Building Enterprises That Last

A special Google HangOut with a stellar panel offers insights on how to build enterprises that last.

Founding Fuel

[More on This: You can read an edited transcript of the conversation here.]

India is the middle of an entrepreneurial renaissance. Today, hordes of people are willing to take the plunge into entrepreneurship—something that even five years ago, would have somewhat unimaginable. Clearly, the appetite for risk-taking has gone up substantially. New business opportunities are suddenly exploding across many new sectors. Capital, too, is far less scarce than it was even five years ago.

Yet the secret sauce needed to build enterprises of scale and impact isn’t as widely known. Much of our conversations in media are dominated by funding, deals and transactions. What goes on inside some of our breakout firms—after they’ve been funded—to take them to the next level isn’t always well-captured. And a result, how entrepreneurs and VCs team up to build high-performance enterprises remains a bit of a black box.

Together with our partner Boom Live, we conducted a special Hang Out on Air on July 24, 2 p.m. The panelists included - 

Sanjeev Bikhchandani, vice chairman and founder, Naukri

Ashish Hemrajani, founder and CEO, BookMyShow 

Haresh Chawla, partner, India Value Fund 

Sandeep Murthy, partner, Lightbox Ventures 

R Sriram, founder, Crossword & advisor, Seed Fund 

The session was moderated by Indrajit Gupta, co-founder, Founding Fuel.

The conversation was centered around the following points - 

  1. Managing the scaling challenge
  2. Building for the Future
  3. Building better alignment between founders and VCs

The hangout was live tweeted and allowed viewers to send in their questions, as storified below 


The Highlights:

On bringing in experienced professionals

  • If the founders have a competency gap, get in a professional CEO.
  • The young founders haven’t spent enough time learning how to build and scale organisations; they need to be supplemented with professional managers who can help convert the opportunity from an "outfit" to an "enterprise".
  • However, in India we have a shallow talent pool.

On building a culture of agility

  • The smart ones know that integrity, excellence etc are not really what they need to focus on. They need to focus on values that are essential for them to deliver on their business model.

On dealing with disruption

  • The core challenge is: how do you keep yourself paranoid? And not take any comfort from the fact that you've raised funds. A lot of start-ups mix up raising funds with success.
  • The investors bring experience from a lot of industries; they need to get founders to jump on to the bandwagon when they start seeing value being created at the intersection of industries.

On whether investors are only focused on returns, not on building a sustainable enterprise

  • If you've opted to take venture money, you've also opted to play the game to generate return for them.
  • The entrepreneur’s journey is not over when that investor exits; but for the investor to exit, there must be further growth in the business for a new investor to come in.

On using capital efficiently

  • Customer money is always better than investor money. It means you’ve got a value proposition.
  • But if competition is raising funds and there's a lot of cheap money out there, you have a challenge. You will have to raise funds, if not as an aggressive growth strategy, then at lease for defence.
  • If your surrounding ecosystem is going after scale in a blind manner, you can't be ignorant of that situation. But chasing that scale without a product-led differentiation will hurt you over time.
  • A lot of the money getting burnt is actually evaporating—it’s not leading to any sustainable customer franchise, any sustainable product differentiation.

On the metrics—other than just the financials—that matter

  • You can’t build a great organisation if your metric is only going to be quarterly profits.

Section 1: Managing the scaling challenge

Indrajit Gupta: In the US it's been a common practice to replace founders with professional CEOs and entrepreneurs abroad understand that. That seems to be broadly the playbook. But in India we've been a bit reluctant to replace founders with professional CEOs so that the firm is well positioned for the next stage of growth. Would you agree with that?

Sanjeev Bikhchandani: No I don't agree with that. I can't think of too many examples in India where a professional CEO came in, the founders quit and company went on to succeed. So while it is possible and has happened that abroad a professional CEO replaces a founder I am not sure how many companies actually succeeded with that model. Likewise in the US, I am not sure how many companies have gone on to achieve enduring success under that model—some have, yes, but there I would say many of them, the professional CEO came in at a later stage, the founders possibly stayed on in many cases and they continued to work for the company. So you've really got it on a case by case basis. I think if there's a skill gap or a competency gap that the founders have, it may make sense to get in a professional CEO, but not otherwise. This thing about it being a pattern or a model—it has to happen—I don’t think so.

