Concept to Success: Milestones for startups
Date: Wednesday , September 17, 2008
Over the past few years, India has been witnessing a steady inflow of venture funding and almost everyday there are numerous startups sprouting. Entrepreneurism seems to be the current trend. Today let’s discuss the question of not whether one must be an entrepreneur or not, but rather what are the downsides of not being entrepreneurial?
Majority of working professionals build their careers working for large companies and are happy there. They might worry about a pay hike of 20 percent and above or may look for a new job in another large company if things don't seem to work out in an organization. Given that this is the majority of the world, clearly it is not necessary to be an entrepreneur. But from my perspective, it is exhilarating to be one. I suggest that one must seriously consider being an entrepreneur at least once. One does not have to start a company to be an entrepreneur. There are many ways to manifest an entrepreneurial spirit and it could be something like deciding "I'm going to home school my child."
Lessons to learn
It is a myth that it is risky being in a startup. I would argue that the opposite is true. All companies want people who work hard and deliver on time. In a startup, there is insufficient fat for non-performers to hide and as a result, performance is all that matters. Today, many large companies have similar work ethics but in a startup there is no choice. Further the learning curve experienced by most people in a startup, is much steeper than in a large company. Often large companies also cause super specialization (for example knowing the intricacies of a particular module of SAP). Startups also force people to become leaders. As a result an individual’s employability quotient rises when working in a startup. While a big company's brand is valuable and they teach a lot of skills, the risk associated with being in large companies keeps getting higher with each passing year as the pace of change increases and leadership skills are valued. The skills that you learn by being an entrepreneur and being forced to deliver or fail, help a person learn how to deal with failure and success better than those who did not take the plunge.
For every entrepreneur, one's company is like a child, and the company too evolves very much like children do. When a kid is born every one is obsessed with looking after the needs of the child and making sure that he is never left alone or hungry. As the child grows, one takes feeding for granted and worry about homework. Soon homework is taken for granted and one worries about preparation for board exams and so on. So as the child grows, one plans for the next big thing and the previous one is assumed to be in place. This is what learning and growing is all about.
It is the same in a startup. In the beginning, the CEO is constantly worried about the paycheck for the next month. If even one person leaves or joins, a gathering is convened. Revenues are measured in 10’s of thousands—not millions. Everything is on a small scale and time horizon is only for few weeks. One thinks in terms of a few quarters. As the business grows, the time horizon increases from few months to a few years to perhaps even a decade. Each of these steps is a stage of evolution, which is accompanied by discontinuities. In the kid’s example, as the child grows from being a toddler to a kindergartener to a teenager, the parents have to alter their thought process to deal with this transition. These are not incremental changes. Often they require a fundamental rethink. The same rules/strategies don’t work. Similarly in a startup, as the company grows it hits points of discontinuity where the old way/thought process do not work and an incremental change does not work.
Let us take an example of a newly started services company. The first few customers would be usually friends and family of the entrepreneur. She will go out to two or three acquaintances, line up $500,000 of revenue and concentrate on delivering. Without investing in sales ahead of time, the company will hit a brick wall in a year or more and will not know how to get out of this situation. Incremental calling of friends does not work—a different sales strategy is needed. Organizational growth is another such event—not all early hires scale with the company. But it is hard to remove a loyal team member from the role. An entrepreneur must never hesitate to leave the leadership role if he is not scaling. Be it a change in management, pricing model or product engineering, an entrepreneur must be ready to listen to new ideas and not be stuck with his own vision.
Need for entrepreneurship
Unlike others, we as Indians must consider entrepreneurship because of where we live. We have chosen to live in a country which itself is a startup. Day after day, we deal with situations around us that are similar to what one would face if one had a new venture. Hence we don't have a choice but to be entrepreneurs.
Let's see some parallels—startups possess extremely high energy and optimism. Growth or loss, everyone is constantly betting on the future. Whatever be the setbacks for today, the future is promising. This is India’s story today. Startups deal with small numbers but have large growth rates. A first contract of $50,000 will be an occasion of immense celebration because it heralds a $5 million contract. In a large company the $50,000 contract would be noise. India is similar—most markets are relatively small in size but we are all betting on the growth rates. An entrepreneur has to be a little overconfident and yet pragmatic to believe that they can take on a large established company and at the same time execute to prove it. India too is characterized by such a dichotomy where overconfidence and pragmatism coexist.
Another striking characteristic of a startup is that there is always very little infrastructure and process. The HR manager does not know where the forms are. If one has a grievance then he will just have to either take it home or do something about it. Also there is a perpetual shortage of talent in startups. One has to make do with whatever one has. These hold true for India too. Lastly, startups have to constantly innovate to survive. According to me, anyone who survives in India is very innovative; starting from getting the work done from the house help; to getting the refrigerator repair person who is always a mere 10 minutes from your home. It is the same in startups where the customer is always one day away from contract and there is need to continuously innovate to survive.
Thus, living in India is already like running a startup and one must realize that this is a once in a lifetime opportunity. It is an opportunity where lots of boats are rising and moving in a single direction. Despite this, one can be in a boat that is anchored too low. Not taking a risk at this juncture in a countries growth is a bigger risk than being entrepreneurial.
Compared to many people in the U.S., who do not have jobs in the IT industry or the financial services industry, we have a reason to rejoice because we have a lot of these jobs. But this is not going to last—because in a few years time we may find ourselves in a similar situation. What has happened due to globalization is going to happen to Bangalore too. The jobs will move away from Bangalore to elsewhere (tier B cities) because of price pressure. Whatever can be made efficient will be made efficient. Because money can move, information can move, and people can move; so work will move too. By the end of it only those with creativity will be the ones to survive this spiral of efficiency. Given this reality of life, entrepreneurship is one very clear choice to carve a niche in this ever growing and changing world of technology.
The author is Managing Director, Helion Venture Partners