Category: Founders

Storyteller vs Scrapper Founders

At the seed stage, how does one distinguish between and evaluate the top-down ‘Storyteller’ vs the bottoms-up ‘Scrapper’ founder personas? And can one grow into the other?

At the pre-seed/ seed stage, I have generally observed 2 founder personas – the ‘Storyteller’ and the ‘Scrapper’:

A. The Storyteller

Extremely articulate at painting the vision and market opportunity. This persona typically comes from pedigreed educational institutions (hence, great communication skills). Often, they have been execs at large corporates, Big Tech companies, and/ or brand-name, growth-stage startups.

Courtesy of this top-tier background, this persona has a naturally strategic, top-down view of the market they are going after, including the “why now?”, secular growth trends, market gaps, competition etc.

This persona is also great at spotting and riding waves, and therefore, is often building at the edge of hot trends (eg. Web3 a few years back, AI now).

This persona has a thoughtful view of how the ‘company’ will scale in the coming years. Everything from hiring and global expansion to marketing and M&A. In general, this persona will talk more about the opportunity, market, growth and scaling, and less about getting the 1st customer, writing early code, design and other aspects of building.

It’s easy to visualize this persona as the Founder and CEO of a multi-billion $ company. Therefore, Investors love this person. Period.

B. The Scrapper

Natural tinkerer in a very specific space. Typically, this interest germinated during teenage or through college. In many cases, this interest was considered obtuse or nerdy by mainstream observers, and hence, this persona is relatively less understood, perhaps viewed as quirky and therefore, underestimated.

Their creative energy manifests in hacking software, teaming up with friends on specific projects, building products as a hobby, or doing side hustles on the weekend.

This persona typically doesn’t have much capital, nor are investors lining up outside their door. So either by choice or fate, there is no option but to build in scarcity.

In fact, this persona is less likely to view their work as a ‘company’. They have a deep and unending curiosity about something and just want to put it out in the world, hoping that maybe a handful of us will ‘get’ it.

This persona thrives in a bottoms-up view of their space – their eyes light up when discussing technology, code, features, users, and anything related to building. They suck at top-down, so-called strategic discussions of possible markets their work could serve.

It’s hard to visualize this person as the Founder and CEO of a multi-billion $ company. Therefore, Investors largely pass over this person.

C. The Scrappy Storyteller

The dream is to spot a founder who blends the attributes of the Storyteller and the Scrapper. Someone who can both build with their own hands, as well as explain with utmost simplicity and clarity, why what they are building matters to the world.

©An Operator’s Blog

As I was drawing this Venn diagram, the one founder who immediately came to my mind was Peyush Bansal of Lenskart. I still vividly remember him pitching to our entire investment team for Series A in 2011 – it was a poetic combination of Storytelling backed by Scrappy execution. Peyush stays as a gold standard founder persona in my head to this day.

So, how does one spot the Scrappy Storyteller? Anecdotally, I have seen a few contexts where this persona lives:

  • Fresh grads of good universities, with a builder DNA.
  • Repeat founder with sub-scale outcomes in previous startups and/ or ‘a point to prove’.
  • ‘Hacker’ personality with good communication skills and a high-potential side project.
  • Deep domain/ research expertise with commercial DNA, often building in university labs.
  • Solid professionals who are under-estimated or ignored as per mainstream social criteria.
  • First-time founder who is executing on fumes, clawing and scrapping to early customers.

Of course, these are just some examples from my lived experiences as a venture investor. The whole point that makes venture capital extremely challenging and exciting as a vocation is that there is zero predictability in where the best founders can be scouted. It’s like going on tiger safaris in India – you might spot one in the wild during the first trip itself, or it might take multiple trips over several years.

D. Can one persona gradually grow into the other?

While all investors are on a perpetual quest to repeatedly find the dream Scrappy Storyteller persona, the reality is most founders would be more indexed on one side, to begin with.

However, the beauty of entrepreneurship is that it’s an extremely long game of survival. Therefore, irrespective of the starting point, founders with a growth mindset can gradually evolve into incorporating the strengths of the other persona, becoming an ideal blend of the two over the journey.

So the key question then becomes – how does one spot which Storyteller can eventually transform into a Scrapper? Or which Scrapper can grow into a Storyteller?

Here are some heuristics I have been experimenting with:

1/ Storyteller ➡ Scrapper

It’s very hard to convert someone into a builder. It’s like what they say in cricket – you can’t teach a fast bowler to bowl fast. Either one has it or doesn’t.

If one hasn’t developed Scrappiness as a muscle through life experience, then the only way to develop it is to go through the fire during the startup journey and not give up while at it.

