A Theory of Successful Startups: Ten Principles of Sustainable Success

The flavour of the past few decades has been entrepreneurial ventures as the core of new business generation, and the most visible form of not only self-employment but also generating employment for scores of people. However, over the last few years, the word startup has been in increasing circulation in business and social media. The last decade and this decade clearly belong to startup as the more profound form of entrepreneurship. Strictly from a dictionary point of view, a startup company or a startup is an entrepreneurial venture or a new business in the form of a company, partnership or temporary organization designed to search for a scalable and repeatable business model. This definition hardly provides a distinctive or differentiating colour to startups. A more practical and true-to-the-ground definition of startup provides a different and relevant perspective.

From a real life point of view, a startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed. This is the fundamental characteristic of a startup, as differentiated from any other venture that may be established by normal entrepreneurs or existing companies. An example or two would make the concept clear. The concept of exclusive retirement homes for senior citizens, usually located in outer suburbs as gated communities, is gaining ground. An entrepreneur may set up such a project in a new city or in the same city in a different format. A startup, however, would try to find a way in which such senior citizen services could be offered in the current mixed neighbourhoods, without moving senior citizens out of their current homes. The former, while it has its entrepreneurial risk, largely works on a proven business model. The latter, a true startup, seeks to create a new business model out of the idea of serving senior citizens creatively.

More fuzzy, more valued

Startups usually have a fuzzy or unclear texture. One can certainly make out the shape of a fuzzy object but would find the edges hard to describe. A startup is also like that; it is indeed easy to synchronize with the startup idea but difficult to understand the details. It is this fuzziness that makes startups attractive for investors looking for the next breakthrough business opportunity to cash in on. In fact, the more fuzzy a start-up is the more attractive the valuation could be, provided that the fundamental basis of the idea has been validated in a pilot. Another example could make things clearer. Providing microfinance to the underprivileged is by now a proven concept. However, providing microfinance exclusively for drinking water and sanitation purposes could be an idea that connects current governmental missions with focussed needs of rural population. The concept could be understandable but the business model by which the concept could be workable and viable is fuzzy.  

The skill and passion as well as the diligence and determination of a startup founder make such fuzzy ideas work. To be realistic, while they may work in most cases, they could also fail in certain cases. Once the fuzzy idea is workable the market opportunity could be enormous. Unlike an entrepreneurial venture which relies on a superior competitive strategy or execution, the startup, once successful as an idea writes its own rules and develops its own industry structure. The incentives to investors and employees, in a successful start-up, are therefore more exciting compared to a normal entrepreneurial venture. The incentives are compounded because a start-up tends to pass on its ownership from time to time based on scale up investment requirements and investor appetite opening up opportunities for founders and employees (who have been issued stock options) to cash out periodically.

Ten Sustainable Principles

While the theory of start-ups is, no doubt, exciting there tends to be many a slip between the cup and the lip. The margin for error in a startup is low while the temptation to err is high. This blog post summarizes ten principles which could help start-ups be successful, and in a sustainable manner.

Ideas from environment

Startups do not necessarily require product discoveries or process innovations.  Startups, however, surely require an inventive mind to understand the latent needs of socio-economic environment and provide creative products and services. This has been accomplished through either digital aggregation or disintermediation until recently but could entail artificial intelligence and internet of things in future. Startups succeed when they understand creative use of new technologies.

Strength through partnership

Startups are usually based on certain singular ideas and unique core competencies of founders; competencies are, no doubt, critical in converting ideas into reality. However, converting an inventive idea into a successful business requires more than technical competence, organization building or external interface, for example. Co-founders who work together, share and synergize responsibilities have tasted higher levels of success.

Differentiated employees

Just as founders of startups are different, employees of startups are also different. They are not solely motivated by monthly salaries or career progressions as understood in large organizations. They are also willing to commit their efforts and time in advance to see the success of the startup ideas. Heart of heart, some of them could be nurturing the idea of becoming founders of future startups too. Selection of the first employees for a startup with this zeal rather than with the comfort of prior association is important to create the right startup culture in the organization.

Funding needs to be humbling

The high point of startup ecosystem is the excitement of exponentially escalating serial funding. Responsible startups view such funding as a humbling reminder and positive reinforcement of their commitment to the ideas, investors and consumers. There are, however, some not so responsible startups which, carried away by such funding, expand operations adventurously; some even splurge irresponsibly. Such startups fold up sooner than later. Recent experience suggests that ‘down-rounds’ (current valuations being lower than earlier valuations) would increase if spending out of funding is not prudent.

Capitalism through socialism

Startup is, in essence, capitalism in intellectual form. The objective of making money is certainly a visible trigger for all startups. However, they also need to have a socialistic fabric in that founders and employees should be willing to put their ideas, efforts and time in advance with low remuneration and are willing to wait for future wealth. The system encourages sharing of wealth (or, the pain of lack of it) until at least a particular stage is reached. Some startup founders also live a relatively spartan life as their co-founders or their employees lead. Although the startup system is capitalistic, the pathway is a trifle socialistic; to that extent it is appropriate for emerging economies such as India.

More sunrises than sunsets

Startup ecosystem is inherently optimistic. It tends to take failures in its stride and move on. Established businesses are influenced by analytical data of successes and failures while startups believe in the success potential of their ideas rather than the failures encountered by their peers. What is unique is that entry into the startup ecosystem is not governed by conventional strategic analysis of entry and exit barriers. It would, therefore, be somewhat antithetical for a startup to work on a business plan of classical mode; rather it needs a business plan that is idea-execution centric, with no frills.

Sustainability, rather than shareholding

Startups founder mindsets tend to be somewhat paradoxical; they are at one level extremely passionate about their creative ideas but at the same time they are willing to let go of their firms if sustainability is better assured in new better endowed and more powerful hands. While cashing out is, no doubt, a driver, startups have a more practical, and if one may say so wiser, approach to sustainability than typical large scale entrepreneurs. The ability of a startup founder to manage the paradox is a vital ingredient.

