OfStartups

Category: Startups

  • How to write effective cold emails

    It is not easy to get customers in the early days of a startup. It is often an experiment to find the best way to get customers. Email marketing is one of the successful ways when it comes to business-to-business marketing.

    cold email is an effective marketing method

    How to write an effective cold email?

    I have written 1000s of cold emails. Here are my learnings to make them effective and increase the response rate.

    Catchy subject line

    Just imagine your email inbox. It is typically filled with thousands of emails, of which most of the emails are not opened. Why do you think you do not open them? This is mostly because you are not interested in the email based on the subject of the email. Either you know what kind of email it is or you may not be able to read the complete subject line.

    The subject line is the entry point for the receiver to open the email or no. If not interested, the receiver does not open the email at all. So irrespective of the content inside the email, there is no use of the email.

    Hence a good cold email has a very short subject line, typically of two to four words. It should have a clear and interesting message that stands out from the other boring subjects. A personalized subject line is a good way to raise the interest of the receiver. Eg; “Hey Amy!”

    Personalization

    Always remember you are writing to a human.

    Before writing the email do good research about the person you are sending. Based on it, write a personalized email so that it delights the receiver. For them, it signifies that for the offering you are proposing, you have gone a step further to actually study the prospect well.

    Try to compliment them at the start of the email with maybe the latest achievements they have made in their field or some important milestone in their personal life. This gives them the motivation to read the mail further even if the reader doesn’t know you.

    Short body

    While cold emailing, you are communicating with somebody whom the receiver doesn’t know. So they would not invest too much time in reading longer emails. By chance, if the receiver tries to read it and finds it not interesting at first, he or she won’t make an effort to read the further content.

    Hence it is very important to keep the main body short. Typically if you can communicate your message in less than 5 sentences, it would be more attractive. While writing the main email body get straight to the point. Directly address what is in it for the receiver. This would help the receiver to know what is the actual message in the email, and if valuable they would make effort to reply.

    Clear call to action

    A personalized start to the message and a short and on-point body have to be finished off well with a clear call to action. What is the use of an email which does not have an action item at the end? The receiver will not again make an effort to figure out what he or she should do next.

    You should sign off your email with an urgent-sounding yet positive action. Ending the email with action items like “Can we have a call this week?” or “Are you available tomorrow for a meeting?” creates this urgency. Avoid generic terms like “Looking forward to hearing from you” in the FIRST cold email.

    Detailed signature

    Finally, at the end of the email must have all the required contact details.

    Add every required detail in the signature, typically contact no, website & social media profiles. By this you are achieving two things – showcasing your credibility and keeping all the possible communication means open for the end prospect to contact you. Interested leads can sometimes need to check your details or make direct phone calls instead of replying to the mail for which the signature is crucial.

  • Porter’s five forces

    Thousands of startups are started and shut down every year. Though every industry in which they operate is different, the basics of drivers to making profits remain the same. Porter’s five forces is a model that analyses competition and helps determine an industry’s weaknesses and strengths. This model recognizes looking beyond the direct competition that is up in the market and thinking of other indirect possibilities of competition.

    The purpose of this for a company can not be to check and make strategic decisions once at all but to continuously keep a look at the five forces and analyze how they stand in the market.

    Existing competition

    With the intense rivalry there is always great spending on customer acquisition, customer retention, and the threat of price downs. It can be more competitive when industry growth is slow.

    If you do not have much of competitors in the market, the market is very much controlled by you. There would be huge competitive power and good profits.

    Eg; The airline industry. Since there is a large competition, no single company has the power to control the prices on their own.

    Bargaining power of buyers (or customers)

    It is the potential customers have to bring the prices down.

    A smaller and more powerful customer base translates to a huge bargaining power for the buyer. On the other hand, smaller and independent customers give the company an upper hand in pricing and hence profitability.

    Similarly, if the number of customers is lesser than the number of suppliers, the bargaining power of buyers increases. This is because they have a pool of options available for buying the product.