Surviving for long requires grit. And grit is an outcome of an underlying emotion, which is “How badly do you want to win?”. Whenever I meet a Storyteller, I try to spot signals that help me get conviction around this single question.

2/ Scrapper ➡ Storyteller

I believe that while Scrapping is a muscle that is built over many years via braving adversity and hardships, Storytelling is a learned skill that can be honed with expert coaching and practice.

In my own venture career both institutionally as well as individually, I have seen numerous examples of Scrappy founders gradually becoming awesome Storytellers. More global exposure, as well as tools and guidance provided by VCs, really helps in this.

However, while the odds of a Scrapper becoming a Storyteller are generally positive, one still needs to evaluate how quickly and to what quality can a particular founder evolve?

In this regard, I have come to look for the following signals:

  • Basic communication skills – like command over the language, elementary articulation, clarity of thinking, logical thinking, creating arguments, and basic persuasion skills. It’s like scouting for fast bowlers in Pakistan – if the kid is bowling fast bare feet, with a tennis ball on an uneven dusty playground, the raw material is there for a premier fast bowler.
  • Coachability – self-awareness to recognize personal gaps, humility to seek solutions from experts, listening skills to assimilate feedback, and courage to work on it and become better.

E. The key message

As individuals, we all have our strengths and weaknesses. Ideally, we should choose to play games in life where our natural strengths give us an ‘edge’. Entrepreneurship is the toughest of such games. If you do choose to play it, I believe it’s important to have the self-awareness to map your gaps, and the growth mindset to work on them. If one can follow this approach and survive long enough in the game, success is almost inevitable.

PS: this post is a result of a recent brainstorming session over WhatsApp with my friend and deep tech VC Arjun Rao of Speciale Invest. Thanks so much for your thought partnership in framing this 🙏🏽

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Chandrayaan-3 and Non-Incremental Startups

I believe that non-incremental startups are better bets for both founders & investors.

Inspired by the success of the Chandrayaan-3 lunar mission, I am challenging Indian founders to ask the most audacious “what if?” questions.

One of the significant developments this week was India becoming the first nation to successfully land the Chandrayaan-3 spacecraft on the moon’s south pole. The Indian Space Research Organisation (ISRO) achieved this mission on a shoestring budget of $75Mn, which is minuscule compared to NASA’s $25Bn annual budget & even less than the $100Mn budget of the Hollywood movie ‘Gravity’. This accomplishment makes the feat even more commendable.

A shot from a live feed shows the Chandrayaan-3 seconds before its successful lunar landing (Source: Wall Street Journal)

A. India – from middling to non-incremental

Beyond the evident reasons, there’s another aspect that fills me with immense pride regarding this mission—it serves as a shining example of what I refer to as ‘non-incremental thinking’.

Growing up in a middle-class household in India, I was surrounded by philosophies & values that championed risk-averseness, downside protection, scarcity, and conservatism. I call this a ‘middling mindset‘.

This kind of environment drove most kids in my generation to strive for in-the-middle, average outcomes that would keep them safe. It’s not a matter of whether this was right or wrong; in my generation, it reflected the centuries of experiences India had gone through before and consequently, where the country stood in Maslow’s hierarchy.

Over the past decade, India has experienced growing economic prosperity driven by strong political leadership, as well as social maturation. This shift is rapidly transforming the nation’s once-middling mindset into a non-incremental one. As the lunar mission has shown, this new thinking is characterized by:

1/ Working on long-term missions that are far bigger than any individual, family, or group [landing on the unexplored side of the moon].

2/ Overcoming fear of failure & instead, translating that energy into persistence [learning from failures of Chandrayaan 1 and 2].

3/ Embracing high-risk-high-reward execution options [handling vacuum, extreme temperatures & radiation in space].

4/ Efficient resource allocation to maximize effort runway [accomplishing the mission at a fraction of a developed country’s budget].

B. Non-incremental startups

While the Chandrayaan-3 mission is now a standout and popular example of the emergence of non-incremental thinking in India’s national fabric, this mindset is also visible in the manner in which the country’s entrepreneurial ecosystem is evolving.

Over a decade of investing in India, both institutionally as part of a VC firm and tech conglomerate, as well as investing my personal capital as an operator-angel, I have seen first-hand the growth arcs of Indian founders & the deepening of the founder talent pool.

In particular, as someone who focuses on ‘Global Indian’ founders, especially in the US-India corridor, I have also closely witnessed the increasing levels of audaciousness within Indian founders to tackle large global problems & build cross-border companies.

In my post-operator, investing 2.0 avatar (1.0 was when I was investing institutionally), I have naturally gravitated toward backing non-incremental founders. The reason is this – one of the significant lessons I’ve learned from founding, building, scaling, and investing in tech companies of all sizes is the overwhelming importance of competition.

