INSIGHTS #1: Key Ingredients for Startup Success

Hello and welcome to the Insights Podcast series from Axel. I am Anand Daniel, partner at Axel, and your host for today. The aim of the series is to share with first time entrepreneurs some insights on the journey ahead of them. Over the course of the next few months, we will have conversations with some of the successful founders from the Indian startup ecosystem on their startup journey, as well as with some prominent investors. Today, we are kicking off the series with a conversation with my partner, Shaker Kirani, who was part of two successful startups in the valley, turned Angel Investor, and now a VC. We are going to talk about what are the key ingredients of a successful startup and dive into one of those ingredients in greater detail. Welcome to the podcast, Shaker. Hello Anand, Shaker, before we start, can you share your journey to set context for the listeners? Sure. So, I am a late-comer to the VC industry. Before becoming a VC, I was part of a two successful startups in the valley. One was called Starfish, and the other one called Light Surf. Both were sold, Starfish was sold to Motorola, and Light Surf was sold to Verysign. Then in 2007, I came back to India to head Verysign in India. In 2011, I joined Axel. So, over the life of my corporate career, I have done team building, engineering, business building, managing large, complex projects, and interacted with a lot of enterprise customers. So, that knowledge has helped me to focus my time with an Axel, where I invest in enterprise tech companies. Great. What are some of the companies you are working with currently? So, today, I have been involved with working with Girish at Freshworks, Sudhir at Zenoty, Krish, and team at Charge B, and many such successful enterprise companies coming out of India, but tackling global markets. Great. So, when we cut to the chase, what do you look for in a startup? While evaluating them for investments. Anand, that question itself will require a series of podcasts, even to answer that question. So, probably we should break that question into a few smaller questions. So, maybe one topic at a time, what do you think? Sure. That's a good idea. We will start with one of the components, based on your experience, what are some of the key components of an outstanding founding team? We have all heard that founding team is key. What are some of the things you look for in a team? So, that's an excellent question. So, founding team being the most important component of any startup, you know, it comes down to the founding team, the trust between them, the diversity of skills, the size of the founding team, their passion for the problem, and their insights about the market, and problem solving skills, ability to make a decision, and overall a team that is well constructed to be a leader in the market and building that company into a great company. So, you know, it's a sequence of many, many things that have to come together. That's a long list that maybe we'll start with the basic one. How does one pick a co-founder that start with that? Yeah, I think if you look at most of the startups founders and their journey, usually the idea gets started with one person, and they go through kind of a sequence of phases. One that problem that they were noticed in their life are among the work environment where they are, they think that that is worth solving, that's what we call it as an inception phase of the idea. And once that idea kind of, they feel that this is the idea of what's solving, they start testing that idea with their friends, with their colleagues, to see how they react and give feedback on that, that what I call as a validation. And once people start feeling that this is idea that they can't sleep, they're thinking about it, even in their day jobs, then they say, okay, now is the time for me to start. Usually, either they start on their own or convince their friends to join them, and which we call as like a forming of a team to go after. So the co-founding team members usually goes through this. It is rarely a planned event like, you know, I'm going to start a company, let me go and build a great co-founding team and typically settle for a co-founder based on whom they interact and which of their friends react the most positively to the idea. So in that case, maybe let's dive a little deeper into that particular question. What's an ideal forming team like is, should it be one person, two or three? What are your thoughts on that? Yeah. So, you know, we do see quite a lot of companies in all shapes and sizes. We have seen companies with one founders, two founders and sometimes even five-plus founders. But typically, if we look back on our 100-plus invested companies and some of them being successful, on the average, we do see that there are at least two co-founders in a team. Typically, two is, gives a odds of success higher on the founding team. You know, we have seen two founders at fresh works. We do see some companies, three founders as well, such as in Swiggy, UrbanClapp, as well as Blackbuck, but you know, one of our successful enterprise companies called MindTical, there were four co-founders. So, you know, two, at least, is a good number to start with. And how do you pick those two founders? How do you go about picking those founders? Do you look for more trusted friends or skills or how? Any thoughts on that? Yeah. So, this is where I see most of the founders somewhat not thinking deep and broad before circling with who should be the co-founders of a team. This is so early in their journey, they might not have thought through what a co-founder should look like. And the co-founding team has to be together for a journey of at least 10 plus years, because if you want to build a very large, successful company that solves a problem and build a good outcome, the team has to be together for 10 plus years. So, what typically happens is the trust becomes the core critical part of selecting a co-founder, which means the friend that they hang out together or the friend that they work together during college days or during a company journey. So, they pick somebody whom they like, they know very well. And that becomes a criteria versus do I have the best with the skill set that is required for the job? Most likely this is a case because when they're starting out, they're so early in the game, the problem is not yet well-defined. They don't know the market yet, so they may not even have the enough background about whom to pick. So, that may be the reason why they go for picking somebody