Gupta: It's interesting that you mentioned that Sanjeev and I'll go to Ashish on this one. Ashish, if you speak to entrepreneurs in let’s say the US, where this is much more prevalent, and I was having this conversation with another friend of mine who has just taken the plunge into entrepreneurship and they're very clear that in two years time they have to be prepared, if they are not delivering results, that they have to hand over the reins to a professional CEO.

Now you've had a very long reign as a founder CEO. Have you ever had any conversation at all with your investors about handing over charge to a professional CEO or has it been smooth sailing all the way?

Ashish Hemrajani: There are two parts to this answer. One, you deliver results.... we are slightly different. We've been delivering results and when you don't, you start having self doubts and you raise questions. In our case, we've delivered results—more than delivered results. On the other side, I think the real issue in India is that we have not had an ecosystem long enough to have a talent pool at the scale and size and the industries that we all operate in to have a talent pool that is available which can take on the reins. I think a lot of what's been driven in our industry, especially with the founders, is the fact that there's so much passion, there's 110% commitment—they're still trying to scale a large number of businesses. I think in the US, it's had a long runway to have enough talent pool at that scale in the areas that we are talking about. But in India you know in some of the large companies—the traditional, the industrialised sort of companies, your FMCGs and a lot of those—there aren't enough management pool talent which can take on the CEO's role. So I think that's really the difference. And if we were having this conversation maybe five years down the line, it would probably be different.

Gupta: That's a fair point. I'll pick up that point that you made about a rather shallow talent pool. Sriram, I wanted you to come in ...we've also noticed the more recent phenomena of consultants being hired in many cases. Professionals into the professional cadre when firms are looking to move to the next level of growth. Now consultants...I'm a little perplexed—how are they best placed to deliver growth and scale?

Sriram: There's a wonderful book by Peter Thiel called One by Zero. He talks about two kinds of people: the “ones” and the “twos”. The “ones” are the strategic thinkers, they enjoy figuring out what is to be done and how it is to be done. The “twos” are the ones who actually love getting things done. For a really successful company you need both of them. I think the reason they are getting these professionals or consultants in most cases, many of them from McKinsey for instance, is because they want the “ones” to figure out what is to be done, how it is to be done. And they have talent to execute that.

But in India, as Ashish said, we don't have a lot of experienced people who built and scaled businesses and who are available to take on other businesses. We do have a problem with the talent pool available.

Gupta: Haresh has very strongly argued for a transition in some cases where the model may not necessarily be working, where founders do need to give up the reins; he’s argued that VCs have been a little timid in pulling the plug in some cases. Haresh what was on your mind?

Chawla: Let me put it this way. Two issues: I agree that the ecosystem is not developed here. The internet has been around for only 5-7-10 years in its full mature form and therefore you clearly don’t have access to professional who have done some of the things that the founders are doing in the internet companies. But equally that holds true for the founders as well. You have a lot of young people who've probably not spent enough time learning how to build organisations, how to craft out roles, how to scale companies. So the ecosystem question holds both ways. My real issue is not that the founders should be replaced. I think the founders need to be supplemented with professional managers.

There's no question that founders bring in an extraordinary amount of energy. Very simply, founders work 24/7 and professionals work 9 to 5, so you can do the math there. The core question is that are we—all the people here are really old people in the internet business and that’s not a country for old men—but all of us, don’t we believe that younger founders, and especially as investors, shouldn't we help them out and supplement them in whatever areas they're missing out on with professionals, and shouldn't that be something that is done upfront when you invest? When you [do due diligence for] a company and you figure out what needs to be done there and really coach the founders into accepting professionals in? And again, it depends on the situation, I don't want to generalise it—in some cases the founders will have to take a side seat and do a more creative or a more strategic role and the professional needs t come in and do the day-to-day operations.