Self-promotion is vital   

Self-promotion is seen often as a narcissistic trend in structured organizations, and even in broader social interface. For a start-up, however, self-promotion is critical as usually there is none other than the startup who believes in the story of the startup. An ability to conceptualize and articulate the startup value proposition and the competencies of the founders is an essential requirement for startup success. If a startup founder is introvert and unlikely to enjoy such self- promotion, partnership with a co-founder who is an extrovert and a persuasive communicator could be a way of overcoming the limitation.

A sense of urgency

Startups, unlike more structured entrepreneurial ventures, do not have all the time in the world to bring their ideas to fruition. Cash burnout is one issue in the initial stages; and even after the first success the need to generate surplus cash is another. In a market waiting for ideas, if an idea takes time to become feasible and commercial, there could be superior ideas floating in with superior execution. A sense of urgency is vital; however, it is not to be confused with a sense of recklessness or doing things without thinking through.

Serialization

A startup is never a startup for ever; it fades or blooms. Successful startups who stay on have a responsibility to steer themselves seamlessly into a structured corporation. Those who cash out have an even more primal responsibility to keep utilizing their core competences to establish new startups serially. In both the cases, managements have a responsibility to encourage startups in domains or activities that can be outsourced.

Disruption but not self-disruption

One of the important factors for start-up success is their ability to disrupt existing products and services as well as industry structures. In this quest, start-ups also go in for maverick leaders and leadership styles. The urge to be different and disruptive should not be allowed to result in self-disruption. There are unfortunately many examples of brilliant ideas and emerging models getting derailed by disruption. A positive mix of the above ten principles could be a robust insurance against such trends.

Startups also must be cognizant of the fact that disruption could be a competitive tool in the hands of other competitors, startup or established. Although not comparable, the manner in which tablets have disrupted the laptop market but are now finding potential disruption from convertibles illustrates that disruption is a good entry strategy for a start-up but it also needs to guard against complacency, an in fact develop competitive shields to protect itself through the proof-of-concept and growth phases.

Posted by Dr CB Rao on May 11, 2016

Theme, Thread or Passion: What drives Successful Startup Companies?

The startup phenomenon, it appears, is gathering pace in India. Startup, in fact, is emerging as a concept different from entrepreneurial business. Entrepreneurship, as we know, has been in existence for as long as the history of business. Trade or service, design or manufacturing, and sales or marketing, entrepreneurship has been the foundation of today’s successful corporations. Entrepreneurship has been synonymous with spotting business opportunities and building a delivery infrastructure for them. Typically, an entrepreneur focuses on building a big business that can continue to thrive. All entrepreneurship is not about innovation or being first time to market. It is also about doing things better than others, and excelling in both well-trodden paths and in uncharted territories.

A startup, on the other hand, is fired by an entirely different consideration. He or she seeks to convert his or her product or service idea into a technically feasible and commercially viable practical proposition. A startup founder does not typically start off with the objective of setting up and growing a business to a certain scale and scope; his or her interest is solely on product development and proof of concept (POC). In fact, POC is the key milestone, and in some cases, even the final milestone for some startup founders. The latter class of startup founders would even consider selling away of their startup companies immediately after POC as a perfectly legitimate goal. That said, risk taking and attempting something far beyond one’s resources permit is a common factor between a startup founder and an entrepreneurial founder.   

Thematic matrix

Startups are usually based on matrixes of certain core themes. Uber was started on a matrix of cabs and aggregation, Paperboat on a matrix of contemporary packaging and traditional Indian beverages, Lunch Box on a matrix of nutrition and delivery,  TravelTriangle on a matrix of value addition and customization, Knowlarity on a matrix of voice application and cloud hosting, Bluegape on a matrix of customer idea and digital printing, Reportbee on a matrix of data analytics and performance mentoring, Grey Orange on a matrix of robotics and warehousing, Paytm on a matrix of customer loyalty and monetization, Zomato on a matrix of search and review, and so on. There are two aspects, however; almost all modern startups are powered by software and Internet. As with all industrial activity, one thematic start-up prompts several follow-ons.

Not all startups may have a unique thematic matrix but all do have a thematic matrix, for sure. Successful start-ups use thematic matrix to look at established products or services differently. Uber applied thematic matrix for something as simple as cab services while Knowlarity applied thematic matrix for modern information technology solutions. That’s where startups score over classic entrepreneurial companies which typically look at product-market spaces. Startups do not look at available product-market space for entry; rather they look at redefining or recreating the space. The intersection of the two dimensions of the thematic matrix leads to redefinition as is the case with Paperboat or Lunch Box. Certain dimensions of thematic matrixes are more universally applicable than others; for example, aggregation and analytics. So is the power of Internet and software.

Common thread

Every individual may have skills but only a few have ideas that could utilize their skills. Even fewer have clarity as to how their ideas and skills could be dovetailed to create a product or service, and eventually a business. Those who possess the common thread of skill, idea and clarity tend to be better placed as startup founders. There is yet another set of education, experience and experimentation forming another common thread. Typically, startups are co-founded as multiple common threads are needed to make the product or service idea work, from design to delivery. The introspective ability to identify and the intuitive ability to feel the common threads is an important component of startup development.

Given that the actual universe having the skills, ideas and education, experience is large, the key to expanding and enhancing the startup ecosystem is the ability to develop as many common threads as possible. The startup system is full of examples that reflect startup founders discovering their common threads in successive iterations. What starts as a supply of nutritious food for school children can evolve into supply of nutrious food to elderly and later to all age groups. Experience in aerospace and experience in food may combine to establish a startup that delivers food through proprietary drones. At times, common thread need not be only between the founders or employees of a startup. As Reportbee illustrates, teacher-student connectivity forms a common thread through what may be viewed as evaluation. Thematic matrix and common thread constitute the core of a startup.

Uncommon passion

Passion is an often misused word. Increasingly, it is being reflected to categorize individuals as leaders and followers, entrepreneurs and professionals, and so on. Passion is actually more universal. A doctor who works the most hours to save lives is a passionate doctor. A doctor who speaks up for patient rights and clinical integrity is also a passionate doctor. So is the case with an engineer who toils to complete his design project and the one who swears by quality of design than mere timelines. In all these instances, the individuals are sacrificing something, be it family life or lucrative career. Passion, to be distinguished from hard work and diligence, faces its litmus test when it has to face the test of sacrifice. From freedom fighters to entrepreneurial icons, passionate people would typically have had periods of sacrifice. The same is the case with startup founders who invest most, if not all, of their savings (sacrificing regular employment) in their ventures.  

