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The Indian government finally got its shit act together and approved the rules enhancing foreign direct investment (FDI) into the Indian retail segment. The bill had been hotly debated for the past 2-3 years since it has the potentially to affect many people.

The new rules allow major big box retailers that sell many brands like Walmart, Carrefour and Tesco to own 51% of the business. Whereas single store brands such as Reebok, Apple and Prada can own 100%. The timing might not be great but India is the last big market that has not been tapped yet and many brands might try their luck at the Indian consumer to grow their sales.

Locally, the retail industry is divided into two categories: organized and unorganized (aka kirana stores). Many reports have shown that 90% of all sales flow through the unorganized retail segment.  With the new guidelines, many are hoping that the organized retail sector can grab a larger share of the pie and in the process bring about a better experience for the consumer. Once of the reasons the bill was stalled for so long was the concern about how the “kirana guy” would cope if Walmart setup shop next to his store. That’s a valid point, however I think it forces the kirana shop owner to provide a much better customer experience since he can’t compete on price. Unfortunately, the concept of customer experienece is so alien to them that many will end up closing shop since they won’t be able to adjust.  On the flipside, I see many kirana shops converted into an extension of a major retailer who would service the local area and deliver the goods.

The bigger question for me is how the e-commerce space is going to play out with the new rules in place. If Amazon.com sets up shop in India will it partner with FlipKart.com or Pantaloons? Will the kirana store replace companies trying to build out the last mile mechanism for delivery (Chhotu) and payment collection (GharPay)?

It’s very early days in the retail sector and I would imagine whatever worked for these big box retailers in other countries will be very different from what ends up working in India. That’s where the local retail partner comes in and adds value since they know the local demographs, environment, buying patterns, etc… Most of the retail stocks are up today since the future looks very bright for retail and the companies that are already executing in the retail space.

You have made it to the fourth and final “P” which is profit, as a recap the other three P’s were – people, passion and perseverance. Unless you are running a non-profit organization, profit is what drives a startup to exist. With those profits, it allows a startup to hire great people, acquire strategic assets, innovate, stay competitive and potentially give back to the community.

Some startups go off course when revenue is the only metric that is looked at. It’s similar to people that are only concerned about the money they will make. For individuals compensation is one aspect, there is also career development, knowledge and many other things to look at. Likewise, when startups only focus on revenue they might look for a quick deal to bring in revenue or might view an IPO as the ultimate path to the big payout. In the past many startups have IPO’d however many of them have faded away as their team, passion or perseverance was not strong enough.

Revenue is important but profit is what really needs to be looked at. You might bring in a large 2 million dollar deal but if you spent 5 million to get the deal, then there is something clearly wrong with the business model. Growing your revenue and profit organically is the best way to build a startup into a company. With the 4 P’s – people, passion, perseverance and profit you have a combination that is tough to beat and it’s the qualities that any startup should strive to achieve.

The above article was syndicated on VCCircle.com and GQindia.com.

In 2005, my colleague and I partnered with Refco which at the time was the largest commodities brokers in the world to launch a new product in India…what could go wrong? I landed into India on October 1, 2005 and on October 10 a press release was issued that the CEO was resigning because of “accounting irregularities”. Whenever you hear “accounting irregularities” you can safely assume the worst possible outcome, a week later Refco filed chapter 11 bankrupty. Listening to the reports over the past two weeks about the impending collapse of MF Global was like déjà vu for me, this is actually their second collapse.

The latest collapse is even more sinister then the first one. At least during the Refco collapse Phil Bennett took a loan to cover his proprietary trading (aka prop trading). However, it appears MF Global took customer segregated funds to shore up their losing prop trades on bonds which is hugh no-no. The reports are still filtering in as to what exactly happened and who knew what. However, this quote from a lawyer really ticked me off “To the best knowledge of management, there is no shortfall”. A very carefully worded statement which essentially says “don’t hold the management team accountable”.

When working with Refco during the transition to Man Financial (which eventually became MF Global) it was surreal. I just landed into India with plans to stay for 6 months while we got everything up and running. And within 10 days my dreams turned to despair. I had a great vantage point as I was sitting next to Vineet Bhatnagar, MD of Refco-Sify India, as everything was collapsing around the world for Refco. We would hear reports of what was happening via the newswire or rumors from the “New York guys” but during all this craziness Vineet was calm and cool throughout the entire ordeal. He gave interview after interview saying how the India operations were “ring-fenced” and things would be back to normal. Certain parts of the business came back to normalcy faster then others, it was a trust thing. I think the institutional guys understood their money was safe but many retail clients didn’t care what was being said.

