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Entrepreneurship in India - Then and Now

M Suresh Rao

Author: M Suresh Rao

Date: Thu, 2017-05-04 14:39

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 US 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 US based customers for the IT 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 towards 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 US based Wadhwani Foundation.  NEN took roots in India through the pioneering role played by the founding members, IIM Ahmedabad, IIT 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, IIM A has built a reputed Center for Incubation and SPJIMR conducts public programmes 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 the 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 IIT or IIM equipped tambrahm (Tamilian Brahmin) draws appreciation, so does the metamorphosis of a baniya youngster into an IIT and or IIM 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 complementary 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.

Originally published at: https://goo.gl/Z5NDeQ

 

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Comments

Dear Sir, This is a great article on Entrepreneurship in India. The evolution of entrepreneurship has been described in a beautiful manner. The startup India plan started by Narendra Modi is a great platform as it provides budding entrepreneurs with all the subsidies they need to start their business in India. Another initiative that is promoting entrepreneurship is “Niti Aayog” which recently announced a two-million-dollar support for those looking to set up and modernize existing start-up incubators across the country. This will give momentum and transform the current eco system to make it more inclusive instead of just one community dominating it. With all the above initiatives, we are looking at a better India moving at a fast pace towards rapid development.

Dear Sir, This is a wonderful article describing the entrepreneurship in India. One aspect I would like to add is now a days entrepreneurship is all about technology and PR. The more people say good things about your product or service, the more successful is the venture. It’s like aligning the people along with your dream and if you change the world, then the venture is meaningful. Secondly, many entrepreneurial ventures are focussing more on the growth model in its early phase rather than operational excellence. As a result, the venture moves into stagnated mode after initial period of growth. Hence, there should be fine balance between operational efficiency and scalable growth. The entrepreneurs should establish processes for efficient operations during the early phase and then grow the business without losing operational excellence. This may be one of the way to increase the financial return on capital employed and thus the capital efficiency.

Dear Sir, It was pleasure going through the article. The way you have connected the past, present and the future of the entrepreneurship in India is admirable. It made me think what could have been the reason why my parents never thought of starting their business and preferred to go into service sector, and I must say, the same has inculcated in me as well. The way I think, it has also something to do with the inclination of the majority of the population towards getting a government job for a secure future. Probably they were looking for a stable source of income and were not very confident of taking the risks that come along with the business line. As you rightly mentioned, there were entrepreneurs who realized the potential and made it large for eg. Dr. Kurian. If we can compare the pre and post of the milk revolution and look at AMUL now, the growth has been marvelous. With the advent of technology and ease of doing business, with government incentives for startups, India is slowly lurking towards the era of entrepreneurship but we still have some way to go. Thanks

Coming from the community that is traditionally associated with business in India, I can relate to the author. However, with due respect, I beg to differ that ‘dhanda’ and ‘entrepreneurship’ are two different things. Though the method of doing business or the people who do business have changed, the core principles for both have not changed. There are more parallels in the traditional way of doing business and entrepreneurship then what looks on the surface. The author mentions about creating an ecosystem for new age businesses but if we look at the traditional business they were nothing short of incubation centres. A person from the community starts his business in one part of the city, calls his friends/relatives for help. These people train under him for some time and slowly they venture out by starting their own business in another part of the city. Another main aspect mentioned is regarding dilution equity for the fear of losing ownership. If we look at 21st century business like facebook, amazon, google (now alphabet) they also have created a system where the owners won't lose controlling stake of the company by creating 2 different class of shares. Isn’t it similar to the traditional business philosophy of maintaining complete control of the business? In my view, we should not look at new business and old business methods as something of competing ideologies. Fusion of the two will create modern enterprises from India which will be leaders in their respective domains. In fact, this will also solve many challenges like lack of mentorship and sustainable business model which are currently hurting the Indian entrepreneurs.

Dear Sir, I completely agree with you that the entrepreneurship scenario is changing in India. In the earlier days there was an ecosystem required for the business people to be successful and it was available only for few privileged people. But nowadays if anyone has a game changing idea and the guts to execute it then he has lot of opportunities to start a new venture. The three reasons which encourage entrepreneurs are the systematic attempts at removal of the red tape and regulatory roadblocks, ease of collateral free funding for entrepreneurs by SME focused banks and the new e-IPOs for equity investments & development of entrepreneurial talent in educational institutions. Educating the graduates about the importance of entrepreneurship is required in the institutions as the economy of our country will not be able to absorb all the graduates passing out, hence leading to an increase in unemployment. But a major obstacle is that most of us think taking a job is better than taking a risk and starting a venture. It requires a lot of commitment and courage to leave the present job and start a company because the revenue and the profits are not guaranteed in the initial years. The entrepreneurial training in India should be improved by the Government and more funding should be provided. Unfortunately, the present entrepreneurial training in India just concentrates on related management courses & lots required to be done by incubators, accelerators, and meet up groups to make entrepreneurship a mass movement. In the future we can hope that there would be many personalities like Steve jobs and Bill gates from India too. Thanks