Co-founded startups rank high not only on thematic matrix and common thread but also on passion. Unlike the first two, passion is an emotional attribute influenced by both intrinsic personality and extrinsic social factors. Presence of a co-founder who can compensate for or reinforce the passion quotient certainly helps in creating successful startups. At the same time, founder exits or leader churn in startups the moment they become successful is indicative of dilution of passion quotient and entry of familiar organizational dynamics of big corporations. It is important that founders of startups view passion as more than effort to successfully deliver their idea into POC but bind the organization into a hub of passion, where each supports the other, and in the overall achieves a fair work-life balance. Thematic matrix, common thread and uncommon passion (TTP) integrate as the basic motive force of startup success.

Idea banking, Crowd funding

For a thriving startup ecosystem, a proliferation of ideas is critical. It is heartening that graduates of premier institutes are increasingly ideating during their final years and are prepared to forsake lucrative careers to pursue their ideas. Some others are shifting gears from regular employment to startup ecosystem. Educational institutions should make idea cells as important as placement cells. Corporations should also be willing to give sabbatical to their executives to pursue their startup ideas. Luminaries should mentor startup projects even when they are in active service and are able to provide positive influence. They can pick up niches from the value chains of their businesses which can be reinforced with startup ideas.

A review of India’s successful startups show that with investments ranging from a few thousands of rupees to a few lakhs of rupees, several startups have succeded. With angel investors and next stage investors adding their financial mite in the second and third stages, startups blossom as full-fledged corporations. The most difficult stage is the first stage. There are more TTP platforms waiting to become startups than have actually become. A liberal crowdfunding investment environment could make a significant difference to India’s start-up scenario. Crowdfunding enables more differentiated startups to come into being as organized financing typically tends to focus on successful domains. It is also important for consultants to retool their consulting templates to chisel startup proposals in a manner that attracts investment.  

    

Posted by Dr CB Rao on July 26, 2015    

  

Ten Commandments of Indian Entrepreneurship: Five Inspirational and Five Precautionary!

There were times when graduates of premium engineering and management institutes thought of anything other than professional career as the only employment option. Things have changed significantly in current times with young professionals forsaking attractive employment offers and going in for entrepreneurial ventures. There was of course, the more established trend, of moving into entrepreneurship after a few years of work experience and savings accrual. Both segments reflected first generation entrepreneurship. India Bulls, Bharti, Apollo, Orchid, Sun, RedBus, Wellspun, Dusters, JustDial, Flipkart and a host of entrepreneurial companies are examples of such entrepreneurial initiatives. Within the first generation entrepreneurship, the class that jumps into the entrepreneurial journey straight after education needs special kudos. They may be called India’s new age entrepreneurs. While business management and leadership are common across all enterprises, established or entrepreneurial, there are certain guidelines which Indian entrepreneurs must be cognizant of to a greater extent. 

Young entrepreneurs are typically full of academic accomplishment and growth aspiration, and typically imbue their immediate environment with high energy and anticipatory excitement. They also tend to dream with the guts that are required to turn their dreams into realities. While it is difficult to hypothesize when and how the young graduates are influenced in favor of entrepreneurship, the placement season, more often than not, tends to be the period when they get to know not only their worth but also whether their aspirations and corporate offerings match. The placement season is not only a time of futuristic direction and career shaping but also a period of self-awareness. That is the period when all students feel equipped to enter industry or business, but some feel inspired to give back to the society in terms of wealth creation through organizations and businesses they aspire to establish.  This blog post postulates ten principles which are particularly relevant for Indian entrepreneurship. 

The context   

Most young entrepreneurs get their entrepreneurial call as they pursue management programs. The reasons are not far to seek. Management programs, in particular, provide students with a unique value addition that puts the basic academic capabilities, be it engineering, science or commerce to even more efficient and effective use. Management program provide one with unique conceptual and analytical skills which helps one view complex business problems in terms of their simple core issues on one hand and at the same time splice them in terms of diverse perspectives with insightful analytics on the other.  In addition, the programs equip people with multiple soft skills, the main skill being people skills.  The institutes and programs prepare the students not merely to be managers of day-to-day operations but also be equipped to be potential leaders who can shape the strategic future of  organizations.  

That said, there is a valid concern that scientists and technologists would be straying away from their core if they pursue management programs. The only way this concern can be mitigated is through letting the managerial thinking create the spark of entrepreneurship. India holds great potential; all economists agree that India would be the third largest economy of the world by 2030 or so.  Statistics, however, tell only one part of the story.  In qualitative terms, our growth has been more in terms of islands of manufacturing excellence, retail luxury or social affluence.  We need to do much more in terms of social infrastructure, be it schools, colleges, universities, hospitals or industrial infrastructure, be it power, roadways, railways, seaports and airports.  The opportunity for contribution by young professional aspirants to Indian economy therefore stand out, the opportunity is not merely one of a regular job rather it is more of making a difference through an entrepreneurial spirit, of creating wealth and jobs for the society.

The challenge 

The journey as an entrepreneur is not only the most challenging but also the most satisfying one.  The journey is challenging because, more often than not, one as an entrepreneur, would have nothing but one’s dream to pursue and convert into reality.  The entrepreneur is most likely to lack the organization, the financial resources and in some cases even the support of his or her near and dear as he or she pursues the entrepreneurial journey.  That said, it is this challenge of creating something valuable from almost nothing, against all odds, in pursuance of one’s dream makes for the entrepreneurial excitement. No entrepreneurial journey, however, cannot commence without seed capital to support the dream idea. The more fortunate ones step up from the initial security of their regular self-employed businesses, for example pharmaceutical distribution or medical practice, to venture into product development and manufacture or healthcare service; Sun Pharma’s Dilip Sanghvi and Apollo’s Dr Pratap Reddy, respectively, are two examples. Many others leverage their professional employment opportunities, in India or abroad, to generate savings. 

