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Secrets of a successful start-up

By Sanjay Anandram, Outlook Money
July 08, 2009 11:42 IST
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Entrepreneur. Angels. Venture capital. Innovation. Acquisitions. And, of course, the ubiquitous 'startup'. All these terms have become part of the imagination of a large section of the current generation. Events, blogs and articles on entrepreneurship and start-ups are proliferating.

Therefore, it might be naive to ask: What exactly is a start-up? Is the corner coffee or chai store a start-up? And what about an executive who starts a consulting company? Is every small business a start-up?

While most start-ups do begin small, not all small businesses are start-ups.

Fundamentally, they are engines for wealth creation. Start-ups serve as crucial means of growth of a country's economy as they create wealth in society and generate jobs. A start-up is the first step on the road to building a new company; the stage, size and rate of growth that the company achieves are important elements in determining whether the 'start-up' is indeed a start-up.

Typically, a start-up will grow at supernormal rates while adding tremendous value to itself. To achieve such levels of growth and to generate such value, a team and capital are required. With the emergence of angel, private equity and venture capital investors, more and more entrepreneurs in India (including 'start-up' ones) are turning to external funding to help grow their businesses.

The corner coffee shop is usually run by someone forced into entrepreneurship out of necessity, not choice. There's no team or growth plan since income generation is the primary goal. However, if the corner coffee shop has plans to become a national or even international franchise (like Cafe Coffee Day in India or Starbucks in the US) and makes the appropriate efforts, we can term it a start-up.

Someone who gets tired of routine corporate life, quits and starts a consulting company cannot be said to be running a start-up. This person is in the income substitution business. He doesn't want the complexities of creating a wealth-generating business.

Do you have the appetite for high achievement and the willingness to take risks to create wealth for yourself and others? Or are you better off in your job or in an income-substitution business? A startup is not just another job. It requires passion, energy and commitment. It is not to be pursued for glamour or because of peer pressure.

While market conditions are important to consider while planning a start-up, they cannot be the sole determinant. A rising tide lifts all boats. So, it is natural to expect a lot of entrepreneurial activity when there's huge optimism and a lot of investment capital available.

But when the mood is sober, investment capital harder to come by and the stockmarket is flat, entrepreneurial activity becomes subdued. For serious entrepreneurs, there's no good or bad time.

They have a long-term plan, have the team to execute it, go after large market opportunities and have a defensible business model. Therefore, for them starting a venture during less enthusiastic times implies lower operating costs while dealing with realistic expectations.

The locus of activities of the Indian consumer encompasses sectors from education and financial services to retail and hospitality. Entrepreneurs need to understand the specific opportunities, develop a low-cost business model, leverage technology and deliver goods and services in an efficient manner.

Developing a low-cost business model requires a deep understanding of the opportunity, delivery processes, managing costs and cash flows. Technology can play a big role in reaching partners, reducing delivery costs and providing low-cost customer care.

Sanjay Anandaram is a startup mentor and advisor, also involved with Nasscom, TiE, IIM-Bangalore and INSEAD business school in promoting entrepreneurship.

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Sanjay Anandram, Outlook Money
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