So two issues. One is the ecosystem is immature for all of us and secondly, I am talking about supplementing the entrepreneurial energy with some professional processes, structures and roles given to people who've already done it before.

Gupta: In your kind of work Haresh, when you advice entrepreneurs and founders, what are the typically maybe two-three important areas where they need the maximum help? Obviously that would depend on the profile of the entrepreneur as well. A newbie entrepreneur fresh out of college as opposed to someone who is chucking up a corporate job—give us a relative sense [of it].

Chawla: If you look at the Indian market as well, I don't think we can be entirely product-led, which is what a lot of young founders coming out of the IITs are good at—technology and product. Unfortunately in India I think the ecosystem from the consumer end also has to get developed. Therefore, most of us land up into a situation where the model becomes a bit hybrid—it's not pure play internet, it's not pure play offline. You end up doing a few things where the business complexity actually goes up and hopefully then goes down as your business matures. At that phase of offline-online or whatever hybridisation that's needed for the company to survive or to excel—at that moment founders clearly need help on let’s say finance, on how to run the "moneyship" of the company, they probably need help on sales—how to build up the sales force, how to do some of the things that running a 500 people or 800 people or 1000 people sales force for anybody is not something that somebody can do just by getting out of college and starting up. So if you get a professional who's done that for 10-15 years, in some of the offline businesses—that will be a great way to supplement. So it comes down to what the specific situation is. But largely, you'll find that the young founders coming out of colleges are very good at technology, very good at product thinking, very good sometimes at marketing and creating buzz, but the other functions of the company, especially the support [functions], which are needed to convert that opportunity from an "outfit" to an "enterprise", from an outfit to an organisation—that needs to be supplemented.

Gupta: Sanjeev, in your experience what are some of the issues that you find among the slightly more mature entrepreneurs? Haresh talked about the young entrepreneurs and I remember talking to you when we last met about the whole difficult time that people have in getting the business development piece right, especially the young entrepreneurs. Would you give us your own sense?

Bikhchandani: I agree with what Haresh said completely. Now the flip side is, if you invest behind an early stage company which is being led by a bunch of 40 plus year old founders, you've got to understand that look, you know inception to IPO in India can take 10-12-15 years, strategic sales aren't happening at any great valuations, although there are more of them now than they were earlier. So by the time the company scales, matures, is ready for your exit, the entrepreneur is probably 50 or 55. That becomes a different kind of challenge. Somewhere along the way, will he lose steam, will he lose energy, what's going to happen—and that's a different kind of challenge. So there’s no actual perfect age of an entrepreneur to invest behind—whether mature or young.

In general I agree with what Haresh said. For a 26 year old engineer out of IIT is very hard to build and scale an organisation and lead it—you need grey hair there, you need experience there and in the Indian context, for a 35-40 year old to report to a 25 year old is also culturally hard. So these are issues we deal with. You'll find 26-28 year old founders who'll almost never recruit anybody older than them.

If you need experience in stuff where the rubber hits the road—on consumer, on judgement, on dealing with government, on running a sales team, running a back office—all not-so-glamorous stuff, you do have issues.


Segment 2: Building for the Future

Gupta: We are at the stage where clearly a lot of businesses that have matured or at least built scale, do need to prepare for the next wave of growth and the trouble is that old ways of doing business are increasingly getting challenged—digital disruption is really a reality that we are living with and there is therefore a lot more premium being placed on agility and nimbleness. I'd like to focus on that for a minute and look at the experiences that you've had—each of you—in working or associating yourselves with enterprises that you've been part of or advised—what are some of the smartest founders doing when it comes to building a culture of agility and nimbleness—what sort of advice have you given them to do so?

