Ramesh Raghavan – Entering a start-up? Leave your baggage at the door

Ramesh Raghavan is currently the vice chairman of Business Angel Network of Southeast Asia (bansea), one of the leading and oldest organizations of its kind in Asia, as well as an early-stage venture investor and advisor in several start-ups. He is an advisor on risk management in traditional public market investments and alternative investments to family offices and emerging hedge funds. Ramesh previously held global leadership roles in derivatives, capital markets, and sales and trading with Morgan Stanley and the Royal Bank of Scotland and has worked in New York, London, Hong Kong and Singapore. Prior to his career in investment banking, he had a fast-moving consumer goods and commodity trading career with multinational corporations. Ramesh holds an MBA from the London Business School, a Masters in International Business from the Indian Institute of Foreign Trade and a Mechanical Engineering degree from India’s oldest technical institution, the College of Engineering, Guindy, Chennai, India.     Worst investment ever  Investor takes first flight as an angel   Ramesh’s first taste of angel investing happened about 12 years ago when a former college friend approached him to invest in an “execution-type business” that seemed interesting even though it was not a fundamentally new idea. Ramesh listened because the guy had been the smartest person in the room at university and had a good work history with large multinational companies. So Ramesh decided to invest his own funds and gather an investing syndicate together because he believed in the person more than the actual idea.   ‘Too many generals and not enough soldiers’ raises first red flag  After a few months, red flags began to appear. Ramesh couldn’t see any traction. Communications were worse than the usual poor information flow from start-ups. He couldn’t get clear answers when he wanted to know what was happening with the business, and something he has learned with angel investing since is that people tend to take the money for their business and disappear, only reporting good news and failing to provide updates on the bad. Being responsible to his investor syndicate, Ramesh urged his friend to tell him what was happening and if there were any problems. Finally, he then insisted to see the business plan in which he noticed there were eight co-founders, when three or maybe four should be the maximum. That said, he stressed that there should be one “chief”. He also noticed that all these co-founders had significant multinational experience but that nobody was doing the job. Everyone wanted to get paid but nobody wanted to actually do anything. They lacked the inability to actually get down, roll up their sleeves and actually do stuff.   Time to trim inactive ‘leaders’  Ramesh’s first advice was to fire the loafers and change the whole business model. As the company was not making money, the significant salaries had to be cut to zero. If nobody liked it, Ramesh told his friend they should leave. His friend was unhappy, but after months of pushing, the friend managed to get rid of two co-founders. But issues remained. The company’s leaders still had no key action areas for which each person was responsible. So Ramesh worked with him, nearly four or five hours a session, over about six weeks to figure out how to help him create a viable potential business plan that including setting out key responsibilities for each of the co-founders, who were visibly unhappy at the prospect of doing some actual work.   Remaining team fails to listen to chief advisor   After a lot of prodding and mental anguish, Ramesh’s friend introduced him to the remaining co-founders and they found someone able to be best pitch person from the team to raise more capital, which, after a few months, they were fortunate enough to do. This gave them some breathing room. A lot of the time though, Ramesh began to realize that the team would say yes, but they would never take his advice. So the traction was very poor and he learned that it didn’t matter what he said, the red flags were clear. Ramesh also advised his friend that if the current business was not working (which it wasn’t) in the current state of the market, they should pivot the business. The friend was so stuck on his idea that he thought pivoting meant accepting failure, despite Ramesh telling him that every start-up pivots every other day. Great idea do not just take people to success in a straight line.   Investor becomes CEO and tells everyone to adapt or die  It was at this point, Ramesh took over as CEO. He had to put his foot down with the board and the team and say if they were not on board with pivoting, they should leave. After that, two other co-founders did just that which left the company with a team of the ideal size, three or four co-founders. Salaries were slashed and Ramesh had to point out that “entrepreneurship is not a salary-collection business model”. Ramesh said that despite being friends he had to be frank ab out how they should go forward giving life to the business, because he had a responsibility to the investors he had brought into the deal.   Boss tells team weekly to focus on getting customers – still no progress  As another year past, Ramesh noticed that traction was still lacking, and his friend was losing hope. He found that he was not just playing CEO but also playing therapist to his friend while taking a very hands-on approach trying to motivate the people to keep the business alive. Still without processes to manage employees, Ramesh told them to forget everything else and just focus on finding customers to pay for the business, and that all other activities were irrelevant in the scheme of things. Despite getting another investor to help out, he tried to look for progress every week, and every week, there was no progress and hundreds of excuses.   Team continues to do ‘busy work’ without achieving much  So the team was still acting like bureaucrats or employees, just sending out emails to each other. They were too used to working for large organizations, which for most of the time can run on their own. But this was a start-up, running with zero revenue, zero brand value, and zero everything. There were still too many chiefs, and their ability to manage the soldiers was very poor.   Investors call a halt after money runs dry and team effects no real progress  A few more months went by, and the team came back to the investors asking for more money. Ramesh told them there was no more money out there and that they should put in their own funds. They refused. The discussions went on but it all became too much for Ramesh and they pulled the plug. He told the team that, yes, they had tried to do something, it didn’t work out, but stressed that he was more disappointed that they had failed for the wrong reasons. If it didn’t work out for business reasons, that would have been alright. However, the fact that they could not manage the people side of the business, had a top-heavy business model for a start-up – in which the soldiers were not paid and the generals were skimming salaries at the top – was a very bad precedent, so bad that it was very unlikely they could do anything more with the company.     Some lessons  Be clear about the reason for investing in a start-up. Be clear whether you are investing in a business for the sake of friendship or for the sake of business. Be clear whether you expect a return from the investment or not. Once that is clear and you expect a return from the investment then do all the due diligence before getting involved. It can longer, but never invest just on the basis that someone is a good friend, a smart guy, or their successful corporate background, because the start-up life is a different kind of animal altogether.   Don’t invest in a business with too many co-founders. Too many chiefs are waste of time.   Investment must go to build the business. It must not go to supply the founders’ huge salaries before there are revenues and profitability. Look carefully at the business plan and determine whether the “leaders” are eating up the investment in salaries.   In a start-up, people must have a sense of urgency. Every day you have to do something that adds value and adds something positive to the basic objective of driving the business forward: Find customers, lower costs, build a network, raise revenues, or whatever it is, every day.   Don’t cling too tightly to your business idea. A least 90% of businesses start up with an idea does not work, so they have to pivot and figure out a better model for it to work.   It’s very important to take care of your soldiers in the business. They are crucial for the success of your business. First pay the soldiers and then pay yourself. Don’t pay yourself first and leave the soldiers in the air.   Vitally important is the ability to listen to and execute advice. If you execute it and it doesn’t work out for...