Either way, one would have to go through the tribulations and excitement of an entrepreneurial journey. Even the most successful entrepreneurial behemoth cannot be immune to vicissitudes. Dr Reddy’s which seemed to make no wrong move hit a bad patch subsequent to the acquisition of Betapharm in Germany. To be a successful entrepreneur, one may hypothesize a three step process. The first is self-discovery; a recognition of the yearning within to be an entrepreneur. The second is the ability to spot the niche. The third is the ability to raise the seed capital. The ecosystem for entrepreneurs in India pales in comparison to the one that exists in the USA. It is to the credit of the new age entrepreneurs that they are undaunted. For example, Ola, a taxi service startup founded by two IIT-Bombay graduates has succeeded in starting its services and raising funds ahead of someone like Uber making an entry into India. So do the likes of Café Coffee Day in being ahead of Starbucks, for example. Whether it is lateral entrepreneurship or new age entrepreneurship, there exist certain commandments; recognizing them entrepreneurs can institutionalize growth and sustainability in their entrepreneurial ventures.

High Fives 

First and foremost, is the discovery of the intrinsic inspiration and passion within a person to become an entrepreneur. All successful entrepreneurs (and even unsuccessful ones) would agree that there could be no avocation more challenging and exciting than that of being an entrepreneur.  The satisfaction of creating a business of value to the society, of building an organization creating employment, and developing a brand that brings recognition to the nation are well worth all the problems one would face in assembling a like minded team, finding progressive investors and creating an R&D, manufacturing and marketing infrastructure.  Dedication and commitment of an authentic entrepreneur  would be such that even If one were given an option to restart the my life after a degree, he or she would unhesitatingly choose to be an entrepreneur again. 

Secondly, and this is as important to established businesses as to entrepreneurial start-ups, the right business choice is one which helps an entrepreneur secure a toehold; and within the business the   product choice is what makes or breaks a business; and a right product choice backed by the deployment of efficient process technology, provides the sustainability to business. The success of new age entrepreneurs lies in reinventing the ordinary services into new customer-centric services deploying new technologies of development, manufacture and delivery. Even ordinary businesses like recruitment, coffee serving and ticket booking can be viable entrepreneurial activities with a dash of technology and a feel of customer-fulfillment, achieving differentiation and sustainability in the process.  

Thirdly, nimble execution is as critical as differentiated strategy, especially to entrepreneurial firms. Execution cannot be at the cost of quality though.  Ability to establish a quick but perfect beachhead not only optimizes the investment-revenue equation but also raises entry barriers to the others. Many successful real estate firms began their journey by delivering their first projects fast and perfect. Great Lakes Institute of Management in Chennai, set up by Professor Bala Balachandran has to its credit the fastest execution time frame for a high quality academic infrastructure of its kind.  Establishing or accessing world-class R&D and manufacturing infrastructure in record time frames, developing products and securing regulatory approvals in the shortest time frame is a sure prescription for success in the scale-up phase of an entrepreneurial startup. 

Fourthly, sustainable competitive advantage is derived by operating at opposite ends of spectrum without compromise to any one factor; for example, being the highest quality producer with the lowest cost position, being lean in organization but powerful in delivery, balancing efficiency requirements of high throughput with market needs of low batch sizes and high product variety and driving high revenue and market share without compromise to profitability and sustainability. It is important for the entrepreneurs to focus on the critical parameter that differentiates one’s competitiveness and then reinforce it. An icecream maker, for example, has to focus on two essential parameters: access to high quality milk and integration of a cold chain. Everything else, comes next.

Fifthly, technology ought to play a major role in whatever we conceive of, and execute. If Flipkart, despite being a first generation enterprise, could secure a leading position in the highly competitive e-retailing format, it is in no small measure to its unswerving emphasis on high technology, including certain quality and compliance differentiators specific to Indian e-purchase environment. Entrepreneurs often are forced to make choices between technological competitiveness and resource optimization. Those who persevered with technology eventually end up successful. The case of MTR Foods in terms of newer technologies driving value despite the limitations of a family enterprise is an example. 

Check fives 

While the above are significant positive lessons for a successful entrepreneurial journey, there also exist some pitfalls one must be aware of.  Firstly, as a first generation enterprise, it is an eternal struggle to overcome financial resource limitations.  Given the classic preference in the Indian stock markets that promoter should stay invested in the company with high promoter share-holding, it is a challenge to raise risk capital without dilution.  Perforce, one is required to depend on debt.  The race to become what one is capable of in terms of product, manufacturing and marketing canvas has to be tempered by prudential norms of debt-equity structure from time to time.  Dilution of equity and monetization of non-core assets would become inevitable, to restore balance sheet stability and sustain future growth, however emotionally painful such options would seem to be.  

Secondly, as a company evolves from being an entrepreneurial start-up to become a more organized enterprise it is important to keep developing organization structures and talent profiles as well as systems and processes that move in step with changing business requirements.  The art of management and leadership vary significantly between a start-up and an established enterprise; the leadership teams must display a high degree of self-awareness and sensitivity in this important aspect. Even a highly successful company such as Infosys struggled with reinventing itself to changing levels of competition and the increasing levels of internal aspirations of people for positions of influence and power.

Thirdly, all organized activity, including its competitive advantage, will stem from people, and only people. The success of a first generation enterprise such as Orchid Pharma in becoming a globally recognized pharmaceutical major has been directly linked to the founder’s ability to attract and leverage some of the stalwarts in science, engineering and business in achieving aggressive technological development and business growth.  The real source of competitive advantage of an entrepreneurial firm would lie in its ability to attract the best talent with inspirational goals and empowering ecosystem.  The day a front ranking organization loses the ability to attract such talent, one may say that the organization has lost its soul!  

Fourthly, as entrepreneurs scale up their organizations and businesses, they must learn to evolve from the science of making right product choices to the art of making right business choices.  As a successful entrepreneur, once he or she brings up a business to a critical mass, he or she must learn how to forego control, entrust it to other professionals and redirect his or her entrepreneurial entry and passion into newer vistas of growth.  Inability to make this transition in a timely and graceful manner could cost you the business dearly and also sub-optimizing future potential immensely. The recent split announced by Indiabulls’ three promoters indicates their realization that their business has outgrown the desire to stay together. 