    Eg; the airline industry where customer loyalty is too low and customers tend to go to the one offering the lowest price.

    Bargaining power of suppliers

    Every company has to purchase inputs from different suppliers for making their products or services. Again like buyers, powerful suppliers negotiate a higher price. Especially if the input is a niche and suppliers are less.

    If you have a wide range of suppliers, you always have the option to purchase the goods from the best or the cheapest ones. If the number of suppliers is less, they have a huge bargaining power where they can reduce the supply or increase the price as they want.

    Eg; the semiconductor chip designers whose suppliers (the chip makers) are limited and powerful.

    The threat of new entrants

    How likely and frequently can a new competitor enter the market? This is an important factor as every new competitor can force existing players to bring pricing down and spend more on acquiring customers.

    This boils down to how strongly your product is based. How easily can one replicate your product? What are your unique propositions that are hard to copy?

    Eg; the Indian telecom industry Jio changed the way it worked with Jio bringing down the prices.

    Threat of substitute products or services

    When a new product meets the customer’s demand in a different way, the industry’s profitability decreases.

    The new products might not be exactly your competition as we saw for the existing competition, but it solves the purpose of the customer’s problem.

    Eg; video conferencing products are substitutes for the travel industry.

  • How does venture capital work

    Venture capital is the investment made in high-growth potential startups and growing companies where regular banking institutions are shy of investing. The venture capital is on a broad level worked out in three processes.

    venture capital is the investment made in high-growth startups and growing companies

    Fundraising

    Venture capital firms are responsible for the end-to-end ownership of the funds. VC firms do not have the required funds within them. They get the funds that they want to invest by raising from various sources, primarily institutional investors and high-net-worth individuals. These entities from where they raise funds are called limited partners. Institutional investors are entities like insurance companies, endowment funds, and pension funds. High net worth individuals are the people who are wealthy individuals and are looking to invest their money.

    VC firms go through a fundraising process, where they pitch to potential investors showcasing their strategy, previous track records, and exits. They showcase the investment focus and have a target fund size. Different VC firms have different investment focus. It can be but is not limited to, sectors, geographies, or industries. This is similar to a startup raising money.

    The conclusion of the fundraising process is the limited partners committing a specific amount of money for a time period. This capital is given to the VC firm when an appropriate investment opportunity is recognized. This process is called capital calls.

    Fund management

    A typical VC firm has analysts, associates, and partners who consist of their investment team. An analyst supports the investment team with research, data analysis, and administrative tasks. An associate supports the investment team in sourcing deals, conducting market research, and performing due diligence on potential investments. A partner leads the investment and negotiates the deal with startups. A managing partner sets the overall strategy and is responsible for fundraising.

    A venture capital firm has a typical investment period. They invest in startups during this time according to their strategy of investment. After they have made the investment in a company they offer their expertise in various parts of a startup’s journey like marketing, development, and legal. For this active management and guidance to the investee companies, they have a whole network of experts in their fields.

    To manage these expenses, a VC firm charges a management fee for the operational expenses. This is typically a percentage of the committed capital. They also receive a carried interest which is a percentage of profits generated by the fund.

    Fund exits

    All the VC funds have their lifespan. Within this lifespan, they help with all the support for a company that is required for them to grow. A typical lifespan of a fund is about 10 years, after which the exits are expected. There are various types of exits that the VC fund makes from a startup like IPO, acquisition, or direct profits. While a startup raises funds from the VC, these potential exits are discussed, as it is an important part of the strategy. As the portfolio companies grow and mature, the way to plan exit for the VC starts.

    VC firms regularly demonstrate the progress of the fund to the investors. Reports and performance status of the fund’s progress are updated to the investors at a regular cadence. Once the investments are successful, they are distributed between the limited partners and the VC firms according to the agreed terms.

  • Startup mafias

    Why is it called a “startup ecosystem”?