Sriram: If you look at culture, it's the outcome of what happens when people work with a set of shared beliefs and values and practices. Smart founders realise that they need to articulate the values that they stand for or the company stands for as early as possible. They need to live those values. They need to actually reflect those values in all the day-to-day stuff they do in the organisation. The way they hire people, the way they promote their people, the way they give their raises, the direction in all aspects of the business.         

So they actually articulate these and also embody these in everything they do and these quickly become culture.

As you said, you also have to keep in mind what is relevant for your business. Are your values standalone values, or are the values going to be part of your strategic advantage that you have—it's going to be essential for you to execute your business model?

So the smart guys have figured out that standard values such as integrity, excellence and all of that are not really what they need to focus on. They need to focus on values that are inherently essential for them to deliver on their business model and be able to scale on their business.

Gupta: Ashish, I'll come to you with my next question, which is around the issue of talent development and leadership development. That's probably one of the most important issues that any person building for the future would be concerned about. A lot of enterprises—and I'd love to hear what you've done inside to help address that whole issue of building a cadre, a talent pool because you addressed that whole issue of how do you deal with a shallow talent pool in India. What have been some of your experiences to address this?

Hemrajani: From my perspective, I've been doing this for 16 years, so I'm 40, I still probably still have the same energy, but the thing is, a lot of people forget that money is not the only thing that can solve problems of scale in companies. There's a big challenge today with this bubble or whatever you may call it, that if you raise a lot of capital, you're going to solve a problem, you're going to get talent and you are going to scale and grow. Sure, but I also believe that a lot of companies have indigestion ....I also believe that the guys who get you from point A to Point B cannot get you from point B to point C. And that's where it becomes extremely important that as you climb the ladder of success and your horizon starts getting bigger and bigger, what are the gaps that you need to fill in the structural holes that you need to fill in through a talent composition. People older to you—so I have people older to me that work—it has completely changed the skew of the average age of the company, so I have somebody who is 55, who is the VP operations and I have somebody who's joined us as our business head who is 49 and the whole company is dynamic—it's changing, but they are extremely crucial and invaluable to the next phase of this company. And then on the other side we've got these product and design guys who come in straight from design, engineering sort of backgrounds, they do these lock-downs, scrum circles, survival only Starbucks...I think it's very important to have that balance, create an environment which lets both these edge cases succeed side by side and you play that pivotal role. For a company that’s been around for so long and we've seen these two boom-bust cycles, we've seen that this is the only thing that can get you by.  

Gupta: Sandeep, what are the things that you've noticed, what are the practices that have worked with the companies that you've worked with and advised?

Sandeep Murthy: I think the situation has gone from very difficult to even more difficult in the last couple of years. The cost of talent is going up, the quality is improving however, and you are getting a chance to see people who have experiences. So you have people who started earlier at Cleartrip , have been through it, so I'd say the quality of the entrepreneurs coming in now is getting better and better because they're at a point where they've been through some of this in the past. That being said, as you are scaling up the business, finding the talent that has been there before is new and it's all unchartered territory. That's continuing to be a hurdle. The best we can do is continue to train and work through it and we're getting people returning from the states who bring different experiences on scaling and I've seen some of those aspects which helps, but they haven't seen the market context. So these are the realities of building a business and I think therefore the entrepreneurial challenge is significant in any respect. That's what makes people like Ashish and Sanjeev s great, they've navigated it over the years and we'll hopefully see other entrepreneurs continue to do that.

Gupta: Haresh, I wanted you to come in on the whole issue of innovation and dealing with disruption. You've spoken about this before, in some of the pieces that you've written for Founding fuel. How do you position a firm for innovation because that is oftentimes a very very hard thing to do?

Chawla: All the people sitting on this [panel] have built big businesses, but I am sure all of them are paranoid about the next bunch of young engineers who'll come and create an overwhelmingly smile product to use and they would have all paid the pioneering cost.

The whole social landscape is changing in India. Suddenly you have consumers shift preferences, shift tastes, and that's hurting every business, including the online incumbents again.

