A common misconception is that the IIM’s do not produce enough entrepreneurs.
Last weekend I attended the twenty year reunion of my class at IIM Ahmedabad. It was fun - going back to campus and schmoozing with old friends, catching up on each others’ lives, imbibing bootlegged liquor surreptitiously and also finding time for some serious discussion.
One of the recurring themes in many of the discussions was how so many people in the class had ended up pursuing entrepreneurship as a career – out of 175 in the class more than 35 have founded companies. At least seven of these companies have achieved scale, three have listed and several others are expected to grow big in the years to come.
This is a very high strike rate by any standard. So what is it that made the Class of 89 different.
Unquestionably timing and circumstance had something to do with it. When the economy began to open up in 1991 many in the class were in the right place at the right time. We had gained some work experience, yet were still green enough to not have mentally committed to a long term career as an employee manager. We were earning relatively low salaries (the average starting salary in our graduating class was Rs. 3800/- per month) and so the opportunity cost of entrepreneurship wasn’t very high – we could take the risk and not lose a very fancy salary. When we went out to get business for the companies we started the growing economy gave us the breaks. To a large extent we were products of economic liberalization.
But it wasn’t just timing and circumstance that made the difference. There were other factors at play.
In the eighties the admission policy at IIM A ensured that there was diversity in the class - you had students from different academic backgrounds and different kinds of work experience. There could be a maximum of 50% of the students in the class from any one academic background. This made for a 360 degree experience with several points of view on the table during class discussions. There were a fair number of mavericks and independent thinkers – many of us simply did not want to work as employee managers and we had said so in the admission interview. Today India’s best business schools including IIMA seem to be ignoring the value of diversity in the class. Today, the admission policy at IIM A has changed - 93% of the students in the current first year batch are engineers – a retrograde move. If you reduce diversity you produce clones. And a class of clones is likely to produce fewer entrepreneurs.
The second factor is what we were exposed to at IIM A. There was a whole suite of courses that were relevant to entrepreneurship. In most other B Schools there is one course on entrepreneurship – I ended up doing five such courses. In fact till the early eighties there was even an Entrepreneurship Concentration Package which you could do. There were case studies of start ups and small enterprises – an entire body of knowledge had been created. Today this has expanded into a centre for innovation, incubation and entrepreneurship.
The third factor at play was the demonstration effect. One by one as more and more people in the class started companies, others mustered up the courage to do the same. And we are not done yet. Some more are likely to become entrepreneurs in the future.
So what should a business school do if it wants more of its students to become entrepreneurs?
First admit a more diverse class without compromising on academic rigour. In order to do this do not rely simply on hard criteria such as the CAT score – do a 360 degree assessment of the candidate. The best business schools in the world look at the GMAT score as only one out of half a dozen criteria for admission.
Second create a separate academic department for entrepreneurship and introduce a number of relevant courses in that area. Create and source material relevant to entrepreneurship – case studies, handouts, books etc. Allow students to major in entrepreneurship.
B Schools need to stop bragging about their success using average salaries, people placed overseas and placement rate. These indicate a mindset of managerialism. Instead celebrate successful alumni entrepreneurs. Lionise entrepreneurs who can be role models. The decision to quit a well paying job and start a company is frequently an emotional and irrational one – people need to be inspired to do it.
Encourage frequent interaction with entrepreneurs – let the students know their stories.
Finally the goal of every good business school should be to produce a fair number of misfits – because that is what entrepreneurs are. They do not see themselves fitting into existing corporate structures.
Showing posts with label entrepreneurship. Show all posts
Showing posts with label entrepreneurship. Show all posts
Friday, 20 February 2009
Thursday, 19 February 2009
Team Up Scale Up
As a start up entrepreneur the most important thing you will do once you have hit upon the business idea you would like to pursue, is to put together your team.
Teams are important
As Co-Founder and CEO of my company, it is my lot to be the external face of the organization. I frequently go on stage to take the applause and credit for work that has largely been done by other people. In the last three months I have received three awards for achievements in business or entrepreneurship. While I have been recognized ‘individually’ the truth is that the awards were really for what the organization has achieved.
And the reality is that what the organization has achieved is the cumulative result of the efforts of everyone who is working here or has worked here in the past.
It is a myth that entrepreneurs are supermen who lead and build companies largely on their own. In any entrepreneurial company that has achieved some size and scale you can be sure that there is a large and capable team at work with one or maybe two of the promoters being the public face of the organisation.
In fact one of the most important things that venture capital investors look at when deciding to invest in a company is the quality of the team. Not just at the founder or the CEO.