whom they know versus a trust versus who has the best skills. And if they're looking for skills, what are the complementary skills or maybe in one of your examples, you can talk about who has done this well when they started out? You know, when I see some of the founders who are careful when they're constructing their founding team, and we have given a deep thought about why this company are if startup should exist, they are very, very good in picking their founders. If you look at, for example, FreshWorks, when Girish started, he knew that he's an excellent product person. He understands the market needs. He knows how the product should look and feel for the customers. But he knew his limitation in terms of the ability to build from a tech perspective, so he was seeking for a co-founder whom he already had a trust factor but he knew a lot of tech people. But he picked Shann because he felt Shann was exceptional in building a tech stack and he had seen Shann build a great tech stack for him in Zoho. So, his trust level in shans skill helped him pick shans versus any other tech co-founder he could have gotten with because there were so many people whom he knew but he somehow gravitated towards shans. So, for me that is a good example of settling the most trusted friendly person. You also put an angle of skills so that you pick the best person in your network and increase the odds of the startup success. That is very helpful on how to pick a co-founder as well as responsibilities. Maybe talk a little bit more about if there are two or three co-founders, how do they divide their responsibilities and also this question about how to figure out who should be the CEO. When do you do that? Maybe these two things, responsibilities and picking a CEO. So the founding team and they start many times they come with similar skill set. That is what we see in case of 9 out of 10 founding teams. Usually one says let me build the product and the other says let me market and sell the product and typically the person who picks up going out and selling and going and selling and marketing somehow they break it based on the person's capability or the background or somebody who is good at conversations or storytelling versus somebody who is really good in technology will say let me go and build the product. So that's how usually they break it up but that is a natural breakdown but versus a kind of a design breakdown of how they should think about taking the problem and saying what does the market need and do I have if there are like three founders for example, how do I break? Typically it's broken based on what the problem exists and therefore pick each one of them and do it versus really thinking deep and say what are the core skills of a founder that they are part of and which person is the best suited person for that skill required to be successful in that startup. So product versus technology versus operations exactly. So you know you have marketing, you have sales, your product, your technology, your ops. If there are two founders they break saying that anything outside the company one person manages anything inside the company one person manages so it becomes like product and engineering usually one person takes but marketing fundraising and customers, a position of customers talking to customers is usually done by another founder. Got it. So who is better suited to be the CEO and when do they decide should they decide right better inception maybe some thoughts also. This is an important question and the trust factor between the two founders sometimes get broken later in the journey of the company because they never discuss this specific question early on in the journey. So I urge the founders who have come together and anyway they are going to commit themselves for several years together this is another important question about when they do scale who would be the CEO of the company and having that conversation and clarity of that is an important early step before they go into fundraise mode or build a team or even go and build a product and sell to customers. I would urge them to have this conversation early and if there is any conflict in the thought process of who should be the CEO you might as well break that relationship early and move on and find a separate team versus realizing that both want to be a CEO and they don't have trust in each other skill as CEO resulting in the company being a failure or shutting down later after spending couple of years together. For the early phase of the journey what are the core skills of the CEO at least CEDC those early phases. And the CEO is a very critical role in the startup. So the most few important skills obviously the leadership skills matter the most leadership and people skills because they have to recruit and expand the team as they build the company and that has to be done by CEO the person was joining the startup looks at CEO as well as the founding team but CEO matters the most. The second is the storytelling you know how good they can articulate the problem they are solving the market and why they can win in that market through their technology and the product that they are building. So that storytelling is very important and that skill if they have that helps a lot. Also it's about speed of decision making as a founder and CEO you will make many many decisions on a daily basis and some of those decisions are have shorter impact and some are very long term impact and these decision making skill of you know evaluating the options of these decisions that are the issues that come up on a daily basis and making decisions fast is one of the core skills. So a good CEO have this natural skill set of understanding the problems make doing decisions swiftly and also a great storytelling skills. You mentioned storytelling a number of times why is that an important skill. You know this is my own understanding over time the importance of storytelling when I started investing that was not even in my category list but as I have been working with more founders and starting to see the challenges they face what I am realizing is if I think backwards no large company can be built without having a large number of customers and a significant high quality team and a great set of investors all helping this company to solve this problem and be a winner in this market and to be able to convince a large number of customers employees and investors the person has to be very convincing and very good in storytelling and the ability to communicate the importance of their journey and their startup and