THE RISE OF THE INNOVATO - PRENEUR
Date: Tuesday , July 05, 2011
A couple of years back I shared a ride to the Airport from an Innovation event with the Head of R&D at a Multinational which developed cutting edge technology. We got talking on new areas that his company was working on and he shared with me the progress on cutting edge technology they had developed applicable in healthcare space. Impressed at what I had just heard, and told that this would take a couple of years to become a commercial offering, I was curious to understand how far behind competition were on this technology. We are not concerned about our obvious, large competitors we know exactly where they are, I was told. What we are worried about is that there is a start-up somewhere in a corner of India which has built technology that can compete with ours.
This statement alone is a testimony of the quality of cutting edge technology that has begun to emerge from young firms in India. Be it the need to survive and distinguish themselves in an environment where technology firms are mushrooming all over the place, the inclination of a generation of professionals with significant experience in a domain turning entrepreneurs, the emergence of India as a significant market or the gradual maturing of the entrepreneurial ecosystem, the number of innovative, high technology start-ups I have seen since, provides enough evidence to corroborate that statement.
Consider the case of a start-up in the engine electronic space, in which we, the India Innovation Fund, will close an investment shortly. This firm has managed to deliver a cost effective solution (at half the price point of its global competitor) to its clients OEMs in low margin businesses not through labour arbitrage, or on account of low component cost. Their ability to reduce costs has been driven by a complex technology solution where they have used software algorithms to perform a high precision task hitherto performed by hardware. We see this trend across multiple sectors the medical device space, telecommunication equipment, manufacturing and automotive sectors, clean technology and more.
The challenge however is to convert innovative technology offerings into successful commercial ventures. The bridge is the business model. A lack of a practical and efficient business model is what has led to the demise of many technology start-ups which had advanced new technologies. It is therefore heartening to note that there are a few young firms which are innovating on their business models to solve unique problems. Take for example a number of start-ups, with offerings for rural India, which are grappling with innovating on the age old distribution model, hitherto exclusively in the domain of FMCGs such as Hindustan Lever. Innovation in business model has a multiplier effect on a strong technology offering. A weak business model equates to a failed start-up.
Wherein then lies opportunity for innovation for Indian start-ups? While the canvas for innovation is limitless, a space where there seems to be a dichotomy in the size of the opportunity and its address through innovative solutions is in two consumer centric markets the consumer internet space and the mobile space. Given phenomenal mobile penetration rates in India and the unique character of the market, the factors in which innovation thrives are present. However, we havent seen an offering which we can say has been disruptive an offering which would kindle the imagination of many and lead to its adoption and replication by firms in other geographies. The same applies to the consumer internet space we are still in search of that elusive start-up which will take the global consumer by storm and carry brand India along with the success of its offerings.
Therefore, while the start-up community is throwing up innovative technologies, the focus needs to be on converting a greater percentage of these into commercial successes. A few points to keep in mind which can go a long way in helping the entrepreneur enable this are:
1 Focus the world has a lot of problems. Try solving them one at a time and not all at once. Entrepreneurial acumen demands the ability to be able to stay on the right side of the thin line that divides diversifying to mitigate risks and focussing to ensure that resources are used with maximum impact.
2. Differentiate find your niche. Me too offerings are fine for lifestyle businesses. Not as true value creators. Investors therefore like entrepreneurs who have experience in the area in which their start-up operates. They know the problems more intimately.
3. Participate and allow others to participate You need all the help you can get to make a Start-up successful. Participate in the ecosystem to enhance your abilities and allow others to participate in your start-up to draw on diverse experiences and thoughts.
4 When choosing an investor, choose Strategic value over Valuation If you in the enviable position of having term sheets from multiple investors, it is often tempting to choose the investor who has given your company the highest valuation. Resist the temptation and choose the investor who can provide you the maximum help in making your company successful. What your company ends up being valued at is what counts, not what its value is at the early stages of its journey!
The author is Vice President, India Innovation Fund
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