Great entrepreneurs are people who have the ability to make others want to work with them. They love their people and their people love them. They are the glue that binds the team in the start up phase. They are great people managers – maybe even pied pipers. They are prepared to share the wealth and the credit. They are magnets for talent.
At the start use your personal network
The first team will comprise of you and your partners, should you have any. These will be people you know, trust and respect – friends, classmates, colleagues. You have shared an experience. You are all fired up by the idea. You bond well. You will share ownership substantially.
The next step will be to gain the confidence of people whom you know but perhaps not that well - acquaintances, friends of friends. They will join because they will believe in you, your partners and the idea. They will carry the torch with almost the same passion as you do. They will be missionaries not mercenaries – they will take salary cuts and significant ESOP. Frequently entrepreneurs are not able to attract high quality people at the early stages of a business easily. They tend to make compromises only to realize as the company begins to scale up that they should have hired better at the start. Remember to set the bar high even in the initial stages.
Chances are that you will keep the team small till you are cash positive or you get access to capital. A team that will don varied roles – a team of all rounders who will be doing more than one job in the company. They will burn the midnight oil to make things happen. Yet, dependence on you and your partners will remain high.
Managing the team when scaling up
When you raise external funding the investors would want a broad based team to invest behind. This is the time to attract talent you can depend on in future. People who will man the boat, and make sure it sails in smooth and rough waters. This is the time to invest in future CXOs of the company.
As the business grows the team will get bigger and a whole lot of new dynamics will come into play. Processes, HR Policies, Administrative and Legal formalities and most importantly conflict. You will wonder what happened to the magic of the early days. You might even lose a few of the original team members. It will be up to you to create coherence out of the chaos. You will require specialists for every team and they come at a price. Soon, you will cease to be a startup. This is the stage of managing a transition. You will have to learn the art of sailing in two boats at the same time, for there will be the soul of a large company in the body of a startup.
From Entrepreneur to CEO
Finally when your company grows large, perhaps it does an IPO, you will be even more dependent on other people in your team than you were before. It will gradually dawn on you that you are more of a CEO now and less of an entrepreneur. And perhaps you are presiding over precisely the same kind of system that you left in order to become an entrepreneur.
Maybe it’s time to do your next startup!
Teams are important
As Co-Founder and CEO of my company, it is my lot to be the external face of the organization. I frequently go on stage to take the applause and credit for work that has largely been done by other people. In the last three months I have received three awards for achievements in business or entrepreneurship. While I have been recognized ‘individually’ the truth is that the awards were really for what the organization has achieved.
And the reality is that what the organization has achieved is the cumulative result of the efforts of everyone who is working here or has worked here in the past.
It is a myth that entrepreneurs are supermen who lead and build companies largely on their own. In any entrepreneurial company that has achieved some size and scale you can be sure that there is a large and capable team at work with one or maybe two of the promoters being the public face of the organisation.
In fact one of the most important things that venture capital investors look at when deciding to invest in a company is the quality of the team. Not just at the founder or the CEO.
Great entrepreneurs are people who have the ability to make others want to work with them. They love their people and their people love them. They are the glue that binds the team in the start up phase. They are great people managers – maybe even pied pipers. They are prepared to share the wealth and the credit. They are magnets for talent.
At the start use your personal network
The first team will comprise of you and your partners, should you have any. These will be people you know, trust and respect – friends, classmates, colleagues. You have shared an experience. You are all fired up by the idea. You bond well. You will share ownership substantially.
The next step will be to gain the confidence of people whom you know but perhaps not that well - acquaintances, friends of friends. They will join because they will believe in you, your partners and the idea. They will carry the torch with almost the same passion as you do. They will be missionaries not mercenaries – they will take salary cuts and significant ESOP. Frequently entrepreneurs are not able to attract high quality people at the early stages of a business easily. They tend to make compromises only to realize as the company begins to scale up that they should have hired better at the start. Remember to set the bar high even in the initial stages.
Chances are that you will keep the team small till you are cash positive or you get access to capital. A team that will don varied roles – a team of all rounders who will be doing more than one job in the company. They will burn the midnight oil to make things happen. Yet, dependence on you and your partners will remain high.
Managing the team when scaling up
When you raise external funding the investors would want a broad based team to invest behind. This is the time to attract talent you can depend on in future. People who will man the boat, and make sure it sails in smooth and rough waters. This is the time to invest in future CXOs of the company.
