Start ups cannot operate in a vacuum, they need a supporting eco-system to nurture them. Entrepreneurs have been setting up businesses in India since kingdom come. It is no secret that these entrepreneurs have originated from a dominant caste. How did this community sustain entrepreneurship over the ages? By developing a sustainable eco-system that matched the needs of the traditional businesses.
The core of this eco-system is the incubation facility within the business that enabled the next generation entrepreneur to dabble in incremental innovation, funded by angel funding drawn from the surplus generated by the cash cow of the business. Prototypes were developed and test marketed through access to vendors and distributors and the sales force. Timely customer feedback on the prototype led to building the minimum viable product and the soft market launch. Business mentoring from the experienced elders substituted for any classroom learning.
The mind-set of the community was that business was a ‘dhandha’ , ( living), requiring hands-on exposure which was more useful than classroom based ‘Higher Education’, that ‘jugaad’ ( improvisation ), substituted for frugal innovation, backed up by the belief that , no matter what business, profits could be extracted by the sleight-of-hand expertise of the chartered accountant.
Those from non-business communities lacked the vital eco-system for creating a start up. Education, particularly technical education, drew them as a means for joining ‘service’ and pursuing a rising career which they considered superior to dhandha.
The two professions ran their own divergent paths with their own benchmarks for success.So from the surnames, chances were, you could determine that Birla was, and Bhattacharya was not, in business.
However, the emergence of technology as the key driver of a venture and the consequent necessity of professional education for new venture creation has forever botched up the age old divergence in mindset. Leading the tech charge has been Information Technology which required the founding team to have computer science graduates. Imagine the doyen of IT entrepreneurs, Narayanamurthi laid out on a gaddi peering at the chaupadi to compute the daily P/L for Infosys! Moreover, these technology based new age businesses qualified as ventures and not dhandha in the minds of first generation entrepreneurs from the non-business community and so were acceptable.
Along with technology came the professional network or eco-system – with substantial support from U S based NRIs. Truly, it was the impact of Indians in America that gave the lie to the deeply held belief in traditional India that entrepreneurs were born – in a certain community. Indians in USA, irrespective of their surnames, pursued knowledge based new venture creation with vigour and succeeded with support from the eco-system. Over the past couple of decades an equivalent eco-system has been getting in place in the country for the new age ventures starting with the well intentioned mentor and gradually extending to growth stage investors who are the Venture Capitalists and Private Equity players, and not excluding the markets – from U S based customers for the I T ventures right down to Tier 3 city based consumers for the e-commerce ventures!
E-Cells in Engineering colleges have been influential in triggering awareness, interest, desire and action toward entrepreneurship among students from non-business communities. The catalyst for encouraging college managements to set up E-Cells was NEN, the National Entrepreneurship Network, set up by the U S based Wadhwani Foundation. NEN took roots in India through the pioneering role played by the founding members, I I M Ahmedabad, I I T Bombay, SPJIMR, BITS Pilani and IBAB, Bengaluru who designed and delivered courses on New Venture Creation, organised Business Plan Competitions, instituted E-Cells and started Incubation Centers. Over a decade plus years, the seed sown by NEN has blossomed into a nursery of E-Cells engaged in promoting start ups at the college level. Going beyond E-Cells, I I M A has built a reputed Center for Incubation and SPJIMR conducts public programs on Start Your Business for aspiring entrepreneurs and Grow Your Business for early growth stage entrepreneurs.
Besides E-Cells, the number of higher education institutions setting up incubation centres is increasing with private players chipping in by rolling out start up accelerators. However, the paucity of experienced mentors and domain experts restricts the effectiveness of these institutions. Entrepreneurship is the youngest academic discipline in India, little more than a decade in existence, leading to a mis-match between the start up entrepreneurs’ need and the availability of faculty and mentor expertise.
Is government doing anything to promote first generation entrepreneurship? Of course the primary accountability is to considerably enhance the ‘ease of doing business’. That apart, much is expected from the follow up steps to the Start Up India initiative launched on 16th January. In a fundamental way, the vision for Start Up India parallels that of the Green and White Revolutions, which had champions – Dr Swaminathan and Dr Kurian - to both set the vision and execute sustainably at the grass-root level.
