change-the-world-small

The reasonable man adapts himself to the world; The unreasonable man persists in trying to adapt the world to himself” – G B Shaw

Every 4-6 weeks, we have these intense day-long (sometimes two) internal meetings at work. We’ve finally collectively started sounding crazier on most fronts – on how we would like to run Fund II, when we get there. We talk of more capital = more team members + more process + more scale, and even more value to our customers, the entrepreneurs – which means more crowdsourcing of mentors for them; crowdsourcing of skills. But most of all, our current obsession is the “quirky template” to unearth the “Incremental Entrepreneur”.

The term cropped up as the Innova hurtled towards Pune from Mumbai after four of us from the team had our stomachs full of the first batch of idlis and dosas at Cafe Madras (our pit stop and meeting point in Matunga at 7am). Snappy moral of this snippet: Cafe Madras breakfasts invigorate the early morning mind. The idea of the Incremental Entrepreneur is consistent with my recent thoughts expressed here.

We applaud all entrepreneurs from the corner shop to the industrialist, as long as ethics and integrity are cornerstones of their culture.

That said, I think we will shun the Incremental Entrepreneur who approaches us for an investment.

The Incremental Entrepreneur could be “Incremental” in many ways and every one of those reasons bugs us. Or alternatively put, it’s a bug in the code of a startup that aims for greatness. We have always maintained that a large proportion of business plans/ideas are not suitable for the venture capital path. All such plans, harshly put, are led by Incremental Entrepreneurs. VCs are broadly, a greedy lot, us included – we are all seeking speed, scale, superhuman effort – NOT easy to pull off in 9 of 10 business ideas and 9 of 10 “entrepreneurs” (conservatively put).

So, who is this mysterious category of founder? He or she dreams (relatively) small. Once again, we are not suggesting that every founder should artificially seek to disrupt beyond their capabilities and skills and fool us or themselves that they are building a $1 billion business off the bat. However, if they are NOT seeking to disrupt at least ONE of the following, they will define themselves well as “Incremental”:

Disrupt one’s way of life: Its NOT about playing for incremental shifts in life choices or lifestyles. The problem a founder chose to solve may dramatically alter standards of living, financial security, geography. Founders who choose to play ultra safe are only shifting their day to day comfort zones incrementally downward. Guess what! 9 out of 10 times, their outcomes are also likely to be incrementally upward. I think the entrepreneurs who fall in this category most are those who rush back to jobs at the first signs of failure in sustaining the business when external capital runs out.

Disrupt consumer behaviour: Incremental changes in consumer behaviour are just that – “chillar” – consumers will not pay a premium in terms of engagement OR price, they will pay in “pocket change”. Businesses that become a way of life (Uber, and similar, and the Messaging Apps being the latest in the pack) change how a person allocates a part of their valuable 24 hours or their share of wallet. That is not predictable from any trends. It takes immense luck and/or a keen student of human behaviour to conceive an idea to pull this off. Who thought that the car market was so ripe as to rewrite a demand-supply equation for public cars that’s infinitely better than government permit systems? Uber, Zipcar and their many peers ended up disrupting large markets, creating new ones and creating incredible value for everyone in the marketplace for local car transport. A Zipcar team sensed an undercurrent of attitudes to sharing, trust, saving of costs and the planet while the Uber one sensed a gaping hole in the inefficiency of public car systems in most cities. Can you imagine these versus another cab operator who purchased and ran 100 cars with a few more new gizmos in them? He may make a great lifestyle business out of it. But this is the difference between incrementalism and disruption and the choice to be made. The Incremental Entrepreneur is not interesting to venture capital. Let’s make entrepreneurs aware of when they are better sticking to friends, family, angels, debt, bootstrapping, self-funding and ignoring VCs.

Disrupt (small or large) business behaviour: Imagine going to a Reliance or Mahindra and telling them that your software will improve productivity a tad better. There is no way to make that inroad. Large corporations are afflicted by sloth and small ones are afflicted by inefficiencies that they don’t mind living with. Decisions can only swing your way when the product is disruptive. Can the price be 50% of what it is now? Can productivity improve 2 fold? Can cost savings change profit margins by a few % points? And in the case of small business, is it driving additional leads or revenue or diminishing entire processes altogether (payments perhaps). The runaway success stories of a Salesforce/Zoho or a Tally are all built on this premise.

Disrupt one’s own boundaries and limitations in the Org role: The most irritating founder in the pack has got to be the one who thinks a “Co-Founder+CEO” title of a seed funded startup makes him/her more knowledgeable on most things than almost everyone on the planet. That’s startlingly dumb! Please remember that greatness comes from continuous learning from your environment and becoming better at $1 mill revenue on all counts than you were at $100K revenue. And that doesn’t come with an incremental static state of mind. It comes with a dramatic shift of learning to pick what to learn from whom and how quickly they can do it. Without this, there is almost 0% probability that one will ever build even a $100 mill value business (let’s park the $1 billion plan dream briefly and be more realistic) in 7-8 years. This sometimes is as simple as stepping a little to the left or right and hiring yourself a CEO. The core DNA of the founder can’t be changed, the peripheral DNA has to be disrupted when scaling the org, lest we again find ourselves in the company of the Incremental Entrepreneur.

Different strokes for different folks, and every founder will rejig these priorities according to how it matters to them. So, none of the above are a prescription for life, it’s just that they simply should be a pre-condition for quality venture capital, else everyone’s wasting their time and equity.

It’s a different matter that a lot of VCs are funding PE-like late stage plays which are sometimes about incrementalism (since the innovation is done, its all about pumping money in and money out the other side) when seen through above lenses. That’s their preference, not the purview of early stage funds such as ourselves. Also, there are tons of funds (in the US mostly) which can bank on a significant number of exits in the $10-$50 million range but we don’t believe that its a viable medium-term strategy for our fund in India (it maybe a happy outcome to find such an exit, but its tough to design it – so, why play for it?)

For us, as investors in such startup founders, it’s all about probabilities. The Incremental Entrepreneur reduces the odds of greatness for themselves, and, thus, for us.