Emerging Entrepreneurial Ecosystem in India
Date: Tuesday , April 01, 2008
It is a myth that entrepreneurship or entrepreneurial skills are limited to those people starting companies. I believe entrepreneurship is an outlook; an outlook which, when combined with entrepreneurial skills, helps people succeed in endeavors across all dimensions. So, you could be with a large enterprise or an NGO and yet be entrepreneurial. I will deal with both this traditional and broader meanings of the term.
If we were to look around us, the entrepreneurial mindset is widespread in India, especially in sectors such as retail, we have over 13 million shops in the country, 78 percent of which are family owned. However, the sector is fragmented and has issues of scale, and does not have a supporting ecosystem. The U.S. economy, as we all know, is primarily entrepreneurial; as a matter of interest, VC-backed companies represent 17 percent of their GDP and generate over 10 million jobs. Every year over one million new companies are started in the U.S., almost 50 percent of them fail the very first year and 40 percent just survive for five years. The important point is that failure is accepted as a natural part of the process and is not viewed as a dead end.
It is an economic truth that in order to create wealth the economy must create jobs which, in turn, are fuelled by entrepreneurial activity that needs a supportive regulative environment, venture capital activity, and a strong capital market. A recent McKinsey-Nasscom report estimates that India needs at least 8,000 new businesses to achieve its target of building a $87 billion IT sector by 2008.
The success of the Silicon Valley Indians - the many millionaires it created - has helped change the Indian mindset towards entrepreneurship. Traditionally a high school education was followed by a university degree and then a job with a large company with whom you stayed till retirement. Only if you were born into a business family were you likely to be an entrepreneur. However today this model has changed. A university degree may well be followed by some practical experience, management training, and a stint at a firm. With this exposure to the world of business we see many Indians now setting up their own ventures which, if unsuccessful, would lead to another venture and hopefully never really retire.
Entrepreneurship has earned a newfound respect in our country
This is a good sign for us to maintain the nine percent growth we talk about: we must create jobs and while the government can only play facilitator, the education system, especially our universities together with the industry must nurture the required ecosystem. Education needs to adapt its curriculum to encourage entrepreneurial skill sets right from high school onwards. Opportunity evaluation, risk taking, raising and leveraging resources, communications, and sales are survival skills; and these cannot be imbibed through an intensive dose later in life. If students are given opportunities to practice these skills in the relatively safe and risk-free environment of an academic institute, young people, when they do start ventures, will have higher chances of success.
TiE- the global entrepreneurial organization, and KPMG in India, conducted a study measuring the ‘Entrepreneurial Confidence Index’ in 10 states of India. Based purely on the perceptions of the entrepreneurs, rather than any factual analysis of the factors, the study aimed to identify the elements involved and benchmark the development of a conducive entrepreneurial ecosystem across India. The conclusions have thrown up the general confidence in the Indian economy and the belief that ‘things are moving in the right direction’. Entrepreneurs are bullish about the ecosystem. Expectations of entrepreneurs from the states, generally considered to be leaders in entrepreneurship, expected more from their ecosystem and thereby held the state to a higher standard. The study reinforced the widely held assumptions that Risk Capital is still not available in the desired amounts; and governance issues and local environment in the ecosystem get failing grades.
The changed business climate of India can be judged from the fact that the country is considered to be amongst the three top investment destinations. According to a recent report by Evalueserve research, over 44 U.S. based VC firms are now seeking to invest heavily in startups and early-stage companies in India.
The various elements of the ecosystem for commercialization are beginning to come together, from venture capitalists, government schemes and incubators, academia industry linkages, and emerging clusters and support to rural economy. Society for Innovation and Entrepreneurship by IIT Bombay, Foundation for Innovation and Technology Transfer by IIT Delhi, Indian Institute of Sciences’ Society for Innovation and Development, and Technology Development Board of DST are examples of fund sources that aim to fuel innovation, R&D, and hopefully trigger entrepreneurship. The Stanford India Biodesign Programme signifies a government-to-government level collaboration between the U.S. Science and Technology Ministry and the Ministry of Science in India to boost medical technology innovation in India.
While all these initiatives are wonderful in their own way, there is a need to catalyze and scale up and enrich the ecosystem. After all, an ecosystem is nothing but a system of interconnected stakeholders - institutions and individuals - whose close linkages enable efficient production, diffusion, and use of new and economically useful knowledge. We need to create more linkages and strengthen the existing ones, creating a tight mesh. The CSIR labs, for instance, are committed to leadership in science and all of us highly respect them, but can we think of opening them to partner with entrepreneurs? This is just one example of the different mindset. We need to kill the silos and capitalize on the power of collaboration.
While I am optimistic about the future, it is not without challenges. We have to improve in many directions. We need a mindset to invest time and money in building Top of Technology Pyramid companies and view entrepreneurs as ‘nation builders’. We need to revisit our own attitudes towards failures and view them as learning experiences. We need to encourage the educated class to become entrepreneurs and teach entrepreneurship in schools and colleges. The universities, research labs, and the government need to view themselves as enablers in this ecosystem. The government bodies need to focus on removing the obstacles. We need to fix our legal systems and court big VC’s to bring them into India. We need to give a deep thought on how to reach out to the secondary and tertiary towns in India, where young people do not have the access to resources which the young people based in the metros have.
It is therefore heartening to see that the learning of the past two decades resulting from the digital revolution triggering heightened activity in social entrepreneurship. By opening up new pathways for the marginalized and disadvantaged, they are unlocking the society’s full potential to effect social change. The India of the cities is unfortunately not the India of the villages, today there is a huge opportunity in this country for anyone who comes up with indigenous, innovative solutions that are capable of scaling up, capable of collaborating within the ecosystem and enriching it. This can only happen when we are able to build a strong digital bridge by using the tools now available from the information and communication technology revolution. India can truly be an economic powerhouse if the two Indias within it become one. Social entrepreneurs are the new heroes. It is a signal of changed times that people from the business world are getting involved in social entrepreneurship organizations, perhaps a decade ago this was uncommon for a business leader. Accion, one of the organizations I am associated with, is a pioneer in Microfinance bringing quality financial services to the world’s poor and it reaches out to over three million people across Latin America, Africa, Asia, and the United States.
Another interesting model is that of an organization called Endeavor which is inspired by a novel idea: to identify and support high-impact entrepreneurs in emerging markets as a means to sustainable economic growth. Until recently, few saw this focus on high-impact entrepreneurs - those with the potential to create innovative, large-scale companies - as a legitimate tool for development. Endeavor demonstrated that high-impact entrepreneurs in emerging markets, given an international seal of approval and the right support, can create thousands of jobs, generate millions of dollars in wages and revenues, and serve as inspirational role models in their countries. For instance, in India Endeavor is supporting an organization called SELCO that provides rural solar electrification to the below poverty line families.
So, the transformation of India is happening, we are doing things right, but for India to take off, we need to add rocket fuel to the mix. It needs all of us to come together in an enriched ecosystem. We need not just take from this ecosystem but ask ourselves what it is that we can give back or contribute to it.
The author is CEO, TCS, Excerpts from S Ramdorai's inaugural address at E-Summit conference, IIT Bombay.