The core challenge is: how do you keep yourself paranoid? And two, not take any comfort from the fact that you've raised funds. A lot of start-ups mix up raising funds with success. Raising funds is just one more check box that you have to tick in your journey.

Being constantly paranoid and constantly nimble—some of internet companies have to realise that what they do is only a facilitation layer; and when somebody else comes and does the job better, it is ripe for disruption. If you forget the fact that you are actually just a layer between two people or two companies trying to finish a transaction, you can make horrible mistakes by investing in the wrong things and getting too comfortable with all the stuff you’ve built up in the enterprise.

Murthy: You are absolutely right there. The idea of raising money is no guarantee for success at all. The size of companies that are shutting down after having raised large sums of money is a true testament to the idea that unless you have a value proposition for the user and a sustainable one, the fact that you raised 15, 20, 100 , 150, 200—-whatever it may be , it doesn't make a difference.

Gupta: Learning from industries outside yours and how do you position yourself to do that smartly? Those industry boundaries are blurring. There's a lot the banking industry can learn from say the way telecom industry is organised and telecom industries learn from the way consumer industries are organised. What is it that you tell founders who tend to be somewhat focused on their own space?

Chawla: A lot of industries are really old. What the internet or internet technologies are bringing in is just bringing a layer of interconnectivity between industries. A lot of value will get created at the junction of these businesses. These businesses have been around for ages. Movie tickets have been sold for the last 100 years, but Ashish has come in there and brought in how to use the mobile well, how to use barcodes well, how to use seamless payments. And then you try and bring a transition to the business. Our role as investors is they bring experience from a lot of industries and they need to get founders to jump on to the bandwagon when they start seeing value being created at these junctions.

Talking of success, when founders look at their companies, of course they get funded. when they are using that funding and creating this burn, is that growth leading to value creation or is that growth just leading to better numbers, better GMV [Gross merchandise value] or better transactions? Or is it leading to sustainable value—customer loyalty, repeat rates and your brand gets built.

Segment 3: Building better alignment between founders and VCs

Gupta: The perception outside is that there is some work still to be done to help founders align better with VCs. I’ll start with a question that sets the context—and this is from Tanmoy Goswami who is a senior journalist with Fortune India magazine. He has asked a very simple question: Agree or disagree? For a private company the ultimate goal of investors is to find an exit, not building a sustainable enterprise.

Chawla: I disagree. If you don't build a sustainable enterprise you won't get an exit. At the boundaries, when you are looking for exit, investors dress up companies and oversell them, but really speaking if you’ve not built a sustainable enterprise and only if the buyer is fool, will you get an exit.

Murthy: How do you create better alignment? It starts with understanding the motivations of everybody. Why are investors investing? Because they have to give someone else a return. Why is an entrepreneur building a business? Because he wants to change the world in some way hopefully and wants to create something beneficial. If you decide to take money from an investor, you are now getting into a situation where you'll have to balance both of these priorities. ... If you've opted to take venture money, you've also opted to play the game to generate return for them. And that can come in many ways. It doesn’t mean you have to sell out the company; you can find that investor an exit and move on in life. So yes, the investor’s primary objective is to generate exits and generate returns and Haresh’s point, the only way that will happen is if they build value.

Bikhchandani: Smart investors who are in the business of investing and will be at it for decades and do many, many companies—on a systematic basis you cannot get return on your investments unless you are backing entrepreneurs who want to build sustainable enterprises and who look like they can do it and try to do the right things. You can fluke it once or twice by getting an exit without delivering value, but you can’t do it in a sustainable systematic way over a few dozen companies.

Sriram: This is a prime reason of conflict between VCs and entrepreneurs. I know many cases where this has happened. It has happened in my own case—in the sense that what's the way to grow the business to the next level? The investors have a point of view on that, the entrepreneurs have a point of view on that and it's not to say one is right and the other is wrong. Investors have their purpose, which is give a quick return to their investors, where they need to exit because without exit they can’t give return to their investors; but entrepreneurs are pursuing their goal of making a difference in the world. For them the journey is not over when that investor exits; but for the investor to exit, there must be further growth in the business otherwise a new investor cannot come in. So for an investor to successfully exit a company, they must have created a situation in that business for another investor to come in and take the business to another stage. There's no either, or here; both need to happen.

