Friday, 20 February 2009

B Schools need to nurture misfits

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.

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!