I have not made a post to this blog for a long time. Needless to say, I have been busy with lots of things. I recently joined an Indian startup. I had previously thought of starting my own company. After considering such a proposition from all angles and recognizing my own strengths and weaknesses, I decided to abandon it. I don’t have that many contacts in India. I have never worked in India in all my career and I am new to how things are done here. Last of all, I kept questioning my motives for starting a company. The motives were not that obvious and certainly not healthy for the business.
What’s the next best thing, or perhaps even a better thing, to starting your own company? Join a start-up. That’s exactly what I have done. I started in my new job in the new year and I have been busy ever since. Today I finally decided to put some time to make this post. Choosing a start-up is not exactly an easy thing to do. You have to consider the pay packet which may not be up to market rates. You have to consider the working environment and the general lack of facitilies that is taken for granted in big corporations. You have to forgo medical benefits and insurance.
The real joy in a start-up is obvious to anyone who has worked in big corporations. There is a personal touch to everything. You know everyone in the company. The structure is flat. Rules are few and flexible. You take responsibility and make things happen. You generate ideas and take initiative. If the company has to grow, your actions matter. If the company grows, you grow along with it. Ultimately, you may not be the CEO or Founder, but you feel that you belong to the company and the company (part of it anyway) belongs to you.
Starting a company is all about entrepreneurship. The common notion is that people don’t want to work for others. They want to do something on their own, be their own boss. On the contrary, I have a holistic take on this. The founder of a company works for and with everyone around him. His company works for the industry in which it operates. Market forces are always keeping his business vigilant. He may have some control over suppliers and customers but ultimately the market dictates his actions. The beauty is that as an entrepreneur you are in the driving seat. You decide how best to chart the progress of your company that aims to grow along with the market.
This appetite was long absent in India. People worked for rajas and maharajas. Then they worked for the British Raj. There was little innovation, if any at all. India is a country proud of its culture, customs and tradition. Anything new was seen as an invasion into age-old customs and tradition. Why change when there was no need to? Everyone was happy running their businesses on a small and medium scale, in the same way for many decades. Entrepreneurship is not about just running your own company. It’s about generating ideas, innovating and driving the industry to new heights.
There are lots of small Indian start-ups today. Some will succeed, many won’t. Not all are run by entrepreneurs in the true sense. Though all have some degree of innovation, in a competitive market only the best will survive. Some will grow to become big players while others will find their niche in the market. Many others will just dwindle and close. An example is the growing number of start-ups getting into social networking sites for the Indian market with very little competitive advantage [Business Week, November 30, 2007]. It is not an easy job. Technical innovation is one thing. It has to be backed by keen business acumen which involves a whole suite of decisions – how to keep costs low, is this the right time to release the product, what’s the best business model, is it better to import or make it indigenously, what’s the right price for the offered quality.
Today we are seeing more and more Indians breaking their long-held comfort zones and foraging into entrepreneurship. It’s part of the development of the Indian psyche which no longer sees itself as being repressed by British colonialism, princes and maharajas, or self-constraining customs. Independent India wallowed for half a century in dirty politics and ineffective governments. With the liberalization of the Indian economy, Indians may not yet be innovating for global impact but at least we are building and improving on ideas that are coming to us from rest of the world. Economy has firmly put India on the path of progress and for the first time governments, corrupt though they may remain, are forced to take note and follow.
Very few industries actually grow during a recession. The best period for starting a company is when the economy is growing or already in a boom. This perhaps is the most important factor why there are so many Indian companies doing so well. Even those that are not doing well, have the potential. In a growing market and a bullish economy, the potential is always high. In the current financial year Indian economy is set to grow at 8.7% [Business Week, February 7, 2008].
The potential for growth is enormous in many sectors. It is hard to see how, when we have come so far, the Indian economy can go into a recession. It is not likely to happen for another five straight years. A bolder prediction is that the economy will grow at 8% until 2020 [Financial Times, January 24, 2007]. The current growth has disproved previous predictions which put the long-term growth rate at 5%.
Global recession, if and when it happens, will affect India. BPOs, call-centres and software services industry will be affected. The appreciation of rupee is set to continue and will squeeze profit margins. Though India has sufficient resources for supply and potential for demand on its own, it is not self-sufficient. If India has to grow in the face of a global recession there must technological innovation and improved level of self-sufficiency.
Ecosystem plays a key role towards self-sufficiency. Take the case of manufacturing a mobile phone. While Nokia has a high capacity plant near Chennai – into which it has just pumped $75 million investment [Nokia, December 5, 2007] – key components that go into the phone are not made in India. The phone may have chips from Texas Instruments or STMicroelectronics who prefer to have their fabs in China than in India. In fact, though India has been in the semiconductor for a good three decades most of India’s contribution has been towards software development and hardware design. Only in 2009 Hyderabad is slated to get India’s first fab.
If Indian companies have to compete against big foreign players they need to source indigenous components to keep costs low. They need to make the best of local knowledge for local needs. Their leverage against foreign competitors must come from their understanding of culture and consumption patterns.
