I remember this TED talk by Hans Rosling as he echoed the sentiments that I’ve heard working closely with Market Research firms:
Even with quantitative data, you have to be careful because as much as they are hard numbers, they usually are averages of two extremes – and the markets are full of extremities.
Truth is, if you follow (just) the numbers and build a product, you might end up with something that half convinces one group and slightly lures the other but never raging fans – in short, you build a product that is average.
Which means, that in order to improve a system, its not necessarily the most effective way to measure the system has a whole, you have to look at the individual parts of it and see which part of it is inefficient and work on that as a unit, rather than the whole system.
Organizations, love to club “Entrepreneurship” as one big whole chunk of gooey and that is very misleading.
I came to realize this working for a few years with IIT Madras, and interacting with the government and realized two things – their priorities were on cutting edge technology (patentable, and hence hard core sciences – some of which were a few layers away from direct commercialization) and the other was employment. If you think about it, it fundamentally comes down to the two priorities any government would have – security (economic and physical) and job creation, which are the key elements to a society, everything else is incidental.
How does technology entrepreneurship play into all this? If you are not building patentable technology (but an application – Yo! to the dudes and dudettes building Twitter 2.0) and if you do not have an intent to hire the masses to come work for you, you really don’t factor in anywhere at all.
That’s why when I read articles and the entire social media sphere going abuzz about the government plans t0 create 10,000 startups, and trying to force fit technology startups into that equation, I cringe, because thats like tryin to get a rhino into a bride’s wedding dress.
“According to a recent planning commission study, India needs to support nearly 10,000 scalable start-ups by 2022 to provide some level of sustainable job creation to the 140 million potential job seekers entering the workforce over the same period”
Some rough estimates say that there are close to 24 – 32 million (I know its vague but vague is all we have, because nobody has actual data) small and medium enterprises. Most of them are spread in the 1200+ Industrial clusters in India. When the government says “Startups” that is the ideal target they have in mind. It is none of the 350 odd brilliant, fraction of the whole equation demographic at all. The image in the mind of the government and policy makers when they say “startups” is someone who can be part of that 140 million job creation scheme of things – which means its the labour industries first, followed by manufacturing, followed by vocational skillset based organizations, followed by service companies (IT and Hospitality), followed by Research and development. You and I, don’t factor in at all.
The Key is to recognize that, before writing a post saying that things are sweet and sour. Truth is that the Tech Startup Ecosystem is on its own. And it survives on its own. It is nascent, very nascent and things are as crazy as the wild wild west. Not all entrepreneurs know what it takes to be in India and be building a business here, most of them complain that they are born in the wrong country, and most others just whine that this is not the valley. Some others are fooling themselves into believing that we are somehow there.
So steps to take:
1. Organizations like TiE have seriously lost their focus, gearing further and further into general entrepreneurship (so is CII, and FICCI and etc), rather than having a focus – when they are positioned best to help, but are just wiling away.
2. Understand that there is no such thing as an ecosystem yet, there is a landscape and like cattle there are some startups and enablers around. When my CA knows why a tech startup which has no “machinery” is valued at a crore, and all he sees is four guys and their laptops, then we have made the first step in building an “ecosystem”, not yet.
3. Building the Tech Startup Ecosystem, will take a concerted effort, by not the govt, or by one or two people, but by many who share this vision and are willing to play a non-zero sum game. Think beyond what you get (right now).
4. Our early successes will come from companies that will move out of India, go to the valley and succeed. Hopefully some of them will find a reason to come back and become that corridor. So don’t grumble when some of them leave, if they come back we should involve them. Israel’s ecosystem was built that way. There are ways to accelerate it, but that goes back to point (3) about a concerted effort. Investors will have to think beyond just deal flows, technology companies have to think beyond getting startups on their platform, and entrepreneurs have to think beyond just getting funded as their agenda.
5. Stop thinking small, and incorporating in India because of Patriotic reasons. Be global, incorporate where needed and keep your options open. Leverage all the exposure you can get. You are not competing with that startup down the road, you are competing with your counterpart globally.
6. If you are a startup, stop wasting your time in ecosystem stuff, there are enough of us around who have made it our mandate, if you really really really want to help, succeed amazingly well. There is very little replacement for what a success like Flipkart, Mobme, Webengage, Freshdesk, FusionCharts, Visual Website Optimizer, Tenmiles, Orangescape or a like can do.
Suceess breeds inspiration, while all the enablers can lay the roads, its entrepreneurs succeeding that really lights up the runway.
So don’t crib. Leverage India for what its worth. You can build amazing businesses here, but it will require getting your hands dirty. In short, be resourceful and make the most out of it. We are on our own.
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“Not to forget the huge taxes that got slapped lately on dividends and capital gains (as are tax free in India) that are driving away many a investors out of USA… The dreams is not so *American* any longer ”
What huge taxes are you referring to? You mean capital gains going up from 15 to 20%? You also mean an increase of the top bracket to Clinton-era levels at 39.6 which will affect about 1% of the population?
Who are these investors being driven out of the US? Where are they going?
If you want to make some sort of anti-US statement that’s your prerogative, but get your facts straight. In the face of India’s massive subsidy programs and very little on the revenue side given a tax paying base of about 2% (that pay anything meaningful into the system) which direction do you think taxes are headed in India?
