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Why should you not take funds from venture capitalists (VCs)?


Venture CapitalistDuring my career, I have helped numerous businesses in creating their business plans and acquire their initial funding. Though most of the time, I have connected these new business owners with the venture capitalists (VCs) that I knew, it might not be the right kind of the funding option for many businesses. Following are the few reasons for that.

Selling your equity: I don’t think that giving up your equity is necessarily a pitfall if your investors have the knowledge and the contacts required for your business. VCs can sometimes help you build a thriving and growing business. But they can have many pitfalls as well. Most VC firms require you to give up an equity position. It won’t be small part of your business as well, most of the times they are looking for at least 30-60%of the equity in your business. If you (by chance) choose a wrong investor, then it might create future problems while  selling your company.

No immediate funding: Unlike the bank loans and other kind of funding, VC’s funding is not immediately available. Most of the VCs set goals and milestones for the release of funds. 80% of the time, funding is released in stages and is usually allocated for growth and expansion of the business. I’m editorializing here, but expansion with an eye toward sale or public offering might not always be the best kind of growth.

You are not the only manager: Most of the time, VCs want to be added as a member of your company’s executive team. Don’t get me wrong, this is not always the worst thing to happen. If this is your first business venture, an experienced VC on your executive group will be a huge help. But you can also be put in a difficult situation, if you guys have any disagreement regarding a decision. Most of the VCs wants to lead the company to the path that will reap their anticipated financial reward, not necessarily the best decisions for the company’s future.

Business secrets become public: When you approach a bank or other small business finance company, it’s customary to expect that they will sign a non-disclosure agreement regarding your business plan and what you want to do. This is not the case with venture capitalists. As I have mentioned earlier, most of the VCs want to be invested in the company in the executive position, or as a decision maker, and hence, most of the time they refuse to sign such agreements.

You can’t call all the shots anymore: Don’t get me wrong. Having multiple people on your board of advisory will help you to understand multiple opinions (view points), and then take an educated decision. But if you happen to choose a wrong investor for some reason, that might not workout well for you. One of the biggest challenge that you will face after accepting the funds from a venture capitalists is to give up many of the key decision taking powers, which you would otherwise have. VCs usually want a lot of influence over key decisions and they don’t always agree with the founder. Their equity position gives them a seat at the table when it’s time to make important decisions.

I hope, my view points will help you to think twice before accepting some kind of a funding from VCs. Please share your comments here, if you agree/disagree with my blog.

Thanks – Bhavin Gandhi

 
 

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Practical ways to make your Team Meeting more interactive.


Team MeetingWe have all been a part of some kind of a team meeting in our lives. Though these meetings often start as an interactive exercise between you and your team members, they tend to turn into some boring status meeting down the line. As a manager, I am also guilty of making my team meetings boring. For example: When I first took over a completely new team, few of my team meetings were very interactive, where I was trying to understand my team’s needs, and my team member’s working styles. I used to ask them bunch of questions and make sure that their inputs are heard. But after few months, I got used to my team and their working styles, and hence, my focus shifted on improving productivity and eliminating issues. Obviously, as a manager we should be focused on our priorities, but we should always consider the team meeting as the opportunity to make relationships between our team members, and refocusing them on our company’s vision.

Invite guest speakers: By this, I don’t mean to say that you should go ahead and start spending your company’s dollars on inviting motivational leaders to your team meetings. Though once in a while, it wouldn’t hurt to invite someone, you can’t sustain this expensive initiative for long. So, my suggestion is to invite the guest speakers from your own company. If you work in a medium size companies like mine, you won’t run out of options. And this initiative will not only help you in building good relationships within your company, but it will also educate you and your team about the roles and responsibilities of other teams within the organization.

Recognize others: This is not that obvious. I am sure, as a manager, you must be recognizing the work of your employees during the your team meeting, but you might not have given this opportunity to your employees so that they can recognize their peers. Though the concept of this idea is very simple, it will do wonders during your team meetings. This approach will open up the communication between your team members, and help you build the trust relationships within themselves.

Leave with a positive note: After 3-4 months of taking over a new team, my team meetings have also become boring and predictable. And due to the nature of work that we do (testing), we were in the forefront of all the bad news about our products. Due to this, most of my meetings were very negative, and we came out of the meeting as if everything is coming to an end. So, I have implemented a simple but efficient solution. At the end of every team meeting, I required all of my team members to come up with at least one positive thing about their work during this past week. It did sound cheeky at first, but after few weeks, all of our team members came out from the meeting with something positive about themselves, and their overall attitude had changed towards their work.

