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Look for trends and cleverly ride them

Jan 25 2013, 15:04   |   By Entrepreneur

By Bala Parthasarathy

F irstly, a confession. When I graduated from IIT in the late 80s, not only did I lack any burning desire to start my own business true to my conservative upbringing, but I also actively opposed the notion. Getting a good job and settling down were the stretch goals in life.

I went on to co-found startups on my own eventually. I am regularly persuading 'well-settled' people to quit their jobs and start companies. In my case, the epiphany came with a serendipitous move to the Silicon Valley in the late 80s for graduate school.

Apple was the cool company and Indian entrepreneurs like Vinod Khosla were rock stars. One of the reasons I came back to India-and love being here-is because it reminds me of the Valley where successful (and honest) entrepreneurs are cool again.

Looking for trends
The biggest lesson I have learnt in nearly 25 years of being in startups is to look for trends and cleverly ride them. Though it seems obvious in hindsight, I was fortunate to be a part of the packaged software wave of the early 90s when I co-founded Viman Software, the online wave of 2000 with Snapfish, and now in the middle of the digitization wave of India with AngelPrime. Big trends always mean tough competition-you will never be the only surfer on a great wave and such trends do have periods of busts when the market corrects itself. But it is definitely a lot easier on an entrepreneur than trying to buck trends. Though I have done several startups, nothing comes close to the experience of starting Snapfish in terms of trends. We were at the crossroads of internet growth, women using the Internet, people adopting digital cameras and a big dotcom bubble burst thrown in for good measure.

Back in 1999, the dotcom boom was raging and it hit hardest in the small 30-mile corridor stretching down from San Francisco. Wall Street bankers were quitting their seven-figure jobs and Harvard students were leaving hard earned MBAs to flock to the Valley to try their hand at the till of Lady Luck.

Excited groups of young people were throwing around billion dollar ideas.

With three fellow Harvard MBAs, I was the techie, drinking too much caffeine and batting ideas that would change the world and make us rich. Our lack of expertise in a particular domain didn't bother us and at one point, we had 14 ideas ranging from online groceries to starting a telecom operator. We were ultra-confident of getting funded for any of these.

Snapping an idea
I don't recall exactly how the idea came about, but the legend we convinced ourselves with was that Suneet Wadhwa, (one of the four Snapfish founders) was driving around late one night when he saw a poster of a woman with a camera which inspired him to start an online photo company.

The photo industry had only one real player and it was Kodak. Having invented the industry, it was a brand name like no other and to say it dominated the market is a severe understatement. Photos were Kodak and Kodak was photos. Digital cameras had just been introduced but were really expensive toys for the IT lot.

The real photo-takers-who generated money-were mothers with their children. Most of them were not even on the Internet yet, though they were adopting slowly but surely.

It seemed like a perfect industry for a bunch of overconfident young Indians (all of us were single at that time) who really were not into photography as such. We knew absolutely nothing about the well-established industry-intricate with an old-boys network running for decades. The last thing they needed was a bunch of upstarts to tell them to change their ways.

A full album
To top this, we realized we were not the only cocky young punks wanting to upset the old order. By the time we launched Snapfish, there were 126 other startups which were all offering a similar service; many of them venture-funded.

So what did we do? The first year was a crash course in the photo business. Turned out that though it was an established industry, there were clear indications that the wave of digital cameras was going to be a tsunami soon. We found an excellent partner who saw the signs and the necessity to adopt. When we quickly zeroed in on our customers-the mother and children-we realized that our fellow-arrogant startups were focused on the digital camera buyer of the day, essentially geeks. Our customer was still buying film cameras but wanted to get her film pictures online and this was hard to do. This is why 10 years later women are 85 percent of our 100 million user-base.

The second best thing we did was to hire some amazing people. One of our co-founders, Raj Kapoor, had this mantra that A-players hire other A-players, while B-players will hire C-players so that they don't feel threatened. This is not a new concept but it is hard to do when you're quickly growing your team and talent is hard to come by. But this paid out in spades when we had to go through tough times later.

Overexposed
Of course we made plenty of mistakes. Having raised a ton in venture funding, we were obliged to spend it. And we spent it on the wrong things.

We were caught up in the fever of the day and gave away things that actually cost the company real money.

We gave away free film processing, hoping to monetize the users by showing ads when they saw their films while we scanned and uploaded online.

Like all good parties, the mania came to an abrupt end when the bubble burst with a bad hangover for the active ones.

In our case, it turned out to be a very good thing. While we had to struggle for survival (laying off nearly 90 percent of our workforce), it affected our competitors worse.

Kodak bought our most fearsome competitor and most others just perished. After a series of disastrous moves involving multiple management changes, the competitors basically killed the product and Kodak themselves are now on the throes of bankruptcy. Our recruitment mantra paid out—the 10 percent of people remaining in the company were the best-of-the-best. When the dust settled, we were left in a nearly empty field with nobody daring to start any new companies.

Our bet on focusing on women, who we were hoping would throw away film cameras and go digital, also started proving out.

Here, we were enormously lucky with the hardware manufacturers jumping on the digital camera trend and commoditizing a '1 lakh digital camera down to Rs. 5000.

Happy endings
Luckily for us, the story has a good ending. The tough environment took away all the ridiculous ways business was being measured on instead of basics, revenues and profits.

We grew business quickly and in addition to growing our own base, we also landed some big retailers like Wal-Mart, Costco Wholescale Corporation, and Walgreens Co. All this growth caught HP's eye and with some tense negotiations, we managed to sell the company for $300 million in 2005.

HP, determined not to make the same mistakes as Kodak, created a tremendous support system for us.

We grew the business more than 10 times in five years, launching in 22 countries around the world.

Since I was running the international expansion, it got me to India in 2007, which was already starting to buzz. In India, today we are clearly poised for an extra 200 million consumers coming online in the next few years, thanks to cheap smartphones and tablets.

Google and other global players will serve some of their needs, but not all. Solutions will need to be customized to India and served up at our price points. It does not mean it is easy. It is easy to get caught up in the hype of your own public relations and not focus on the basics of the business. The competition is fierce as it should be. But the rewards are also high.

© Entrepreneur India January 2012
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