A behind the scene's look at today's start-ups
March 05, 2017
In partnership with YourNest
Last year I was invited to lead a few sessions at the YourNest Leadership Summit. We spent hours discussing experiences around building an organization. These ranged from building an organizational vision; to building a management team; to moving from start-up to scale-up. The idea for this study originated there.
What began as a behind the scenes look at the entrepreneurs motivations and early experiences, led to a deep dive into the entrepreneurship research and some intriguing findings. Many of these may be really useful to anyone on the entrepreneurial journey—and hence this story.
10 start-ups participated in the study. Each is between 2 and 5 years old, and had received at least one round of funding. With staff ranging from 25—100 employees, they could be considered in early stages of commercial success. We also spoke to a few experienced entrepreneurs, who had built some of today’s large (and famous) organizations to include the benefit of their hind sight.
Most of the founders in our study are very well educated professionals, with excellent academic credentials. They do not come from traditional business families. They come from exactly the kind of families that have valued education as key to a strong secure future. Most had at least some corporate experience, with a few having been CEOs/ CXOs or VPs in large companies.
Rohtash Mal, 62, Em3Agri, had graduated from IIM Calcutta, IIT Delhi, and worked for the corporate world for over 30 years. At an age when many would consider retirement, he instead found his joy in building Em3Agri— the Uber for Agriculture, along with his son. Dr. Rajesh Sanghi, 61, spent the early part of his career with the Airforce engineering, before entering the corporate world and then becoming a serial entrepreneur. Kapil Mehta, 47, SecureNow, graduated from IIM Ahmedabad, IIT Delhi and worked for over twenty years in some of India’s most prestigious companies such as — Hindustan Levers and McKinsey, and worked for over two decades in the traditional corporate world before stepping out on his own. Vishal Gupta, 42, MyCity4Kids, graduated from IIM Bangalore, worked with Hindustan Levers, and Aviva for over a decade before starting out on his own.
There were others who were far younger. Umesh Sachdev, 31, and Ravi Saraogi, 33, started Uniphore straight after graduating from Jaypee College of Engineering. They had developed an early vision for their company (with a different product) through a college project. Amit Mittal, 34, Simpli5D, worked within the corporate world for 5 years before deciding to start off on his own.
Most were technology based start-ups. All the entrepreneurs in this sample were men.
So what motivated them to leave more conventional career paths, and seek out their fortunes in another land? And when did they decide to become entrepreneurs?
Well, many had nursed thoughts of leading their own business at several points in their life. For some, this began when they were kids
“When I was seven I announced to my family that one day I would own a big car. No one in my family had ever thought that was possible. I just knew I would one day do something big.”
For others these aspirations developed in college or on their first job.
“Even during campus placements, I thought to myself—while I didn't know if it would be 2 or 5 years down the line, but I knew that I would start something of my own. I realized I liked to make my own decisions, and take initiative. I also found that whatever I did at work turned out to be very successful.”
“What triggered this was a side project we did in our engineering days. We built a mobile tracking device and participated in a Technology and later Business comp
For most the transition to their own start-up, did not however happen overnight. The process of consideration began years before they in fact made the leap. Those who worked in the corporate world longer, often actively sought out roles with considerable autonomy. Some specialized in leading new projects, others in leading independent businesses, and still others had worked as close associates of CEOs. The underlying drive for autonomy and creativity had found many avenues for exploration.
It turns out that in fact research does suggest that there are roles and companies that serve as good breeding grounds for entrepreneurs. For instance, scientists and engineers who work for smaller firms, tend to become entrepreneurs at a higher rate. Working in a small firm develops skills that allow people to start off on their own.
Some made this switch after a fundamental re-evaluation of their lives:
“As I reached 35, I was reading the Alchemist, and I had a fundamental realization that I didn't want to be part of the rat race anymore. In the end no one really wins, and people often find their life sucked out of them. As I reflected, more and more I realized it was important for me to be a master of my own time. I didn't want to live a life with any regrets,”etitio
In fact this desire for achievement in an independent task is one of the most powerful motives behind becoming an entrepreneur. Each entrepreneur in this study, expressed this desire in different ways. In the early 60s, an organizational psychologist — David McLelland, had proposed a theory of needs to explain motives and behaviours in the workplace. He had traced individual motivation to three primary sources— the need for achievement, the need for power, and the need for affiliation. Entrepreneurs rank consistently higher than the general public (and managers) on their need for independence and achievement.