In this era of transitioning from Web 2.0 to 3.0, remote work, blurred borders, and now AI, I firmly believe that the lack of sustainable differentiation (what public market investors refer to as ‘moats’) poses the most substantial threat to early-stage startups. This competition arises not only from FAANG companies but also from YC startups, heavily-funded growth startups, solopreneurs, SMBs in overseas markets, and very soon, even from fully automated AI products.

C. The “what if?” question

So what’s the best way to keep competition at bay? To paraphrase from Peter Thiel’s ‘Competition is for Losers‘ lecture:

You want to be doing something that no one else is doing.

Peter Thiel

Founders with a non-incremental mindset naturally pick large & unsolved problems to go after that very few people are thinking about. At the core of it is asking an impactful “what if?” question which imagines a future scenario that is an order of magnitude better than the present state of state.

Few examples of impactful “what if?” questions from my own portfolio:

  • Yulu – What if every urban Indian could buy or rent an affordable & pollution-free EV 2-wheeler?
  • Varda – What if we could manufacture pharmaceuticals in space?
  • LetsVenture – What if Indian retail investors could access private markets at the click of a button?
  • Playto – What if a kid in the US could learn STEM by building projects hands-on in the comfort of their home?
  • Omnify – What if every sports & recreation organization in the world had its own Shopify?
  • Lore – What if any group of people could easily organize & jointly own any physical or digital asset?
  • BuyStars – What if Indian fantasy gaming could be powered by an underlying digital asset economy?
  • BIS Research – What if we could build a Gartner for deeptech?

Contrary to the popular perception that disruptive founders always start with a grand idea on Day 0, pitched in a Jerry Maguire style, each founder embarks on a unique journey towards discovering the non-incremental “what if?” question.

Some unearth its kernel during their operational experiences in a job; a few arrive at it through cathartic life experiences, while others gradually unravel it over numerous experiments, iterations, and failures.

As an investor, I have learned to invest time in understanding both the “what if?” question itself, as well as the founder’s journey in reaching it.

Side note: A heuristic I frequently use to gauge the non-incrementality quotient of a startup is: “Could any two IIT or Stanford kids fresh out of YC build this?”. Attempting to answer this question invariably uncovers various other areas that warrant exploration.

D. Non-incremental startups are better bets

Founders working on non-incremental ideas feel less pressure from competition which in turn, gives them the mental space to patiently & efficiently build the company for the long term. This lays a strong foundation for the business which, post-Product-Market Fit (PMF), combines with their product’s inherent competitive advantages, setting them on the path to building a generational company.

While this approach is a perfect Petrie dish for creating outsized venture returns, backing non-incremental founders also requires investors with a non-incremental mindset. They need to have the guts to be contrarians & stick by their convictions over long periods of time while other investors disagree with them.

As an investor, one has to be prepared for long gestation periods and high failure rates in these kinds of companies. These also won’t be the typical FOMO deals that can give a quick markup via hot follow-on rounds as many investors might either not get the mission or find it unviable.

E. Dare to be non-incremental

To close out, my hope is that the success of Chandrayaan-3 inspires the next generation of India to think big & not be deterred by failure. To Indian founders in particular, I would urge them (like I have done many times before on social media) to embrace significant problem statements. Instead of creating the 10th sales SaaS tool, dare to ask the highest-impact “what if?” questions that reimagine the future.

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Three unicorns & a VC

In my 1st year as a VC, I was fortunate enough to source 3 of the best enterprise startups built out of India over the last decade.

Reflecting on what these companies looked like before they became massive successes and the lessons that taught me about the best way to approach venture investing.

In my first year as a VC Associate in 2011, I started supporting a GP who was native to Chennai, already had some portfolio companies there and was informally leading coverage for the region. Naturally, I started visiting the city regularly and was perhaps one of the few VCs at the time who was spending significant bandwidth in the ecosystem there. And mind you, this is way before the city became the SaaS powerhouse it is today. I spent the most time in events around IIT Chennai, especially in the Rural Technology & Business Incubator (RTBI) there. This is the time when Zoho wasn’t a household name yet, and a few interesting startups like Stayzilla and Ticketnew had just started to emerge.

Candidly, I used to feel a little foolish every time I boarded the flight to Chennai. Was I just wasting my time by not covering Bangalore & Delhi? Which venture-backable company could I realistically hope to find in an IIT’s incubator, that too one which had the word “rural” in it? While my colleagues were neck deep in sourcing hot eCommerce deals from Tier 1 hubs, was I missing the boat by spending time with boring enterprise software & niche consumer Internet companies started by these humble, grinding-type founder personas?