Give a pizza party: I am not expecting you to provide pizza during every team meeting, but it wouldn’t hurt to provide food during some of your team meetings. I try to do that twice a year, once in the summer and once in the winter. Shifting your team meetings to lunch time and ordering some food for your team will provide them some motivation, and eating together with the team members will provide them the opportunity to socialize within themselves. In order to not make this an awkward event, combine this activity with some other interactive activity like “5 things about you”, “Things you would like to do outside of work”, “Your major accomplishments in life”, etc.

I hope, these simple activities can help you make your team meetings alive again. Do you have any other suggestions?

Thanks – Bhavin Gandhi

 
 

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How can you raise some capital for your business without selling the part of your business?


RaiseCapitalForYourBusinessEvery day, thousands of small businesses and start-ups wrestle with the challenges of finding the cash that they need to finance the growth of their business. But most of those new business owners don’t know what are all the avenues that they have at their disposal for getting some cash. Thus, in this blog post I am going to provide you with few ways through which you can raise some capital for your business.

Ask your friends: This is the easiest way to raise some money. Most of the startup businesses start by taking some money from their friends or family. I know, it is really uncomfortable to ask some money from your family/friends, but it doesn’t hurt to ask. Don’t just go and ask them for money. Try to explain your business plan to your friends, and tell them about your strategy to pay them back. This approach provides them with more confidence in investing in your business.

Real estate loans: These are simpler kind of the loans that anyone can take for their business. These loans are based on the value of the real estate offered as a collateral. Most of the first time business owners take these kind of loans by putting their primary or secondary residence for collateral. But you can also include office buildings, warehouse space, retail storefronts, industrial facilities, and stand-alone buildings in the mix too. This might be the easiest way to take some money out of your existing assets.

Equipment financing: Let’s say, you are opening up a manufacturing plant, and you require some money for buying a new equipment, then you can use this particular way of financing to finance your business. When you finance an equipment, which are  strictly used for your business, the equipment purchased, itself, can be considered as a collateral for the loan. Although equipment financing is used exclusively to acquire business-use equipment, it is sometimes used to obtain cash by borrowing against business equipment you already own.

Merchant cash advance: Most of the small businesses in good standing can borrow some cash against their future earnings. Once you get that kind of financing, you can repay that loan by a daily/weekly withdrawal from the business merchant account. Repayment terms are typically six months to a year. For more information about this kind of a financing option, please visit this link.

Franchise loans: If you own a franchise like Subway or Mc Donald, you can opt for this kind of financing for your business.  These loans are similar to common business and commercial loans, but they are generally designed to finance the purchase of a franchise that can demonstrate an established history of profitability. Since this kind of a loan is dependent on the sale of the established franchise, these kind of loans are comparatively easier to get.

Microloans: There are various services available out there for Microloans. These kind of programs generally provide very small loans to new businesses or for some small business growth. Most of the lenders are non-profit organizations that offer government funding, while others are private investors who wants to invest some small amount of money in a small business  in return of some interest. For more information about these kind of loans, please check out this link.

I hope, my tips will help you to raise some cash without selling the part of your business to a heartless venture capitalists. Please share your comments here, if my blog has helped you in finding your own cash.

Thanks – Bhavin Gandhi

 
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Posted by on May 26, 2014 in 21st Century, Leadership, Management

 

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5 Minutes Plan: Design an effective marketing plan for your small business.


MarketingOver the years, I have seen many start up companies investing large amount of money in their marketing strategy without knowing how exactly it is helping them in selling their products/services. If you are one of those Entrepreneur, you might want to continue reading. In this blog, I am going to provide you with one simple and easy method to calculate your marketing ROI (return on investment), and how to make your marketing dollars work for you.

For many small businesses marketing ROI and customer acquisition costs are mystery figures, yet they are the key ingredients to making decisions concerning marketing expenditures. Questions such as, “What should I give away as a free bonus?” or “How much should I spend on ads for the last quarter?” are answered based on the understanding of the lifetime value of a customer.  So, lets just start with a simple example to calculate new customer acquisition costs.

Let us assume that your total marketing costs for the previous year was $100,000. Now, count how many new customers you did business with last year. Let’s assume that you did business with 5,000 new customers. You can now divide your marketing costs by the number of new customers to determine your cost per customer. In our example, it would be $100,000/5,000 = $20.00. Of course, this is not entirely accurate, since you are not counting the marketing impact on your existing customers, but it’s a pretty good guideline for a start.

Once you do your initial calculation, you should now start to collect some important information from your customers at the time of the sales. For example, you should be tracking how your customers came to you and what motivated them to buy from you. One easiest idea you can use is to have them (customers) fill out a survey for a lucky draw to win a small gift card. Information collected from this survey will provide you some good insight on the marketing medium that works for your business.