This is understandable because it is this need that drives them to seek accomplishment on their own terms. Interestingly, this stands in contrast to the motivations of those in top management roles who consistently demonstrate a far higher need for power.
“In the corporate world, sooner or later you will hit a glass ceiling. You may think your success will last forever, but tomorrow there could be a change of management and things may change. If it is your own venture, you can go on till you are 70, health permitting.”
Besides a high need for achievement, entrepreneurs differ from others on two other critical attributes— the first, an exceptionally strong belief in their own abilities and the second, an ability to handle uncertainty. In the organisational literature, a belief in one’s own abilities is referred to as self-efficacy, and studies have shown that entrepreneurs in general possess very high self-efficacy.
Interestingly, entrepreneurs have not been found to be less risk averse that the general manager. How then does one explain their participation in business creation—essentially a risky proposition?
Well, it turns out that they estimate risk differently. Several studies show that entrepreneurs tend to have a far higher comfort with ambiguity. Pair this with their higher self-efficacy and the paradox begins to make sense. Their higher self-efficacy, and comfort with ambiguity, change their perception of risk .
So we find that the fundamental drive towards entrepreneurship comes from a strong desire for accomplishment on one’s own terms. The desire to be the captain of one’s ship, the desire to change the world. Yet behind this desire we find a very high need for achievement, supported by an exceptional faith in one’s abilities and a strong ability to weather uncertainty and ambiguity.
In casual conversations with senior people in the corporate world, I have heard them (perhaps a tad cynically) question a would-be entrepreneur’s business model. And this makes perfect sense. Without a business model that works, there is no viable business. In fact, ask any investor and they will tell you how much they care about not just the viability but also the scalability of a potential business model.
So we asked each of our entrepreneurs how they narrowed in on their (now successful) business model, and each described a process of entrepreneurial discovery. This process rarely led to the (now successful) model in a straight line. Instead the actual process was characterized by a series of experiments, feedback and course corrections.
“One of my biggest learnings has been the importance of making quick changes to our business concept based on the feedback we were getting. In retrospect, I think we persisted with some of our early ideas for far too long before we accepted that they were not working.”
It takes a few (or even several) experiments to get it right. Each entrepreneur begins with some ideas, that often include a version of a business model. Reality however, rarely pans out as expected. They then need to quickly try again—try better. Sometimes this may even mean dropping their early ideas entirely and trying something afresh.
A very experienced serial entrepreneur pointed out that he had seen very few people become successful entrepreneurs in their very first attempt. As an investor he therefore seeks out entrepreneurs who have the ability to keep learning from feedback and keep experimenting— till they make it work. For him, business acumen, integrity and passionate persistence were key to making it.
Another extremely successful entrepreneur emphasized the importance of this perseverance.
“For the first seven years, I never made any money. But I kept trying different businesses, till I found the one that worked. My wife supported me all those years.”
“See if you want to be successful and be able to grow a company of a medium/ large size, you need at least 10 years. I tell everyone who is thinking of being an entrepreneur that they have to be mentally ready to devote at least 10 years to the idea.”
“To be an entrepreneur you have to burn your bridges. It is not going to be easy at all and if you have another option of taking up a job, when things get difficult, you will do that.”
Many entrepreneurs shared similar experiences:
There is however no way to be completely sure whether a business idea will work with just a bit more patience and persistence.
“You know we thought we would operate out of two verticals. However when the retail business didn't work out we shut it down. Today I wonder if we should have persisted. Yesterday someone gave me a beautiful idea for our retail business. This is the same idea we had originally started off with.”
