The “Anchor” Factor

The “Anchor” Factor

In our January 2013 edition, we published a 101-point checklist titled ‘Entrepreneurship 101 – a definitive checklist for decision-makers at startups. In this edition’s Entrepreneurship 101 Series we dig deep into point #63 – Getting an anchor in the early phase  

S. PREM KUMAR

Let’s do a quick recap of what we presented in point #63 in our Entrepreneurship 101 Checklist. It was a lesson we learnt from Narayanan Vaghul, former chairman, ICICI Bank. Vaghul shared with us a story from the founding days of CRISIL, India’s first credit rating agency, and how ICICI Bank played the role of anchoring CRISIL through its turbulent, early days.

Vaghul said, “CRISIL was a classic example of introducing a new company when the country was not ready for it. In the mid 80s, when I wanted to launch a credit rating company in India, the methodology we had for interest rates was contrary to what would work normally. The sicker a company, the lower its interest rates would be. The companies that were performing better had to pay a higher interest rate. So, at a time like that, how does one launch a credit rating company?

We did not know the rules of the game, then. In spite of that, CRISIL was born and I lured Pradeep Shah from HDFC to become the managing director. He was entrusted with building the organisation from scratch. A couple of years later, Pradeep came to me and said, “We have hired these 40 people, all with great credentials and experience. But they are all a little disillusioned. There is not much work to do, we are building all these systems but there is not enough business. The employees are concerned if this is really going to work.” He then added, “I request your help. I need you to come and address the 40 employees of CRISIL.”

I addressed them: “Regardless of what happens in this business, your future is safe. Each and every one of you will be taken into ICICI, a company with deep pockets. You do not need to worry about your future, just concentrate on the business.”

I did not realise the impact then, but Pradeep told me that this talk had a very positive impact. Of course, as we all know, two years later, things started to look up. The economic reforms happened, business boomed and Standard & Poor’s showed interest to pick up a minority stake (today, CRISIL is owned by Standard & Poor’s as it gradually acquired the whole company).

So, the lesson is, when you introduce a new product, you should have an anchor. CRISIL succeeded because it had ICICI as an anchor. Most businesses have a long incubation period – say, two or three years. For that time period, you either raise money from venture capital or private equity, or you need to have an anchor client who can give you enough revenue to cover your expenses.”

Now that we’ve read Vaghul’s anecdote, let us try and apply this lesson in your context. You could be running an e-commerce startup that is competing in a crowded market. Like me, you could be running a print media company, an industry that is going through a major transition as a whole. You could be in the early-phase of launching a whole new concept that is technology-intensive. There could be million other scenarios, but let us answer this question: how do you identify the anchor, in your context?

In the case of CRISIL, I’d actually say Vaghul, rather than ICICI, was the anchor. The person at the helm of ICICI Bank was willing to go the extra mile to build a credit rating agency in India. He saw the future and decided to get ready for it by founding and supporting CRISIL. In your context, there are several options as well.

The anchor mentor

Explore the possibility of finding an anchor mentor, someone who could handhold you, as needed, in the early-phase. This needs to be someone who is excited about your startup and believes in your ability to make it work. Network at startup events, tap into past contacts or maybe, even volunteer in startup-related events. Build genuine, lasting relationships with the people you meet.

The anchor customer

If you can, somehow, find an anchor customer, nothing like it. Someone who can bring in the revenues, and at the same time provide feedback and mentorship. This typically works for B2B concepts and can go a long way in helping you make progress in the early-phase. Often, this customer will be kicked about helping you if you solve a deep problem for him. In a B2C scenario, see if you can really satisfy the needs of your early adopter customers who’ll then go spread the word about your product.

The anchor investor

This one is next best to finding an anchor customer – an investor who also gives you the much-needed support in the early days. Find someone who believes in the long-term vision of your startup, someone who has the expertise to advice you and most importantly, someone who has fallen in love with your concept and execution skills. Make sure you deliver the returns he expects!

The anchor employees

I am sure this one comes as a surprise for several readers. But it is the lowest hanging fruit to crack in the early days. You’ve already done the hard work of wooing someone to come work for a startup. Take the next step and convince them that, on being successful, they can see tremendous rewards. We often speak about the importance of surrounding ourselves with a quality team – take the relationship to next level; make them anchor you through the journey ahead.

The anchor product

No, I am not adding this one to reach five points! If your product (or service) solves a deep problem for your customer, he’s going to love you. Identify that deep need and come up with the best solution to solve it. Then, go out and build a brand. Easier said, I guess!

In an ideal world, a startup would love to have all the five anchors mentioned above. As you brainstorm among your co-founders, think of Vaghul’s story and see if you can find an anchor. I only wish I had gotten mine when we launched The Smart CEO in 2009. However, it is never too late.

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