Gupta: The issue of planned capital infusion. There was a time when you raised capital at periodic levels and focus on much more efficient use of that capital as founders. The current paradigm seems to be that lets raise the capital if you are getting it, and use it to drive momentum and hope that it has some positive effect on valuations. Does this excessive focus on fundraising take the focus away from building an enterprise?

Bikhchandani: Our DNA is revenue, growth, revenue, profits, internal accruals, funding further growth through internal accruals and that’s the way we’ve done it so far. It's worked for us, but the truth is if there’s a lot of money out there and competition is raising, and they are going to swamp you with that money, I think you are in a difficult spot. What we'll have to tell the entrepreneurs who we have backed, is customer money is always better than investor money because if the customer money comes, investor money will follow. But if the investor money comes it is not necessarily true that customer money will come. If the customer is paying you repeatedly it means you’ve got a value proposition, it’s valid, hopefully your price is above your cost, and therefore you’ve got positive net margins and at some point of time, with the right amount of growth, you will break even and make money.

But if competition is raising and there's a lot of cheap money out there, you have a challenge. You will have to raise, if not as an aggressive growth strategy, at lease for defence.

Murthy: We’ve analysed this as well, because the situation faces us all the time with our businesses as well. India is a market of scale. It is a billion people at a very low ARPU. Unless you are able to build your business at scale, you are going to have a challenge. If your surrounding ecosystem is going after scale in a blind manner, and you are sitting there saying, I am going to be true to my life, true to my word, and just build a very good business, you are going to hit a hurdle at some point. You can't be ignorant of that situation. But chasing that scale without a product-led differentiation will hurt you over time. You have to understand that you have to build scale, you have to understand that getting to a lot of people is important, but at the same time, make sure you are building a product that will sustain and differentiate and over that time. And if the market is there for it, you have to run with it, you have to take that money.

Gupta: Ashish, this is a conversation I wonder if you've had with any VC. Many VCs believe that they know the market and the strategy the firm should take. But the reality is that—and I am sure you would have discovered this in your own entrepreneurial journey—is that there are lots of experiments that as a founder you've got to do and you've got to trust your gut to do that. Have there been any occasions where you've not been in sync with any VC and run into some issues of attrition? Haresh is smiling here, I wonder if there’s some story (laughs).

Hemrajani: Let me give you the analogy of marriage and why are the divorce rates probably lower in India than in other parts of the world, is because when a guy meets a girl sitting in a coffee shop, with their parents sitting at another table and looking and asking uncomfortable questions—what does the guy earn, where does he work, does he have a car, and then they try and fit the two together and the marriage hopefully lasts for 25-30 years and everybody sucks it up when things go wrong but eventually it lasts. When it is just hormone driven in other parts of the world, that's only uni-dimensional and at the end of the day, the divorce rates are high.

So I think if you go to the highest bidder as the guy who is funding you, you as an entrepreneur are not doing enough background checks. There is no meeting of the minds, there is no meeting in terms of your ideation and all of that—I think then you are in trouble because when the going is good and there's a bubble, it's great, otherwise when things go south they really really go south. So that's my analogy.

The other analogy of marriage is that there are times in your marriage when there are ups and downs, there are conflicts but you've got to resolve them. Sure there are ideas where you want to go a certain direction and your investors don't think so and otherwise. I think this whole notion of giving crazy valuations and putting a company on a treadmill at a 100 km an hour—that the guy can't get down and forcing him to do things that he shouldn't be doing—of scaling at the rate that he should be scaling—scale is important, but not at a crazy rate. I've been asked uncomfortable questions, not by my investors—I've been extremely fortunate to have a great bunch of guys who I work with—but people in the community who say why don't you get into travel, why don't you expand to 20 countries... I think the problem in India is so large that the growth story here and the focus that we've had in the business that we need to solve, scale and build...we just stuck to the core. So it works differently for different companies — some companies need to take that direction—but it needs to be a collaborative decision making process and you've got to run these experiments and be able to quickly backtrack or course correct . I don't think there's a clear answer for if the conflicts continue and continue over a period of time where you are always at loggerheads then maybe the choice itself was wrong.

