From Startup to Exit

An Insider's Guide to Launching and Scaling Your Tech Business

Shirish Nadkarni

• Editorial: HarperCollins Leadership
• Año: 2021
• ISBN:
  9781400225354
• Categoría: Negocios y empresa
• Categoría: Emprendimiento

Tech entrepreneurs, make your startup dreams come true by utilizing this invaluable, founder-to-founder guide to successfully navigating all phases of the tech startup journey.

With the advent of the internet, mobile computing, and now AI/Machine learning and cloud computing, the number of new startups has accelerated over the last decade across tech centers in Silicon Valley, Israel, India, and China.

From Startup to Exit shares the knowledge that pioneering, serial entrepreneur Shirish Nadkarni has gained from over two decades of success, detailing the practical aspects of startup formation from founding, funding, management, and finding an exit.

With successful tech entrepreneurs interviewed and featured throughout, From Startup to Exit will help you:

• Understand exactly what tech startups must do to succeed in all phases, from idea stage to IPO.
• Gain invaluable insights from the journeys of other successful tech founders that can be applied to your own situation.
• Learn how to raise millions of dollars of funding from angels and VCs to give your company the fuel it needs to take off and succeed.

PART I

IDEATION

1

HOW GOOD IS YOUR IDEA?

The TeamOn Story

In 1997, at the height of the dot-com boom, I was put in charge of product planning for MSN.com (Microsoft Network). MSN was in a full-fledged transition from a proprietary online service like AOL to an open web-based portal called MSN.com. We were behind other leading portals such as Yahoo, Excite, and others. We were determined to catch up by leveraging Microsoft’s cash hoard to acquire companies offering essential internet-based services. One critical service we felt was important for us to provide was email.

In our research, we came across free web-based email services like Hotmail and RocketMail. While most people at that time got email through internet service providers (ISPs), Hotmail disrupted the market by offering a first-of-its-kind application as a web-based service. It was free and, unlike ISP email, it allowed you to access your email from any internet-connected computer with a simple web-based interface.

Hotmail was a simple but brilliant idea. After its launch in 1996, Hotmail started growing like a weed, adding more than one million users per month by 1997. It didn’t take us very long to decide that Microsoft needed to acquire Hotmail. The acquisition was expensive—almost $400 million—but well worth it as it drove significant growth for the MSN platform.

In the summer of 1998, after doing the initial work to integrate Hotmail into the MSN platform, I decided to take a sabbatical from Microsoft to contemplate my next move. We were in the middle of the dot-com boom as we had never seen before. Companies were raising $15 to $25 million in Series A funding with just beta products and no proof of market adoption. I had spent more than a decade at Microsoft and decided to try my luck at doing my own startup. I wanted to find out if I had the chops to make it on my own without the backing of a company like Microsoft.

Email was my passion. Even before the Hotmail acquisition, I was the product manager responsible for launching Microsoft Mail on the Mac and PC platforms in the early nineties. In the mid-nineties, Microsoft launched a client server solution for corporate email and scheduling called Microsoft Exchange. However, Microsoft Exchange was designed for large enterprises that could afford to hire system administrators to manage their server farm. It was much too complicated for small businesses that couldn’t afford their own IT staff.

Seeing the success of Hotmail, it dawned on me to offer an enterprise-grade email and scheduling service for small businesses that was completely web-based. Small businesses would no longer have to purchase servers, hire IT staff, back-up email, and deal with upgrades and bug fixes as they did with Microsoft Exchange. Our web-based service, which we named TeamOn, launched in 1999 and was one of the first SaaS (Software as a Service) solutions at that time. Salesforce, which popularized the term “SaaS,” launched that same year.

Like Hotmail, TeamOn was a good idea in concept. Unfortunately, it was ahead of its time when we launched the service. Although we signed up hundreds of thousands of users, usage was low and conversion to our paid offering was poor. Penetration of broadband internet access was low among small businesses, which made it challenging to use a web-based email solution. Users also didn’t care much about group calendaring/scheduling services as most people didn’t use a digital calendar at that time. Finally, the concept of Software as a Service was relatively new at that time, and most businesses were uncomfortable moving their corporate information to a public cloud. Almost a decade later, as broadband internet became ubiquitous and SaaS applications became more prevalent, Gmail and Office 365 would prove the need for a solution like TeamOn. With the failure of the original TeamOn concept, we were forced to pivot to a mobile email solution that eventually got significant traction. More on this a little later.