Fifthly, entrepreneurs at least the successful ones, would need to look beyond their own firms and businesses, and consider how they can contribute to creation of virtuous ecosystems in the country that institutionalize entrepreneurial spirit.  This requires establishment of a positive climate of angel investing, start-up investment and equity investment besides an institutional framework for incubation of ideas.  This requires that entrepreneurs should not be lost in the success of their enterprises but must interact with the broader stakeholder community so that our nation can be truly a nation of entrepreneurs. While N R Narayana Murthy’s Catamaran is an example but the hugely successful entrepreneurs and entrepreneurial groups can do much more, if they put their heart to creating an Indian entrepreneurial ecosystem. 

Ten commandments

The growth of India’s private sector has been that of India’s entrepreneurship, right from the historical days of Tatas and Birlas. Indian entrepreneurship has been less flamboyant than it ought to have been, given its successes. The potential to maximize new age entrepreneurship is also less recognized than it ought to be. India’s future still has several challenges of scarcity and inequity, but with dedicated and diversified entrepreneurship each challenge is an opportunity of development for both established businesses and entrepreneurial startups. As one embarks upon an entrepreneurial journey, the ten themes of entrepreneurship of this blog post should be of some inspiration and guidance.

Posted by Dr CB Rao on July 13, 2014

 

Three Forms of Entrepreneurs: Existential Reality or Hypothetical Paradigm?

Kishore Biyani, Founder CEO of Future Group and considered a pioneer of modern retailing in India with Pantaloon is reported to have said that entrepreneurs are essentially of three types: the creators, the preservers and the destroyers. He said that he was a creator and a destroyer simultaneously. That Biyani has been a fantastic creator of retail format in India is well-known. Established in 1987, his Future Group operates in the Indian retail sector through over 17 million square feet of retail space, serving 300 million customers in 93 cities and 60 rural locations across the country based on products and services supplied by over 30,000 small, medium and large entrepreneurs and manufacturers from across India. Future Group employs 35,000 people directly from every section of our society. The revenues are variously indicated around USD 2 billion annually.

While retail forms the core business activity of Future Group, group subsidiaries are present in leisure and entertainment, brand development, retail real estate development, retail media and logistics. Some of the other businesses include, mobile telephony brand, T24, operated in association with Tata Teleservices, a supply chain and logistics infrastructure company, and a company engaged in providing educational and training services through three Future Innoversity campuses in Ahmedabad, Bangalore and Kolkata. In the financial space, Future Capital and Future Generali companies offer consumer finance and insurance to customers, as well as corporate loans and equity investments to companies engaged in consumer businesses. Where does the concept of Biyani being an entrepreneur of the destroyer type come from?

Possibly, Biyani has in mind the huge debt he had to accumulate in the aggressive attempt to build his retail, finance and services empire. This situation has led to his divestment of stake in Future Capital and parleys to unlock value from the two insurance ventures. Probably, this is also related to an effort by the group to identify core and non-core businesses. This brings us to the broader question as to whether divestments by an entrepreneur are tantamount to destroying of the edifice, or the parts of it, that he or she would have built at great passion. The history of mergers and acquisitions points out, on the contrary, that what appears to be destroying of the edifice ends up creating wealth for the promoters and the broader set of investors and stakeholders. This is notwithstanding the fact that in some cases divestments (and acquisitions) destroy wealth for one or both the parties.

The theory of trinity

The concept of three entrepreneurial types alluded to by Biyani corresponds intriguingly to the Hindu religious concept of the Trinity of Gods who drive the total universal and living system; Brahma, the Creator, Vishnu, the Preserver and Shiva, the Destroyer. While in the Hindu religious mythology, each of the three Gods specific functions in the cosmic system, and rarely do they transgress the respective roles, Biyani seems to indicate that an entrepreneur could be one or more of the three roles rolled into one. While it is great that entrepreneurs are playing God to the growth dependent Indian economy, the concept of entrepreneurs as harbingers of change itself needs to be better appreciated by entrepreneurs and professionals to ensure that each productive activity generates value on a sustainable basis, and never destroys it.

Whether or not there indeed exist three types of entrepreneurs as postulated, entrepreneurs themselves are made up of three unique forces, competence, passion, and gumption. While without doubt, professionals also possess, and are made up of, these three attributes, these attributes are much more specific in respect of entrepreneurs. For example, an entrepreneur’s competence tends to be his or her individual core knowledge that is critical to the establishment of the entrepreneurial enterprise. This is different from a professional’s competence that tends to be multifarious to meet a wide range of business needs, across firms. An entrepreneur’s passion is one of laying out one’s own path to the destination of enterprise creation, often based on an intuitive call, regardless of whether everyone agrees or not. This is different from a professional’s passion that is often system compliant and duty bound. An entrepreneur’s gumption is forever driven by rewards and never detracted by the risks. This is different from a professional’s approach to risk-taking which is highly cautious and consensual.

An entrepreneur who is a creator tends to have an equal mix of competence, passion and gumption. An entrepreneur who is a preserver tends to accord greater emphasis to enterprise management by competence rather than by passion and gumption. An entrepreneur who is a destroyer believes that the limits of competence, passion and gumption have been reached. It may be tempting to hypothesize that an entrepreneur could be in a perpetual creator mold by entrusting preservation of enterprise to professionals, and in the process avoiding becoming a destroyer altogether. Rarely, however, businesses can sustain themselves to perpetuity independent of human, entrepreneurial or professional, errors and oblivious of environmental discontinuities, technological or competitive. An entrepreneur has to reengineer himself periodically to be able to create and preserve more, and even if inevitable, destroy less. If the entrepreneur finds it difficult to transform or play different roles to suit different business contexts, appropriate supplementary measures need to be considered.      