Gupta: This was a question actually, I should have mentioned, it came from Sumir Verma, who is a founder at Merisis Advisors, an investment bank. He wanted to understand, Haresh maybe you can add to what Ashish said, which is how do evolved founders and  VCs deal with a situation of conflict when there are basic disagreements over strategy.

Chawla: My view is that, there is a crazy frenzy going on. I think models that are working in the West, you suddenly get 40 companies that get funded on that and suddenly there seems to be this mindset that what’s worked in the West has to work very quickly in India. So a lot of money that is getting burnt is actually evaporating—it’s not leading to any sustainable customer franchise, any sustainable product differentiation... I know the internet businesses forces you to play a last man standing or last couple of men standing game, but the reality is that the VC who has probably seen more markets or seen more of the world than some of the young founders, needs to take a larger role in an enterprise and they need to find the time and energy. I guess some of them are investing in 30-40 companies, clearly they won’t have the time to do the deals, to evaluate new firms and run these companies, but they need to create an ecosystem of people like us who have a lot of grey hair, who’ve seen ups and downs in life, to mentor some of these founders to run the track well, rather than just get carried away, look at each other and drive for growth. Of course, all the other challenges will remain—you need to fund the enterprise well—two days ago I heard a banker tell me that this company’s cap table [capitalisation table] is built for success, they’ve got strong hands in there and we spent less time talking about the product. I think some of these challenges are there and they won’t go away easily. But equally lets understand that this whole Western markets—they’ve been around for 25-30 years, the ecosystem is matured, newer people are not entering that market. In India, in two years’ time we’ll probably have a whole new set of internet or smartphone customers entering the system. And those guys will probably need to be served version 2 of all the companies that we’ve talked about today.

So my sense is that, I think the VCs and the investors need to create a strong ecosystem of experienced people and make them available to these companies as bouncing boards or advisors. And help navigate some of these tough issues—these conflicts will arise and people need to spend time and resolve it.       

Gupta: You make an important point there that you need to pick your investors carefully. People who can add value just beyond money.

I’ll move on to a question that Sudipto Patra, an entrepreneur in the publishing space based in Delhi has raised. He says that there’s too much money riding on proven models and he says—the same point that you made—that while VCs tend to be obsessed with financial measures, whether its Ebitda or cash flow or scalability, is there room for building things like slightly more abstract, intangible things like purpose, impact beyond narrow financial measures. Sriram I’ll come to you on that—do you believe there’s space for non-financial measures and would VCs even agree to collaborate on things that make the higher purpose of building an enterprise that much more visible and apparent?

Sriram: If you think of the more successful companies, they never had narrow financial metrics as what they live for, what they work for. All really significant businesses in the world are all looking at really making a difference in the space that they are in, in the lives of their customers, in the ecosystem that they build, and they have a purpose that goes beyond profits.

I think, you can’t build a great organisation if your metric is only going to be quarterly profits, if your metric is only going to be revenue. I don’t think there is a company that can sustain profitability if it only looked at finances as a metric—or financial metrics being the only driver of that business.

For me, weather as a founder or as an advisor or investor, definitely I’ll want to know how is this business going to answer this very important question: why should it exist? If it only exists for money, I don’t think that’s a good enough reason.

Gupta: Sanjeev, I’ll come to you for the next question. Sometimes you do have entrepreneurs who get funded and then they stop listening to any good advice—so they tend to jerk around investors, don’t take responsibility for delivering revenues and results. If you have had to deal with a situation like that, what are the options that are open and is there perhaps a bigger, wider conversation around governance and ethical standards required today?