The Birth of Livemocha

Fast forward to 2005. I was traveling on vacation with my family. We had just landed in Spain late in the evening. We rented a car at the airport and headed to our hotel. Unfortunately, we didn’t have GPS in our rental car, and we had to rely on printed maps to navigate our way to the hotel. It was dark, and soon enough we got lost. We found our way to the closest gas station to ask for directions. Unfortunately, no one spoke English, and we couldn’t understand the directions that we were getting from the locals. I turned to my teenage kids for help as they had studied Spanish for several years in school. Alas, all I got were blank stares—I discovered that they had almost no conversational abilities in Spanish. Fortunately, an English-speaking person soon pulled up to the gas station, and we finally got the directions we needed. This incident reinforced in my mind the importance of conversational practice to properly learn a language.

The following year, one of my cofounders, Raghav Kher, noticed for the first time kiosks at the airport with bright yellow boxes promoting language learning through a CD-ROM-based software package called Rosetta Stone. Rosetta Stone promised that you could learn a language just like a child by simply watching a series of pictures with audio and text in a foreign language. Rosetta Stone invested heavily in marketing not just with kiosks but also with expensive TV advertising. Raghav purchased a copy of Rosetta Stone to learn Spanish but was struck by the fact that, in the day and age of broadband internet, Rosetta Stone was still selling CD-ROM-based software. It occurred to him that there might be a real opportunity to disrupt Rosetta Stone with an internet-based learning solution.

Growing up in India, I learned six different languages, including English. I knew that the only way to really pick up a new language was through intense conversational practice with native language speakers. This is the reason that my kids had not developed any conversational proficiency in Spanish. The textbook-focused approach that they took in school didn’t provide them with enough conversational practice to become proficient. I was excited by Raghav’s insight and agreed that the time was ripe to introduce a whole new approach to language learning that combined language instruction with the ability to practice conversational skills with native speakers. Globalization was happening rapidly, creating the demand to learn English all over the world. Not only was internet penetration increasing rapidly, but more and more internet users were gaining broadband access, enabling the delivery of high-quality learning content. Finally, Facebook was gaining increasing popularity, making it possible to create private social networks or communities based on common interests like language learning.

Raghav, Krishnan Seshadrinathan, and I decided to take the plunge into language learning, and Livemocha was launched in September 2007. Our vision was to provide language instruction combined with a social network of native speakers that would help learners develop conversational language proficiency. Each language learner was both student and teacher. A native English speaker learning Spanish could help a Chinese-language learner speak English. In turn, the native English speaker would get help learning Spanish from a native Spanish speaker from Latin America. Livemocha took off like a rocket because people loved the idea of seeking help from native speakers. We had a hundred thousand registered users in three months and a million within a year. Over the next four years, Livemocha grew rapidly to more than 15 million registered users in more than two hundred countries before being acquired by Rosetta Stone in 2012.

Unlike TeamOn, Livemocha addressed the real and immediate need of people all around the world to learn English. English-language proficiency can make a world of difference to people’s lives, giving them access, among other things, to better paying jobs. Livemocha, in particular, was successful because users were looking for a solution that gave them access to native speakers, which they knew was essential to developing proper conversational proficiency.

What Makes a Great Startup Idea?

You think you have come up with a brilliant idea for your startup. You have spoken to your friends and colleagues, and they think that the idea has merit. You have even done the preliminary market research and spoken to many potential customers, and feedback has been positive. But how do you really know that it will form the basis for a great company? Figuring this out is no easy task. After all, VCs are paid millions of dollars in management fees, and even then, for the most successful investors, only one out of ten picks is a major hit. To consider whether a startup idea has the potential to become a hit, it is important to consider the idea from a number of different strategic perspectives discussed below.

