Minimum Resource Constraint – the Anti-Dilemma

It’s one of those things that you keep thinking about “how much to raise”. Having sat with my cousins (I sit on their board at http://www.getbrandid.com) again this week I realised that we often look at how much to raise in the wrong way. In the last few years, a recurrent piece of advice I was told was “raise as much as you can when the opportunity presents itself”. Whilst it seemed rational, it is actually the anti-thesis of what young startups should do IMHO.

Our own example showcased this – I for one believe we raised too much money and actually thinking back to the earlier days the difference in what we produced when we had $100k or $500k or $2m in the bank never moved the needle by the proportionate quantum; in fact not even close. Having spent time in the last couple of months thinking over this and having read Eric’s “the Lean Startup” I think the biggest mistake any startup can make especially first time entrepreneurs; is take too much capital. Inadvertently you lose focus…

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Why?

I have a simple example – you have three things you can do; each thing will cost you $1 to do. If you only have $11 you will be so much more focused and you will only have ONE priority. Now imagine you have $3; what will you do – 3 x the one thing? Probably not… you will actually split your focus / attention and rationalise it buy saying that you NEED to do this.

Also – the less you need to raise the less you focus on building a business for VCs and you spend more time building a business and solving real problems; intrinsically this will attract investors!

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Hence the title

A lot of us have been told about resource as a “negative” constraint but I think it’s worth looking at Resource Constraint as an Anti-Dilemma (its a good dilemma!) of sorts – (obviously you need some resources). The less you have; the more frugal you are and the more focused you are as your survival depends on that one decision. The more you have the more you are likely to “diversify” and “branch out”; you end up juggling a lot more and actually reducing the “importance” of testing one thing at a time.

Everything being about a young company is about being lean…

Paul Graham – hiring is obsolete!

I read this and think it is great… here is a snippet with a link to Paul’s site.

 Hiring is Obsolete – http://paulgraham.com/hiring.html

May 2005

(This essay is derived from a talk at the Berkeley CSUA.)

The three big powers on the Internet now are Yahoo, Google, and Microsoft. Average age of their founders: 24. So it is pretty well established now that grad students can start successful companies. And if grad students can do it, why not undergrads?

Like everything else in technology, the cost of starting a startup has decreased dramatically. Now it’s so low that it has disappeared into the noise. The main cost of starting a Web-based startup is food and rent. Which means it doesn’t cost much more to start a company than to be a total slacker. You can probably start a startup on ten thousand dollars of seed funding, if you’re prepared to live on ramen.

The less it costs to start a company, the less you need the permission of investors to do it. So a lot of people will be able to start companies now who never could have before.

The most interesting subset may be those in their early twenties. I’m not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience.

Can Developed Market Startups make it in the EM world?

So often is the case that start-ups based in the other hemisphere are trying to have an “emerging markets” play but it opens an interesting point – do markets like India really open themselves properly for web-based traditional B2C direct routes or is the distribution strategy the only way forward?

Take for example, from our experience it seems the best route to customers is via the big distribution mechanisms and you need to run your web business with a bit more brick and mortar to it…

So if you have a web firm the routes as I see it

– bundble with connectivity

– bundle through retail computer sales

– bundle through retail with similar TG

The savings you make on marketing are huge, you get a customer that has some quasi trust relationship with the original provider and more importantly you get a partner interested and aligned.

Then matters of hosting, marketing, nomenclature, legality – everything is different in a country as diverse as India.

The next most interesting – and possibly doing a 180 here, is whether a foreign company with an indian heart can achieve stronger results in India than a domestic play and I think here is where things get a bit grey but sometimes this combo can be a winner overall since they have the “internationalisation” which gives credability but have the “local” knowledge and market schematics to be winners. I think HSBC coined the term “Glocal” and this could be a good adjective for startups looking at an EM Strategy.

More to follow…