Wednesday, April 13, 2011

Transformational Entrepreneurship: First Success and Beyond

India would be the USD 10,500 billion Real GDP economy by 2035, becoming the third largest in the world in another 25 years, according to projections by Goldman Sachs. This transformation would be powered by high growth rates of around 10 percent over the next few years. Such growth would require something beyond the normal economic activity. Experts who study qualitative transformations would hypothesize that a large burst of entrepreneurism in India would be the factor that would drive the extraordinary economic transformation. Government policies and individual aspirations should therefore focus on better understanding entrepreneurship as a driver so that the future economic potential is realized in full.

Entrepreneurship has several hues. Each has its context, relative to the industry and the entrepreneur. A study of the possible types and typologies of entrepreneurship would help the nation channel its entrepreneurial energies in a positive manner. Choosing the right mix of entrepreneurship would create new industries faster, and reinforce the established industries better. While ideally there is no one best entrepreneurial type, it would make sense to rank order different entrepreneurial types in terms of relative context and potential. Prior to such an exercise, however, we would need to define who is an entrepreneur in terms of certain basic profile. While the basic definition of an entrepreneur remains as someone who creates an enterprise out of gutsy ideas, minimal resources and maximal passion, there are other perspectives too.

Defining the entrepreneur

Besides the above characteristics, an entrepreneur can be viewed from two perspectives. The first is the attribute perspective. An entrepreneur is one who has competencies that are deployed with confidence and are sustained by conviction. This contrasts with the profile of a professional who could have competencies but not have the confidence to deploy them or the conviction to sustain them. A manager or leader, for example, may have access to the competencies of other professionals, and even run the enterprise play more as a call of duty despite having less of confidence and conviction. An entrepreneur, on the other hand, needs core competencies, confidence and conviction as a combination that drives entrepreneurial passion.

The other view of entrepreneur is that he or she is a professional, manager, leader and humanist, all rolled into one. An entrepreneur, like a professional, is always ready to roll up the sleeves and put the shoulder to the wheel. From making own coffee to drawing own designs, nothing is infra dig for an entrepreneur. An entrepreneur is also a manager, but more so a leader. He can inspire confidence by his vision and by walking the talk. The other essential role of an entrepreneur is that of humanist. An entrepreneur needs to have a larger purpose than just making money; he needs to convince his team, especially in the startup period that the mission he has embarked upon is of national or social importance. Only by being a humanist can an entrepreneur integrate a larger purpose into his endeavor.

Entrepreneurial typologies

There are also two basic entrepreneurial typologies, both of which are technology-dependent. In fact, there can be no entrepreneurship without technology. No entrepreneurial venture has ever prospered with only management, and without technology. The first type, then, is based on organic technology; technology that is developed and owned by the entrepreneur. All successful entrepreneurial ventures which became industry making or industry leading companies have been based on unique technologies of their founding entrepreneurs. Clearly, the greater the influx of scientists, engineers and technologists into entrepreneurial mainstream the greater would be the value creation in the economy.

The second type is based on inorganic technology. In this model, a non-technical entrepreneur makes a deal with a technical professional or in-licenses appropriate technologies, nationally or internationally, to overcome the lack of organic technologies. Needless to say, the inorganic technology route is less certain and more expensive than the organic technology route. There are, however, circumstances when combination of organic commercial enterprise and inorganic technical expertise also makes for a winning combination. Possibly, the increasing orientation of non-technical post graduates from premier management institutes towards the entrepreneurial mainstream would help the entrepreneurial movement in the country equally well.

Scoring the initial success

India’s success with entrepreneurial efforts, especially those of first generation enterprise, has been patchy. For one highly successful Orchid Pharma or Gitanjali that made the mark in their respective global markets, or a few other food services ventures that scored successes in the local markets, there have been several others which floundered along the way. A study of such failures indicates lack of a clear strategy and an inadequacy of execution as the two primary reasons. Strategy for an entrepreneurial company must address a clear short term market need that can be fulfilled and monetized. Long term mega strategies would fit ill in a startup entrepreneurial format. By choosing any one of three generic strategies of cost leadership, product differentiation and niche, but certainly not all, the entrepreneur can score the much required initial success. This strategy selection needs to be fortified with execution leadership.