INCUMBENTS ARE HARD TO BEAT ON THEIR OWN TURF

Most markets you will target have existing players and market leaders that have been around for years. Incumbents are extremely hard to beat unless there is a major transformation in the industry that you can exploit first. Incumbents typically have a strong industry reputation, a host of features, a fine-tuned sales engine, and customer lock-ins that make it difficult for customers to consider a new player in the market.

Everyone today is familiar with the success of Microsoft Office. What people don’t know is how difficult it was for Microsoft to gain a leadership position in the office productivity space before Windows became a popular platform. Before the advent of Windows, WordPerfect and Lotus 1-2-3 were the de facto market leaders on the MS-DOS operating system. Microsoft had its own MS-DOS-based offerings called Microsoft Word and Microsoft Multiplan. However, Microsoft had very little success beating WordPerfect and Lotus 1-2-3. Users were just too used to the keystroke-based user interfaces of WordPerfect and Lotus 1-2-3 and were locked into the macros that they created in Lotus 1-2-3.

Once Windows 3.0 came on the scene in 1990 and started becoming popular, things shifted in Microsoft’s favor. WordPerfect and Lotus made the mistake of simply porting their applications from MS-DOS to Windows, which meant that the applications didn’t perform well on Windows. Not surprisingly, Microsoft built new word processing and spreadsheet apps from the ground up that were designed to take advantage of the capabilities offered by Windows. Next, Microsoft made the brilliant move to package these applications along with Microsoft PowerPoint into a bundle called Microsoft Office and made it cheaper than purchasing each application individually. Over time, Microsoft made sure that all the applications had consistent user interfaces and that it was easy to share data across these applications. It was no surprise that, as Windows became more popular, the market share leadership shifted to Microsoft Office as users wanted the best and most comprehensive suite of applications for Windows.

GLOBAL INDUSTRY TRANSFORMATIONS

The best opportunities for disruption happen when the industry you are targeting is undergoing a dramatic transformation. At that time, incumbents are typically slow to move because they have existing investments and business models that they are unwilling to disrupt. Microsoft, for example, failed to recognize how its hold on the PC industry would be disrupted first by the internet and later by mobile devices. It took a very expensive acquisition of Hotmail for Microsoft to get into the game with MSN.com, and it was soon eclipsed again by major players like Google and Facebook. On the mobile front, Microsoft invested initially in its Pocket PC platform but failed to see the shift to mobile by early players like Research In Motion (RIM) with its iconic BlackBerry device. Later, Apple and Android completely upended the mobile market with their touch-based interfaces and application platforms. By the time that Windows mobile came on the scene, it was too late for Microsoft, and it never got beyond a 1 to 2 percent market share in the mobile market.

With TeamOn, my plan was to ride the wave of SaaS applications with the shift from IT-installed on-prem (on premises) solutions to applications that operated in the cloud. In the 2000 time frame, when broadband internet was becoming more widespread among business users, SaaS-based applications provided performance similar to that of locally installed client server applications. SaaS-based applications offered numerous benefits over on-prem applications—companies didn’t have to hire an expensive IT staff to install and upgrade the applications and back up user data. It was also possible to access applications from any location with internet access—users were not limited to accessing an application only from within a corporate network.

When Livemocha was launched, the entire world was going through a globalization phenomenon with dramatic outsourcing of manufacturing and knowledge worker jobs. Global trade was also showing significant growth as tariffs and trade barriers were coming down. Worldwide travel between various regions was increasing significantly as employees at multinational corporations had to travel internationally to coordinate their activities with their employees, customers, and vendors. These transformations were all responsible for the significant interest in foreign language learning, especially English, throughout the world.

While the trend toward globalization was accelerating, a number of social networks began emerging and capturing end user attention. Facebook and Twitter launched in the early 2000 time frame, popularizing the notion of social networking. As a result, people started feeling more comfortable interacting with other like-minded people on the internet. A number of special community-focused social networks also emerged to leverage the trend toward social networking.

With Livemocha, we decided to disrupt the traditional CD-ROM-based learning model popularized by Rosetta Stone by offering a web-based social language-learning tool. Unlike Rosetta Stone, the offering was initially free. Later, we introduced a premium version that offered a more advanced set of learning courses with conversational video and grammar content. It took a long time for Roset...