Let’s assume that your effective marketing medium is Internet, and let’s assume that your 60% of the new customers come through your website.  It might be a good idea for you to invest chunk of marketing expense to online marketing. Let’s assume, your business is a small business and most of your customers come through word-of-mouth advertising, you can then provide some incentives to your existing customers for a referral. In our example, you can provide your existing customer a rebate of anywhere between $10 – $20 for referring a new customer. After all, your new customer acquisition cost is $20 per new customer.  This approach will not only create a new repo with your existing customers, but it will help you in increasing your business through these spokespersons.

I hope, my tips will help in creating an effective marketing plan for your small business. Before spending your money in bunch of advertisements, please calculate the ROI of your marketing dollars first, and then make an educated decision on where you want to spend that money. Please share your comments here, if you agree/disagree with my point of view.

Thanks – Bhavin Gandhi

 
 

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5 ways to become the best manager for your employees


BestManagerIn my last blog post, I have talked about few earlier signs of your management failures. And hence, in this blog post, I will provide you with a formula to handle each issue separately, and how you can turn around these situations in your favor.

Learn from the exit interview: As I have mentioned in my last blog, if you are having a higher turnover rate in your team as compared to your organization/department, then you might want to analyze your leadership style. Try to get as much information as you can through the exit interview. If these exit interviews are taken by the HR Department, then work with your HR personnel to include your questions in the mix. Try to include questions, which can give you some inside scoop on your leadership style. For example: Few problematic communication practices, managerial feedback, etc. Depending on their inputs you should try to change your leadership style.

Learn from your 360 review: Often 360 degree multi-rater assessments or employee’s feedback surveys will provide you with the valuable input about your management style in general.  So, make sure that you take those survey results seriously, and take out some time to act on the improvement opportunities mentioned in the survey. Look for things like, your engagement rating with your employees, your general relationships with others, etc. At worst, it will provide you few pointers on where you are going wrong, and how to improve your management style.

Communicate effectively: As I have mentioned in my last blog, if you are having multiple employee’s disputes as compared to other teams, then you might not be a good manager. In order to improve your situation, you might want to increase your communication with your team members. Make sure that you clearly communicate your decisions to your team. Often times miscommunication can generate a sense of inequity or unfairness about these decisions, leading to disputes that tend to end up in the lap of Human Resources departments because they relate to the application of written company policies or procedures. Thus, you should try to communicate with each team member at least once a day. Make it a practice. Also, you should schedule at least one-on-one during a month, where you just talk about your employee’s personal growth and any concerns that he/she might have. This approach will help you to communicate with your team effectively.

Frequent performance reviews: Good manager will always schedule frequent one-on-one with their employees. As a manager, you should always provide your feedback to your employees on an ongoing basis, throughout the year or throughout the period for which the review is being conducted. So, when it’s the time of doing the performance review, its mere a documentation of what you have been talking about during the entire year. If you follow this approach, then you can at least reduce the amount of conflicts between you and your employees during the performance review period.

Lead by example: Let’s assume that you might be one of those bad managers and you might have developed a bad reputation for territoriality, or being “difficult to work with”. Even then, it is never too late to change. Though it might take some time to change other’s perception of you, you can do that. Just try to hold yourself to higher standards. When someone is completely bypassing you in the decision making process, try to talk with that person and identify their issues. It might take some communication and extra efforts in resolving these issues, but you can lead by example. You can show your team members and others in the organization on how you follow your company’s processes, and why your inputs are valuable in the decision making process. If you keep on following this practice, I am sure that you can regain their trust, and improve the work throughput.

I hope, my blog has helped you in seeing some of the general shortcomings of a manager, and helped you become the best manager for your employees. Please share your comments here, if you agree/disagree with my point of view.

Thanks – Bhavin Gandhi

 
 

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How to end corruption in India (Part 1)?


CorruptionWith Indian elections around the corner and lots of tweets going on about the corruption in India; I couldn’t stop but think, how can a new leader stop an age old tradition of bribing? Is it only the responsibility of the new leader to change the overall culture of India? What about the people of India? Do they not bare any accountability in prospering this corrupt government culture from ages? Obviously, people have the intrinsic responsibility to be the part of this cultural change, but the major changes can be implemented by the new leader in order to reduce corruption in India. Following is one of the ideas through which we can achieve this goal.

I still remember that day from 2003, when I had to go with my friend to check out the application process for the new passport application. During that time, there was no consistent information available for a simple task like a passport application. No one could predict what kind of documentation will be asked for at the application counter, or how long it will take to finish the entire process. During our first visit, we ended up inquiring about all of that information, and noted down all the necessary procedures to acquire the passport. Next day, we took all the desired documents, which we had noted down the other day, and started our journey again. But during our next visit, the same person told us that we need to notarize all of these documents, and get few other documents. Obviously, we were two naïve kids at that time, who hadn’t experienced life. On our third visit to the passport office, we had realized that this was more than just missing documents. What would have happened to that officer, if he would have just given us the list of required documents at once? Ah. We had then realized that this was the sign given to us by the government officer to give him some extra money under the table. Though we didn’t give any bribe, and visited the passport office at least 8-10 times before getting our passport; most of the people would have given some money, and would have got their work done in 1-2 visits.