What I didn’t know at the time was that meeting founders in an under-covered but growing hub like Chennai was actually a competitive advantage, a potential “edge” that was there to be leveraged. It led to me meeting two of the best enterprise software founders from the last decade, at a time when both companies were fledgling – Girish Mathrubootham of Freshworks and Umesh Sachdev of Uniphore. My guess is I was also one of the first VCs to ever meet them.

I met Girish during a really nondescript startup event in Chennai. He wasn’t even pitching there, and the organizer randomly introduced us after the event. I still remember Freshdesk had 25 beta customers at the time. I took the deal back to the senior team; we had one call with him but didn’t end up investing for a variety of reasons. Talk about missing the deal-of-the-century!

While meeting Girish was more serendipity, I give myself more credit for spotting Umesh. I was the only godforsaken VC who had built a deep relationship with the RTBI team at IIT Chennai. As part of one of my visits, the lead there introduced me to Umesh & Ravi. They were building Uniphore out of the lab there, with the active support & guidance of Prof. Ashok Jhunjhunwala. I don’t remember the exact traction they had at the time, but it was really early. They were building voice technology keeping rural/ vernacular use cases for India hinterland in mind, which was nicely aligned with RTBI’s mission.

While I didn’t get to interact much with Girish, Umesh and I spent a bunch of time together. I brought him in 2 times to meet the Fund’s senior team, once just before I was about to leave VC and move to the Bay Area. Fortunately, Uniphore didn’t become an anti-portfolio like Freshworks. One year after I had left the Fund in early 2014, it ended up investing in Uniphore. Cut to Feb’22, Uniphore raised a $400Mn growth round at a $2.5Bn valuation, becoming a trail-blazing Indian startup story of grit & perseverance.

As I write this, another similar story comes to mind. Again, in my first year of VC, I had a chance to meet Baskar Subramanian, co-founder of Amagi. This was the most non-intuitive play ever. At the time, Amagi’s flagship offering was a platform to insert regional, localized ads in popular TV programming. For example, say during a national TV soap telecast on Sun TV, viewers in Chennai & Coimbatore would see different vernacular ads of local brands from their specific locations.

If one went by the classic VC playbook of pattern matching, Amagi wouldn’t make it beyond the first meeting (perhaps why most funds passed on it at the time). The company’s existing market didn’t seem like it would support a venture outcome. On top of it, Baskar came across as the polar opposite of a typical VC-backed founder archetype. He was a bit nerdy, a bit fidgety, a bit unpolished around the edges but really smart & always with a big smile.

As expected, while the Fund passed on investing, two things stood out to me even then:

  • Amagi had signs of early product-market-fit in the use case it was going after.
  • Baskar and team were gritty, grounds-up entrepreneurs with a humble vibe, strong belief in their overall market thesis & the energy to play the long game.

Candidly though, I was still in my 1st year of learning the craft of venture investing & even though I caught these signals from 1st principles, I didn’t have the experience & chops to convert these signals into conviction & fight for the deal internally.

Cut to Nov’22, Amagi raised a $100Mn Series F from General Atlantic at a $1.4Bn valuation, with the company hitting $100Mn ARR! From its origins of inserting local TV ads in the Southern states of India, it has now become a global software platform for cloud broadcast & targeted advertising.

These and many other stories that I have experienced over a decade of early-stage investing, have taught me a valuable lesson – given the inherent randomness in outcomes, a terrible way to do venture investing is to be dogmatic. While frameworks, heuristics & pattern-matching do help evaluate deals more efficiently, you can’t become a slave to them.

Outlier venture outcomes typically come from unintuitive & unpredictable places. If one studies the history of the biggest wins in both public & private markets, they mostly emerge from “non-consensus-and-right” situations. Spotting these, by definition, requires an independent & radically open mind.

When Tim Ferris asked legendary VC Bill Gurley of Benchmark about why he thinks he missed investing in Google, Bill had a tremendously self-reflective response:

Essentially, Bill is saying that at the time, Google was the exact opposite of a classic VC template deal. And that’s exactly what should have pushed him to evaluate it more deeply as a non-consensus bet. In the words of my friend Nakul Mandan of Audacious Ventures – “the pedigreed, buttoned-down, big logo’d, all-bases-covered teams often end up generating a 1.5-2x return while the maverick, underdog, underestimated, headstrong, quirky founder ends up creating the 100x bagger”.

Marc Andreessen has a great expression around the optimal mindset for venture investing (also applies to starting a company) – “Strong opinions, loosely held“. I like to call it having a radically open mind while evaluating any opportunity. In my head, this approach includes:

1/ Turning over every rock to find deals.

2/ Not discounting any vertical/ space upfront, irrespective of general ecosystem biases.

3/ Not underestimating any founder, irrespective of age, pedigree, or track record.

4/ Trying to probe further when the gut feeling is positive but misaligned with VC thumb rules.

