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Wednesday, June 06, 2007

Lessons from Madhouse

You do not know much about DVD rental business. But if it sounded like a good business to start, what would you do ? Ask others who have been in it to share their experience. What if there were none to ask around ? Use your own common sense, do some basic market research, find out the operational metrics, try and find some co-investors, advisors who have a lot of common sense and general savvy before you get going.

New Delhi based goofed it all up and left everything to fate according to industry insiders. This is what we heard: It hired 6 hot airbags for advisors (who hardly gave any), raised $ 2,28,000 ( Rs.1.08 crore) in angel funding in Jan 2007 and was forced to sellout to yesterday. The talk is that the founders had to resort to this extreme step when investors (masking as advisors) breathed down the founders’ neck even before it could give as much as a good fight at the market place. It’s anyone’s guess that all the 6 advisors must have been angel investors (altogether pooling under piffling $ 230 k !) that could have forced it to sellout at a huge loss. [Sources point to 3 advisors for *Strategy* (for selling out even before it took off), 2 each for *Team Building* (less than 6 months is hardly any time to build team) and *Fundraising* (no funds raised after angel round) - all in a startup ?] ....Misery complete. It reminds me of a similar story played out by ComVentures on Filmloop.
There are some lessons to learn from this madhouse.

Lesson 1Ego giveaway - Designations of three co-founders (1) Sameer Guglani, CEO (2) Ankur Agarwal, COO (3) Nandini Hirianniah, Chief Product Officer - Frankly for a startup, all three co-founders should *function* as `salesman / saleswoman’ till it achieves breakeven. Period. [Chief Product officer for a DVD rental company ? OMG !] Designations prop up egos but won't get you customers.

Lesson 2Never hire advisors who can’t dig it in at least for 3 years. At the most, hire not more than 2 advisors. Make sure they are indeed advisors and not Assholes, as Bob Sutton would call them.

Lesson 3 - Pick your Angels : Angel Investors should have some pedigree besides a fair idea about the startup risks…should not keep calling up for daily collection figures to see if they can take their money back. If they do, at least start hunting for replacements if you can't buy them out.

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Anonymous Anonymous said...

Very nice post. Well I didn't understand why the hell Seventymm acquired Madhouse. They didn't have any assets (no market acquisition, no physical stock, no manpower). After working in Seventymm for couple of months these guys have again started a company called moblf ( it's not a bad omen that seventymm is not doing good after they acquired madhouse. God knows what are these guys up to.

11:38 PM  

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