Limits of assumption

While the three Gods, the Creator, the Preserver and the Destroyer are the Almighty Gods, the entrepreneurs who are creators, preservers and destroyers are unfortunately not. They face an environment that variously supports the outcomes of creation, preservation and destroying. Reverting to the case of the Future Group, the genesis of destroying of its own enterprise parts, if the divestment can be so called, lies in its own creation, far beyond what the resources could permit or the investors could appreciate. Unlocking of value in financial sector is taken by the group on the basis that the group should defend its core of retail business in an environment that would see a massive influx of foreign direct investment. The defence could be in terms of further organic growth based on resources generated and/or a partial destruction of even the core by ceding stake to a global retailer. An entrepreneur’s ability or positioning to be a creator, preserver or destroyer could well depend on how the forces of environment shape to support or oppose.

A start-up entrepreneur can almost always be assumptive that he or she would be a creator; for that is all what entrepreneurship is all about. However, an established entrepreneur has to balance the roles of creator and preserver with dexterity so that they do not become destroyers. It is often a matter of choice for the creative entrepreneurs to hand over the reigns of their successful enterprises to preservers to sustain or grow the success. The diversified growth of entrepreneurial groups, be it Tatas or Birlas has been due to the recognition of baton change. In such scenarios, divestment or wind-down of parts of the enterprise tends to be a well considered strategic move, rather than an entrepreneur-dependent or driven action.  

The assumptions on which an entrepreneur can operate are few as a startup enterprise. The startup assumption, driven by an internal core competence and an external opportunity perception, is fairly simple though intense: “I Can”. The number of assumptions that an entrepreneur would need to manage quickly escalates as the enterprise expands, and further as enterprises become a group. The competitive forces increase in numbers and intensity as an enterprise grows in scale.  It would be inappropriate, if not futile, for entrepreneurs to attempt to find out the tipping point when their own combined forces of competence, passion and gumption are overwhelmed by the combined competitive forces of technology, market and regulation. Such tipping point is rarely found out until it is too late to find out. There is a simpler and more enduring strategy for entrepreneurs being in a perpetual mode of creation.

Entrepreneurial freeze

It is now well appreciated that firms, as well as their leaders, need to reinvent themselves periodically to stay contemporary and competitive. Entrepreneurs, by definition, can neither be preservers nor destroyers; they can only be creators. Yet, it is a paradox of business history that entrepreneurs find it increasingly difficult to create new ventures as their ventures become established entities. The reasons are twofold: firstly, entrepreneurs fail to recognize the competitive forces that grow rather exponentially with growth and secondly, entrepreneurs, despite growth of their enterprises, increasingly compete with professionals in the tasks of further growth or consolidation and restructuring. These two tasks are best left to professionals with requisite (not necessarily entrepreneurial level) competence, passion and gumption. Attempts by entrepreneurs to transform themselves into preservers and destroyers would be ill advised. In the competitive business of business, virtually every aspect of organization and every member of organization needs periodical refreshing and retooling. Entrepreneurship is the only aspect of business that has to stay frozen in the context of natural instincts of building startups, and growing them to a particular level, organically.

Posted by Dr CB Rao on January 14, 2013

  

    

 

 

  

Steve Jobs (1955 – 2011): Life and Soul of Technology

In the demise of Steve Jobs on October 5, 2011, following his decade long steely battle with a rare form of pancreatic cancer, the world has undoubtedly lost one of the greatest technology visionaries and business leaders of all time. The world, not merely the domain of technology or the field of consumer electronics, would be poorer by his absence. Over the last two decades, Steve has pioneered a computing and connectivity revolution which has irrevocably changed how the world networks and experiences itself. Through his several product and process contributions, Steve Jobs defined what words like creativity, innovation and connectivity actually mean. He clearly belongs to the rare class of leaders who give depth and substance to the concepts that are abstractly talked about but are never fully and truly experienced by the users.

Given the enormous contributions Jobs has made, his demise has triggered an overwhelming outpouring of tributes from leaders and commoners from all walks of life, and from all nations. Collaborators and competitors have been one in praising the enormous transformation he brought about in the deployment of digital technology to improve and enhance everyday living. Several of the adjectives and superlatives showered on him by the media such as digital diviner, technology visionary, iconic leader, technology titan, gadget genius, master showman, the modern day Thomas Edison, apple of technology, technology talisman, and several others sit easily on Steve Jobs. Even more remarkable is the fact that even as a technologist and businessman, Steve Jobs is compared with some of the greatest artists of all times like Mozart, Picasso and Leonardo da Vinci!

In very simple words, Steve Jobs was an artist and genius extraordinaire who integrated technology and art, hardware and software, materialism and emotion, and business and life as no one else has done so far. He was not only an amazing inventor of product concepts but an astounding integrator of ecosystems. It would be impossible and even superfluous to attempt any more than what is already said, or would doubtless continue to be said, about his unique achievements. This blog post attempts to draw lessons and insights from his leadership as to how “thinking differently” can make highly positive and significantly transformative changes to individuals, societies and nations.

From digital divide to digital connectivity

The greatest contribution of Steve Jobs was in making computers a part of daily living, at work and off work. Ever since Steve Jobs invented the world’s first truly personal computer in 1977, in association with Steve Wozniak (with whom he co-founded Apple in 1976), he kept on transforming the computing and connectivity world with stunning new products. Until the 1980s, computers were for offices and businesses while entertainment devices were for homes and families. By making computers truly and sensitively personal devices, and integrating media in all forms with handheld portable Apple devices such as iPods, iPhones and iPads, Steve has transformed digital divide into digital connectivity. Productivity that comes out of efficient organization of activities, and motivation that results from sensory satisfaction are achieved through Steve’s Apple products, making life both productive and pleasurable.

Equally important has been the socialistic philosophy of Steve Jobs, which probably has not been understood at all. In total contrast to the practice of every other industry or business corporation that offered products at a lower level (so called utilitarian) to one stratum of the society and products at a higher level (so called luxury) to another stratum, Steve offered one standardized high value product to all sections of the society. He also did not believe in the practice of either skimming the market with hyped up value and usurious pricing or fragmenting it with broken technologies and flexible pricing. In fact, his products are the same, whether for billionaires or for commoners. The user experience from his products is so classy, yet so natural and personalized that neither the rich nor the not-so-rich found themselves alienated from his universal designs. He never had to make his iPhone with titanium or platinum or bedeck it with crystals or diamonds for the rich to differentiate it from the standard iPhone for the masses. In a sense, Steve has achieved an immense measure of social equalization with his technological virtuosity, an achievement which political and social campaigns could not ever achieve.
Steve Jobs' digital connectivity is more than a technological feat; it is a transformational phenomenon of social equalization and universal harmonization.