how they are going to be a winner in that market. So that skill becomes very essential in fact get tested as they continue to scale the company. So this is what now I am realizing is one of the critical skills an entrepreneur should have before they go and jump into this journey because without that they will get some success but I can't think of them building a large company without this core element being part of their DNA color that's great. So we have talked a little bit about co-founders how to pick them, size of team, skills you look for and things like that switching gears you mentioned other things you look for in a founding team one of that was passion for the space and understanding of the market can you elaborate on that a little bit yeah so the passion I think there are two questions there the passion to solve the problem see if you see how the founders start their journey the idea would have originated in their mind to solve a problem that they face or the problem such the problem they have noticed when the problem they spend more time on it understand why the problem is worth solving they start building some interest from interest it becomes passion and from then it says like you know I must solve this problem and worth dedicating several years say three years to maybe ten years of their life to say I will go and solve this problem when I look at that commitment of time if there is no passion I see that founders giving up on that problem when they hit first or second road blocks and what helps them go through the difficulties is the passion in their mind and the not start goal they would have saying that this is worth dedicating my life to solve this problem we have seen examples of that the best example at least I have is K. Chandra Shekhar known as K. C. In our you know one of our invested company who was with a healthcare company looked at the problem in India where the blind you know India being known as a blind capital because number of blind people in India is one of the highest in the world but eighty percent of them are avoidable so he said it's worth my life solving this problem and I want to go and solve this problem and when he didn't get good support from his enterprise where he was working he said I'm going to start the startup so when you when we met them early in his journey it was very sure that whether with us or with without us he is committed to solve this problem and the amount of energy He has put in the innovation and has gone through so many iterations, but I see that is worth that problem being solved and I am extremely proud and happy that we have supported him. So that is for me a good example of a passion. And the founders of such kind of a passion, I think there will be enough people to support them and enough team to back them. Great. That's a great story of Casey at Forest. What's about the passion side, how about the understanding of the market and the solutions? Maybe can you talk about that and give a couple of examples on that side. That's a good question as well. See, there are two categories of markets. The markets that are well-formed, but there are gaps in the market that you want to take advantage of, whereas a founding team or a CEO or a founder, you know about it, are there are market where there is being formed, it's a new market being formed. So if the market is well-formed and there are gaps in the market, I think you need to spend a lot of time talking in that market to the key stakeholders, companies that serve customers who buy and really understand what is the overall equation in terms of who is buying at what price, what they're buying, why are they buying? So that when you build your product to replace an existing player or create some new market, adjacent markets inside that large market, you need that insight. And we saw that with, again, you know, both Sudhir from Zen-O-T and Girish from Freshworks, even in the case of Mintical, you know, we saw this where when they looked at the market, for example, in Sudhir's case, he was solving the wellness industry where every wellness industry player was using some sort of a desktop-based software for running multiple chains. But he knew that without a centralized product, a cloud-based product, they will not be able to scale and buy and expand their wellness chains. So as a market need, once he understood, then he looked at all the players and he found that they were not enough high-quality players, he was able to build a world-class global product and make it into pretty much a standard product in the North American market as well as an Asian market. So for me, that is the insight that helps founders not waste a lot of time building and trying and building and trying versus spending some time in the market and build a great insight. And once you have an insight, it becomes a lot easier to go and build a product. Okay, maybe related to that, you're talking about finding a problem, understanding the problem, having the passion for it and the market, maybe talk a little bit about, on the problem solving front, right, how should they look at the problem, solving side of thing? Yeah, so there's another insight, at least, I have learned on the job over the last seven or eight years, when I look at the founders nowadays, I'm looking for founders for their learnability. What I mean by that is no founding team knows all the answers and many times they don't even know the questions they're supposed to ask. So if they're kind of a fixed mindset where, you know, they have accomplished well in their career, they've done well, but they haven't grown in their thinking. I'm sure they'll have difficulty building that company to a large company, because in the journey, there are first of all, many, many unknowns. Most of the founders don't even know what a company is. For example, they would have never managed APNL statement or what APNL statement means. They will not even know the difference between revenue versus gross margin versus cost and most of the founders predominantly come from tech background and say they understand the problem, they understand the customer and they say, how do I solve that problem? But rest of the skills, these unknown unknowns, and unknown unknowns, they have to discover on the path and learn about it. So if they're not growth mindset folks, where they're ability to learn on the job and ask the right questions and find the best people from whom they can learn how it is done so that they can continue to build their knowledge and become the best at it. So this first principle based learning is a