As the business grows the team will get bigger and a whole lot of new dynamics will come into play. Processes, HR Policies, Administrative and Legal formalities and most importantly conflict. You will wonder what happened to the magic of the early days. You might even lose a few of the original team members. It will be up to you to create coherence out of the chaos. You will require specialists for every team and they come at a price. Soon, you will cease to be a startup. This is the stage of managing a transition. You will have to learn the art of sailing in two boats at the same time, for there will be the soul of a large company in the body of a startup.
From Entrepreneur to CEO
Finally when your company grows large, perhaps it does an IPO, you will be even more dependent on other people in your team than you were before. It will gradually dawn on you that you are more of a CEO now and less of an entrepreneur. And perhaps you are presiding over precisely the same kind of system that you left in order to become an entrepreneur.
Maybe it’s time to do your next startup!
Thursday, 18 September 2008
Bootstrap before looking for funding
My September column in Mint.
Over the last several years many aspiring entrepreneurs have met me for advice – be it at business schools, through TIE, at conferences, at business plan contests or by simply sending me a mail and asking for time. Almost all of them have had an idea, a half written business plan – for which they were exploring the possibility of raising capital. Most believe that without committed funding by a venture capitalist they cannot start or will not succeed. Most struggling entrepreneurs would believe that it’s great to raise venture capital at the start – but is it really?
While many successful companies did raise venture capital early in their life cycle, yet there are many more that did not – Microsoft, HP, Dell are three such examples. Closer home Infosys, HCL and Reliance and many other first generation successes were bootstrapped and built the hard way. The fact is that most successful companies and most successful entrepreneurs reached where they have without raising venture capital.
In the company where I work – we managed to get external funding only after we had bootstrapped for ten years.We were delighted to raise capital when we did. However in hindsight, it was the bootstrapping experience that taught us valuable lessons that saw us through the later years.
There are many learnings you get by bootstrapping.
First bootstrapping is a test of commitment – if you are really committed to your idea you will muster up the courage to quit your salaried job, put in whatever little capital you have or can raise from friends and relatives, tighten your belt and somehow begin to execute your idea. If you aren’t willing to bootstrap then question your entrepreneurial motivation. VC’s understand this and they prefer to invest behind good teams that are bootstrapping rather than behind professional managers who are still in secure jobs but have a nifty powerpoint presentation.
Bootstrapping helps you to validate your concept for yourself, your team and prospective investors. Validation of the concept would mean that the startup team is in place, the product is ready and there are a few paying customers who are happy with the product and are willing to buy again and recommend it to their friends.
Once your concept is validated investors come in with much greater confidence and give you a much higher valuation then they would have at an earlier stage. You get to keep a larger share of your company for the same money. Most entrepreneurs don’t realise the importance of this until much later – should the company go on to become valuable.
Bootstrapping makes you stretch 24x7. It makes you think about survival, about how to break even, about where the next rupee is going to come from and about where it should be going or not going. You innovate more, you prioritise and focus on the essentials. You manage your cash flows better, you go out into the field and sell to customers yourself and you put in twenty hour workdays if required. It instils a culture of frugality in the company. This is a priceless asset.
At Naukri when we were bootstrapping, we had to break even to survive. We found ways of doing that - somehow. So by the time we raised money what we had to do was to scale up and enhance a validated business model. The fiscal discipline that bootstrapping enforced on us is now a part of our DNA. It ensured that we went through the meltdown and became profitable with 40% of the capital that ICICI gave us still in fixed deposits in the bank.
Bootstrapping ensures that you recruit missionaries and not mercenaries – after all you won’t have the money to pay high salaries. You will pay then in stock rather than cash – non believers will simply not join you. This core group of believers will be the people who will see you through the tough times that every early stage must go through.
It takes a lot of time and effort to raise money – preparing the pitch and the plan, doing the rounds of the investors and meeting the interested ones several times, negotiating and signing the term sheet, dealing with lawyers, going through the due diligence and negotiating and signing the final agreement. It is a six month process if you are lucky. This is precious time you can spend instead on building the product, putting together the team and finding paying customers.
And then after you raise the money you have to manage the investor – and that too takes time. The fact is that when you raise money you don’t just get the capital – you also get the capitalist. He will be on your Board and he will have ideas and suggestions to give – it’s called value addition. And he will have disproportionate powers. But you might want to do things your way. In such a situation it might be a good idea to take the business forward till you have something concrete to show and then raise capital.
So, commit yourself, validate an idea, build a team, be an entrepreneur, bootstrap now, raise money a little later.
Over the last several years many aspiring entrepreneurs have met me for advice – be it at business schools, through TIE, at conferences, at business plan contests or by simply sending me a mail and asking for time. Almost all of them have had an idea, a half written business plan – for which they were exploring the possibility of raising capital. Most believe that without committed funding by a venture capitalist they cannot start or will not succeed. Most struggling entrepreneurs would believe that it’s great to raise venture capital at the start – but is it really?