5/ Listening to co-investor feedback but making up your mind independently.

6/ Trying to imagine “What if everything goes right?”.

7/ Finally, getting super-excited when a company seems non-consensus.

This is the behavioral North Star I am chasing & where, I believe, the real Alpha in venture investing lies.

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Meeting customers IRL still works

As the business world reverts to a blend of remote & in-person, meeting customers IRL is becoming important once again, especially in a slowing economy.

Sharing some thoughts on how jumping on a plane & meeting people could be key to unblocking growth for your business.

I was recently in a brainstorming session with a portfolio company that is struggling with stagnant growth. The company is profitable, has clear PMF as demonstrated by loyal top-tier customers, yet is unable to grow the business fast. It has major logos but the ACVs just aren’t expanding.

Now, as with any startup, stagnant revenue is a symptom & the causes could be many. In order to do a root-cause analysis & subsequently unblock growth, my immediate actionable input to them was simple – “go and meet customers in-person”.

When the bolt of lightning called Covid struck our planet, paradigms of doing business changed overnight. As workers went remote, so did interactions with customers. In fact, as companies were forced to do business with each other over video calls during the lockdown months, people discovered that it was both highly productive and profitable to drive the sales process sitting anywhere in the world with a laptop & a stable Internet connection, engaging customers living thousands of miles away over a shared screen.

As the world is stabilizing into a new-normal, many companies are now realizing that the success of a fully remote sales & BD process is highly contextual. In hindsight, its applicability & effectiveness became extraordinarily broad based in 2020 and 2021, mainly due to:

  • An excess liquidity fueled, demand-on-steroids environment, and
  • Altered social norms of human engagement.

Simply put, everyone wanted to buy so badly that the only bar the sales process needed to clear was to show up on a Zoom call. And, it also helped that nobody really wanted to meet a stranger in-person & take the risk of Covid transmission.

Now, as we sit in 2023, both these factors no longer exist:

  • Demand is contracting across industries, courtesy of the ongoing cycle reset driven by rising interest rates.
  • Post vaccine, broader social norms have reverted to a blend of remote & in-person. What proportion will they reach at steady state is hard to predict, although with the present return-to-office movements even with Big Tech like Amazon & Meta, my guess is 60% in-person & 40% remote (assuming a continuing trend of 3 days per week in office).

It’s critical for all founders & operators, especially those in early stage startups that typically have finite resources to deal with business headwinds, to quickly embrace this reality. In a 60-40 IRL:remote world with contracting demand, it’s unacceptable if founders & senior leaders aren’t getting on the plane to meet customers & build trust.

Meeting customers IRL has multiple advantages. First, leaders taking the time to travel & spend bandwidth in listening is a strong demonstration of commitment. It’s Strategy 101 that in most cases, it’s easier to grow a current customer vs land a new one. Even in consumer products, product leaders first focus on retaining existing customers + re-activating inactive ones, before filling up the top of funnel with new leads. In any business, growth is possible only when existing customers are happy.

Second, breaking bread with customers builds 1:1 trust with their execs, putting a human face to contracts, transcending beyond employers & current deals to opening up the possibility of these leaders becoming your personal champions for long after.

Third, getting informal feedback about their product experience as well as larger problems & challenges they are facing, & then connecting the dots across multiple such conversations, is the best way to do a root-cause analysis of “why are we not growing fast enough?”.

Going back to the portfolio company I mentioned in the beginning, I gave them a very simple & actionable plan for the next 8 weeks to unblock growth:

  • One founder to play what I call a ‘Key Accounts’ role.
  • Literally make an excel sheet of top 5-10 customers, hop on flights, meet key execs IRL, get feedback, hear their problem statements & build a personal rapport via drinks/ dinner.
  • As an output of each meeting, create a simple roadmap for (1) enhanced customer success, where customers are unhappy and (2) in-account revenue expansion via upsell/ cross-sell, where customers are happy & want to grow.
  • Finally, and most importantly, partner with relevant teams (product, delivery ops etc.) to unblock & provide execution momentum to these customer-wise revenue roadmaps.

The founder’s role shouldn’t end with token customer visits. Driving results by providing the necessary context, energy & cross-functional unblocking help to operating teams is the real output all stakeholders are looking for.

Btw, as I was working on this draft, star product operator & angel Gokul Rajaram posted this thought yesterday on the importance of building relationships in enterprise sales:

On a side note, willingness to get on a plane often is a career hack I used very successfully at Alibaba & something that I learnt from my then boss. While our international peers in US & EU offices loathed traveling to China & facing all the inconveniences (from jet lag & language to food & other cultural disconnects), me & my team would show up in Hangzhou every month, blending in with our local colleagues & building trust over meals, rice wine & karaoke. Slowly, we came to be known as the “true believers” – the only team willing to make the sacrifice & do a round-the-world trip every month to get s**t done. We gradually earned the right to be ‘insiders’, getting access to unique growth opportunities within the Group.