Thank you sir for providing such a detailed description about the evolution of entrepreneurship in India and issues currently plaguing entrepreneurship’s growth. However I believe the main issue impacting the growth of entrepreneurship is the lack of innovations and company competing in terms of cost rather than generating values to their customer. Currently all the largest start-ups in India such as Flipkart, Ola have copied their business models from similar company’s operating in foreign soil. Initially these start-ups understood the needs of their customers and accordingly developed solutions such as cash on delivery, 30 days return in order to develop trust. However as the number of competitors increased theses start-ups started providing cost benefits rather than value benefits to retain their customer. Hence there was no loss for customers on switching to different company and we witness cutthroat competition wherein each company was able to entice their rival company’s customer. The Indian start-ups have regularly received funding easily which helped them to expand their operations and stay relevant in the market. But in recent there have been a tightening of budget which has caused many start-ups to stop their operations and remaining to rethink their operations. Hence the only way for these start-ups to compete with their foreign counterparts who have deep pockets is to develop innovative solutions to create value for their customers. Snapdeal has invested heavily in mobile solutions so as to provide the best mobile commerce experience to their customers, Indigo has maintained on time flight model, Oyo hotel chain understood the need of customers to obtain standardised hotel rooms are some of the examples that shows how clients are ready to pay additional if their basic needs are satisfied by the company. Some of these moves may fail such as Myntra move to mobile only platform but these failures should not dissuade the start-ups from investment to develop innovative solutions for their client since it is the only that they can remain relevant in the current scenario.

Dear Sir, this is an interesting article which talks about the evolution of entrepreneurship in our country. As rightly pointed out, technology has been the key lever for this evolution. However, when taken a macro view, it appears that there has been a decline in traditional spirit of entrepreneurship. Today’s popular set-ups are more of some extended replicas of concepts working well in other countries, rather than solving some real problems witnessed around. We are yet to see true product companies emerging out of the country. Moreover, even the large established IT outsourcing companies are largely support providers or back-end office of US majors. Clearly, what’s not the case is that our talent pool is lacking hard work; so, where does the problem lies? A hypothesis which I can think of is the issue of “mindset” which we see around, be it at educational institutions or in the office of India-based venture capitalist. We deeply desire to chalk out bold visions and do exceptionally well, however, we struggle to keep the same attitude when it comes to doing ground work. Our critical thinking needs have more variables, and several perspectives. No wonder that same Indian DNA made big in the US companies, having moved to the nation at an early age. They had the attribute of hard work, and appear to have added other skills on the top of that. It would be interesting to see how the next decade pans out for our country. Would we continue to emulate the technologies of developed nations, and be a follower? Or would we be able to create several more home grown global institutions like Tata’s.

Dear Sir, This article has been beautifully articulated on the entrepreneurship system in India. Coming from the same background, I can relate too many of the things highlighted by you. Start-up culture has been greatly influenced by the western culture and with more number of incubators and E-cells the easy of starting a business has been positively affected. Indian start-up companies are not focusing on the cash follow and rather looking for a short term growth by funding from equity dilution. Businesses are not focusing on profitability. Basic ecosystem along with the fear to lose has led major population to look for safer opportunities. Mentorship of the talent is of utmost importance if we want young Indian entrepreneur to flourish. Many leading B-schools have started bridging the gap. Government initiatives also play a vital role in enhancing the ease of doing the business. We should tap the potential of having youngest population an. Entrepreneurship should be more of the implementation of the idea, learning from the mistakes and not replicating them while expanding. An entrepreneur should also focus on initiatives that look to solve mass problems beyond the profitability. It’s one of the best ways to pay back to the society.

Great read! The blog was a very objective look at the Start-up scene in India. ‘Start-up’ has been the buzz word for the past few years as more and more courageous individuals take that step of ditching their day jobs to pursue their own enterprises. However, on the flipside, for every start up that is declared a success, there are many which failed. The blog identifies some key reasons for this. After all, for how long can you pull off stints at the expense of angel funding and venture capitalists! Some start-ups don’t take off to reach the juncture of issuing initial public offerings, which would offer an opportunity to the private investors to cash in on their investment. This is reflected in the declining investment in the segment. The eco-system is clearly under threat! However, the fact remains that start-ups are required to create jobs for the millions of graduates stepping out of colleges every year. The existing enterprises can’t accommodate all of them and neither can an emerging economy like India afford to lose its crème de la crème to the West (which also looks increasingly difficult in Trump’s USA). ‘Start-up India’ is an excellent platform for budding entrepreneurs to experiment, offering funding options, ease of registration, tax exemptions, etc. But the question remains, how invested is a 20 or 30 year old something in a business without a substantial skin in the game? One is forced to think, may be ‘dhandha’ is best left to the people who have lived and breathed it from day 1 on this planet. Or maybe the whole eco-system needs a little more time to mature to deliver worthwhile results.

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