only one-fourth of the possibilities that Mficient’s platform offered (desperate times call for desperate measures !). We went after other cement manufacturers, tyre manufacturers etc. We saw fair bit of traction but at the end, longer sales cycles and dwindling cash in the bank forced us to focus on opportunities at hand versus and tread the acquisition route rather than the temptations of our optimistic mind.
Between all this, we had to raise funds to survive & grow
We were burning around 4.5 Lakhs ($7500) every month, running on cash put in by the founders and one nonactive partner who was into a full-time job in Geneva, Switzerland. We had a limited runway with the cash in the bank and raising funds from the market was imperative. Also, apart from money, we were keen to have people around who could bring market expertise and industry connects. We started pitching in August ’15 and raised investment over 2 rounds from some terrific business leaders; First one in Dec ’15 at a pre-money valuation of $850,000 and second in Nov ’16 at the same valuation. Our fundraising efforts were immensely aided by NASSCOM recognition, which gave us the much-needed credibility and opened up a lot of doors. Also, some of Delhivery founders (Delhivery is one of India’s most prominent start-ups on it’s way to IPO) were extremely supportive and great mentors. We had 18 investors on our cap table and converting these investors meant that we pitched to many more. I won’t go into details of every pitch but raising funds for a first-time founder can be an excruciating experience and we had our share of it. With rejections, long waits and commitments we went through a range of emotions, entire exercise helping me raise my EQ.
I read somewhere that raising funds is one of the easiest things that you will do as a startup founder. Although this sounds kind of exaggerated, it has an element of truth. If you have a good network, know your business well and have your numbers in place (most critical), you will raise money. Below are some of the lessons I had.
Decide who you want to raise money from:
Initially, I pitched to every investor whom I could get a connect with. As I realized later, this does not work for two reason — First, serious investors like to put in money in businesses they understand so that they can help the venture grow. Second, if someone who does not understand your space puts in the money he will not be able to understand the challenges venture might be going through and may become a liability. So better go after the investors who understand the space and would add value otherwise you will end up wasting a lot of time.
Avoid cold calls:
We consciously decided to reach out to prospective investors only through ‘warm’ connect, something that worked for us. While it enhances your credibility, it also sends a positive message about your resource-ability. (Remember, in the end, it’s all about the team). I had a good network from my grad school and past job that helped. Talking about network, one can’t overemphasize the importance of a good network for a start-up founder.
Differentiate between sales pitch and investment pitch:
Looking back, I believe fundraising for us could have been much easier had we been a bit more prudent and focused on the right matrices in the earlier stage. We were too obsessed with our product and believed product quality itself would help us raise funds. However, as we later realized prospective investors were more interested (and rightly so!) in talking about sales achievements, projections and go to market strategy than the tech stack and clearly we were not ready for a grilling on those. So it’s important to identify metrics that matter letting your business acumen to shine through. Don’t indulge in vague market size discussions and far-fetched projections as seasoned investors deal with all this day in & day out and know what’s achievable.
It makes sense to keep in touch with the prospects. In our case, I used to send updates on new developments that might be of interest to the investors. Also, though one should be resilient, investors are usually bad at saying no. Learn to read signals and move on in case there is a lack of interest. There are some standard phrases for ‘no’ that you will discover during your fundraising journey.
Set a time limit:
Fundraising is a full-time job and if you don’t set a time limit to it, it is bound to affect other business operations.
Also, no matter how well you plan, in most cases, fundraising will take more time than you had thought. In our case since I was looking after both sales and fundraising our sales process took a toll. Additionally, setting a time limit creates a sense of urgency among interested investors who otherwise would like to delay it and see if you are making progress. From my experience, the more time they take, the less likely they are to invest.
In most cases, we got very little feedback from investors who passed us. You will need to figure out yourself or by discussing with someone seasoned on what might be missing in your pitch. You can get a no even after a very promising, positive conversation and that too without any reason. I remember an early stage VC firm that was immensely impressed with us and committed the term sheet that never came. It’s important to move on from such cases and try to reflect on what might have gone wrong.
Money is not yours unless it is in the bank:
Even after the commitment, it can take some time for cash to hit the bank (or it might not hit at all !). This happens more with angels who invest in personal capacity. Someone I know had a tough time as he had hired people based on the commitment from a set of angel investors who later backed out. So be prudent and go slow till you have the money credited.
Mficient was a truly enriching experience. We tried, learned, toughened up and armed ourselves better for the next challenge.
Time to move on :)
Gyan ( Say hi @ linkedin.com/in/gyantiwari, https://twitter.com/gyan2112 )