In any event, our new fund was completely crushed…100% wanted their money back NOW. All the investors got their money back and said they would re-invest once the dust had settled. Sadly, some of India’s most prolific investors who were in the first fund did not return for the second fund which we started in March 2006 under the Man Financial banner.

Right now there are two types of people that exist at MF Global-Sify India, people that witnessed the first collapse and the “new guys.” Anyone who was there during the first collapse is a little concerned but have seen this movie before. The “new guy” is probably shitting in his pants. Having worked with the Indian management team there is no doubt they are top notch and everything continues to be above the board. There was a report in DNA Money newspaper that Vineet “had put in his papers”, I almost choked on my morning coffee when I read that. Not because “oh my god he is leaving” but rather “oh my god he would NEVER leave India”. Of course, people love sensational headlines and the MF Global collapse definately provides it.

Now that you have selected the right people to build your team and they are passionate about the idea it’s time to work. However, will they stick around when things get bumpy? Perseverance is what sets the dreamers apart from the doers.

It’s easy to get excited about a PowerPoint presentation and the “hugh” market potential of industry XYZ. In most instances whatever you put down for milestones in your business plan or PowerPoint will most likely not be met. You expected to reach 10,000 customers in your first year but what if it takes 5 years? You might have the passion for the idea but what you really need is the mental toughness to get through the tough times that you will invariably face.

The story of retail heavyweight Kishore Biyani is a classic text book example of perseverance. It may appear he captured the Indian retail market overnight with Pantaloons, Big Bazaar and his various other brands but that is just not the case. Kishore started his career several decades ago selling acid-washed jeans all the while tinkering with the idea of organized retail. For Kishore it took him several decades to be an overnight retail success.

Another example of perseverance is Audi, in the mid 80′s it was dealt a serious blow to it’s flagship Audi 5000 car. In 1986, US television news magazine 60 Minutes aired a segment on the Audi 5000′s “unintended acceleration” problem. In the end, the US government concluded that the problem was caused by drivers confusion in pushing the wrong pedal and not a design flaw. But, the damage was done and overall Audi sales went from over 75,000 a year to around 12,000 a year.

At the time, people were calling for Audi’s demise and hinted it might leave the lucrative US market because of the public relations disaster it faced. However, Audi redesigned the car and sold it as the Audi 90/100 series. Almost 25 years later, Audi is stealing the thunder from the other German brands Mercedes and BMW. Now people look to Audi for design cues and it’s much talked about headlight designs which have been copied by almost every high end car manufacturer.

When hiring, perseverance is one of the toughest attributes to look for in an individual because it’s such a personal trait.  Some people can work on something for 15 years whereas others get disillusioned after 15 days.  Many people like to say luck plays a major role in why a startup might have succeeded but the reality is if you try something 2-3 times you will most likely fail every time. However, if you try something 1000 times then you have a much better chance of succedding. It comes down to trying, trying and trying some more until your product/service is the right fit for the market.

The above article was syndicated on VCCircle.com and GQindia.com.

UPDATE: After I published this blog post, Fred Wilson had a similar blog post that really summed it up – “The Second Year“.

Steve’s demise was bound to happen, but knowing what he had done in the past I figured he could dodge another bullet. Starting a company, getting kicked out and then coming back and kicking ass. In between all that drama he started a couple more companies and in the process became the largest shareholder in Disney.

While most of us fail to leave a mark on anything this guy left his mark on many markets – personal computing (Macintosh), animation (Pixar), music (iPod & iTunes), phones (iPhone) and mobile computing (iPad). I mean what the f!@#$…brilliant.

I remember when I saw my first Apple Computer and first NeXT computer, I was blown away by the interface. At that time, I was hacking away on an IBM PC with a 1200 baud Hayes modem while screwing around with MS-DOS commands.  The Macintosh user interface just seemed so natural to use…simplicity.

P.S. The title of this post was going to be just a placeholder till I finished the post. However, the draft title says it all.