While many successful companies did raise venture capital early in their life cycle, yet there are many more that did not – Microsoft, HP, Dell are three such examples. Closer home Infosys, HCL and Reliance and many other first generation successes were bootstrapped and built the hard way. The fact is that most successful companies and most successful entrepreneurs reached where they have without raising venture capital.
In the company where I work – we managed to get external funding only after we had bootstrapped for ten years.We were delighted to raise capital when we did. However in hindsight, it was the bootstrapping experience that taught us valuable lessons that saw us through the later years.
There are many learnings you get by bootstrapping.
First bootstrapping is a test of commitment – if you are really committed to your idea you will muster up the courage to quit your salaried job, put in whatever little capital you have or can raise from friends and relatives, tighten your belt and somehow begin to execute your idea. If you aren’t willing to bootstrap then question your entrepreneurial motivation. VC’s understand this and they prefer to invest behind good teams that are bootstrapping rather than behind professional managers who are still in secure jobs but have a nifty powerpoint presentation.
Bootstrapping helps you to validate your concept for yourself, your team and prospective investors. Validation of the concept would mean that the startup team is in place, the product is ready and there are a few paying customers who are happy with the product and are willing to buy again and recommend it to their friends.
Once your concept is validated investors come in with much greater confidence and give you a much higher valuation then they would have at an earlier stage. You get to keep a larger share of your company for the same money. Most entrepreneurs don’t realise the importance of this until much later – should the company go on to become valuable.
Bootstrapping makes you stretch 24x7. It makes you think about survival, about how to break even, about where the next rupee is going to come from and about where it should be going or not going. You innovate more, you prioritise and focus on the essentials. You manage your cash flows better, you go out into the field and sell to customers yourself and you put in twenty hour workdays if required. It instils a culture of frugality in the company. This is a priceless asset.
At Naukri when we were bootstrapping, we had to break even to survive. We found ways of doing that - somehow. So by the time we raised money what we had to do was to scale up and enhance a validated business model. The fiscal discipline that bootstrapping enforced on us is now a part of our DNA. It ensured that we went through the meltdown and became profitable with 40% of the capital that ICICI gave us still in fixed deposits in the bank.
Bootstrapping ensures that you recruit missionaries and not mercenaries – after all you won’t have the money to pay high salaries. You will pay then in stock rather than cash – non believers will simply not join you. This core group of believers will be the people who will see you through the tough times that every early stage must go through.
It takes a lot of time and effort to raise money – preparing the pitch and the plan, doing the rounds of the investors and meeting the interested ones several times, negotiating and signing the term sheet, dealing with lawyers, going through the due diligence and negotiating and signing the final agreement. It is a six month process if you are lucky. This is precious time you can spend instead on building the product, putting together the team and finding paying customers.
And then after you raise the money you have to manage the investor – and that too takes time. The fact is that when you raise money you don’t just get the capital – you also get the capitalist. He will be on your Board and he will have ideas and suggestions to give – it’s called value addition. And he will have disproportionate powers. But you might want to do things your way. In such a situation it might be a good idea to take the business forward till you have something concrete to show and then raise capital.
So, commit yourself, validate an idea, build a team, be an entrepreneur, bootstrap now, raise money a little later.
Thursday, 4 September 2008
Entrepreneurship - It's not about the money
I recently began writing a monthly column on entrepreneurship in The Mint. My first piece is reporduced below. What this means is that I will post on my blog at least once a month.
Entrepreneurship is a much more celebrated term today than it was till the eighties. The world has turned around to look up at people who have executed innovative ideas to create value. Entrepreneurship as a career choice has gained social acceptability among the educated middle classes in recent years. I have been on this path for nearly twenty years now. Friends have always ribbed me about the fact that I preach entrepreneurship, but we started a job site - Naukri.com.
Today entrepreneurship is going beyond mere social acceptability and even getting to be fashionable as a career choice. A large number of people are doing start ups – many of them out of a sense of herd mentality, after getting inspiration from hearing the stories of entrepreneurs who founded successful companies. This is a worrying trend.
There is a misplaced sense of romance about entrepreneurship. I would like to caution those considering doing a start up that the early days of struggle of successful entrepreneurs seem romantic to observers only in hindsight. When you are actually going through it – there is a lot of pain. And for every poster boy success in entrepreneurship there are a hundred who are still struggling. The failure rate is high.
The first thing to understand is that entrepreneurship is not about getting rich. Sure if the company you start does become successful chances are you will make money. However that is a happy incidental outcome. It should not be the main object of the endeavour.
