Lessons investors and founders should learn from Housing.com fiasco

10th July 2015, BUSINESS STANDARD

Many start-up ills can be traced to the founder's ego or the investor's greed, both of which are cases of desiring before deserving

10th July 2015, BUSINESS STANDARD

Many start-up ills can be traced to the founder’s ego or the investor’s greed, both of which are cases of desiring before deserving

I had written in an earlier Business Standard innovation column, “…innovation is one per cent inspiration and 99 per cent perspiration… and in the 99 per cent phase, the innovator’s ego becomes the darkest enemy of the great idea.” Some readers argued a healthy ego is necessary for an innovator, and enquired whether my view is too narrow. Possible.

Last year, I had read about Balcones, an artisanal Texas distillery. Its brilliant founder, Chip Tate, started the company in 2008. In 2013, a cash-strapped Tate invited Gregory S Allen to invest. Very soon, differences arose between Tata and Allen. Within nine months, founder Tate got fired. This year, I watched the share price of solar panel maker Hanergy collapse although Chairman Li Hejun had earlier stated that things had “never been so good”.

Start-ups are natural institutions of planned chaos – forgive the tautology. Many ills can be traced to the founder’s ego or the investor’s greed, both of which are cases of desiring before deserving. And not just in overseas markets.

Indian reports about Housing.com suggest that founder Rahul Yadav is all of 26, the son of a naval officer, an IIT drop-out, and a brilliant man. Yadav started Housing.com in 2012 with angel funding.

The distinctive idea of his company was to provide a one-stop housing solution for potential buyers by unifying all housing players in the market and all the needed activities. Buyers could look for property, compare home loan rates, sign up with banks for loans, and draw up lease rentals. Listed properties would accumulate entries by brokers, sellers, developers and could be filtered through searches such as number of rooms, lifestyle ratings and child-friendliness index. Quite versatile. But as it turned out, the concept was only one per cent of the job.

Within only a few months of getting started, the company raised a second round of funding, then a third and fourth round. The fifth round attracted SoftBank, no less, and almost ‘validated’ the company. By December 2014, the company had over $110 million! By April 2015, the company spent $40 million of the $110 million in brand building.

Investors wondered about the wisdom of such lush expenditure. The response reportedly were statements like, “dumb”, “intellectually incapable” or “don’t mess with me”. Haresh Chawla, Partner IVF, had a soft corner for young Rahul and offered him wise advice, (www.foundingfuel.com) “…your choice to make between being a great talented individual player or being a manager, who has got to be among people, collaborate with them, lead them or be led by them, be able to handle their frustrations, to handle their competence and their incompetence. It’s an ego-crushing journey where you need to learn to allow people their space to work… finding a way to motivate people, to pull them in one direction. A journey of frustration, but equally one of triumph when you see the team working together and winning – a journey you share with your team.”

Provocations followed, likely on both sides and finally, the brilliant founder parted with utterances of expletives and uncivil language. Now one has to watch where it will all lead: $110 million money for one per cent inspiration without the 99 per cent perspiration. The founder may have had excessive ego but I wonder about the investors. The investors may yet rescue their money, who knows.

Haresh Chawla draws a lesson, “Check the level of founder shareholdings… there appears to be no equilibrium between control and ownership.”

So does entrepreneurial or innovation failure have any value? Definitely. Egoistic, rapidly-failed entrepreneurs may not learn much, but a learning-oriented failed entrepreneur like K Vaitheeswaran, the founder of Indiaplaza.com, may be of great value. He started India’s first e-commerce platform as early as 1999, lasted till 2011 and is candid about his mistakes. (Mint, July 3, 2015). In this field there needs to be a sensitive differentiation between ‘I learnt from my mistakes’ types of failure cases to ‘My way or the highway’ type of failure cases.

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