Indian start-up – Can it look BIG?

India is not new to entrepreneurialism. In fact, Indians always had the entrepreneurial streak what with higher education not being sought after in the yesteryears, and the ideal way ahead for many being setting up their own business.

Things, however, have changed today. Pay-packets have been increasing at a fast clip and competition has become global. The young, therefore, cannot be blamed when they look at other professional avenues instead of setting up businesses from scratch. Besides, in spite of the eco-system for entrepreneurship development improving, the fact remains that Indian start-ups cannot look as big as their counterparts in the US. There are multiple reasons for that.

For a start-up, it is important that at least the founding members (if not all the employees) understand the value of equity. The concept of sweat equity is well-ingrained in the US, what with even accounting firms willing to go for it. In India, however, it has just managed to take baby steps. Finding partnering accounting firms who are willing to accept it is unfathomable at present in India. Entrepreneurs here either have to pay big bucks or be satisfied with small ones that don’t have sufficient experience.

Funding is another reason why US-based start-ups can scale up more quickly than Indian ones. Angel fund or seed capital is relatively easy to get in the US than in India. With time, however, things have improved in India as well, what with venture capitalists bringing Indian companies on their radar and educational institutions setting up incubation centers.

Operations wise, in the US, there are plug-n-play facilities for entrepreneurs to set up their base. On the other hand, Indian companies have to set up their own infrastructure. This takes time as well as money what with real estate prices soaring across regions.

Power and Internet are more reliable in the US while in India we still have a long way to go in these respects. What’s more? In the US, even additional facilities like conference rooms, recreation centers and gym can be shared. So it is easier to attract and retain employees, courtesy good infrastructure and ambience.

In India, all of that is difficult. This in turn makes it tough to attract and retain employees who may prefer working in a “big” company because of great infrastructure and facilities rather than a start-up where adjustable nature and contentment with what’s available are assets. These issues in turn get inflated if operations need to be set up across multiple cities.

All of the above affect productivity levels of Indian start-ups thus making it difficult for them to look big in front of their US counterparts. This may even be in spite of them putting in equivalent effort, time and money. In fact, they may have to expend more, on all the counts.

Is India Presence an advantage for Silicon Valley start-ups?

India has always been a bone of contention during boardroom discussions of Silicon Valley based product start-ups. This is not the case with larger companies especially in services sector, for whom having a presence in India is non-debatable. That’s because India is satisfactorily able to meet the human resources needs of such companies, both in terms of talent quality and the headcount.

However, when it comes to start-ups in the technology product development space, there are questions raised with regard to quality, productivity and general mindset of talent. India as such has never had a great product development background. Therefore, there aren’t many engineers around with experience in this area. So talent availability is an issue.

Apart from that, many entrepreneurs with a base in Silicon Valley believe that the concept of sweat equity and stock options is not understood by people here. It means that out of the available talent, not many may be able to trade their monetary compensation for the satisfaction of development of a great product. They may in fact expect at least a 20 per cent hike every year simply because the market decides that rate for them.

The problem does not stop there. Once that talent is recruited there is a constant fear of losing it to other competing firms. High attrition levels in India form the basis of these fears.

Nonetheless, there are multiple reasons for start-ups in product development space to have a presence in India as well. The low cost of operation, courtesy the difference in salary levels of Indian Vs Silicon Valley based engineers ensures that value is created while maintaining low burn.

Besides, it speeds up execution because on an average you can recruit three people in India at the cost of one in the US. So with more number of engineers working on a product, the pace of execution increases. India is also home to companies (www.persistentsys.com) today that do not mind partnering with start-ups for better product development, unlike earlier when the few big companies that the country had were interested only in multi-million dollar deals.  

There is another side to this multi-faceted cube as well. With India specifically, and APAC in general becoming potential markets for growth, it makes better sense to have a presence in India so as to be closer to the customers.  No wonder then that corporates like SAP and Cisco have made India a hub for the Asia-Pacific marketing and sales activities.