Now in this new phase of my career as a tech investor, am doubling-down again on this approach. As I ramp up venture investing in the US-India corridor, I am aiming to spend at least 2 weeks per quarter in India & devote more operating time to portfolio founders, grow new deal flow, cement old ecosystem relationships as well as initiate new ones.

Let me end this post with an article from Jason Lemkin of SaaStr that I really like – 10 Things That Always Work in Marketing. This is a must-read for anyone looking to unblock growth in their business. The suggestions go much beyond marketing, touching on all aspects of go-to-market. Reproducing the section on visiting your largest customers:

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Doing more with less

As an angel, one of the strongest leading signals I look for in a startup is progress per unit of capital – how much forward movement has the team achieved & the resources it has consumed for it.

My thoughts on why a capital-efficient mindset is so important for early-stage tech founders.

Having seen 1000s of deals across a decade of investing my own as well as institutional money, I rarely cringe while evaluating a new company. As an investor, I have often seen the same goods-and-bads in other deals several times before. As an ex-founder, I have walked the path & made the same unforced errors so almost every time, I can empathize & almost pre-empt why a founder is doing things a certain way.

However, there is one specific thing that is guaranteed to make me cringe – a founder attempting to raise an amount that is totally out-of-sync with where the business is. In many cases, this is accompanied by other precursors:

  • No intent to bootstrap from idea to “some” traction.
  • Wasteful handling of the last round.
  • Coding & building product for months at a stretch without putting anything meaningful in front of customers.

Personally, one of the strongest leading signals I look for in a startup is progress per unit of capital – how much forward movement has the team achieved & the resources it has consumed for it, especially when evaluated relative to other comparable startups.

I remember an interesting learning from my time at IDG Ventures (now Chiratae). Sudhir Sethi, the Managing Partner & the lead investor who had backed Myntra (Zappos of India at that time; was eventually acquired by Flipkart for ~$300Mn in 2014), often cited how when he went to meet Mukesh Bansal (the founder) for the first time at the Myntra office, he observed they were working out of a dingy space in a classic Indian neighborhood market with the ground floor occupied by a fruit & vegetable vendor. Sudhir used this as one of the positive signals for the team’s ability to execute in a cut-throat eCommerce vertical like fashion.

Fast forward a few years, and I got a similar insight yet again in the retail context. While working with Alibaba, I saw how frugal the Group was in terms of saving every dollar of operating cost. eCommerce works on wafer-thin margins, especially in highly competitive & price-conscious markets like Asia. And one could see this by comparing the bare minimum facilities & perks we got at the US HQ in San Mateo vs even well-funded growth startups, which were offering everything from catered meals to draft beer stations at that time.

Why is a capital-efficient mindset so important for early-stage tech founders? It’s because they are playing a game where the odds are hugely stacked against them. Where 9 out of 10 new startups fail on average. Where the starting point and end point of companies are vastly different, with each year choked with iterations, a major pivot every few years, and team members jumping on & off the ship.

Setting yourself up to have even a remote chance of winning such a game requires many shots at the goal, many course corrections, and many resets. At the same time, capital is scarce at the pre-PMF stages even for the best teams. Capitalism is brutally efficient, throttling money when relative risk is high, & opening the faucet once success is highly certain (typically post-PMF).

Building even a decently sized company can take anywhere from 6-8 years, & up to 15+ years. In such a long period, both the overall economy as well as your specific market will go through several cycles. The key is surviving long enough, even with limited capital, to be able to walk this arduous path.

This is what the best founders bring to the table – using investor capital like their own, each dollar wisely deployed towards only what’s truly necessary for the stage, raising each round with specific milestones in mind, and realizing that ownership is everything, with each bps of dilution being the costliest trade shareholders can make. To me, this mindset & building approach is perhaps the biggest signal of perseverance in a team.

Come to think of it, in the non-tech world where starting a business isn’t called “doing a startup”, entrepreneurs typically use their savings to get going, & once there is enough business confidence & profitable revenue flowing-in, grow using either internal accruals or debt. Initial bootstrapping creates skin-in-the-game, profitable revenue creates high confidence that customers want what you are making, & debt creates financial discipline around managing cash flows while preserving the founder’s ownership to compensate for all the risk they have taken.

This model has been used by everyone from Sam Walton to Richard Branson, & continues to survive in all parts of the SMB economy. While the venture capital model definitely works for building tech companies, which are asset-light, highly scalable & operate in winner-takes-all dynamics, I believe the founders who are in it for the long run build with a similar philosophy – planning for the next basecamp & raising conservatively, maintaining discipline around cash & giving high importance to ownership.

