Scaling up a Business: Learn from Startup Founders
In my journey as an investor, I’ve come across many people who have wanted to become entrepreneurs; but very few actually risked it and even fewer succeeded. And while their success stories are well documented, the relentless struggle and overwhelming challenges are often overlooked or relegated to the world of anecdotes. People tend to have their own perceptions about what it takes in scaling up a business to succeed. There’s so much more to it than ideating, raising funds and expanding — each of which is a complete journey on its own, with many lessons to be learned along it.
At one of our Kalaari Summits, we hosted many successful founders talking about their stories. It was wonderful to have stellar startup founders like Ritesh Agarwal of OYO Rooms, Mukesh Bansal, earlier of Myntra and now of CureFit, and Harsh Jain of Dream11 give their time to share some of their personal learnings and mistakes with others.
Scaling up a Business – Understanding the game
The first few steps in scaling up a business are never easy, and successful entrepreneurs have the good sense to recognize that early on, accept it, and then move forward.
Ritesh spoke for everyone when he said he was very naive when he started out. Having sensed that most Indian companies emulate American companies in some form or the other, he believed that the very successful Airbnb model could be replicated in India, which was how he started Oravel at 19. The idea didn’t work and Ritesh had the courage to shut it down, at least for a while. For the next 90 days, he stayed at a new property every day — hotels, homestays, guest houses and so on. 90 days and 90 places later, he realised that just fixing the standardization of property was a huge opportunity.
Harsh, then all of 22, and his co-founders at Dream11 faced a similar problem. It took them a while to recognize that their original idea of a fantasy cricket team wasn’t going to get monetized, before pivoting to find a product-market fit. They haven’t looked back since.
Mukesh, on the other hand, has always loved the idea of starting something from scratch – between 1999 and 2007, he worked for four early-stage startups. Myntra too pivoted early on and then went on to become one of the most successful exits when it was acquired by Flipkart. First with Myntra and now with CureFit, Mukesh remains hungry to do more and ensure that past success or failure does not become a blind spot.
Honesty in hiring but more in firing
Few would disagree that hiring the right people is a major part of leadership and scaling up a business. There’s usually some amount of trial and error involved in hiring the right people, especially in your core team. Harsh believes in hiring great people and then getting out of their way. As companies scale and founders dilute their stakes through fundraising, it becomes important to find the right balance between supervision and micromanagement. One thing that has worked for Dream11 in terms of retaining their talent is being located in Mumbai rather than Bangalore, which Harsh called a “big fish in a medium-sized pond, rather than a small fish in a big pond.”
Mukesh pointed out what in his mind are two of the worst hiring mistakes that people make: not listening to voices of dissent when someone is being hired, and not letting people go after it is obvious that they’re not the right fit. Letting go has been difficult for him too, and there have been times when he put off these conversations. I can fully relate to what Mukesh said. The first time I had to let go of someone I had hired, I cried and couldn’t sleep. The best way out, shared Mukesh, is, to be honest and upfront about why the person is being let go of, and ensure a graceful exit.
Ritesh has done relatively better, even though he broke all the rules by hiring COO Abhinav Sinha. On his part, he ensures that when you make a decision to let go, he puts it down in writing. “You’d be surprised how many times perceptions are letting you make the decision rather than reality,” he explained, adding, “The intent is to always first do what is right for the company and then decide the best way to go about things.”
Customer insights and more
The other challenge that comes with scaling up a business is successfully gaining the right insights from its customers. Ritesh does that by sending an email to OYO customers at the beginning of the year, asking for direct, personal feedback. Improving on those metrics become his KRAs for the year.
Mukesh, though, said he finds it very difficult to get insights through standardized research because the data does not reveal enough: “I think the customer’s feelings and emotions get lost. One of the best ways I have found to get insights is after we launch the product because that’s when people start using it. That’s when you can see which elements are really working.”
Harsh is all about data. He believes that a B2C website essentially requires users to either have high engagement or pay-to-play. He explained, “The data leads the way on how happy customers are. So of course, we run consumer focus groups and also talk to our users, but at the end of the day, we just let the data speak for itself and then it points us to what users like, and what they don’t like,” he shared.
Bringing it all together
Access to capital is another huge part of scaling up a business, which comes with its own set of challenges. Harsh, having raised three rounds of funding, believes it is critical to focus more on the person that you are doing the deal with, rather than the brand.
Ritesh agreed — he believes it’s important to raise capital from partners whom you really, really enjoy working with. So is “Be(ing) honest in saying no to an investor who may not be a good fit.”
Mukesh had a few pointers on how to manage the runway, chiefly to ensure that funds are not burned fast. “One of the guiding principles I’ve adhered to, irrespective of the terms or how much money we are raising, or valuation etc. is to ensure that we have at least a couple of years of runway. Raising money too early and then burning most of the money on customer acquisition, will not add up in most cases. So that’s probably the other thing to watch out for.”
On Managing Boards
Another very important thing for scaling up a business is board management. I’ve seen many startups fail because of a poor rapport with the board. Mukesh agreed when he said that the bigger challenge at times is when people are just not on the same page and no one is willing to invest the effort required. Harsh said that it was all about honesty and keeping the board updated without making it seem like an obligation. “If there’s an important decision to be made, (we) ask them for advice and make sure that they actually feel like they’re a part of the company,” he added.
Ritesh too believes that it’s important to keep the board updated about all that the company does. He thinks boards are mostly out there to ensure you don’t do something wrong, but they expect you to consult them when you need to instead of expecting to be spoon-fed. Boards, he feels, will back CEOs if they’re able to articulate their case with facts. “If you make them partners, rather than board members, it will all turn out to be okay,” he advised.
As a member of several boards myself, I have seen boards backing CEOs’ decisions even if they seem counter-intuitive. Let me share a few examples. Ritesh was able to get his board behind him when he suggested to them the radical idea of pausing the fast-growing company’s expansion for eight whole months to be able to focus on improving the quality of service. Today their company is growing over 2x YoY and that temporary halt is paying off.
Mukesh was able to convince his board of directors to allow the business to pivot from a personalised gifting service to an online fashion store. The new avatar, Myntra, became a pioneer in online fashion. Harsh took the bet to invest in technology and build infrastructure before bringing in customers in droves. Each of those counter-intuitive bets have paid off, and spectacularly so. From my experiences being on several boards I have come to understand that with the right communication in place, anything is possible.