One of the laments of Indian technology entrepreneurs is that we lack a healthy vibrant ecosystem for fostering entrepreneurship. Often we site example of the Silicon Valley and how absence of such an environment here inhibits entrepreneurship in India. While, that argument is true to some extent, we should also not forget that historically India has been a very entrepreneurial nation. In fact according to statistics (which I can't find right now!), majority of Indians are self employed. To the eyes of your average technologist, the andewaala (egg seller) on the road side or the local panwari (grocery seller) don't appear to be entrepreneurs. For that matter, the rich uncle with a thriving "business" or three "factories in U.P" also don't qualify. Fact of the matter is that all these people who we come across in our daily lives have built sustainable profitable businesses. At its core, a business is a business is a business. It doesn't matter whether it is a hi-tech business or a manufacturing business. It doesn't matter whether it is VC funded or bootstrapped.
Having interacted very closely with a few successful "traditional" Indian businessmen over the last two years, I have realized that for an entrepreneur here, the real lessons are to be learnt from these traditional businesses. So instead of cribbing about lack of "ecosystem" and constantly looking towards the Silicon Valley for guidance, let us learn from our non-tech. local entrepreneurs. Here are some lessons I have picked up:
- Bootstrapping works Most traditional entrepreneurs here have never heard of the phrase "venture capital". Almost all businesses are bootstrapped with personal savings or bank loans. Raising money against equity is rare. Yet, a lot of businesses succeed and scale. It takes time and sweat but it is definitely doable. The biggest Indian businesses houses, right from TATAs to Reliance were built without any venture capital.
- Selling price - Cost price = Profit Seems obvious but somehow we (especially the web 2.0 enthusiasts amongst us ;)) overlook that fact when we think of a new idea or a business. My friends from the traditional business background ask this question first - how are you going to make money in that business? Technologists often ask that question last (if ever they do!)
- Business plans and excel sheets are overhyped A lot many successful businesses get started without a formal business plan. Initial cash flow projections and sales targets are often based on gut feel and past experience. More often than not, it works out fine. Sure, to scale a business beyond a point, more formal business planning is required. But to get a business started, a formal business plan need not be a bottleneck.
- Indian consumer is really hard to sell to This is a really valuable lesson for anybody targeting a product at the Indian market. The Indian consumer is a tough cookie to sell to. He expects best quality and world class of service, wants to pay lowest possible price (and still bargain on that price) and has almost no brand loyalty. It is yet to be seen if the Indian consumer will pay a premium for intangibles like better customer service. Traditionally he hasn't.
- Don't build to flip. Traditionally, businesses have been created to generate enough profit to sustain livelihood of the stakeholders (employees and promoters). Promoters make a living solely off the dividends that their business generates. This is very different from how many technology startups start. Promoters are often salaried (from venture money) and on day one, an "exit strategy" is incorporated in the business plan. The whole concept of a "liquidation event" as a means of wealth generation seems "absurd" to most seasoned traditional entrepreneurs. I agree with that line of thought. When you are building a new business, you need to build it as if your livelihood depended on it (and in fact your livelihood should depend on it!). That is the best way to keep focussed on point 2 above too.
There is a lot more that technology entrepreneurs can learn from traditional entrepreneurs. So about time, we stopped cribbing and started making the most of the rich entrepreneurial experience that exists in India!
Love the commentary here and it echoes an article I wrote in an Austin publication (www.abdmag.com) about not copying Silicon Valley's model. Bootstrapping is a superior way of building companies. External funding, it appears at all, should occur in later stages, when the business is past the critical "Valley of Death" stage.
The problem here is the mindset of the typical techie entrepreneur. Most entrepreneurs are looking at building the next google, rather than trying to build the next run of the mill software services or product company. They are looking for an exponential ROR rather than a ROR that has a steady growth. What an exponential ROR implies is innovation for an proven or unproven marketspace that is huge. And traditionally taken from the dot com era, most ventures that raked in the bucks overnight were venture capital funded. A VC onboard undoubtedly mitigates some of the risk involved in high risk high reward startup(The kind that expect exponential returns) which the traditional make something and sell it company doesn't have to face that much off.
I agree completely that startups dont necessarily need to be in silicon valley to thrive. I also agree that Indians, by far, have strongest enterpreneurial spirit. Reminds me of a video of DBPhatak where while walking in streets of Mumbai, he says, "I see an enterpreneur in each tea stall, grocery shop, and so on."