In the ideal case, everything that goes into making a product is made in India. In other words, the entire value chain creation happens in India. All businesses along the value chain will stand to benefit. Creating such a value chain needs entrepreneurship at all levels. Some will focus on making the mobile phone. Others will focus on making RF tranceivers. Others will focus on baseband and modem part of the phone. Others will supply the protocol software. Others will supply test equipment. Others will play a vital role in representing India in world organizations so that when the time comes to certify the phone, there will be Indian companies certified to do so.
But making everything in India is not truly an ideal case for the simple reason that India will not have the economic advantage of making everything. India would have to specialize on what it does best and most efficiently. However, in the short-term the cost of imports and the hard affordability of foreign products make it worthwhile to look for substitutes within India. The main difficulty at this point is that Indians do not possess specialized technology. For example, no Indian company makes a mobile phone.
The future is promising. Indians returning from overseas are spawning ventures at all levels. While many may be looking at only services there are others who are taking to products. There are fabless semiconductor companies that do specialized design for silicon. There are companies starting to make RF components. There used to be a time when specialized products had to be imported directly from a foreign manufacturer. Today local distributors have taken shape. They stock various products, give faster quotes and shipments without businesses worrying too much about import duties and clearances.
An extension of the ecosystem is the availability of funds. Getting funds has never been easier. Getting funds has never been more difficult. Both statements are true. While opportunities are there, investors are choosy and demand is great. No two investors look at business potential in exactly the same way. The difficult task is to find the right investor who understands your industry and meets the needs of your business. Finding the right investor also means being able to retain control over your business. Investors want returns. They do not want to take over your business. So long as you can deliver, they are happy. If you can’t, they will find a way to sell your business for a profit.
Why do people want to invest in Indian start-ups? The potential is high. The market is huge. The ecosystem is growing. Everyone’s expectations are aligned and tend to reinforce a belief in growth. People’s spending power is increasing. Consumption patterns are changing and growing. With new ideas coming up all the time, there is that chance that a business will have global value as well.
I was at a recent event in Bangalore on 19th January 2008. The event was named HeadStart and took place over three days. It brought together venture capitalists and start-ups. The event consisted of demos and presentations. The VCs sat on a panel and talked about what they looked for in start-ups – a clear business case, competitive advantage, market research, solid financial projections, break-even analysis and a host of other things that will be familiar to anyone who has done a proper business plan. Investors are not interested in your technological breakthrough per se. They want to know why you are doing it, what is its value, who is going to buy it and why.
I also attend Mobile Monday Bangalore on a regular basis. Some of the sessions are attended by investors to get insights into start-ups and the technologies concerned.
Competition for funds is intense at the moment. Company valuations also tend to exhibit great variance. There is no standard set in stone. Only experience, insights and expectations of the future. If there is a standard, it cannot apply to all industries. Valuation of a company in the communications sector will be done differently from another company in the pharmaceuticals sector. The broad factors may be the same but the emphases are likely to be different.
Funding is not just about private investors. It is about making innovation possible which translates to upfront investment. NASSCOM has taken a step in this direction by creating an Innovation Fund. The process is in place since January this year and the Rs. 100 crore fund may be operational anytime soon. Key investors are ICICI Group, Tata Consultancy Services (TCS) and Bharti Airtel. Start-ups can hope that they will not make aggressive demands on returns like VCs.
The government is ahead of NASSCOM. Start-up companies are beginning to take advantage of a scheme called Support International Patent Protection in Electronics & IT (SIP-EIT) under the Ministry of Communications and Information Technology. Under this scheme, the government will bear a maximum of Rs. 15 lakhs for every international patent application. It is a highly useful support for companies wanting to protect their IP.
While there is competition among start-ups they also form a community in which ideas are shared and nurtured. Such communities serve the additional role of promoting the company and its product or service. Meetings and seminars provide platforms to enable this. Partnerships may be formed not just between companies but between individuals. New talents may be recruited and industry contacts built. Some of these events are attended by well-established and large corportations who hate to be left in the dark.
Mobile Monday Bangalore is one I have often written about. Open Coffee Club Bangalore is another community that meets regularly. BarCamp Bangalore (BCB) is another forum for sharing ideas. DevCamp Bangalore is a new event that is happening today as I write this article. DevCamp focuses on technical issues of interest to developers. I have already mentioned HeadStart. Proto.in which concluded recently in Chennai was an event very much like HeadStart. The whole of last week was the Entrepreneurship Week at the International School of Business and Media in Bangalore. It was an effort at bringing industry and academia together to forge effective partnership. It acknowledges that innovation is key in the long run and academic institutions can fill this void.
Recently, NDTV aired a live debate that took place in IIT Delhi. The debate brought together students, Indian start-ups, British start-ups, Indian government officials and their British counterparts including Prime Minister Gordon Brown. The debate addressed a number of issues but at the heart of it, it sought to build a platform for greater cooperation between small and medium business in the two countries. There are some things that Britain does best but they are others that Indians are doing better as entrepreneurship in India continues to mature and grow. Events are this can be considered as part of the overall ecosystem that nurtures start-ups.
One of the greatest changes that happened in economic history is the Industrial Revolution, particularly in Britain. A number of things came together to make this revolution possible – availability of capital and risk-taking investors, a banking system, the Enclosure Act and availability of labour, the import of raw materials from the colonies, ready market, political stability, technological innovation, the power of steam and above all entrepreneurship. We may not see anything like a revolution in India but conditions are right for Indian start-ups to venture boldly.