If you want to be an entrepreneur in order to become wealthy – my suggestion is don’t. There are very few entrepreneurs I know who succeeded without a longish period of financial struggle, belt tightening and personal sacrifice.
More often than not success will take longer in coming than you think. There will be times when at the end of the month there will not be enough money to pay the office rent and employee salaries – but you will somehow scrape though. There will be times when you yourself will not be able to take home a salary for months. There will be years on end when you will be financially the worst off person in your batch from business school. During these years you will need to make compromises on your life style – the house you are able to afford, the car you drive, the holidays you take, the restaurants where you eat and the schools your children can go to.
And all this without any guarantee of success, in search of the big idea, hoping for venture capital funding – years without any light at the end of the tunnel.
During times like this only your passion, your commitment to the idea and your stubbornness will see you through.
So before making the jump ask yourself a question – will I love doing this for the rest of my life even if I am not financially successful? If the answer is a clear yes – then you have passed the first test of commitment.
Then, when is entrepreneurship a worthwhile career to pursue. If one in hundred will succeed surely it is an irrational thing to do.
You should become an entrepreneur only if you believe that that is how you will find fulfillment.
Entrepreneurship is about freedom, creating, a chance to build a brand, an institution, showing the world a new way of doing something, being your own boss, creating a legacy that will outlive you, identity, making a difference, obsession, ego, having a shot at something big, doing what you love, innovating, doing things your way……..
Whichever way you want to put it – it is about finding meaning in your life.
Yes it is an irrational thing to do – if you are well educated and you have a good career ahead of you as a professional manager.
It is an article of faith. A bit like religion. Or as my friend Nikesh Sinha eloquently put it – it is like falling in love.
It’s an irrational choice.
Entrepreneurship is a much more celebrated term today than it was till the eighties. The world has turned around to look up at people who have executed innovative ideas to create value. Entrepreneurship as a career choice has gained social acceptability among the educated middle classes in recent years. I have been on this path for nearly twenty years now. Friends have always ribbed me about the fact that I preach entrepreneurship, but we started a job site - Naukri.com.
Today entrepreneurship is going beyond mere social acceptability and even getting to be fashionable as a career choice. A large number of people are doing start ups – many of them out of a sense of herd mentality, after getting inspiration from hearing the stories of entrepreneurs who founded successful companies. This is a worrying trend.
There is a misplaced sense of romance about entrepreneurship. I would like to caution those considering doing a start up that the early days of struggle of successful entrepreneurs seem romantic to observers only in hindsight. When you are actually going through it – there is a lot of pain. And for every poster boy success in entrepreneurship there are a hundred who are still struggling. The failure rate is high.
The first thing to understand is that entrepreneurship is not about getting rich. Sure if the company you start does become successful chances are you will make money. However that is a happy incidental outcome. It should not be the main object of the endeavour.
If you want to be an entrepreneur in order to become wealthy – my suggestion is don’t. There are very few entrepreneurs I know who succeeded without a longish period of financial struggle, belt tightening and personal sacrifice.
More often than not success will take longer in coming than you think. There will be times when at the end of the month there will not be enough money to pay the office rent and employee salaries – but you will somehow scrape though. There will be times when you yourself will not be able to take home a salary for months. There will be years on end when you will be financially the worst off person in your batch from business school. During these years you will need to make compromises on your life style – the house you are able to afford, the car you drive, the holidays you take, the restaurants where you eat and the schools your children can go to.
And all this without any guarantee of success, in search of the big idea, hoping for venture capital funding – years without any light at the end of the tunnel.
During times like this only your passion, your commitment to the idea and your stubbornness will see you through.
So before making the jump ask yourself a question – will I love doing this for the rest of my life even if I am not financially successful? If the answer is a clear yes – then you have passed the first test of commitment.
Then, when is entrepreneurship a worthwhile career to pursue. If one in hundred will succeed surely it is an irrational thing to do.
You should become an entrepreneur only if you believe that that is how you will find fulfillment.
Entrepreneurship is about freedom, creating, a chance to build a brand, an institution, showing the world a new way of doing something, being your own boss, creating a legacy that will outlive you, identity, making a difference, obsession, ego, having a shot at something big, doing what you love, innovating, doing things your way……..
Whichever way you want to put it – it is about finding meaning in your life.
Yes it is an irrational thing to do – if you are well educated and you have a good career ahead of you as a professional manager.
It is an article of faith. A bit like religion. Or as my friend Nikesh Sinha eloquently put it – it is like falling in love.
It’s an irrational choice.
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