    The success of a startup ecosystem is when everyone grows together. The creation of startup mafias is a sign of a positively growing economy. Startup mafias are a term used for a company’s alumni network who have created successful companies.

    A startup becomes successful when the founders, investors, and employees make financial gains. The founding team, and especially the early employees, gain rich experience in building a successful company. They learn how to start from scratch, raise funds, and scale the business. When the employees start their own startups, they already have the network and guidance in place. This leads to a cycle of reinvesting in talent, shortening the time from creation to exit and reducing the risk of potential failures.

    paypal has given many founders of successful companies including Elon Musk and Peter Thiel

    PayPal Mafia

    It started with the famous PayPal mafia, where it’s team eventually created impactful businesses.

    Jawed KarimCo-founder, Youtube
    Steve ChenCo-founder, Youtube
    Elon MuskFounder, SpaceX
    CEO, Tesla
    Premal ShahPresident, Kiva
    David SacksCo-founder, Yammer
    Max LevchinFounder, Slide
    Russel SimmonsCo-founder, Yelp
    Roelof BothaManaging Partner, Sequoia Capital
    Peter ThielCo-founder, Palantir
    Keith RaboisCOO, Square
    Reid HoffmanCo-founder, Linkedin

    Mafias in the Indian startup ecosystem

    The Indian startup ecosystem is now becoming a mature one, with the number of successful exits and serial entrepreneurs rising.

    Flipkart Mafia

    Sachin BansalCo-founder, Navi
    Binny BansalCo-founder, xto10x
    Sameer NigamCo-founder, Phonepe
    Sujeet KumarCo-founder, Udaan
    Manish SugandhiCo-founder, GrabonRent
    Ajinkya MalasaneCo-founder, Playment
    Mukesh BansalCo-founder, Cultfit
    Ankit NagoriCo-founder, Cultfit
    Punit SoniCo-founder, Suki
    Arpit DaveCo-founder, Runnr

    InMobi Mafia

    Abhishek PatilCo-founder, Oliveboard
    Vidit AtreyCo-founder, Meesho
    Prashant GuptaCo-founder, Clickpost
    Ram KakkadCo-founder, English Dost
    Gunaseelan RCo-founder, Houzify
    Hari GanapathyCo-founder, PickYourTrail
    Atul SatijaCo-founder, The Nudge Foundation
    Iliyas ShirolCo-founder, DoSelect

  • Business risks associated with early-stage startups

    Starting a business is not easy. 90% of the startups fail. Though there are a number of risks associated with a business, some risks are more common in the early days of a startup. Mitigating these risks can lead to a higher probability of the startup surviving.

    90% of startups fail

    Market risk

    When you build a product, what essentially means is that you are solving a pain point for your segment of the market. For this, you need to know your customers and the market in depth. What is the use of building a product that no one wants?

    Hence knowing your customers in-depth, their spending pattern, their needs, and the influencers in your customer segment is an important study to do before entering the market.

    Achieving the product-market fit is crucial to overcome this market risk.

    Financial risk

    Capital is the lifeline of any business. For new startups, where the capital available is limited, the risk associated with the drying up of the capital is high. Startups have to create well-articulated business plans with realistic financial milestones. There should be clear timelines with financial milestones of when the company would need more capital, and when would it be profitable.

    In the initial days, startups often go into negative cashflows. If this negative cash flow cycle stays for a very large amount of time, there is a risk of bankruptcy. When startups are relying too much on external funding, there is a risk involved when the funding dries up or investors back off. Similarly, financial risk can emerge from relying on limited customers or product lines. Diversification of customer types and product lines is a good way to mitigate it.

    Team risk

    Early-stage startups have limited resources. Hence it is important to make the best out of the limited resources available. In the initial days of a startup, the team is everything. Other than any other factor, it is only the founding team that matters the most. Products can change, markets can change, and strategies can change, but only if the founding team is strong and consistent enough to make anything for the survival of the company. A founding team with the right and complementary skills, ruthless execution, and high consistency & motivation is the key to success. In fact, investors bet on the founders, than the product in the early stages of a startup.