On a related note, I wanted to share something I recently wrote on Twitter regarding a fundraising pitfall specifically for serial founders:

Often see serial founders who have seen success before (scale and/ or exit), raise large rounds at high valuations at the idea stage!

From what I have seen, even the most successful founders have operated in phases where a lack of capital could have potentially killed their startup. That’s probably why on the 2nd attempt, they try and take that risk out of the equation at the beginning itself.

Oddly enough though, having a capital-rich Plan B to fall back on reduces the scrappy iterativeness, discipline & underdog mindset that startups usually need to succeed. And which probably contributed to their success the 1st time too.

In asymmetric bets like startups, to reference The Dark Knight Rises, “the way to climb out of the pit is without a rope”.

Hopefully, as this cycle resets, all of us founders & investors will go back to the drawing board & start appreciating Benjamin Franklin’s age-old virtue of frugality as a key to success in business & life.

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SMB SaaS at Scale: Founder Learnings from HubSpot

SMB SaaS is hard. Getting the positioning right, increasing ACVs, controlling churn – it all becomes harder when your customer is a small business that is resource constrained & perpetually dealing with its own execution challenges.

Despite this, given SMBs are the most frequent early adopters of new products, the reality is that most startups tend to start mid-market. Though, in my experience, a majority get stuck in unfavorable economics of this customer segment & are unable to achieve breakout PMF.

So, what is the secret sauce founders can learn to effectively scale SMB SaaS? Hubspot is a great case study. I recently came across this SaaStr podcast with the HubSpot CEO Yamini Rangan, where she shared some of the company’s SMB strategy & learnings. Here are the key highlights:

  1. Go after a large TAM: given the fragmented nature of SMB verticals, it’s really important to have a large TAM. HubSpot made the smart decision to transition from marketing automation to CRMs, basically going after Salesforces’s lunch.

Mid-market verticals tend to have open opportunities for startups as SMB customers are usually sandwiched between either buying a host of solutions & stitching them together or buying an expensive, enterprise-grade solution. In this context, I had recently posted a Twitter thread about how Zoho followed a similar multi-use case bundling strategy to position itself as an “operating system for SMBs”. This strategy works well as SMBs have a tendency to simplify their tech stack & procurement processes by buying multiple solutions from the same vendor.

2. Customers gravitate towards competitively-priced, mission-critical products: in times of economic uncertainty like today, SMBs tend to become really sensitive about budgets. Customers start asking tough questions internally around (1) where are they spending?, (2) do they have a clear path to getting enough value from the spend? and (3) can they do more with less?

Acting per this analysis, SMB customers are then likely to consolidate their tech stack to a handful of mission-critical platforms that are competitively priced & deliver the most value. This is the bar startup products need to cross while selling in this tough macro environment.

3. PLG-based distribution is king: to achieve break-out growth in SMB SaaS products, startups need to have the widest possible distribution. The front door needs to be big enough so that most people can come in.

For the first 8-9 years, HubSpot was mainly driven by a sales motion comprising Direct Sales & Partner Sales. Around 2016-17, in order to exponentially grow distribution, the founders made a counter-intuitive bet to go from sales motion to product motion. Today, HubSpot has a massive user base of ~1Mn WAUs to monetize off of.

4. A strong “free” product is key to PLG: One of HubSpot’s truly differentiated product strategies has been to offer a strong, full-featured free product. Rather than making a “free” product free just for the sake of it, they have focused on making it really valuable.

Some important benefits of having a strong “free” plan:

  • Drives high top-of-funnel growth & user engagement, improving the probability of monetization once the value is proven out.
  • Puts product org. under pressure to deliver enough features at the top, in order to maintain the competitiveness of paid versions.
  • Forces the product team to maintain a “consumerized” ease of use, which benefits all customers, free or paid.

Irrespective of whether your GTM is sales-led or PLG-led, a founder should never give up on the “free” plan as it’s key to keeping your product competitive.

5. North Star Metric should be Net Revenue Retention: NRR is the best health indicator of an SMB SaaS business given it represents whether or not: (1) you are retaining the customer, (2) you are continuing to drive enough value so they buy more from you and (3) you are protecting yourself from churn.

6. Don’t underestimate the value of a Partner ecosystem: once you reach a certain scale, PLG & Direct sales aren’t enough. A thriving partner ecosystem can be a strong GTM moat. Interestingly, a majority of HubSpot solution partners *only* sell & deploy HubSpot as a CRM, thus creating valuable network effects for the company.

