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Community > Pankaj Dinodia
Pankaj Dinodia

Pankaj Dinodia

CEO

Dinodia Capital Advisors, Delhi

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startupcity - Expert
Common Challenges Startups Face
In my sense the biggest challenge for a new startup is to stay focused on the vision of achieving organizational goals even in times of adversity and not getting deterred by the challenges it faces.  No business is easy and there can be no success without facing hardships, so if you cannot roll with the punches then it’s better to stick to a regular paycheck rather than becoming an entrepreneur.  

Few of the biggest challenges start-ups face are building a good team and the founder being able to build trust and delegate responsibility.  I cannot count the number of start-ups I have seen fail not because the product was bad or it couldn’t access capital, but either because the founding team with the original vision didn’t stay in place or that the founder couldn’t attract the right talent.  A lot of founders are control freaks and rightly so, but it is humanly impossible for one person or a few individuals to do everything, so building an organization which can nurture talent and attract and retain good team members is a key success factor. People > Business Plan.  If you could choose between an A+ business plan with a B+ team and a B+ business plan with an A+ team, always pick the latter.

The biggest hurdle for start-ups to raise capital is that entrepreneurs are often scatter brains and want to do too many things, some of which may be driven by passion but are not economically viable.  Investors like to see founders think big, start small, prove the product / service and then scale fast, rather than doing too many things at one time.  But keeping the entrepreneur focused is very challenging.  The other big hurdle is that startups need to develop the ability to sell their idea and vision to potential investors by having a good story to tell them, backed by a strong business plan, facts, proof of concept, pilot studies etc.  But what are ultimately required are passion and good persuasion skills. Unless the investor sees the passion in the entrepreneur’s eyes to ride the waves and stick to his or her guns through thick and thin, they will never give them money. Also the entrepreneur should be able to convince investors and allay concerns around scalability of the product, market potential and margin expansion.  In the end if the entrepreneur cannot sell his story to investors or his / her product to customers, the business is doomed.

“The ability to sell is the number one skill in business. If you cannot sell, don't bother thinking about becoming a business owner.” – Robert Kiyosaki



My Advice If You are Starting Out
When it comes to business plans, entrepreneurs should be able to very succinctly and clearly be able to explain why their product or service is unique and why will customers pay a premium to buy it.  Do they compete on pricing or positioning or on features or does it do something faster / better than the competition.  It’s the classic 2 minute elevator pitch, practice it and perfect it.  Stand in front of a mirror and say it a million times, narrate it to your friends, mentors and criticizers till you perfect it and have been able to answer all the questions thrown at you.  Very often entrepreneurs feel that their idea is unique and has the potential to become a multi-million dollar business and refuse to accept any constructive criticism.  There is a fine line between quitting just because people think it won’t work at the first party you attend and sheer foolishness of not listening to people who are smart and care about you / your business.  Be careful about whom you seek advice from, but once you get it from a trusted source try and see it from the other person’s perspective. 

I believe in helping businesses position themselves right from their early days.   Know what you are going after.  Are you the best quality, best bang for the buck, a must have product or a luxury / aspirational product.  It is good to do a small pilot and see how the customers react to your positioning and do they buy into your story.  Every once in a lifetime a guy like Steve Jobs comes along and says that the customers themselves don’t know what they want and its up to him to give it to them, but for all other mere mortals its best to start small and see customer acceptability before you bet the farm on your idea.  Not everyone will achieve success with their first iteration of their business, but the idea is to learn from the little experiments and as more information becomes available then to incorporate the learning and go through the pivot points. 

My advice to people writing their first business plans is that don’t worry about trying to create a fancy excel model and template which will impress your finance professor, but just start writing your thoughts in a simple word document.  Leave it to the bankers to put the story into numbers and formulas.  Focus on writing the product / service description, target market, positioning, pricing, ramp-up and the cost structure involved.  Do a monthly plan for the first couple of years and write stuff down in detail.  I promise you that as you start writing those costs that you never thought about first, they will slowly start coming to your mind and you will start doing your very own SWOT analysis as you do market research.  Always good to have someone who has done this before to bounce ideas off of such as fellow entrepreneurs, bankers or VCs, but don’t start asking too many people for advice because that will confuse you and hurt your confidence.  Find a good mentor or two early and then rely on them whenever you need advice.  When you feel you have the nuts and bolts in place about the product and the market, then hire a banker to convert your story into a formal business plan and sales memo.
 


3 Piece Advice
a.    Try not to have too many owners in your business and try to keep
the ownership structure as clean as possible when trying to raise your
first round of institutional capital.  Too many family loans and mamas
and cha-chas owning equity in your business will make it difficult for a
more sophisticated investor to come into your business.

b.   
Don’t worry too much about valuation in your first round of capital
raising, focus on getting a high quality investor who brings more than
just money to the table (brand, connections, industry experience,
willingness to help, similar companies in their portfolio etc).  I am
not saying part away with 50% of your business for chump change because
any business goes through a few rounds of fund-raising so if you have
given too much of your company away in the first round, it will be
difficult to stay motivated to work as hard by the time you raise your
series C or PE round (too much dilution).

c.    Unless you are a
master of negotiations, law, structuring and valuation on your own in
addition to running your business very successfully I would highly
recommend hiring an Investment Banker and / or a sharp lawyer who can
help structure a “win-win” situation for you and the investor at the
time of capital-raising.  When things go right and the business is a
home-run no one refers to the term sheet, Shareholder’s agreement or the
representations and warranties, but when things go wrong every little
word on that term sheet (2x liquidation preference, drag / tag,
guaranteed IRR, PUT options etc) can be detrimental.  Investors do this
for a living and are very good at it, so why not have someone on your
team who can help you and guide you through the process of
capital-raising.

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