Orchid Pharma, for example, succeeded by focusing on the niche format from the inception; a niche of relative exclusivity in product space, and a clear understanding of the drivers for such exclusivity such as technology, quality, investment, global orientation and people. Once the initial success was posted, the company was able not only to replicate and extend the niche strategy but also experiment with product diversification, with more investible resources and cost leadership becoming available to drive scale. On the other hand, a few other entrepreneurial companies in the pharmaceutical field and BPO space failed to consolidate their early gains because of an attempt to follow a medley of strategies, made worse by indifferent execution, from the beginning. Initial success of entrepreneurship, therefore, needs a carefully calibrated “limited gains – solid foundations” strategy for sustainability.

Beyond the first success

While the first success is in itself a formidable challenge, growing beyond the first success is also an equally tough challenge for the entrepreneur. For the new generation Indian economy, past entrepreneurial success is no indicator for future entrepreneurial path. This is majorly because of the structural changes that are taking place in the Indian economy. The new Indian economy is not merely one of cost leadership, import substitution or export competitiveness. Not many, for example, predicted even a couple of years that there would be a larger number of smart phone introductions than low cost phones each year or that mobile phones would ever be manufactured in India. These and several other high end products offer enormous potential to develop high technology hardware and software for the new generation of techno-commercial entrepreneurs. At the same time, there are areas of the economy which are crying for attention such as genuine micro finance, low income health solutions, universal primary education, nutritious packaged food, multimedia in education and so on which make a perfect canvas for the new breed of techno-savvy social entrepreneurs.

Entrepreneurs now seeking fresh successes beyond the first need not, and should not, repeat or replicate the past models that were operationally relevant in the old Indian economy. Even if necessary, entrepreneurs should be prepared for changing their canvas after the initial success and adopting a different strategic direction. Many successful entrepreneurs baulk at that challenge; strange as it may seem many entrepreneurs are not keen to restart their entrepreneurial base from a zero base, albeit in a different field, after the first success. Several successful entrepreneurs would prefer to build future successes on their first successes. While this is not an incorrect strategy, and is certainly full of economic logic, entrepreneurs also must realize that they would be missing on great opportunities due to their diffidence to reinvent themselves.

Dilemmas of entrepreneurship

Transformational entrepreneurship is easier aspired for than actually achieved. Entrepreneurs typically face dilemmas on paths to follow after the first success, each with its pros and cons. There are at least four ways the paths can be deciphered. Entrepreneurs can be stay-on or move-on entrepreneurs; they can be deep divers or wave surfers. In their approaches they can be either scalar or vector. They can be serial entrepreneurs or stable entrepreneurs. They can be industry specialists or conglomerate seekers. The unique and distinctive entrepreneurs in the entrepreneurial class would have a mix of all these approaches. Transformational entrepreneurship indeed requires much more creativity, effort, diligence and effort than the first entrepreneurial venture.

Stay-on entrepreneurs stay committed to being entrepreneurial in thinking all through their life. Move-on entrepreneurs see being entrepreneurial merely as a transitory phase in life. While initial or subsequent failures could make some entrepreneurs move-on entrepreneurs, whether being a stay-on or move-on entrepreneur has to do more with the combination of competencies, confidence, conviction and passion that one possesses as alluded to earlier. Typically, stay-on entrepreneurs tend to be not only more tenacious in their entrepreneurial mission and more successful in their first ventures but also have an enabling family environment that has greater sustainability in the face of entrepreneurial risks.

Deep-dive entrepreneurs are those who challenge the classic limits on industry definition. An entrepreneur manufacturing alternators, for example, would not see the product as only one entrepreneurial opportunity, rather he would see each sub-component, be it shell, the wiring, the contact points, or the electronics of the alternator, as an entrepreneurial opportunity providing value enhancing scope for business expansion. Typically, such entrepreneurs utilize points of inflection in product and process technologies to deepen their understanding of new entrepreneurial opportunities. The wave-surf entrepreneurs, on the other hand, adopt a different approach of broader coverage. The manufacturer of alternators, for example, would move on to other electrical and electronics systems, and would avoid deeper integration into any one product.

Scalar entrepreneurs are typically scale driven. Vector entrepreneurs are conscious of the direction they take as well as the scale they reach. Scalar entrepreneurs tend to take on any opportunity as long as it provides scale; emphasis tends to be on magnitude rather than on a cohesive thread of strategy. The approach of Sahara group to take on anything from airlines and media houses to townships and consumer products on a grand scale is an example. In one way, scalar entrepreneurs tend to develop conglomerates randomly, with high risk, associated also with a need to exit some. Vector entrepreneurs are clear that scale needs to be sensible from the point of view of product, process or customer. Sahara group’s exit from airlines business and Jet group’s acquisition of Sahara Airlines brings out the scalar-vector differentiation clearly.

