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BW Businessworld

Life In The Age Of Start-ups

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Startups are du jour. They are grabbing enough space on traditional media, and social media is abuzz with the latest startup news as well and its promise of how it will change the world in the coming days.  The probability of the startup in question being either a technological solution or a technology-enabled solution is high. The specific industry focus varies from e-commerce, mobile-commerce to apps that get you your next cab ride and so on. Traditional (non-tech) startups are mushrooming around the country, too. Ironically, Infosys in its heyday never received as much attention. 
The new icons of Indian entrepreneurial spirit -- Flipkart, UrbanLadder and Zomato – encourage more interest on a daily basis than the vanguards of the technology sector such as Infosys and Wipro.  Bansals and Bahls are new youth role-models and they ignite much excitement among the youth. The investment community is catalysing from this new entrepreneurial explosion. It is common to hear names like Sequoia, SAIF and Microsoft Ventures in not-so-muffled conversations at cafés around the country.
Startups are being seen as the flag-bearers of innovation, risk-taking and global thinking. And, it is encouraging news for Indian economy. In a nation with upwards of 40 per cent people below the poverty line and with a per capita GDP (nominal) of $1626 [the US is $54,554, China is $7,589], new businesses instill people with hope. 
The erstwhile Planning Commission’s 2012 report on creating a vibrant entrepreneurial environment states that India has the potential to build about 2,500 highly scalable businesses in the next 10 years – and given the probability of entrepreneurial success that means 10,000 start-ups will need to be spawned to get to 2,500 large-scale businesses. These businesses could generate revenues of $200 billion – a contribution to GDP and creation of employment.
It is a great time to be spawning a startup in India. However, the pertinent question for the next starry-eyed young entrepreneur will be: is that good enough?

Mindset Woes
Behind the euphoric headlines, there are some disturbing facts as well which can’t be brushed aside at this juncture. Genome's Startup Ecosystem Report 2012 ranked the top 20 most active startup scenes in the world based on criteria which includes funding, trendsetting, support, talent and more. Bangalore is the only Indian city to find a place in the list, and it is in the penultimate place in the top 20 list.  Bloomberg’s Global Innovation Index report, which ranks the world’s “50 most innovative countries,” doesn’t even include India. According to a NASSCOM report, India is ranked 142nd in the world in ease of doing business. To sustain the growth of the startup culture, our leaders and entrepreneurs have a host of challenges to deal with.
India needs to build a robust education system, provide easier access to capital, reduce bureaucracy and build talent to be able to compete globally. Hence, we must nurture the startup spirit and ensure that it runs deep and wide resulting in the economic and social well-being of the majority. The Narendra Modi-led government has created an independent ministry to promote entrepreneurship and initiated a liberal corpus to support startups.
However, the biggest risk facing India’s startup ecosystem, I believe, is our mindset.
Are the new entrepreneurs mentally ready for the bumpy road? Do they have the gumption to implement ideas which would significant change the way we live? Are the investors providing more than just capital to help create icons of the future? Do our incubators and accelerators have the capacity to infuse institution-building values and skills?
My conversations with entrepreneurs and investors do not give me the confidence that all is hunky-dory. Unfortunately, there is little talk about understanding market trends, seeing it from customers’ perspective and operationalising the idea, but none about building a great institution. Most tech startups dream of becoming the next Google or Facebook without realising that while their journeys may have started with a “product”, it has taken years of hard work to build such reputable institutions.
Our entrepreneurs need to build great institutions, create opportunities not just for themselves but for a larger group.  It requires a simultaneous focus on being intimate with markets and customers, developing the best products/solutions, culture building, growing talent and high-quality of execution. It is no surprise, therefore, the most innovative (for instance Apple, Google, Tata and so on) companies in the world also feature as the best employers and own some of the most respected brands.
Great Institutions
An institution-building mindset is critical not only for the long-term success of startups, but also for the socio-economic benefit of nations. Government policies, entrepreneurial action and investment decisions need to be driven by not just the desire to spawn startups, but to help them build institutions that offer livelihood to millions of people on a sustainable basis.
Entrepreneurs and leaders must think like architects and work like masons. 
Jim Collins, the author of Built to Last summarized this idea well, “The builders of great companies are clock builders, not time tellers. They understand that in order to build a truly great company, they must concentrate primarily on building the organization. The Silicon Valley Paradigm, on the other hand, emphasizes telling the time once, launching a business around a great product or service idea, and cashing in on that, rather than building a clock that can tell time over and over”.
So, what does a great Institution look like? It’s not a chronologically-extended avatar of a fledgling startup. It also does not refer to the physical manifestation of the business – either as a building or as a product. Great thinkers like Jim Collins, Steven Covey, Tom Petersand Edward Deming have devoted much of their attention to how great leaders build great institutions. Some of the names that are widely recognised as great institutions include GE, Google, Apple, TCS, ITC, HUL, Amazon, Marriott and Microsoft. 
So, what’s common between these global industry icons?
  • PERFORMANCE: Great institutions deliver great results for their stakeholders on a steady and continuous basis. While there may be some bumps along the way, but over the long-haul, they predictably produce innovative products and generate adequate revenues and profits. Great institutions are sharply customer-centric in their strategies and tactics; hence they build a growing based on loyal customers along the way.
  • IMPACT ON INDUSTRY: Great institutions focus not just on themselves, but on others in the eco-system as well. As they learn and grow – they take their partners along with them. Often, these institutions create new industry segments that other players can leverage on to create more businesses.
  • CONTINUOUS SELF-RENEWAL: Great institutions develop the ability to be proactive about changing themselves; sometimes in anticipation of external changes, and often as a result of internal or external triggers. They are good at adapting to changes as well as innovating and adopting practices that help them grow and deliver. Continuous improvements – incremental and significant – are quite common in their culture.
  • VALUES-DRIVEN CULTURE: As the last few years have shown, the basic intent of value system of organisations in many ways dictates their future. While good governance helps in creating a system of transparency and accountability to shareholders, it is the fundamental values that drive all decision making. Great institutions live by value systems that are just, ecologically-responsible and humane.
  • ENGAGED EMPLOYEES: A vast of majority of people working for great institutions bring their whole selves to work each day – they are committed to the shared vision by their heart; they apply their minds to solving problems and innovating for the future and are soul-fully involved in living the good life through the institution’s values. The work culture and employee commitment helps them become great leaders.
  • SOCIAL RESPECT: Great institutions (and their leaders) are admired for their performance, contribution and humane behaviours. These institutions become icons in their communities and nations. Over time they earn the respect of customer and non-customers alike – not due to marketing and branding programs – but due to the positive experiences of the people who come in contact with them.
Internally an institution is a social organisation of individual and groups, aligned to the same purpose -- with clear roles and responsibilities. Given this definition, all institutions are organisations, but not vice versa. Externally, an institution is long-standing part of the socio-economic ecosystem which is respected for its unique contributions.