So what’s the final call? Well, the balance finally tilts in favor of a presence in India , provided that certain parameters are taken care of. These include trying to rope in people of Indian origin willing to move back to the country after gaining significant product development experience abroad. Minekey (www.minekey.com) is a case in point.

Apart from that, it helps to ingrain and practice the concepts of stock options among employees in India . PortalPlayer (www.nvidia.com) and Party Gaming are good examples of companies that have followed the stock options route and helped generate wealth for their stakeholders.

Tools like Skype and Video-conferencing should also be used significantly to ensure that work progress becomes location-agnostic. India, therefore, is an advantage even for Silicon Valley based product start-ups provided that the upsides don’t get pushed under the carpet of avoidable inefficiencies.

B-school Degree and Entrepreneurial Success

There is only one way to make a great deal of money; and that is in a business of your own. This quote, evangelizing entrepreneurship, came from a former oil tycoon and once the richest man in America, J Paul Getty. There are also others like media mogul, Ted Turner who said – My son is now an “entrepreneur”. That’s what you’re called when you don’t have a job. It does not come as a surprise therefore, when there is confusion with regard to whether entrepreneurship should be taken up in the first place or not. Adding to this confusion is another daunting question on whether a B-school degree would help an entrepreneur achieve success.

Endiya spoke with graduates and management representatives from various B-schools to get a clearer picture. Here’s what we believe is the co-relation between B-school degrees and Entrepreneurial Success.

To begin with, an entrepreneur is someone who dreams big and isn’t wary about foolishly pursuing it. The ingredients that go into the making of a successful enterprise are a niche product/service, the right sales/marketing resources and sufficient funding. An entrepreneur needs to play a leadership role with regard to one of the above and bring together partners who can complement with the remaining skills.

So budding entrepreneurs need to have a great idea and jump in the rut to pursue it. However, they also need to do the due diligence to mitigate the risks. In this regard, B-schools help graduates to structure their thoughts because of the rich exposure they provide in a variety of subjects.

At B-schools, graduates also get a great network to fall back on. While there are incubation centers that help budding entrepreneurs meet with potential investors/customers, the eclectic aggregation of people helps them find potential partners/employees.

However, there are chances that entrepreneurial dreams may die down even before they are pursued, courtesy a B-school degree. For one, there is confusion with regard to the role an entrepreneur plays when he/she graduates from a B-school; simply because it would have been an Engineering Graduate going for an MBA degree with specialization in marketing. The entrepreneur may also end up doing too much of due diligence and thus give up before he/she actually takes it up.

Then there are the huge EMIs that a graduate needs to pay because of the high fees at such schools. It makes them obligated to pay their debts before they think of starting on their own. There are also tempting offers that come the students’ way when they are a part of reputed B-schools. The media plays up the salary factor as well, thus putting a sub-conscious pressure on them to go for the big bucks and be a part of the high-salary league.

That is why B-schools that mandate experience during admission churn out more number of entrepreneurs than those that do not. Students who’ve had prior experience would have treaded the corporate path before and a B-school degree would be something that they would pursue in the hiatus, before they start anew.

So a B-school degree has its pros and cons with regard to entrepreneurship. It does bring you on the fast track as such schools organize conferences where students can connect with venture capitalists/successful entrepreneurs. Then there are also incubation centers where interesting ideas could be analyzed for commercial potential. However, it is definitely not a pre-requisite for a person who is looking at becoming an entrepreneur.

[Endiya spoke with B-school graduates from Wharton, INSEAD and ISB to validate these opinions. The deputy dean of a B-school also shared his thoughts.]

 

Bootstrapping Vs VC Funding

For an entrepreneur, the eternal area of conflict is whether the bootstrapping method of raising funds is better or is venture capital a better route. The reasons for this conflict are several. You have all kinds of advice and advocacies coming in from various quarters.

There are news reports/articles to read and counsel to be gained from entrepreneurs who would have gone either way. In all likelihood, the ones who did it the bootstrapping way may guide against venture capital funding, while the ones who hit it with VCs would recommend them wholeheartedly. Besides, there have been successes at both the ends. While Google, Hotmail and Cisco made it big with VC funding, Craigslist, Dell and Siebel did it on their own. So how does an entrepreneur take a call on the route to be taken for funding?