If only more corporate leaders become attuned to this philosophy of providing high value at reasonable cost, industries would be more scale-efficient, waste-resistant and cost-competitive.

Minimalist design for maximal impact

The contributions of Steve Jobs in the field of design are phenomenal. Minimalist design has had successive definitions through his products, each topping the other. His products have always been objects of art, merging seamlessly with the varied human forms and blending harmoniously with myriad environmental ambiences even while retaining an outstanding differentiation. Steve's designs have no vintage related obsolescence. Apple products, especially the “i” Series, demonstrate that a well designed and elegantly crafted form factor can be as durable and as compelling as a corporate logo. Here again, his design philosophy defines the term ‘trade mark’ in terms of emotional ownership by his users, which no amount of legal ownership that trade mark rights can fetch to a company. Apple's fight with Samsung on iPad has to be seen more in terms of the threat, the first time ever, to Apple's emotional connectivity with its users.

The other aspects of Apple's design philosophy are equally compelling. His product technology has been intuitive, universal and user-friendly. His products align perfectly with natural human behavior of ‘explore and experience’. From the ‘scroll and click’ mouse he pioneered for his personal computers initially to the ‘touch and feel’ he developed for his iDevices more recently, Jobs has transformed computers into a great sensory and audio-visual experience. One does not need to read complex manuals or go through multi-step tutorials to start using Apple products. Highly intuitive, feelingly natural and helpfully self-corrective features distinguish the user experience provided by Apple products. Steve Jobs has done what was for long impossible; he has infused life into technology, rendered its functioning soulful, and made technology intelligible to even the uninitiated. Various product innovations from Mac graphics and computer mouse to touch, slide, pinch and move sensory technologies, and the most recent iPhone4S voice technologies, are lively examples of Steve's humanized technologies.

Steve Jobs' design philosophy has been commercially as successful as aesthetically it has been elegant. This is very much evident from the fact that not even several hundreds of diverse smart phone models or portable music players from leading technology companies, in the aggregate, could make any dent on the leadership position of Apple products in terms of either design strengths or market allure. If more scientific and technology leaders pursue simplicity and focus for optimal performance the ’design to delivery’, value chain would be that much more impactful for the corporations as well as all of their stakeholders.

Digital ecosystem

There was a time when “make or buy” was a procurement decision. The concept of integration came up later to define the strategic choice of a corporation to have the full value chain within itself or focus only on a few core competencies internally. More recently, the wave of outsourcing has overwhelmed the world as a powerful instrument of cost competitiveness and time effectiveness. No leader, however, has encompassed all of these concepts under one umbrella of creating a virtual ecosystem by which all the current stakeholders and future value drivers would be sufficiently independent to be specialized, and yet strongly connected to an Apple ecosystem. Sony may have realized the importance of media and entertainment to development of electronics much earlier than Apple but it was Steve Jobs who pioneered the integration of music and movies into the Apple ecosystem through his iPod (2001) and iTunes(2003), providing a seamless media connectivity to the user. While some viewed this as an attempt to regulate consumer freedom through proprietary digital platform, eventually his contribution to making unlimited choice available to the consumer and curbing media piracy to support the media corporations is well acknowledged.

Equally impactful has been his unprecedented contribution to application development for his devices. In fact, the true era of application development has arrived with only the iDevices, more particularly iPhone and iPad. Application development is the model of virtual integration at its best, providing unlimited computing, connecting, reading, gaming, and entertainment capability to the Apple devices through third party applications. The fact that Apple has several thousand applications for its devices, for example over 500,000 applications for its iPhone, speaks off the success of the Apple digital ecosystem wherein any creative and capable software developer could come up with front ranking applications. Some of these application developers could themselves evolve into medium and mega enterprises in due course (Angry Birds, for example). Also, at a time when manufacturers consider retailing to be a different expertise, Steve Jobs propounded the concept of Apple Stores to enable and enhance integrated user experience. Today, with 320 retail stores, 237 of which are in USA, Apple retail network has extended the integration of the ecosystem further. Moving from the ground to the cloud decisively, Steve Jobs took one more giant leap when he announced in 2011, Apple iCloud service which seamlessly stores all of the music, photos, movies, documents, applications, mails, calendars and many others, and wirelessly pushes them to all of the Apple device users.

The strategies of integration, outsourcing and collaboration have thus become one under a vision of digital ecosystem for Apple products, services and consumers. For all the participants, it was as if it is one’s own world to live in as a home. From a corporate leadership point of view, creation of an expansive umbrella ecosystem which supports the core organization and all of the stakeholders is the way to grow a sustainable business.

Global value chain

Until Jobs came on the scene, the automobile industry and consumer electronics industries were two industries that seemingly had a global value chain. Yet, each of the industries was characterized by generational, performance and styling differentials in the models offered for different countries, constraining the operation of a true global value chain. More surprisingly, the industries exerted to retain critical components within the developed country supply chains and within collaborating groups, tied together by ownership or loyal supply history. Steve Jobs had a different concept of a unified product design for the globe from America, sourcing components from even potential competitors (for example, Samsung), basing the final assembly in China and generating huge value for Apple and USA through global sales.

Job's contributions in bringing Asia on its own as the global production hub of smart phones and tablets is acknowledged by not only the leaders of the component firms but also the leaders of the governments. Taiwan, China, Korea, Singapore and Japan drive the availability of critical components for Apple devices. Despite huge scale of procurement and critical scope, Apple has followed single vendor, and concentrated country, supply chain policy to great success. Part of the answer could lie in Apple’s penchant for integration under one ecosystem and the consequent assurance stakeholders perceive in terms of sustainable co-existence and growth. That said, Apple’s supply chain strategy is perhaps one of the more guarded aspects of the even otherwise secretive company. Flawless launch of products in millions of units the world over is possible only through a finely coordinated supply chain system as Apple’s.

