Saturday, July 13, 2013

Startups and Entrepreneurship

Few days back I was changing my mobile phone plan seeking a faster Internet service. There was no lack of options and the wait time between deactivating one service and activating another was probably 48 hours. But in that interim I was not connected to my business and personal contacts through WhatsApp; something that I was not even using few months ago. It was a huge impediment in my otherwise efficient way of working. I had to go “old school” and email, text or call people whenever I needed something. That is the power of startups; innovations which are disruptive and change the entire rules of the game. 

When Clayton Christensen talked about Disruptive Innovation in the mid 90s, he probably had not fully envisaged these amazing startups which have effortlessly embedded themselves into our lives. Those were the times of dotcom magic. However, today we have Facebook, Google, WhatsApp, Viber which are all taken for granted as our modes of communication. Leaving aside the controversy surrounding Oscar Pistorius, imagine the advancement in prosthesis which helps a man (without a natural limb) outrun otherwise physically intact compatriots. All these innovations came up through startups driven by people who had a vision, who believed in themselves and their idea and went ahead to take the risk and convert their ideas to reality. The list of such startup is endless and spreads across a lot of industries

A disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology.

In this growing climate of self – employment, business and entrepreneurship; startups are often confused with small business. Let us clear the facts.
Startups are not small business. Entrepreneurship is also not small business.  

Startup Entrepreneurship vs. Small Business

This nation was built by men who took risks - pioneers who were not afraid of the wilderness, business men who were not afraid of failure, scientists who were not afraid of the truth, thinkers who were not afraid of progress, dreamers who were not afraid of action.  ~Brooks Atkinson on America (American Theatre Critic for New York Times)
A startup entrepreneurship is different from small business. There are three fundamental differences –
1.      Startups take shape due to an innovative idea which has the potential of becoming a disruptor that changes an existing order. E.g. How USB pen drives revolutionized storage from CDs and DVDs.  
2.      Startups are pursued by entrepreneurs as they are ready to move out of their comfort zone and past the tried and tested. Small business can be a beauty parlor or bakery. The rules of the game are established. Business models are in place that can be tweaked here and there to increase profitability. Where startups can take the world by storm and function across borders, small business is restricted by its geographic presence and reach. When Computed Tomography (CT) was developed, that was a startup idea. Manufacturing generic pharmaceuticals using a well documented master manufacturing formula is small business.
3.      Startup entrepreneurs are risk takers. When they start off the vista is unclear. Learning happens along the way. But once startups hit the tipping point, it simply grows in geometric proportions unlike small business which continues to remain small.
The difference is between doing something new and revolutionary or doing something that is generic. As an individual ask yourself Are you aiming do something new and disruptive or venturing into a tried and tested business model with few advantages in your basket to create an edge and remain profitable? 

How Startups Evolve

I have a selective bias towards education and technology. Let us take the example of Edutor Technologies ( Their website says –
“Edutor's Augmented Classroom Solution enables Schools & Coaching Institutes to leverage the power of Tablets in engaging students – within the classroom and at home . The solution is designed to lighten the school bags of students and drive effective learning – through enriched learning materials and by facilitating individual attention & focus from the teacher.”
We have all been carrying heavy school bags during our childhood and there were no mass availability and accessibility to computers till mid 90s in India let alone tablets. Today the there is a technology available to address the issue which not only reduces the weight of the school bags but makes learning more enjoyable and interactive. All of us have learnt about the water cycle in school. It was a simple diagrammatic representation that we drew in our notebooks. Today students can see a video with a supporting audio to understand the entire process in an interactive form. Which is more effective?
A startup starts with an idea. The entrepreneur (or the team) realizes that not only there is a problem, but a probable solution to address it and convert the entire experience into something more pleasant, efficient and superior result-driven.  Everything is in a state of flux at this stage but the entrepreneur has faith in his idea.
Today there is whole ecosystem available to support startups from its initial stage till it scales up considerably.

The subsequent stage is conceptualizing the idea for roll-out, testing, and modifications followed by retesting. Here the entrepreneurs work out the development of the solution, the delivery process, initial revenue structure etc. Most of the startups slog through these stages with the founder entrepreneur’s funds.
Using a robust model, the startup entrepreneur now tries to convince the investors in taking interest in the idea and support it financially. The model’s efficacy is proven through data and analytics. An idea is an idea till it becomes economically promising with a market ready to be served. Once a startup achieves funding, it is ready to scale up and grow rapidly taking the market by a storm. And as the product reaches out to more audience, it is further tweaked to make it more lucrative and desired. The way Google has evolved as a company and its product basket has flourished need not be reiterated. Look at the success of Groupon or Zynga.

What Startups Need

What startups need is freedom to dream and experiment. An idea can get strangulated if it is not allowed to breathe. An established business with a tried and tested business model that is profit-making can form a small subsidiary and venture into a startup. Once it gains traction, funds can be channelized to create momentum and fuel its growth. Another perceived benefit of this structure is image and network. Interested investors know who is behind the idea and that makes them feel secure about investing. This perception is however debatable. In case of startups, it is the strength of the idea that attracts investors not if a Fortune 500 company is behind it.
A startup benefits enormously through business incubators and accelerators. There are quite a few incubators active in India. Center for Innovation, Incubation and Entrepreneurship in IIM Ahmedabad, Technology Business Incubator at NIT Calicut, Indian Angel Network and National Design Business Incubator at NID Ahmedabad are few examples. Edutor was incubated by IIT Madras’s Rural Technology and Business Incubator. Germany has an association of Business Incubation and Innovation Centers with over 200 institutional members.
The incubation centers provide support and resources to entrepreneurs and startups for myriad activities like accounting, marketing, labeling, designing, liaison with banks and financial institutions to process loans and funding, technology acquisition to name a few functions. They have a network of service providers and they interact amongst themselves to learn and replicate services and fill gaps. They are useful in all kinds of industries. The aim is to not only help entrepreneurs gain a foothold but by helping enterprises survive they help in creating jobs and general economic activity in the area and in better cases down the line investments and entrepreneurship.

SAP pools in their huge knowledge base and case studies gathered over the years of implementation and interaction with clients all over the world into this program to help entrepreneurs through mentoring and training. SAP Ventures is a win-win proposition which has launched the Real-Time 100 Million Euro Fund aimed at startups that are launching solutions for big data challenges leveraging SAP HANA as their application database. The company is committed to investing at the growth stage of IT startups with investments to the tune of USD 5 Mn atleast!

Do you have an idea waiting to intensify?

If you have a fantastic idea that can make a marked difference in people’s lives then this is the age to work on it. Today we are at a stage where there is whole fertile ecosystem that can support an idea and take it to a commercially viable stage. There are investors looking for the next Twitter or Facebook which will create a flurry of economic activities around it. These innovations have changed how marketers are promoting their products or engaging with customers. There are tools like Cloud solutions ready to help accelerate your idea at a rapid pace. Whether you become a small business owner or start-up entrepreneur will depend on your life’s objectives. You choose to setup a mom and pop shop or build the next device which makes you a household name. If there are risks, so is the chance of immense satisfaction and contentment.

While writing this piece one of my most favorite poems by Robert Frost came to my mind.
Two roads diverged in a wood, and I—
I took the one less traveled by, And that has made all the difference. ~ Robert Frost 

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