Journey to a Dollar — Evolution of a mindset

A starting point…mindset to play it safe

I grew up in India in an environment where becoming a civil servant, an engineer or a doctor were deemed to be the only professions of choice for a boy growing up in a middle-class family. A mindset of loyalty to the local community, family and a life time of employment permeated the cultural ethos and the collective mindset.

After pursuing engineering coming to America for further studies was a path well-trodden for me and my classmates. I was completely unaware of the immigration system and the impact the process would have on my psyche and mindset. I started my career in 2001 at the start of the recession. The organization I worked for went from ~34,000 employees to ~13,000 in 3 years. I also realized that career opportunities were limited due to the visa status. A mindset of risk aversion and fear set in as my presence in the country was tied to my employment visa.

After a journey of almost 12 years I received my permanent residency. My presence in the country was no longer tied to my employment. The 12-year journey had ensured that a risk aversion mindset had taken deeper roots. It was a nuanced mindset to play it safe, play not to lose instead of playing to win.

Around that time, I was in a role as Director of Product Management and was tasked with setting strategy across a portfolio of growing and declining products. Perhaps, to help expand my mindset a boss on mine encouraged me to pursue a path of making a dollar with my own idea outside the confines of the organization.

Making a dollar

Until I received my residency entrepreneurship was a path not available to me. In fact I did not have the temperament to be a entrepreneur. As a starting point I spent weeks and months brainstorming ideas. I participated in startup weekend activities and Google for Entrepreneurs workshops that exposed me to the lean startup methodology. We learnt structured experimentation and exploring product-market fit.

It is not about the idea but the team and execution

Initial ideas on apps such as real estate rental marketplace, craft beer recommendations by food and occasion, AI driven cancer treatment plans did not even make it beyond the idea phase or market needs assessment phase. The key takeaway was to continue the journey as each time we tried we learnt a little nuance that helped expand the mindset. Ultimately when a team of us with diverse skill sets on market engagement/sales, execution and technical skills sets got together that we built a marketplace for kid’s activities, camps in the Triangle area.

A dollar of revenue

With the marketplace for kids’ activities (ActivityGenius) we made our first dollar of revenue. As we continued on the path of exploring product market fit, we realized nuances of digital marketing that were vital to scaling.

- Facebook likes, list of email addresses does not translate into revenue.

- Each app needs to serve a purpose that necessitates end user engagement often to drive revenue

- Engagement needs to be a pull, not a push and each engagement ideally should drive value to both sides of the marketplace.

- Active engagement from provider and seller is required at the same time to drive value to each side.

- We realized that two-sided marketplaces are hard to build and each side needs to see economic benefit to drive engagement and scaling.

We realized that our idea was not big enough to generate enough revenue to be a sustainable business. The biggest takeaway was we could scale revenue through marketing but there was no path to sustainable profitability even at a much larger scale. We had made a dollar of revenue, but could not see a path to profit. We also saw a couple of competitors raise multi-million-dollar seed rounds and gained similar traction in larger metro areas. We could not see a path to return the invested capital and hence exited the business.

A dollar of profit

As we went through the journey or ActivityGenius we recognized that STEM education particularly Coding is a skillset of value to be learnt at an early age. Learning coding is like learning an instrument. It takes time and practice. We wanted to be in the technology related field, help the kids in our community. Our vision was to transition kids from being “Consumers of Games to Creators”. This vision spurred us to invest in opening theCoderSchool after school franchise in the Raleigh and Cary area. A shared vision inspires commitment. I attribute the entire success of the theCoderSchool endeavor to the dedication, skills and commitment of my partners Mehul Shah and Kunal Shah. Due to their commitment over 300 kids ages 8–14 in the Raleigh, Cary area continue to hone their skills in making their ideas into reality. It is truly humbling to see some of the projects that the kids develop be in Scratch, Javascript, Python or C#. The school enables part-time employment to over 40 coaches.

While the journey has being fulfilling, we have realized the nuances to running franchise owned businesses. We have learnt the nuances of needing to exit to unlock capital. We have learnt that bank loans are hard, recapitalization is harder. While we have been able to make a dollar of profit, the quest to return a dollar of invested capital continues.