The lesson for leaders is that global value chain can only be optimal on the basis of two primary factors; design superiority that provides the strength to source even from competitors as much as from dependent vendors, and an overall ecosystem that provides assurance to all stakeholders through collaborative forecasting and planning.

Simplicity as strategy

The achievements of Steve Jobs are built on just two core foundations of simplicity and elegance. These have supported a superstructure of seven principles that drove every aspect of his technology and management.

Style is Substance

From the very initial days Jobs and Apple believed in style: in neat, clean and clear fonts, in attractive, explanatory and friendly graphics, in elegant form factor with pleasant touch and feel experience, and in marketing in style and in dramatic detail. Jobs merged the left brain which is logical and linear and the right brain which is creative and emotional in his design philosophy, operational strategy and customer connectivity. Jobs’ knowledge and appreciation of calligraphy (which he learnt as a dropout at Reed College) came back to him years later to add detail, distinction and differentiation to his products.

Time is of essence

The concept of time as he executed was not one of go-to-market with the least time lapse from the first ideation. Rather, it was one of providing speed and efficiency in the hands of the users. From the response time to the navigation speeds, his devices deliver the time advantage to the users. At the same time, Steve Jobs was also willing to wait for the appropriate time to unleash some of his brightest ideas (for example, he was willing to wait to launch the devices, ready in the late 1990s, only after the broadband revolution in 2000s). At the same time, whether at Apple or the intervening Next Computer Services or Pixar Studios, he utilized every moment to develop or ideate on novel products.

Thrill Enthralls

As he devised his devices and as he launched them, Steve Jobs created a rare thrill which transported his entire ecosystem of the Apple organization, component suppliers and vendors, application developers and more importantly the users into a world of future possibilities. By eschewing market research and instead relying on his own perception of futuristic consumer needs, Jobs converted launch events into much anticipated dramatic rides into future. All Apple semi-annual launch events were inevitably thrilling and enthralling, representing an epitome of masterly showmanship and universal marketing.

Errors lead to Successes

It is not that either Steve Jobs or Apple was always successful. Apple struggled initially with Mac computers while Steve erred to antagonize his Board and lost the job despite several innovations between 1976 and 1985. Losing control of Apple in May 1985 was, of course, his greatest mistake. He lost much money in his subsequent entrepreneurial attempt, Next Computers. To add to that he had his own share of personal tribulations and unsatisfying spiritual quests. One may even doubt his wisdom in having the chief executive of Google, who would turn out to be a major competitor in smart phones and mobile operating systems, on the Board of Apple. All of these, however, did not deter Steve Jobs from discovering his spark of creativity to shape technology into breakthrough products and services (from digitally animated movies through Pixar to iDevice ideations through Next and Apple) . Neither did he slur over the failings; he moved to improve processes (for example, supplier scrutiny) and products (for example, antenna grip).

Technology is for all

In the fast changing technology world, established companies are often overtaken by younger startups with more creative and disruptive technologies. Steve Jobs demonstrated that Apple, even at 25, and he himself at 56, could be more creative than anyone else. Apple products were cool not merely to the adolescents and young professionals but equally appealing to the elderly and home making wives. That Jobs continued to brim with creativity in his 50s as he had been in his 20s, and despite undergoing a decade long traumatic fight with cancer, is something which most corporations and leaderships would need to take note of.

Team delivered perfection

While there is no denying Steve Jobs’ singular leadership, he has also built an outstanding team of ten outstanding leaders who delivered perfection in their domains. To quote a few, Jonathan Ive who heads design is credited with Apple’s minimalist snow white design while Scott Forstall drove successive IOS developments. Tim Cook’s exemplary supply chain prowess and Ron Johnson’s retail strategy provided end-to-end competencies. In addition, Steve Jobs’s relentless focus on getting the best of each employee has led to a uniformly high performing organization. The smooth succession of Tim Cook to the CEO role also signifies the development of internal leadership talent at Apple.

Wealth is Business Health

Steve Jobs is not known to have contributed or part-transited to charity as Bill Gates and Warren Buffet have done. However, the national wealth he has generated through Apple’s revenues, profits and market capitalization, and the sheer scale of his product development and manufacturing and the global marketing of his products have possibly created more jobs and career opportunities than any industrial or charitable activity could hope to achieve. Apple’s success, under Jobs, demonstrates that wealth earned innovatively though humanization of technology is the best way to ensure sustainable health of businesses.

Model for America, and the World

Apple has seen dramatic growth in revenues, profits and market capitalization with the reentry of Steve Jobs as Apple’s CEO from 1997 onwards. Looking forward into the immediate term, Apple could claim an estimated annualized revenue level of approximately USD 110 billion, net profit of USD 25 billion and a market capitalization of USD 350 billion. It has created new historic highs in estimated annualized sales if iPhones, iPads, iPods and Macs of 80, 40, 30 and 16 million units respectively. Apple employs nearly 50,000, over 12,000 of them in the US. The stock price touched a high of USD 413.45 in September 2011.

In an America which seems to have lost the confidence in its creative and innovative capabilities over the recent decades, Steve Jobs has demonstrated in the very same period an amazing model of aggressive and accelerating business growth based on products which touched and shaped human life and social connectivity as never before. By focusing on simplicity, elegance, perfection and friendliness he created an ecosystem of products and services that had sustainability and economic development. Hopefully, Steve’s life which provided the much needed life and soul to technology would inspire corporate leaders as well as bright men and women to focus on the hard but highly rewarding aspect of driving sustainability through simplicity.

The magic and the message

Unlike Jack Welsh and other leaders, Steve Jobs never made an attempt to discuss or describe his managerial or leadership thoughts. His commencement address at Stanford University in 2005, however, went on to become one of the most quoted speeches. It has been described as ‘life-changing’ and ‘career -transforming’. The three personal stories he narrated in the speech would inspire generations for the power of their simplicity just as his Apple products would continue to thrill generations with the elegance of technology. The legend that Steve Jobs has been would live on through generations of human enterprise and endeavor.

Posted by Dr CB Rao on October 9, 2011