When people give bribes to the government officers in India, they are looking for a convenient way to finish their work. Shouldn’t these kind of tasks be convenient to begin with?  Applying for a passport is not a complex task. I shouldn’t be giving some extra money to anyone for doing their regular job. Do you agree? If we were to have the consistent and transparent information available to us before making our trip to the passport office, we wouldn’t have to go through 8-10 different inconvenient trips to do a simple task. Unfortunately, that is how things work in India. For a country like that, where everyone is mostly busy and working 24×7, bribing an officer seems a convenient way to get your work done, instead of hunting for the right information to apply for your passport, ration card, etc.

One of the prevalent reasons behind the corruption in India is….restricted access to the information. When the same and consistent information is freely available to all the citizens of India, they can take their own decisions based on that information. Unfortunately, that is not the case in India. From applying for your birth certificate to applying for your death certificate, there is no centralized and consistent source of information where you can get all the information about all of these applications. Thus, you have to depend on the government officer’s best judgment on what kind of information you need, and how to apply, etc. There are many people in India, who would rather bribe the officer in order to get their work done, instead of visiting the office 4-5 times. Unfortunately, most of the government officers take advantage of this fact, and use the lack of transparent information to their advantage in order to get some extra cash under the table.

Thus, we need a centralized,  transparent and consistent source of information in the Indian government.  If we have that kind of a system in place, government officers are less likely to take benefits of our needs, and more likely to concentrate on their basic duties of helping people. And, maybe, then people of India can demand answers from the government officers based on the facts and consistent information, instead of basing their questions on their assumptions. Let’s make the system more transparent, so that we can hold our government accountable for their actions. If you had all the required documents for applying for your passport, then you should be able to get it within a certain time period. If you don’t get your passport application processed within the average processing time, then you should be able to question the officer and hold him accountable as per the transparent guidelines published by Indian government.

What do you think? Will transparency of information bring a new cultural shift in India? Will it be able to help us in reducing the amount of corruption in India?

Thanks – Bhavin Gandhi

 
 

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5 signs of being a bad manager


Bad ManagerMany managers fail to recognize their mistakes. Sometimes its not their fault at all. They just don’t see the early signs of their management failure, and hence, they can’t fix the underneath issue. After all, you can only fix something, if you know what is wrong. Thus, in order to help these managers in identifying the initial signs of failure, I am writing this blog. Through this blog, you should be able to see some initial signs of your leadership failures.

Higher turnover rate: Every organization experiences some kind of turnover in its positions, especially in the market-based economies like the Untied States. However, at least 40% of the turnover in the market place is due to the bad manager. If you are seeing more than an average turnover in your team, then its your time to analyze your leadership skills and management style. When inordinate amounts of turnover exist in your group, it may be that you might be alienating valuable staff members.

Hard time to fill positions:  When you loose people from your team, hiring from within the organization should be your first and most cost- effective option. When you are finding it more difficult to fill these positions within the organization, it may be that you might have developed a reputation as someone for whom it is difficult to work for.  Though it is not always the case, you might want to analyze the reasons behind not being able to fill these positions. It might be telling you something about your hiring practice or your reputation in the organization.

Increase in employee’s disputes: If you are a bad manager, then you must be seeing lot of disputes between you and your team. If Human Resources staff members are called upon frequently to mediate specific human relations issues, then it might be the time for you to do some self-analysis about your management style. This is a clear sign that you are not able to control your team members, and hence, you will not only loose some respect in their eyes, but you will also be seen as an ineffective manager in front of your superiors.

Performance reviews are challenged: For a good manager, a performance review is nothing but an opportunity to document something that happened during the year. Neither the employee nor you should be surprised by seeing any comments written in the review. But that doesn’t happen all the time. Few managers always have an issue during the performance review period, where their performance reviews are challenged by their employees. If you are one of those managers, where your performance assessments are often challenged by your employees, then it’s a sign that you are a bad manager.

Company’s policies are neglected: One of the signs to identify that you are a bad manager or not, is to observe your team. If you are frequently neglected in the decision making process, and if your employees are frequently neglecting the company’s policies and procedures, then it’s the time for you to analyze your management style. If you are deemed difficult to work with, then often your team members and other employees will follow the path of least resistance, and completely ignore you in the decision making process. This should be the clear indication that your management style needs some updating.

I hope, through my blog post you can get few hints about your current management style. Please share your comments here, if you agree/disagree with my point of view.

Thanks – Bhavin Gandhi

 
1 Comment

Posted by on March 13, 2014 in 21st Century, Leadership, Management

 

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