So now India generates entrepreneurs from all communities, whether first generation entrepreneurs from non-business communities or next generation members from traditional family businesses. Truly a remarkable feat achieved in less than 3 decades! Just as the radically transformed attitude towards new venture creation of an I I T or I I M equipped tambram ( Tamilian Brahmin ) draws appreciation, so does the metamorphosis of a baniya youngster into an I I T and or I I M equipped entrepreneur elicit praise.
Today’s ‘new economy‘entrepreneurs and their ventures differ from the ‘old economy’ entrepreneurs and their businesses in several respects.
If asset heavy manufacturing and conventional service businesses characterised by incremental improvements in technology defined the old economy, asset light, online based new service ventures characterised by rapidly changing technology represent the new economy.
In place of family based management teams, the co-founders of the new ventures are ‘merit’ based, bringing in specific complimentary skills. Often, the founding team can be traced to the college dorm where you can assess both competence and compatibility. The skill set required for such ventures are domain and execution-under-pressure, skills.
Ten per cent annual business growth has been substituted by ten per cent monthly growth.
New generation entrepreneurs do not build ventures for life-long association. They are reconciled to winding up when the funding dries up and to exiting from their own venture for business and personal reasons.
The worth of the conventional businesses was based on hard assets, the worth of new age ventures is based on intangible valuation which cannot be mortgaged but can be bartered for equity capital.
Till recently, business operated on the ‘cost plus margin’ business model. This suited manufacturing and trading companies with owned assets generating steady growth that is fundable by customer revenues and bank borrowings. Today’s ventures have innovative business models with radically different pricing strategies for products or services being offered. Business is funded by raising risk capital based on projections of ‘hockey stick’ product/service growth, while piling up huge losses. Such business model innovations aim to jack up volumes to a level that will ensure business viability at scale in the shortest time possible.
Traditional family business owners accord the highest importance to retaining 100% equity ownership. Loss of ownership is equated with loss of control over the business. The current entrepreneurial generation does not conform to this mind set. Authority is not linked with ownership, effectiveness is the critical factor since rapid growth is the mantra. The founders see themselves as CEO/CXOs accountable to customers and investors who have a significant equity share holding. Besides, they understand that, with valuation inflated through equity dilution a small chunk of a divested pie is bigger than the ownership of the whole pie.
Leadership is related to pursuing a shifting goal post, effective decision making, grasp of domain technology and team building, not with age and past achievements in a slow paced environment. New ventures are built with charged teams working together to create a sustainable venture in the shortest time. Team members remain as long as they perceive the goal is being achieved. Leadership is by consent and through demonstration of competence in action.
Lacunae in the leadership required for steering expanding- on -steroids, billion dollar valued start ups as dictated by competition and investors, in a VUCA (volatile, uncertain, complex, ambiguous) environment is the critical failure factor today. Spanning the enterprise life cycle from ‘garage’ to ‘global’ level, or from zero to billions of dollars of GMV (Gross Merchandise Value) in less than a decade bears no comparison to traditional SME growth to under Rs 20 crores in the same time span. The new age entrepreneurs have realised higher valuations in less than a decade than their traditional counterparts whose families have been in business for more than a century! To chase the mirage of valuation or the reality of profits is the existential issue facing today’s entrepreneurs.
As India begins a new year, media coverage of the entrepreneurial eco-system, is not all rosy. Entrepreneurs have begun to face the reality of being abandoned by risk funds, of the managerial challenges of scaling up the start up to Business Plan projections, of pursuing growth that enables the venture to capture value over valuation.
Can an entrepreneur whose venture carries a unicorn valuation with negative returns and is owned majorly by foreign investors who are not above (or below?) exiting the founder or themselves from the venture, be the inspiration for our youth to take to new venture creation? Can the nation evolve an indigenous model of entrepreneurship that combines frugal innovation with customer traction and equity dilution with profitable growth?
Statistics are available on the amount of equity capital invested in new ventures but not on the investment in sunk or failed ventures. Point to ponder if India should evolve a more capital efficient method of creating entrepreneurs.
By Prof. Suresh Rao, Chairperson, Center for Entrepreneurship at S P Jain Institute of Management and Research (SPJIMR)
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[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]