very essential skill for founders to be successful. But otherwise what happens is very soon, they run out of their team, then they have to hire some senior people. The founding team feels like they are not able to accomplish because they're running out of knowledge and understanding and this may get stressed more if there are enough competing companies putting pressure on them. So it is an important aspect of what I call as a growth mindset and learnability of founders and that is a very essential skill to be successful. So from a problem solving point of view, they need to be growth mindset oriented, always open to learning and learning fast and any other characteristics of problem solving to go and solve it deeply or how do they do it? So every day at the end of the day, the startup is about problem solving, right? And every day if you look at and list, there will be hundreds of things you want to do. So the very one foundational skill is the prioritization which of the problem is the most important thing for this quarter, this month, today and now. So they should be able to prioritize and say that which is the problem worth solving and why am I solving to break a large problem into a smaller problem and set up experimentation around these problems about what is the best way to validate and ensure that this is a problem worth solving or I have an answer to this problem, how I go about so that they continue to make fast progress and get closer to what customers need and whether my product satisfies that need and whether they are willing to pay. So in that journey of getting closer to the customer and ability to collect money from them and ability to solve their problem requires this high prioritization skills of breaking the problem into smaller problems as well as prioritizing among all the problems what problems worth solving and fast experimentation experimentation is very key is because many of these questions we can argue over a table or a coffee means nothing unless and until the customer's experience. So you should have an ability to take an idea into a working prototype or a product quickly in front of enough customers you should be able to measure their reaction and feedback and iterate upon so that you are continuously building a great product that customers love, that's great maybe one final question what are the common avoidable mistakes you want to sensitize first time founders some of the common avoidable mistakes you know there are there's a huge list you know if you can remember many of the companies we have seen some of them are for example they usually hire their best friend as a co-founder because the person happens to be best friend and reacted most positively and supported your idea versus the right skill set. So that is the kind of a biggest mistake I would say 50% of the startups fail because of this mistake I would say they pick the person whom they trust the most versus the person who is the best at doing things even within their network they don't even exhaust their network and say who is the best person this one secondly you know there is no diversity in skill set they usually settle with people in the similar skill set versus you know some another co-founder isn't even sold but he'll be the VP of sales right so how do you ensure that at least you give a chance of selling for someone who has even attempted selling or has got some outbound skills is very very critical the third part which is another one which we are seeing nowadays and becoming very essential is on the product thinking if there's no product thinking is one of the co-founders the companies struggle a lot because they continue to engineer the product but without product thinking and the customer feedback and customer satisfaction and thinking of a scale part they miss it and if they're growth-minded folks guess what Arun they have they usually figure out how a product thinking should be and how they scale themselves from an engineering mindset into product mindset but if they don't transition that I have seen that the founding team gets stuck that's another one the other one which is very touchy subject is splitting equity there are three founders or two founders they're so early They just say, let's make it one by three. There are three founders that are half, if it is two founders without thinking that over the 10 year time who has to carry the maximum weight and ensuring that having a clear conversation about it because this usually affects the team after two or three years when they start seeing the success and one person is carrying a lot of weight, they start feeling the pinch that, you know, hey, my value in the company is lower than what I deserve, but sometimes it is too late. So this is another mistake a founding team makes. And lastly, you know, doing startups part time and somehow thinking that, you know, I only if I get funding, I will leave my job and then start the startup. I don't think it will happen. So if you're really committed, you're passionate about this problem, you believe it's worth solving and you have evaluated there are enough customers for it. You have to bite the bullet and leave your job and start the startup. So I will be surprised if any investor backing a team which is part time founding team. So that's like, you know, actually, you know, if you look at this list is a sizable list, we can do a separate session on this, but these are like few of the things that is on top of my mind. - Thanks, Shaker, that's an extremely good list there. So we covered a broad set of topics today around founding teams. How do you go about picking co-founders? What's the ideal team size? How do you pick for skill sets among the various team members? We talked about how the founders should have passion for this space, understanding of the market and ability to solve problems. How should they think about problem solving? Their ability to learn fast, have a growth mindset, which is key to scaling the startup very quickly. These are some of the areas and also we talked, Shaker talked about some of the common mistakes that entrepreneurs make, particularly first time founders. This is just to get you to start thinking deeply about the whole founding process. We'll have more topics to cover in the weeks to come, weeks and months to come. We'd love to hear from the listeners on any other questions around founding or starting up in general that you would like us to cover through the startup podcast series from Axel. If so, please do share it with us. Thanks for listening and hope you join us back soon. (upbeat music)