    Lack of complementary skills, lack of communication between the founding team, and cultural misfit possess a risk of failure in the early stages of a startup.

    Execution risk

    Everything boils down to execution. What is a great product idea without execution? Execution risks are the challenges involved in implementing the vision of the startup.

    Technical difficulties during product development might pose a risk of failure with delays in the release of the product. A startup’s reputation is highly risked if the customers using the product are not satisfied because of quality issues, and a lack of good customer support. Entering the market too early or too late can be a risk factor resulting in failure. Lack of adoption with respect to the changes in the markets can lead to detrimental effects on the startup. In case the product does not work, a lack of pivoting can lead to the startup failure.

  • What is Venture Capital?

    All the large corporations we see today have started small with disruptive and huge potential ideas. And it requires money to execute these ideas to manifest into the great products and companies that we see.

    Venture capital is a private equity that invests in emerging startup companies

    Venture Capital

    Venture capital is a private equity that invests in emerging startup companies. These startup companies may or may not have an operating history, but have a huge growth potential. High risk, high reward. Venture capital comes into play when traditional banking institutions, without a strong operating history, do not give loans.

    Venture Capital Firms

    Venture capital firms are companies that raise money from institutions or HNIs and invest in promising startups. They are composed of professional investors who have in-depth knowledge about building companies and funding them.

    Venture capital firms typically invest in high-growth startups for equity. They earn from the returns made by the investee company from profits or from exits. Nine out of ten startups fail, so the VC firm has to make sure that the returns made from that one successful startup cover the investment made in all.

    Benefits of venture capital

    1. Startups get the required capital to develop new products, scale their operations, hire talent, and expand the market. 
    2. This fund is without the obligation to return the capital which is the case for a loan. As VC typically funds against equity shares, all the stakeholders grow together. But in case of failure, there is no obligation to repay the startup.
    3. VC brings with them a powerful network that can be useful for getting new clients, as well as help in further investment rounds. VCs bring their experience in strategy, marketing, technology, and legal which is helpful for startups.
    4. Venture capital firms can help in collaboration with companies operating in similar domains to consolidate the market.
    5. Venture capital can help startups to make successful exits like mergers & acquisitions, IPOs, and further rounds of investments.

    The risk associated with venture capital

    1. Venture capital funding leads to a significant equity dilution in a startup and, hence, dilution in the control of the company to the founders. All the major decisions need to be approved by the board, unlike prior to the fundraiser when the founder has the freedom to make all the decisions.
    2. In cases where the founders and investors have a conflict of interest, conflicts can arise within the board which is a high risk for the company.
    3. Venture capital raising is a time-consuming and non-guarantee process. Startups may find it difficult to find the right balance between the continuation of operations and raising funds.

  • Startup funding winter: Blessing in disguise

    In 2021, the startup funding in India peaked at $37 billion. After this peak, however, it steeply decreased in the following time period. In the January to July 2023 period, the number was $4.4 billion. This reduction is due to the gloomy macroeconomic environment of the world. But the fact is startups are finding it hard to raise funds. But this is the right time to introspect for startups. This, in fact, is a blessing in disguise for the startup ecosystems.

    startup funding has drastically decreased from it's peak in 2021

    Profitability over growth

    Growth is good, but growth at any cost is certainly not. With the difficulty of accessing capital in the market, it is essential for startups to be having liquid cash, which comes from strong cash flows and profits. When the capital access is easy, “growth” is prioritized over the profits. Though this can work, it is a high-risk and high-reward game. With startups forced to focus on profits over growth, it results in good financial management and long-term success.

    Stronger business models

    Startups are forced to introspect on the current business models. If the current models are not working they must be changed. During difficult times, only the models with a clear roadmap towards profitability will be relevant. This will eventually lead to stronger and more sustainable companies.

