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INDIA’S ENTREPRENEURIAL DEFICIT

To broad base its growth, the country needs to address the lack of a thriving entrepreneurship culture

One of the drivers of India’s growth going forward is how well the professional class adapts to emerging opportunities in the new India. Historically, Indians have been reasonably risk averse, preferring salaried jobs rather than take the plunge into doing something on their own. These days, the IIM graduate taking the entrepreneurial road is still the exception than the rule — which is why these cases make headlines in newspapers rather than being the norm.

The reasons why so few of our qualified people take the plunge are manifold. First, there is the issue of financial safety. Most of us who come from middle class backgrounds simply do not have sufficient funds to take risk, particularly when there is no financial back up. Family commitments can also intervene and diminish risk-taking capability — children’s education, parents’ medical, retirement worries, etc. Surprisingly, education can often become a handicap. You have more to lose when you can get a job in a good investment bank or consulting firm or a leading corporate. And, therefore, the safer path often seems more attractive.

Second, many communities and societies do not have a risk-taking culture; it’s simply not built into their cultural DNA. Plus there is no family or community knowledge or network of how to go about starting a new business or the issues involved in doing so. Equally, there are other communities where risk-taking and starting new businesses are in fact the norm and the expected thing to do. But these communities are fewer than we need.

India’s culture of promoters is also unique. Banks require personal guarantees, private equity investors need there to be a strong promoter/manager and investors need a prominent face. All this militates against a professional set-up and reinforces the need to put yourself as the entrepreneur even more on the line. A number of people could be, and are, uncomfortable taking on this added burden. Much better to simply carry on doing your secure job.

This is a shame. To broadbase our growth, India needs an army of entrepreneurs. New businesses create new jobs and increase the value added in the economy. Profitable businesses contribute to enhanced tax collections and make the economy more efficient and streamlined while creating new and unique opportunities for growth. Over time, some of these firms could globalise and become world leaders in their respective areas. Indians have the talent, expertise and increasingly the experience to start new businesses in knowledge-based areas so that we have the opportunity to become the innovation centre of the world, gradually taking on the mantle from the US. As more ideas spread and businesses start to capitalise on opportunities here, capital will surely come in to support such endeavours. All of this will create a virtuous cycle of new investment, new jobs, more trained people and higher GDP growth. This private enterprise will also find its way more and more into rural areas and we are already seeing that with the many “bottom of the pyramid” strategies.

Hence we must foster and encourage such entrepreneurial activity. However, how to do it? Clearly, we need more risk capital at play. But more than anything else, we need more entrepreneurs. Business schools should encourage courses on entrepreneurial-ism and foster a higher degree of risk-taking. IIMs and other B-schools should create communities of alumni where active mentoring can happen during the coursework and internships should be organised in start-up companies so that students get a firsthand feel of such environments. Similarly, mid-career entrepreneurs should also be encouraged as they could have specific domain knowledge or understanding of their business which can help them differentiate their ventures. Capital providers are also more likely to back such individuals.

Successful entrepreneurs should get the basics right. From day one, they should have a “best in class mindset”. It is impossible to create a world-class service or product without a world class organisation. Or at the very least, with a highly effective organisation. Hence a lot of thought should go into the team and the organisation build. 

As far as financing is concerned, it clearly should be linked to the business’s growth plans. However, it must be methodical and planned from the beginning. All too often, the capital structure strategy and financial planning is an afterthought. Second, the business should be staffed with a good CFO who can help put in place good controls right from day one, and help plan for downside eventualities. Entrepreneurs are apt to get carried away by their own sales pitch. There should always be a Plan B in case things do not turn out as expected.

From a people standpoint, it is always a challenge to migrate from a start-up, to hiring and managing other professionals as business grows. Often the entrepreneur’s own competency could be an issue and recognising this can be a difficult task. Good people systems should be created early in the game as retaining good people will always be a challenge in India in the foreseeable future. Stock options can be handy here. 

From a governance standpoint, it helps in the long run to get excellent directors — those who are independent, involved, and unafraid to give point of view. Over time, they can help tremendously in adding value to a business. Also ensuring the best compliance and reporting systems helps in valuation. 

To sum up, there is no doubt that India needs the practice of starting new businesses to grow and become broader. Our educated and trained young people need to be encouraged to hew their own paths and thus help create a more jobs for a growing India and broaden the development paradigm.

Source: Economic Times