Jolly’s Volley: It’s now been a little over a year since I moved from the US to Bangalore in search of that needle in a haystack that VCs refer to as the “home run”, a deal that “returns the fund”, a company that is “game changing”. All that is still years away from being proven but the journey has begun.
Although there have been significant shocking and not so shocking revelations in India (cultural and otherwise), I thought I would spend some time opining on what I have observed as key similarities and differences between the US (primarily silicon valley) and Indian entrepreneurs and the entrepreneurial environments. Let me start off by saying that I have the best job in the world. On a daily basis I interact with men and women who are much smarter than I can ever hope to be in their respective fields. That was true in Silicon Valley and it is true in India.
1. Getting it going: The bright eyed bushy tailed first time entrepreneurs are in abundance both in India and in the US. Quite honestly those are the risk taking men and women by whom I am most intrigued. What’s interesting is that the definition and embodiment of entrepreneurship is very different between India and the US. I am talking not at the strategic but at the tactical level. In India, one has to think entrepreneurially often to get things done in normal everyday life. Definition of entrepreneurship itself may vary between the US and India. According to Websters, the definition of Entrepreneurship is one where a business or service is based on addressing a market need in turn to make a profit or derive financial value. In India, the definition needs to be tweaked a bit to “getting things done when not only odds but the resources are against you”. In the US, one takes it for granted that upon incorporation and perhaps a small angel round, one can move into an office and have the basic utilities function 24×7. In India, on the other hand, if one is able to raise some initial funding, moving into a facility is a non trivial task, not to mention the infrastructure issues. Whether it’s dealing with landlords who change the terms of the contract after the contract is signed, to greasing the palms all along the way to get everything from network connectivity to electricity, getting a business up and running is tougher in India than in the US.
2. Excel in Excel: I have gone on record as saying that I will invest in a company that, on a 2×2 competitive matrix, shows themselves “down and to the left” rather than “up and to the right”. It’s amazing, often with technology centric entrepreneurs, to not have any sense of reality in their business assumptions. While in the US, I often came across first time entrepreneurs who were happy running Excel and predicting $500M in revenues in their 3rd year of operation.
I loved the fact that they were thinking big, but obviously had no idea that their projections would make them the most successful company in the history of mankind and obviously that their key assumptions were completely flawed. Indian entrepreneurs on the other hand also let Excel run away with their projections but tend to be a little more conservative.
Instead of $500M in three years, they may project only $100M in 3 years, but in a market where that number would represent 100% market share. The other often used argument goes something like this: “Analysts project our market to be $3B annually, and in three years with only 3% market share, we expect to have close to $100M in revenues”. The reaction I have is to ask the entrepreneur why I would invest in someone aiming for only 3% of the market and not the other 97%. The reality is that the entrepreneur has not done the proper market segmentation and thereby misrepresented the overall market as being at least an order of magnitude larger than it actually is.
3. Incremental not monumental: Before I begin explaining what I mean by that, let me put a caveat in front of the readers. VCs often appear to be schizophrenic. On the one hand we expect entrepreneurs to think big and “game changing”. On the other hand, we tend to think of their projections as being overly aggressive. My straightforward advice to entrepreneurs is “think big, and be a bit aggressive on projections”. Rule of thumb that VCs utilise is we end up halving the revenues and doubling the expenses anyway.
Now let’s get back to incremental vs. monumental. Often entrepreneurs tend to think of a better mousetrap; something that is only incrementally better than the incumbent solution. Silicon valley entrepreneurs have the luxury of being surrounded by many entrepreneurs who have been part of truly game changing companies. Often those same successful entrepreneurs tend to advise other first time entrepreneurs to think monumental, not incremental.
In India, that is not the case at this time. There aren’t many examples of great companies that have been created from scratch (at least on the pure technology front) and an ecosystem of successful entrepreneurs then either investing in or advising others to think “disruptive” or “curve jumping”, just to use another couple of often used Silicon Valley descriptions. As a result, generally speaking (and this is admittedly a gross generalisation), I tend to see a lot more “incremental” than “monumental” and “evoluationary” than “revolutionary” ideas in India than in the US.
A corollary to the above argument, is one of thinking at the local versus global level. In the US, entrepreneurs often think about a global impact or reach from the get go. They may not roll out a product or service globally from the very beginning, but the aspirations and the long term plans, more often than not, include global expansion. In India, thinking global is much more the exception than the rule. That may be due to the non-IP nature of most Indian ventures where competing on the global stage may be difficult, the fact that the Indian market itself may be large enough or a laser focus on making the company successful at a national level before even thinking about international expansion.
4. High tech, mid tech, low tech, no tech: I had a thesis when I moved to India, that true technology innovation would start occurring in meaningful way and new startups with real intellectual property would start taking shape here. I hypothecated that happening via three mechanisms: 1) reverse brain drain or folks moving back to India from the US primarily after getting the successful startup bug there; 2) teams departing IT services companies or multinational R&D centers in India after seeing a lot more potential (financially and otherwise) by being entrepreneurs rather than part of a large company; and 3) ideas being incubated within academia and being spun out. All three are happening, but still in infancy. Indian startups often involve an idea that has been successful elsewhere in the world and “indianizing” it.
DFJ itself has Seventymm (Netflix of India) and Live Media (Focus Media of India) as examples. Having said the above, there is still tremendous opportunity to start and grow successful businesses in what I refer to as “high tech, mid tech, low tech, no tech” in India. Unlike the US, where IP and real technology differentiation are often the leading criteria in investment decisions, in India often it’s often less about IP but utilizing existing technology to disrupt the traditional way of doing business often in a fragmented and tech-unsavvy but large market. There are large sectors like healthcare and education where there is virtually no real technology but setting up professionally run offline institutions that can have a tremendous impact. Execution and the team becomes a much larger piece of the decision making puzzle in India.
In the US, I always used the three T’s for decision making: Team, Technology (IP) and Traction within a large market. In India, the decision making is based more on the team and their execution capability.
5. Retention and Churn: I thought hiring and retaining talent was a tough task in Silicon Valley, until I came to India. The challenge is far greater for Indian entrepreneurs I think than for their silicon valley counterparts. The Indian entrepreneur has a double whammy: 1) often there is little to no sense of loyalty within the employee base, and 2) irrespective of the company’s financial health or overall milestone achievement, there is an inherent expectation of a year-end bonus and a salary increment, often at ridiculous double digit levels. In the US, there are virtually hundreds if not thousands of example of wealth creation through equity ownership or options in companies that had a great exit.
In India, employees are much more cash conscious and as such, place little to no value on options in their respective companies. Regulatory hurdles like the FBT have not helped either. Two key sets of events have to happen to engrain loyalty and curtail churn – significant layoffs at bellweather Indian firms and wealth creation through exits in venture funded startups. And both will happen in due time.
This column will continue next week…
Leave Your Comment
10 years ago
If you have missed Part I, read it here. Jolly’s Volley Dearth of...
6 years ago
Yes I am back on vccircle after a little hiatus (to the delight of some, and...
4 years ago
Rehan Yar Khan is an active angel investor in India, who has invested in almost...