    Innovation

    Necessity is the mother of all inventions. Building businesses in the limited availability of resources leads to innovations that can lead to advantages on the top line as well as the bottom line of a company.

    With a more competitive funding landscape, startups may be motivated to innovate more rigorously and differentiate themselves from the competition. This can lead to the development of more unique and impactful solutions. And this is a win-win for both – startups and customers. Also, innovation for cutting the cost of internal operations will ensure good margins.

    Market consolidation

    The funding winter can lead to partnering, and mergers & acquisitions of similar businesses, making the market positioning stronger in the competitive landscape. Also, with few startups getting investment, there can be less competition which can lead to fast capturing of the market for the sustainable and established startups. With the limited funding, investors may be compelled to invest in the companies that have proven traction and road to profitability. This would increase the investment in the companies which are more likely to be successful.

    Long term success

    All the above-mentioned factors will contribute to the long-term success of the startups. Those navigating the hard times will be winners. In history, it has been seen that successful companies often have emerged out of the worst economic conditions.

  • Startups: The India Opportunity

    The Indian Economy

    The future belongs to India. World Bank projects the Indian economy to grow to $30 Tn by 2050. How will India achieve this number? Well, let’s first understand what factors a country’s economy, or the Gross Domestic Product (GDP) of a nation depends upon.

    1. Consumption – This represents the total amount of goods and services purchased by the citizens of a country
    2. Investments – This is the total capital expenditure done by the private sector companies of a nation
    3. Government expenditure – This is the total capital spent by the government on goods and services like defense, infrastructure, education, etc
    4. Net exports – This is the portion of how much surplus exports have been done by a nation as compared to the imports. Simply stating this is exports-imports

    In order for India to achieve this economic growth – businesses, especially new emerging businesses are going to have to contribute hugely.

    Status of the Indian startup ecosystem

    India had 87000 startups as of December 2022. It is the third largest ecosystem after the USA and China. 

    If we consider the 108 unicorns ($1Bn+ valuation) as a very high-level representation of startups, we can roughly see the domain-wise distribution as follows:

    E-commerce: 23
    Fintech: 22
    Enterprise: 20
    Consumer services: 9
    Media & Entertainment: 7
    Rest: 25

    The top 5 domains contribute to 75% of the startups.

    Opportunities 

    Let’s get back to the economic discussion. Following is the sector-wise contribution to the Indian economy as of 2021:

    Tertiary (Services) – 54% 
    Secondary (Manufacturing) – 23%  
    Primary (Agriculture) – 20% 

    The tertiary sector includes services like banking, information technology, software, hospitality, etc. In the secondary sector, we have manufacturing, mining, and construction industries. The primary sector consists of agriculture and related fields.

    So far so good. But when we see the sector-wise employment, we start to see the difference.

    Sector-wise employment

    Tertiary – 27%
    Secondary – 24%
    Primary – 49%

    The primary sector, where 49% workforce is employed in India contributes to 20% economy. On the counterpart, 27% workforce from the tertiary sector contributed to 54% economy. Simply stated, every person working in services contributes five times the money than the person working in the primary sector.

    Tertiary occupations or services are mostly intellectual work and do not require heavy raw materials and machinery. It adds tremendous value and works on huge profit margins compared to its primary and secondary counterparts. Hence, in spite of less workforce, it contributes more than half to the economy.

    According to me, the huge opportunity in India lies in the businesses disrupting this economic equation. As more and more workforce moves towards advanced sectors of secondary and, especially, tertiary occupations, more value adds to the economy. If we today see most of the large economies, it is the tertiary sector that contributes hugely. India has a large population and if this population becomes an asset, it will become an unstoppable growth engine. I feel businesses working on this theme will be the winners. 

    Rooted domains like education, healthcare, agriculture, and clean energy have immense potential to grow in India.