However, your notes on inspiration we can draw from "traditional" business seems to be too stretched. Most of my disagreements are based on a single reason: technology landscape is pretty dynamic.
Let me illustrate it using search industry as an example. Web search techniques of Altavista didnt apply in google days. Web search techniques of google didnt apply to blog search, video search, scholar search. Any of these techniques would not apply to Deep Web, the next big challenge in web search.
1. Bootstrapping may not work.
There is no time to bootstrap. By the time you bootstrap, the world is ready to embrace the next technology.
2. Profit equation.
In web arena, you rarely charge your real users. Its more like Television. TBS cannot confidently evaluate the selling price before it makes an offer to purchase rights for "Everybody loves Raymond".
5. Exit strategy.
The technology you are working on today will almost certainly be out-of-date. The question is not why, and how but when. So it makes sense to have an exit strategy in place. You can only carry forward your experience, insights. But not the solution.
Nice article.
Excellent article.
The traditional businesses are in reality an effort to prevent "race to the bottom".
A credible employment insurance for every one whether they work or not will promote the traditional businesses "race to the top".
http://en.wikipedia.org/wiki/Talk:Guaranteed_minimum_income#India
Enterpreneurship is about risk taking and profit making so a Paanwaala and a Subziwala are as much as an enterpreneur as any one else .As far as venture capitalialists are concerned we have always had them. The traditional money lender fitted the term vc very wellthough he really did qualify for the title of Vulture capitalist .
Govind wrote: "technology landscape is pretty dynamic". There is a fundamental flaw when using such an argument to debunk Traditional Business.
The flaw has to do with the fact that the Indian Consumer does not necessarily appreciate increments in Technology alone.
Even the technology landscape is primarily constrained by customer acceptance first. Startups for the Indian market are less likely to survive a drastic change in the way their customers work, or non-acceptance of the product by the target market. In contrast, they are more likely to survive Technology shifts.
Traditional Business *does* have valuable lessons to offer. For example, SeventyMM (often referred to as a Netflix Clone) based its own business on depository participation - which is already widely accepted practice in India.
Thanks Bijoy. I am a boostrapper myself and I think its a great way to build a business. Not raised VC money yet so can't comment on its good/bad points!
Suman, I think anybody (traditional or tech) who ventures into creating a company wants exponential growth. Nobody wants to build a run of the mill company! I agree that expectation of overnight success is often driven from the examples in the Valley where some companies got acquired for a lot of money in a very short period of time. However, those are exceptions and should not be treated as role models!
Govind - technology landscape might be dynamic but almost no business landscape is stagnant. FMCG players have to deal with user preferences that change every few months. Travel companies have to deal with constantly changing external factors (9/11, rising fuel prices, SARS epidemic). Retail businesses have to keep worrying about excess inventories and buying patterns. Every business is fundamentally about offering something (a product or a service) and getting paid in return (directly or indirectly). Hence, I think we tech. entrepreneurs can learn many lessons from experienced and successful traditional businesses.
Passion - I didnt completely comprehend your comment. But I have huge reservations regarding the guaranteed minimum income program!
joy - I guess one difference between money lenders and VCs is that VCs take money for equity so you dont have to return the money back to them if you dont make money yourself :)
Santosh - you make an excellent point about customer acceptance. That is yet another reason to look inward for inspiration rather than looking westward. I love the way the mobile/telecom industry has grown in its own unique way. The mobile players didn't clone the western model and the results are staggering!
I see no difference between the egg seller and the technology entrepreneur and I'm not sure the distinction between modern VC funded business and more traditional forms is a cultural one. There certainly is a difference in philosophy, however. Ultimately, it seems to me that the bootstrapper is in the best position to create a working business model because he/she is free of second guessing from large investors. In the simplest of all possible economic systems a bootstrapper creates a business that works without the need to convince anyone else that the business is worth funding.
Great post buddy.I would like to add something here.Blogging is a very good start-up option and is still in its infancy in India and not many people realise that they can earn a substantial amount of money from blogging.
A lot of you have our own blog,but one that is free.Now only if such people get your own domain name and get adverts on your site,and if you have a lot of visitors to your site,then you can really earn a lot of money.All we need to remember is that it is not possible with a sub-domain but only with a main domain name of your own.
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