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May - 2009 - issue > In My Opinion
No-room-here-for-fancy-butterfly-models!
Kanwal Rekhi
Friday, May 1, 2009
Though the global economy is going through one of its worst recessions in recent memory, this could be boom-time for real entrepreneurs. Indeed, this, and the coming years, could be the real time to break away and start businesses. Recessions are required in free market economies as they stress the weak and inefficient and free up the poorly utilized resources. Recessions punish bad behaviour, instil discipline and moderate expectations. As a matter of fact deep recessions signal end of an era; out goes the old way of doing things and room is made for the entrepreneurs to come with new innovative ideas.

For those who recall the dotcom bust at the turn of the millennia, it might be worthwhile to recall that the dotcom boom, in the first place, was a creation of MBAs. They came up with fancy models, and unworkable ideas; in those heydays, technology and innovation took a backseat and business models ruled the roost. Even the VCs had hired a large number of MBAs who had no industry or start-up experience. They were easily swayed with the fancy pitches that emphasized eye-balls over revenue and land-grab over profits. This was unsustainable, and got expressed in many manifestations in the early 2000s.

A similar thing has happened to the Wall Street now. The financial boom was, in the first place a phenomenon created by the MBAs. They, with their derivatives and other such fancy financial engineering stuff, cared little about robustness, and the result is for all to see.

Now, as the market is more cautious, and bank credits are frozen. The US still suffers from hangover from accesses of PE and buy-out markets. Silicon valley based VCs are also struggling with their billion dollar funds but not many exits in IPOs or M&As. I think it is time to get back to basics. My sense India is well poised to take leader ship role and show a way out.

India today is where the US was in the 70s and 80s. There are huge opportunities in every sector; the per capita income of people is low, reflecting low productivity. There is a big case for using technology to improve productivity. Some segments, like the banks, airlines, and even the railways, have started adopting technology in a big way, but broad entrepreneurial thrust is yet to happen.

Entrepreneurs in India need not even research and build new products/ services; they can take proven technologies, and adapt them for the Indian market—that in itself represents a huge opportunity. One only needs to look at India’s telecom revolution.

On a broader level, during recession only hardy entrepreneurs will dare launch their ventures as faint-hearted ones will seek to “ride out” the storm. Needless to say, companies that start out during this phase will be disciplined, and a lot more careful with money than their boom time peers. For VCs also this is a good time to be funding as valuations are attractive and deals are more robust.

History proves this beyond doubt: many of the biggest names in the technology industry today were born during periods of extreme financial turmoil. Be it Xerox and Polaroid during the depression, or Intuit, Sun or my own company Excelan during the 1982-recession, the robust and dedicated have always shone through.

Technology start up is a nerdy business. Many engineers trapped in large companies in mid-ranks get frustrated as their employers struggle with the fast changing technology and customer requirements. Typically these engineers gain deep insights into emerging trends and position themselves to take advantage of potential opportunities by doing a fresh start-up. They narrowly focus to reduce risk and speed-up execution. They engage with customers early on and co-create the solutions for the problems as they emerge. Technology is evolved and scaled as new insights are gained. It has been a proven phenomenon. It somehow got derailed when the MBAs gained the upper hand.

It is time for the frustrated engineers to get back in the game. Today is a good day to do a new technology start-up!





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