Crossing Yet Another Chasm

Evangelists like Steve Blank, Alex Osterwalder and Eric Ries have created structured approaches to building startups. Millions of entrepreneurs are navigating their startups using their concepts of problem-solution fit, product-market fit, pivoting and business modelling. Steve’s concept is particularly focused about not treating startups as smaller versions of large businesses. But even these approaches are relatively silent about “what next” – how to take a successful startup to a great institution.
Geoffrey Moore who theorizes that there is a chasm between the early adopters of the product (the technology enthusiasts and visionaries) and the early majority (the pragmatists). Moore’s belief that visionaries and pragmatists have very different expectations led him to explore and suggest techniques to successfully cross the "chasm".
I believe that yet another “chasm” appears after a startup has validated its business model and acquired some initial paying customers. What lies on the other side of the chasm is high-growth organisation evolving into an institution. Many practitioners have erroneously assumed that the way to other side of this chasm is only a matter of “execution” or doing “more of the same”. Nothing could be further away from the truth; crossing the organizational transcendence chasm requires strategy, boldness and courage – no less than what is needed to get a startup off the ground. In recent time, Derek Lidow has thrown light on how entrepreneurs’ leadership capabilities have to go hand-in-hand with organizational maturity.

Stages Of Building A Great Institution
For over 20 years, my partners and I have been working with business and social organisations of all sizes, age, geography – this has provided us deep insights on the transformational journey that lies ahead for most startups. We have also leveraged our work with the acclaimed Capability Maturity Models from Carnegie Mellon University (CMM) to develop discrete stages of this transformational journey.
The evolution of a startup from the founder’s passion to an idea, to a working startup to a growing organisation to solid institutions can be mapped to five discrete stages. These stages not only describe the ‘what’ of building great institutions, but also the ‘when’ and ‘how’. Amongst these, the ‘when’ is perhaps least understood by leaders. The essence of this is that great institutions require painstaking work, bit by bit over the long haul; certain experiences just can’t be rushed through – just like building a wall, work on a new layer of bricks can’t begin unless the layers of bricks underneath have solidified – you just can’t hurry things that are as human as they are operational.

There are numerous stories of how startups have failed because they didn’t build a solid team before they expanded overseas; because the founders never really aligned themselves on their personal motives of being there; or because the startup burned too much cash too early before they could establish themselves well in the market.T

he stages are not as discrete and it often works on reaching the next level begins early in the preceding level. The staged approach also ensures that the founders / leaders maintain a simultaneous focus on customers, competition, product, people and culture – something that’s so hard to do in the exciting chaos so typical of a startup environment. If you notice, extent of external funding is not a consideration in the journey through these stages. Certainly, funding can often expedite things but expediency over solidity is not always the right thing to do.
To conclude, our entrepreneurs must sign-up for a long journey - from an idea to a validated startup to a great institution. It’s a transformation that happens slowly. 
The author, Ajay Batra, is CEO, Lutyens Startups

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