Lessons from an Entrepreneur: 4KTA

Date:   Sunday , May 05, 2013

During last seventeen months in my monthly column here, I have covered most of the important elements of a startup life cycle based on my experiences and observations.For next few articles, I felt that it would be great to present you the wisdom and insight from some of the highly successful entrepreneurs, who have navigated successfully through roller coaster life-cycle of startup adventures. In this article, I have distilled the wisdom from B.V. Jagadeesh, Co-Founder and CTO of Exodus Communications that pioneered the concept of Internet data centers in 1993 eventually going public successfully in 1998, President and CEO of Netscaler Inc. (acquired by Citrix Systems for $325 Million), and Chairman of NetMagic Solutions that pioneered the concept of Managed Data Centers in India and was successfully sold to NTT in 2012. He has been advisor, seed investor and Board Member to many startups and continues to actively help entrepreneurs. With special thanks to him, here are four key take away (4KTA) points from his amazing and exciting entrepreneurial journey based on my discussions with him recently.

1. Customer Acquisition and Retention

Most of the early stage companies'focus on acquiring customers with little emphasis on retention. In reality, retention is equally or more important than customer acquisition. The reason being if the customers keep coming back and buying more of your product and services. It recognizes four key points 1. Customer loves your product and hence, you have a loyal customer; 2. You are increasing Average Selling Price (ASP) per customer; 3. You have a happy customer reference; 4. You have a customer that could potentially be your sounding board for future products and customer advisory board. With a happy customer, you can not only get massive amount of mileage to grow your business by using this customer as a successful customer case study, customer advisory board member but also, inspire your internal teams by bringing him to talk about why he loves your product and working with your team. Make it a high priority to focus on customer retention. Use it as part of your matrix to measure what percent of my revenues is derived from existing customers. My rule of thumb is about 35-40 percent of your revenues from existing customers is a good number to keep in mind. Create incentives around customer retention including part of bonus and commission and implement these for customer support, engineering, and sales teams for accomplishing this objective and meeting your retention targets. A well thought out strategy and process with an incentive program for stakeholders to make customer retention as a high priority is a must.

2. Company Building

This is an iterative process for any early stage company. It focuses you to review at the granular level on how you fine tune the company in early stages of its development. Think of it like being in an orbit. After your product is initially developed, how do you go about fine tuning the product to what customer wants so you can elevate the company to the next orbit. The next orbit being building sales, marketing, and customer support organization. This is followed by moving it to next orbit that is not just scaling the sales but also reviewing, refining and doing further product innovations and keeping up the cycle of ongoing innovation. The key is to emphasize the right aspect at the right time. For instance, Novell did an amazing job of going from one orbit to next orbit of scaling sales and its channels worldwide rapidly but missed out on the next orbit of keeping up with the pace of innovation that was occurring in the market place. So at any time, you need to be totally alert and be on your feet prioritizing the next requirement for taking your company to the next orbit. Here is how you can think about these orbits Initial orbit is about getting beta customers, next orbit is getting sales, marketing and customer support organization in place and scaling the sales, and then next orbit, is reverting to reviewing, refining and continuing further product innovation to stay ahead in the market. For instance, initially Netscaler's whole concept was based on server optimization. The company built an excellent product but market collapsed in 2001. At this stage, the company could have been shut down by returning the money to investors. However, the company and the board decided to bring in new functionality such as security, bandwidth optimization, server optimization and application speed. So 1st orbit consisted of initial product, 2nd orbit consisted of traction and hiring talented VP of Sales and VP of Marketing, that helped the company grow from few millions to tens of millions in sales rapidly and then, the next orbit was transitioning the company products to cloud at a competitive price range.

3. People

Ultimately, it all comes down to people, people, and people. Take the time in bringing right kind of people at the right time. For instance, for your sales team, take time in bringing qualified sales people otherwise you may see its impact not only on top line numbers but also on your bottom line. Once you have made a hire, it may take you six months before you figure out that this hire is not working out or not producing what you had expected and hence, your business plan is missing its revenue objectives. Not only you start missing your revenue numbers but also, getting hit on your bottom line due to increased expenses being incurred due to wrong sales people in your team. The second key point about people is that no matter how careful you are, you will make mistakes in hiring. Correct your mistakes promptly before it becomes a huge problem. Be ruthless in hiring and firing aspects. However, the firing should not become a habit as you can drain the morale, finances and productivity in your company.

4. Hard Work

No Matter how smart you are, nothing substitutes hard work. Smartness gives you an advantage but hard work is a must. There is a great quote by Thomas Edison,"The three great essentials to achieve anything worthwhile are: Hard work, Stick-to-itiveness, and Common sense."
In summary, the four key take away points are Customer Acquisition and Retention, Company Building, People and Hard work.