Have a point of view and a path to return on invested capital

As we were making our way on the journey of ActivityGenius and theCoderSchool Mehul and I had learnt that it is important to not only make profit but be able to focus on capital return to engage in newer opportunities. Mehul and I created a side fund to invest in residential real estate. We found that investing in newer sub-division model homes and lease back to the builder as a unique method to gain properties and build equity quickly. This happens as a typically build out of a subdivision taken 2–3 years and the builders typically raise prices 15–25% over time. Between us we had built a portfolio of over 8 properties with a mix of leverage ratios, cash flows and appreciation focus properties. Between us we had been able to gain >30% IRR’s through a mix of property sales and refinancing’s. This exercise taught us the need to have a unique focus on gaining assets, driving equity growth and most of all unlock capital through a sale, refinance to return the dollar of invested capital.

A hard lesson in venture investment — The 10 X trap

While the journey of the mindset evolution has been fulfilling especially in earning a dollar of revenue, a dollar of profit and returning a dollar of invested capital. However, we feel we are still evolving through the school of hard knocks. As perhaps with any entrepreneurial journey we fell for the trap of quick growth and a 10X mentality. Through the journey of entrepreneurial adventures, we met other entrepreneurs who seemed more successful and accomplished in serial entrepreneurship at a larger scale and we felt the best way to learn and scale would be to be venture investors.

We gained close to $5 million in capital commitments. We invested in a retail franchise opportunity where the franchise was established and was making an entry into a new market. The investment execution was being led by entrepreneurs who had been successful before. We made our investments but was a failure. The retail location was closed we lost we chose to dissolve the fund after the initial pilot due to a host of execution as well as business model related reasons tied to the continued evolution of the franchise’s focus too.

Key lessons learnt from a Venture Capital perspective were –

- Make investments in Venture Capital ventures as a series of options with ability to invest more capital in ins stages based on success of prior milestones

- A successful venture concept in one geographical area does not ensure success on other geographical areas. Pop-up shops, concept validation through low-risk experimentation methods is a must

- An entrepreneur’s past success can be a function of skill and luck and does not ensure success in the next venture

- To increase chance of success, ensure that the lead entrepreneur is 100% focused only on the success of the venture one is investing in.

- Make small bets, do not invest more than 10% of the fund into one venture in the investment. Keep enough dry power to sustain down cycles as well as to invest in follow on milestone rounds

- Invest in businesses that you understand are passionate about and are willing to roll up your sleeves for in case a turnaround is needed.

- Beware of the greed of 10X scaling trap

In closing

How much progress have I made in my mindset of risk aversion? I feel my growth mindset is still a work in progress.

However, a few potential markers of evolution are –

- At each step in the journey to a dollar and with each investment I have always felt fear as to whether I am making the right call. I now start with how big the idea is, and can frame the economics of the business much quicker than before. This framing skill transcends domain specific knowledge.

- Over time I have learnt to quantify the fear and to lean into my fears. Commitment to action and moving forward inspite of fear are critical. There is no substitute for focused planning, most of all a team with diverse complementary skillsets committed to execution

- I have learnt that very rarely ideas and plans laid on paper survive contact with the market and the customer. There can be a lot of ideas, financially validated ideas are the ones of value.

- It is important to focus on what we can control and keep learning and experimenting

- It is easy to get caught up in doing. Always know your purpose, build a team and seek help. I still am working on this

- Grit and an attitude to continue to move forward whatever the circumstance and challenge. I learn this from Mehul and Kunal in every interaction. They inspire me.

- Three personal rules to decide whether to engage in an opportunity

o Do you have passion for the cause?

o Are you are engaging in the project to learn the market, customer problem or functional aspect of business?

o Do you want to make money, grow rich

Make sure you can check the first two boxes. Engaging in an opportunity for just money is failure trap. Building a successful, sustaining enterprise is a long hard road you will run out of the fuel of money motivation very quickly

- Beware of the greed trap. The investment into the retail franchise was driven by desire to make money and grow capital base quickly. Greed was the driver and purpose of the actions and it did not go well.

I am grateful I took the Journey of the Dollar. I have learnt to better understand economics of retail, software and real estate businesses and perhaps developed a new skill to understand economics of any business through the lens of financial statements. I have learnt that it is critical to gain and retain customers by delivering value. Delivering value to customers is what makes a business happen. The biggest learning has been the evolution journey and discovering my passions and fears.

Failure of the retail franchise venture, the divestiture of real estate investment to fund the retail adventure and my MBA have given me a reason to pause and evaluate my next steps. I am looking forward to new adventures where I can continue working on causes that make an impact, with passionate people.

This journey has helped me identify few key aspects of myself

– Growth and transformation adventures with a focus on a greater purpose drives me,

– Learning and working with people better than me inspires me

– I love to be part of adventures where the road as well as destinations evolve

– I am passionate about helping people and organizations achieve their greatest potential.

And the journey of expanding the mindset continues…