I really love this book. If you haven’t read it by now, then you should soon enough (Click on the picture for the Flipkart page). John Warrillow narrates a simple story about a person (like you and me) who wishes to sell his business off and chill.
But he can’t.
Because like many first time entrepreneurs and a majority of Indian Businessmen, he creates a business that is fundamentally unsellable.
The book walks you through a relatable story of a good guy who wants to move on and expects to be rewarded for all the work he has done in building up his company.
Unlike what Steve Jobs and his ilk might say, I feel that selling out a business, which you have created, is a very valid exit route. Steve Jobs might have found ultimate happiness in creating highly priced touch screen toys for the hipster crowd but many others just want to retire on a beach and spend time with their families. After all we are all in it to make a profit.
In this post I choose not to ‘recreate’ stuff written by others since I don’t feel good about restating what has already been written (rather well at that). However I feel that a few rules apart from those given in Built To Sell are relevant for Indian Startups and businesses.
10 ‘Built to Sell’ rules for India
1. Black Money – Most startups or young businesses in India really depend on Black Money in one form or another. Informal markets around India, especially in the urban centres provides most entrepreneurs with the capital to start businesses at low or moderate interest rates. Sometimes this money is from a relative or a friend who wants a piece of the action. With cash still King, not only in the financial but also the physical sense, this is a fairly easy and painless form of capital. Our risk-averse banking system really isn’t made for first time entrepreneurs and that’s where the black money market helps support millions of small businessmen across India. The problem happens when your business can not graduate from Black Money based capital and transactions to white money based business operations. If dealers, vendors, customers etc are dealing with you in off-the books transactions and black money then it becomes very difficult for a large players (who themselves are highly regulated and well known) into buying your company out. It also restricts the actual sales you can declare. With most buyers being progressive, large domestic or MNC firms who are, in general moving towards cleaner operations, this is a real issue. Even if you have a great business, the best step is to wean your business off black money and work on white.
2. The Law – Indian businesses have a penchant for breaking laws, not taking all the licenses, permissions, not getting into contracts, agreements and having a multitude of cases against them. Due to our fabulous (read slow, lousy and corrupt) legal system, most businessmen don’t really mind cases against them as long as it doesn’t lead to a stay against major business operations. However a prospective buyer will in all probability put his money only when he knows that there are no extenuating legal issues against the business. If there are, then the buyer considers it a potential threat to future revenues and business operations. A firm interested in buying you out will look at long term contracts, agreements, permissions etc since it not only considers them as safeguards to business activity but also increase long terms revenue projections and hence the valuation of the business.
3. Family Members – Involving family members in a small business which looks to spread its wings and grow fast seems like a great idea in the beginning. After all you are ensured order, loyalty, motivation, a quasi-managerial set of people and low salary expectations. This also leads to the dreaded mix of the personal and the professional. In many cases it leads to family disputes, ego hassles, staff loyalty issues and development of company fiefdoms. This is a major turn-off for buyers.
4. Markets with major player interests – This is really a no-brainer but for some reason most people get this one wrong. A businesses’ ability to sell itself to a major player/MNC/Domestic Company only exists when (A) It’s an exciting sector where a number of players are looking at gaining traction and market share (not necessarily revenue… yet) (B) FDI limits are 100%/high/Going to increase hence ensuring that buyouts can happen by a foreign player for domestic presence. This also increases domestic competition (C) The sector is strategic in nature i.e. it is important from a technological, geographical or social perspective and not only from a revenue point of view. (D) Low regulation by government agencies.
5. Process Process Process – My biggest issue with Indian businesses and startups. The lack of process and systems. The absence of it makes most prospective buyers jittery and unsure, leading to lower valuations for your business. A proprietary process and system set up for your operations and sales will make it really easy for a professional business to put faith in your business and buy you out. A process and system oriented management shows that the company is poised to take on scalability issues head-on.
6. Documentation – Usually this would be a part of the above point, but I just don’t think that would cut it from an Indian perspective. Indian startups and businesses refuse to document. Actually it’s not in our cultural DNA since we are a verbal story-telling based culture. While this may lead to some great traditions and promote faith the in informal business sector, it also leads to bad records, adherence to policy and issues with creating processes and systems. It makes duplication of results and activities really difficult while making the business extremely people dependent and reduces organizational intelligence.
7. Don’t offer to sell everything to everyone – This is a like a disease which afflicts every Indian startup and business at some time or the other and totally goes against all practical advice regarding scalability, identifying differential advantage, identifying your TMS, creating great products/services and organizational focus. Too many companies have lost money, time and resources trying to please too many people at too many price points in too many ways. This also confuses the living hell out of a potential buyer of a business since they want to fulfil a specific need by buying your business but can’t identify what to do with all the rest of stuff that you seem to be doing. It makes your business look poorly organized and very muddled. Why? Because it is.
8. Hire a great CA – Just take it from me. Hire a great CA. Pay him more than you pay yourself if you have to. Just make sure your ass is on the right side of the law/tax department and that your financial papers look ready to be entered into the next Harvard Case Study series. It really really helps.
9. Build a Board – Most boards only exist on paper and consist of family members who either are already part of the management or don’t even know what you do. That is a fatal mistake. A board made up of local business leaders, professionals, professors and socially known /respectable citizens not only make it easier for you to do business and look good, leads to better credit ratings and it also increases valuation.
10. Don’t look at the US/EU valuations – Please understand, the US/EU (especially the US) is a crazy place where valuations go into bubble mode at regular intervals. The US/EU markets have a very well developed M&A market/players, with deals being done every day and companies being used as short/long term investments by PE/VC firms. In India we don’t have a developed market for M&As, we also have FDI restrictions, low valuations, cultural aversion to selling out and most importantly we have the Rupee (not the dollar). So don’t expect to be offered a deal on the lines of the US. You will be much happier and will also close the deal better. Don’t convert your Rupee valuation into dollar, unless you like being depressed.
Startup Yapper 
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