Bikhchandani: First of all, I have no problem if an entrepreneur doesn’t listen as long as he’s right. If he’s right and running the company well and delivering results, I am OK. The secret of successful investing is actually to invest behind those entrepreneurs who’ll succeed anyway. It means that you are fortunate that you identified that person and you put your money behind him because he is going to succeed anyway.  You may need to do maybe 2% of handholding.

There’s a fair bit of vanity among investors that look we made the difference—maybe you made a 2% difference but the truth is good entrepreneurs succeed anyway.     Maybe with your help they can succeed faster, maybe they can be slightly larger, maybe on some crucial occasions you stop them from making some really bad calls, but by and large the entrepreneur is going to succeed anyway. At least that’s what we look for in entrepreneurs—we don’t want to spend too much time handholding, he doesn’t need it.

Having said that, there’s a huge responsibility that both entrepreneurs and investor have. Investors come in with a shareholder agreement that gives them disproportionate powers; when we go in we have a similar shareholder agreement but as far as we are concerned, these disproportionate powers are defensive powers—they are never to be used. If you have to use those powers and take the shareholder agreement out of the drawer where you locked it, I think the company is dead anyway.

As far as the entrepreneur is concerned, I think when you take somebody’s money, while the investor may have taken the equity risk, you have to understand that in your head you have the responsibility of having taken debt. That somebody has trusted you with his or her money, you better behave responsibly with it, with the investors.  And sure, if you disagree, still push your point, give push back, but I don’t think you can disrespect people who have invested behind you.

Gupta: Sandeep, I have one question to ask you. We’ve had several companies who’ve done multiple rounds of funding. Some have done even more than 100 million US. So what’s your sense? How many of these funded companies will really survive if you were to look at what could play out till 2020?

Murthy: We are investors, so by function eternal optimists in the equation and I would like to believe in this situation that vast majority of them will navigate the rough waters and find a way forward and find alignment with their investors and their customers and do all of that, and I also would like to believe that the general market dynamic is such that technology driven businesses are the ones that are going to gain more of the customer adoption, more of the customer wallet, so therefore all these things should play in favour.

That being said, money like we talked about before, is not an indicator of future success and will not definitely sustain a business going forward. So while a good tide will help raise all the boats and everybody will do well for a while, I think it would be challenging unless they try some clear points of value-add and differentiation. So I’d say right now that I will stay on the optimistic side and say that as long as these guys get great advice, you know listen to the people around them and continue to find that right point of differentiation, many of them would find the way forward. I think the other side of me says that some of those are not going to happen and therefore we’ll some disasters along the way. It’s fine. In any cycle—the question often comes up which I don’t know if it was addressed  earlier or not—is it a bubble, is it a boom, is it a hype. I think for any type of disruptive change to take place, you will see an element of a bubble there. And just facilitates the investment in changing customer behaviour and I think we are in that and that’s ok. That means that there will be wrecks and that’s ok. On the other side the companies that will emerge will be outstanding and hopefully they’ll have sustainable value for a long time.

Gupta: That’s a great note for us to wrap this session because our mission at Founding Fuel and I am sure at our partners at Boom Live is to help entrepreneurs build stronger enterprises. And if they do a lot of the things that have been discussed today—which is to listen carefully to good advice, pick your investors carefully, not be obsessed with just funding but focus on real value creation, plan the talent and leadership development within the firm—there are many things that we’ve learnt from this conversation and I am hoping that we’ll continue this on our platform.

Thank you so much, all the panellists—Sanjeev, Sriram, Ashish, Sandeep and Haresh. And thank you viewers for watching and interacting and sharing questions as well.      

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Founding Fuel

Founding Fuel aims to create the new playbook of entrepreneurship. Think of us as a hub for entrepreneurs- the go-to place for ideas, insights, practices and wisdom essential to build the enterprise of tomorrow. It is co-founded by veteran journalists Indrajit Gupta and Charles Assisi, along with CS Swaminathan, the former president of Pearson's online learning venture.

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