Serial entrepreneurs are classic wealth creators, usually for themselves, with no emotional attachment to their ventures or domains. A typically modern Western phenomenon, serial entrepreneurship has started influencing the Indian entrepreneurial psyche too. True serial entrepreneurship is based on the premise that a venture that has been successful up to a particular level in the hands of an entrepreneur would be more competent in the hands of a larger player who can take it to full potential. Serial entrepreneurship which is based on opportunistic exit as in the case of Ranbaxy in India shakes the investor and employee confidence in the long term sustainability of vector entrepreneurship in an emerging economy. Stable entrepreneurs, on the other hand, tend to be vector entrepreneurs driving logical integration or related diversification through measured steps.

Domain entrepreneurs are the most common breed of entrepreneurs. They stand specialized in their chosen or starting field and build scale and scope in that field despite the several other domains that may emerge from time to time. The growth of such enterprises therefore tends to be economy or market linked. The domain entrepreneurs need to be technologically savvy to survive and grow. Conglomerate entrepreneurs, on the other hand, pursue a deliberate strategy of entry into each domain that opens up with the times and growth of economy. In the past, conglomerate entrepreneurs tended to move into all the licensed domains as they came to be opened up, and thus register success after success. With only a few domains remaining to be opened up, today’s conglomerate entrepreneurs would need to possess better capabilities to read technological and market signs.

‘Mix and grow’ entrepreneurship

Given that entrepreneurship is in itself an artful science of coping with uncertainty, it would be inappropriate to postulate that any particular model or combination of models would drive India’s economic transformation. Clearly, however, no single model of entrepreneurship helps entrepreneurs post sustained successes beyond the first success. The most successful model could be to become a vector entrepreneur in a chosen field, and build scale and scope with the help of entrepreneurially oriented professional managers. The entrepreneurs should then ideally move on to new fields of diversification, replicating in each field the vector entrepreneurial strategy. This is the model successfully established by India’s major entrepreneurial groups such as Tata, Birla, Murugappa and Ambani groups. In contrast, entrepreneurs such as Bajaj chose to stay focused as domain specific vector entrepreneurs. The mix of domain-vector and conglomerate entrepreneurial strategies, however, provides the maximum potential for larger market presence, faster growth and more dominant contribution to the larger society.

The ability of an entrepreneur to adopt the vector-conglomerate model clearly depends on the entrepreneurialism that he is able to develop in his professional team. Vertical integration in the vector entrepreneurial phase and related or unrelated diversification in the conglomerate entrepreneurial phase are proportionate to the entrepreneurial energy of professionals. Each Tata group company, for example, has had at least five to ten senior leaders with demonstrated capability and track record in taking entrepreneurial decisions for new products and new facilities or acquisitions. The stay-on entrepreneur should, as part of the first success, develop his leaders as professional entrepreneurs with the space to take decisions on new businesses. Similarly, success in the conglomerate phase would depend on the ability to co-opt proven entrepreneurial leaders. Reliance groups’ successes in conglomerate diversification in new fields such as petro-chemicals, oil refining, oil and gas exploration, telecom services, power sector, infrastructure, media, financial services and retail space are as much due to the Ambani brothers’ reinventing their entrepreneurial energies as due to their successes in getting the right kind of entrepreneurial leaders. More Indian entrepreneurs need to take note of these successful approaches to help India become the third largest economic power by 2035 as forecast.

Posted by Dr CB Rao on March 13, 2011

1 comment:

Narayanan said...

It is indeed exhilarating to think India has the potential to attain the status of 3rd largest economy by 2035. While I agree with the typologies of entrepreneurship highlighted in the blog, there are a couple of other considerations in my view - first on entrepreneurship and the other on its close cousin intrapreneneurship! Regardless of the scalar or vector approach, some of them will fail and hence a support system that provides for 'bounce back' is critical to ensure both personal and social sustainability of entrepreneurship oriented growth trajectory. A deep-rooted culture that is sophisticated enough to tell the difference between a failed venture and a failed person is a prerequisite for continued success of would-be entrepreneurs. In addition to encouraging entrepreneurs, corporations large and small will need to mentor and grow intrapreneurs as well - employees who exhibit ownership and "belonging" to their chosen firm and have the talent and passion to contribute to its potentially non-linear growth. As Richard Branson recently commented on this topic, CEOs who view their roles as Chief Enabling Officers stand to gain the most in transforming their organizations with the support of committed intrapreneurs to achieve growth rates of 10% or more to help propel India to greater heights in the years to come.