7. In geo-expansion, less is better: PLG-driven companies will always have customers in many countries eg. Hubspot has 130+. But in order to deeply localize for elements like language, currency, customer support etc., it’s important to focus only on a few markets. As an example, HubSpot has chosen 7-8 markets to deeply localize their offerings in, based on factors like TAM, existing installed base, net ARR growth being seen & the company’s ability to serve the market locally.

While SMB SaaS can be a tricky business model, it compounds beautifully once the founders figure out its key levers, as HubSpot has shown.

PS: if you enjoyed this post, you might also find this post on Top 10 enterprise SaaS learnings from a unicorn founder helpful.

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The futility of Plan B

Image Source: LinkedIn

Growing up in India, where inherent chaos makes sure most things don’t go according to plan, I got organically trained to always have a Plan B. The classic fallback option – the bylane you take when the main road is clogged because a minister is scheduled to pass through, the backup college seat you block in case you ranked low in the entrance exam for your top preference, or the autorickshaw you hail when the car refuses to start.

Look, I get it! Now that I am a father to 2 boys, I see the instinct parents have to ensure their children are tangibly & emotionally “safe” in all situations. So, I can appreciate why my middle-class upbringing was designed this way. To top it up, my technical education & early analytical jobs further pushed me into the world of scenario analysis & fail-safes.

Down the road, as I entered the risky world of startups, I naturally brought this instinct with me. While building, operating & investing in high-risk-high-reward endeavors, my animal brain would always push me to have a Plan B in my backpocket:

  • If this startup doesn’t work, I can always go back to Company X.
  • What if this investment fails? Let me spread my resources & take a smaller bet.
  • If I don’t like living in Country Y, I can always go back to India.

A few years into taking these asymmetric bets (presumably backed by Plan Bs), I expectedly started encountering failures, both big & small, one after another. They ranged everything from major projects going South & unforeseen external risks coming to the party to unexpected company restructurings & gross misjudgment of certain people’s skills & intent.

During a recent introspection of these adverse experiences, something interesting jumped out – every time I attempted to call on a Plan B for a specific situation, more often than not, it wasn’t really there. In some cases, the “backup” companies had changed their strategy & weren’t a fit anymore. In others, I had grown in a different direction & going to a fall-back option would be a negative step. Many times, people I was relying on to help materialize a certain Plan B had either fallen out of touch, were themselves dealing with adversity, or had changed their context & therefore, relevance.

So this was my lightbulb moment that inspired this post – in high-risk-high-reward situations, Plan Bs are….fictitious. The very nature of extremely risky situations is that they take you in unpredictable directions, change your context in unimaginable ways & leave you with baggage that’s hard to foresee. And all this happens in parallel to a rapidly-changing external environment that in most cases, becomes increasingly incongruent with your endeavor (most asymmetric projects are by definition, contrarian in relation to established rules of the game that the majority operates by).

This complex system renders even the most thought-through Plan Bs useless. Given asymmetric bets are driven by power laws (a few will drive a majority of the total outcome) & compounding (need a long enough timeline for ideas to mature, which is when outcomes start growing exponentially), positioning yourself to be on the right side of these rules requires going all-in for a significant period of time.

While having a Plan B provides the initial psychological space to initiate a risk, in my experience, it unfortunately also creates a mental mechanism to cop out of it, & even worse, often doesn’t provide the safe landing space it initially promised.

Going forward, my aim is to ditch the “Plan B” mindset in all asymmetric bets. A fall-back instinct comes from a place of fear, and while controlled fear can be a useful tool to drive alertness & urgency, it becomes adverse when acting as a roadblock to going all-in & persevering on a thoughtfully-chosen path.

It’s important to add here that while ditching the Plan B outlook, I will still proactively focus on avoiding the Risk of Ruin at an overall life level. Asymmetric bets require multiple shots at the goal & therefore, safeguarding the ability to keep playing is paramount.

On a related note, a mental heuristic I have recently started using while making asymmetric decisions I am 50-50 on – “which option is the fear side of my brain asking me to choose?”. In most cases, I then lean towards the other option!

I have found the following quote by Swami Vivekananda to be hugely inspiring in driving this mental transformation:

Take up one idea. Make that one idea your life – think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success.

Swami Vivekananda

As you consider this approach, I want to leave you with this outstanding scene from Christopher Nolan’s ‘The Dark Knight Rises’. As a frustrated Bruce Wayne is trying to catch his breath after yet another failed attempt at climbing out of the pit (he was using a rope each time), an old & wise prisoner gives him the mantra for successfully making the climb:

You do not fear death. You think this makes you strong. It makes you weak.

How can you move faster than possible, fight longer than possible, without the most powerful impulse of experience – the fear of death!

Make the climb…as the child did. Without a rope!

The Dark Knight Rises (2012)

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