Business Focus/Mode of Operation

The business focus would determine whether venture capital funding would work for a company or not. For instance, intellectual property is something that attracts venture capitalists. Value-added resellers or pure-play consulting companies would not.

Same is the case with the mode of operation. Bootstrapping works better for lifestyle businesses which are primarily run by a single owner while VCs would go more for professionally managed businesses which involve partners.

Clarity

An entrepreneur needs to have a decent idea about the product features, the customer value proposition and sales & marketing model that will be applied. In case of lack of clarity it is better to bootstrap, be done with due diligence and then approach the venture capitalists for further funding. The reason is that venture capitalists will expect you to have a clear short-term/long-term strategy and work towards achieving it. Lack of clarity may not go well with them.

Fast Growing Market/Competition

If the market is growing at a fast clip (like in the case of online travel) and competition is increasing by the day it is better to wake up and gain momentum. Even if you are better, faster or cheaper than others, you may not always be heard because of the din. At that point of time, VC funding works as it helps you invest better and rise above the noise faster.

Strategic Partners

Strategic partners may be able to meet your financial needs. However, ensure that they fund you without excess baggage (like signing a deal of exclusivity with a customer). Investment from such partners should not preclude you from doing free business.

Irrespective of the route that you take, it is always good to gain confidence and achieve predictability before you ramp up. It is better to be clear about your goals, work towards achieving those and be on par with what’s been set, before you go for higher amounts of funding that could range from debt financing to VC funding.

VCs on their part are not looking at owning your company. The value that they bring to the table includes capital, rolodex and expertise. It is a Zero Sum game for them as well – simply because based on the kind of ventures they usually invest in, it is not physical assets that they are betting on. They are bidding on intangible assets that comprise intellectual capital and innovation. Therefore, even they will win if you have enough skin in the game.

Considering that there are growing numbers of Me-Toos in all sectors, it is a tough task to gain critical mass before appearing on your competitors’ radar. But if it happens with your venture, you’ve lucked out. 

Entrepreneurship conferences – Speed dating or much more?

A recent write-up in a popular daily drew parallels between networking events for VCs/Start-ups and speed dating. According to the author, like it happens in speed dating, the two parties meet, spend some time with each other and if they like what they see, a relationship is forged. But is that analogy really a true depiction of what such networking events are all about?

Let’s begin with the organizers’ point of view. For them, it is an initiative where they bring in venture capitalists and budding entrepreneurs on one platform so as to do their bit in building the eco-system for entrepreneurship. Their Vision – Build awareness, evolve an eco-system and help connect saplings with the Been-There-Done-Thats. India is seeing some momentum in this space, with events like the TiE-ISB Connect (http://www.tie-isbconnect.com), Proto (http://www.proto.in) and Venture Intelligence Connects (http://ventureintelligence.in/events.htm).

For venture capitalists, such events are like buffets where the display of new technology or innovative ideas, stir up their appetite for investment. They need not scout far and wide for probable partnerships, as the organizers would have done the ground work of screening and filtering the business plans. They, on their part, get to promote entrepreneurship in their own way.

And then come the entrepreneurs. Such events need not be a race for – Who bags the biggest cheque at the end of the day. There are other benefits that accrue as well. They get mentored, get a chance to learn from others’ experiences and even get to meet other entrepreneurs/professionals who could become their partners. What’s more? They even get to learn how to master the warm call. But does it also translate into a deal being signed at the end of the day? Not always.

Deals, in fact, are a wrong measuring glass being used to determine such events’ success or failure. Therefore, it does not come as a surprise when the media decides to give coverage depending on last year’s “successes” and the organizers try to oversell their “performance” during the year’s curtain raisers. Entrepreneurs, on their part, participate in such events assuming that things will click at the first impression. After all, that’s how speed dating works as well. But such events are more than speed dating. To take this analogy a step further, these are actually just platforms for introductory meet with potential partner.

Dating, knowing each other and forging a relationship would take time and patience.