Hi Alok, you are right in the VC investment does not lend itself to more linear cash businesses that provide essential services or create wide scale employment opportunities. VC equity is a highly selective instrument that can’t easily be grafted onto mainstream businesses in a market where trade sales are scant and IPO is generally not an option.
Freer and less restrictive venture debt and lending regulations for foreign capital would aid dramatically in extending credit to small firms operating in these spaces (i.e. ag supply chain, hospitals/clinics, school, etc.)
You rightly point out that there is a difference between high-throttle entrepreneurship and SME; they are vastly different spaces that both need dedicated and different kinds of support. Personally, I don’t get as excited as others about a lot of the high tech entrepreneurship that I see around me. There are more talented, driven, and ambitious people in India than anywhere else on earth, yet I see a lot of them building e-commerce wannabe’s selling lingerie online or some other shaadi website. Seems like an awful lot of wasted talent and opportunity.
It’s always good to be on one’s own as Vijay says.
“Migrating to the valley” under the current (Obama) dispensation will be conditional upon significantly sizeable job creation assurances and a bigger slice of of Obamacare contribution to be offered, before they can get down to work. India should be far more simpler in comparison no doubt with leaky, creaky ecosystem, warts and all…
Not to forget the huge taxes that got slapped lately on dividends and capital gains (as are tax free in India) that are driving away many a investors out of USA… The dreams is not so *American* any longer 🙂
Alok,
I wouldnt completely agree with you:
1. The Government has intentions to support the kind of companies, you and I are building, but they are so far away from doing anything positive for them.
2. IMO the government getting to angel invest in them is like having a child in their hand who is starving for food and water, but they are thinking about his/her wedding. I’ll tell you why:
a. The reason I cited with Chartered accountants is very real and that is a situation that is dealt with everytime shares are issued above par. Is the government educating CAs on what these companies look like? I doubt they even know to tell.
b. The archaic name seeking process itself has most of these hi tech startups wanting to pack up and leave. Having “Software” in your name is too generic? WTF!
c. One of the companies i am involved with had a “visit” by the regional sales and service tax office. They wanted to know where they kept the inventory – for the software they were selling
d. It takes a day to get a company up and running elsewhere. It takes atleast three weeks here, and it is inevitable to “grease the wheel” with anything government related. Now there is some transition between TCS and Infosys on handling the MCA site, and its been three weeks since anything is possible with MCA
e. Flipkart has seen enough income tax raids, thanks to a moronic investor going and writing that they are over-valued and are accounting wrongly. Their warehouses were shutdown, deliveries delayed and enough inconvenience caused.
f. the average SaaS Startup is still “invoicing” the client for Rs.1000, getting a purchase order processed before they can give a service.
We are 143 on a long list of countries where its easy to do business. The Government if anything should go and fix that, rather than trying to get into the game of throwing money – if they ever do, we know who will be the only beneficeries of that – ministers and their children and their friends. No one else will even be able to figure the maze.
Does the government like to invest in hi-tech startups? Yes? Do they have a bloody clue? No.
Jobs are not part of the promise of building a hitech startup. I’ll use your own term – non-linear returns. How will that ever happen if the business scaling up is dependent on people? Venture capital is just not capable of aiding such businesses and still showing a healthy return.
I dont have to tell you about the four big costs – CAC, Product / Service Dev Cost, Cost of delivery, Cost of Customer Service. I dont believe that adding recurring costs makes an exciting business for anyone – when ideally most of it can be automated. Thats the case for most SaaS businesses. We forget that Skype was still a 21 people core team, Nokia was a 200 ppl core team. I wouldnt factor in manufacturing etc into the team size because its a strategic decision – it could go to china or go back to the home country (as apple is planning). But Jobs are not a guarantee that a hitech startup can make – they can, in some level, but not in the 140 million category. for that they are talking services and essentially margin businesses like what you are talking about. Those businesses also have a rather long gestation period – how do you differentiate the support you offer between a cleartrip or a yatra or a MMT in the early days (they’ll all look the same), and it takes a long while before that size (and even the number of people and burn) still makes it attractive as a business. Margins will always be the turf to protect.
On the other hand look at companies like Orangescape – very healthy margins – and tell me what support the govt possibly gave someone like them, and if at all the govt (and any of its plentiful schemes) makes sense? Plus if you divide the revenue by number on payroll, i’d bet that the number would be rather high – In my mind, thats what defines a hitech startup.
Far from it.
Vijay, nice post. Two comments:
1. When the government says startups (in context of planning commission report you have quotes, and I was part of that committee) they do not mean SMEs. SMEs are important and there is a whole ministry dedicated to that. This is about the startups that you and me are involved with. Remember, the title of the report was around encouraging angel and venture capital investment.
2. Not sure if I agree with your point that early successes will come from startups that will migrate to the valley. The early successes have already been created – in an infosys, a naukri, a makemytrip (and in relation to the companies mentioned above, in an indiamart, a bharatmatrimony, a subex, and many others). If you were largely limiting the sample to cloud based software (except flipkart and mobme), sure.
The crux of the issue here is that high-growth startups (tech or otherwise) can create a lot of jobs. Canaan has adopted a relatively modest pace of investment, but amongst our dozen odd companies, close to 20000 people are employed. Might not fit into a valley startup mould, but fits perfectly well for many Indian entrepreneurs as well as the government. And in your own list, if flipkart is the most further along, am sure they have created a few thousand direct jobs.