Management literature often speaks of entrepreneurship as an evolutionary process. And it is easy to see many parallels. Business ideas compete with each other for the scarce resource that is entrepreneurial focus and money. And then they fight for survival in the market. When there is a good match between the business idea and the market, the idea prospers and multiplies. Else it withers away and dies.
It is for the entrepreneur to then estimate if the idea needs tweaking/ re-configuration/ or simply persistence— a process of educated experimentation. In many ways this should come as a relief to would-be entrepreneurs who worry about whether their business idea will work. Maybe it will, maybe it won’t, what seems to be more important is the persistence of the search.
As one serial entrepreneur turned investor put it:
“I know very few entrepreneurs who are successful right away. If the person has what it takes, if not the first business, his second will succeed, if not the second the third will make it. The person is far more important.”
It turns out they sometimes had to kiss many frogs to find the prince. This brings us to the fourth trait essential to be an entrepreneur—the capacity for endurance.
What do we know about the process of entrepreneurial discovery itself, beside it being essentially an evolutionary process? Well for one we know that those who are embedded within a field are well placed to see opportunities emerging from within that field. And we see this in many (though not all) of the entrepreneurs within our study. Many chose to pursue opportunities spotted in previous work roles. Being an insider helped.
Yet the process of entrepreneurship often involves a creative synthesis of ideas to address opportunities. For this it really helps to be at the boundary of several different fields. The ideas from one can be applied to the other. Those who are positioned as “brokers” of different fields are able to access ideas from more than one field and therefore have the potential for high levels of creativity and innovation.
For instance, Steve Jobs creative reinterpretation of the personal computer (or later iPod) drew upon technology, design and aesthetics. This re-interpretation emerged from his own varied life experiences. Today, this holds true in the way businesses such as Uber, Air BnB, Netflix etc. are designed. These innovative business models have allowed for technology to provide new solutions to the very fundamental needs of transport, travel or entertainment.
In recent years in India, a very large proportion of first generation entrepreneurs have built their business on the boundary of technology and a specific industry. In fact, given the technology leaning of our partner investor fund, we find this to be the case for most of the entrepreneurs in the study. For instance, My City4Kids provides a web based platform for mothers to discuss parenting; Fashalot provides an app based understanding of in store products, and Em3, provides Uber like services for agriculture. These business solutions, allow today’s entrepreneurs to draw upon both their education (several are engineers) and work experience.
Perhaps what has changed most in the past decade or so are the support systems available to would-be entrepreneurs. Our entrepreneurs spoke of three primary support systems— the family, co-founders and investors. Together, these formed a critical base of support. For some others (often at very early stages of their career) —other secondary support systems such as incubators and accelerators were helpful.
Each entrepreneur spoke about the importance of having support from their immediate family— their spouse, parents and even children. The decision to become an entrepreneur affects their families lives as much as their own. There are changes in finances, there are changes in work hours, and occasionally a relocation. In many cases the spouse provides the financial support for the entrepreneur. Depending on how many years (or even how financially successful the business is), this could create tremendous stress.
“Family is very very important. They are the worst affected. Because an entrepreneur has no off button. Therefore, one of my rules is that no matter what meeting I am in— if my wife calls, I take it.”
“I was lucky that in the same engineering college I also found my wife. In the people I checked with before starting- one was my father and one was my wife.”
In the case of our sample of entrepreneurs, we found each spoke about the tremendous family support they had received. Presumably, others who hadn't received similar support may not have made it this far.
A second critical support network was the team of co-founders. An overwhelming majority of entrepreneurs chose to work with one or two co-founders. These were the comrades in arms, the partners in the trenches, the ones with whom the day to day challenges were shared. Most relationships between co-founders had begun several years before the business. They may have been classmates, or ex-colleagues from previous organizations.
Occasionally, however a founder had to formally interview and seek out others who would share in their excitement. This happened through referrals, or meetings in other professional forums. One entrepreneur described to me the challenge of being a solo entrepreneur as one similar to that of a single parent—It could be done, but it was much harder.
“The foundation of the company rests on the relationship of the co-founders. But this happens at two completely different levels, The first is about getting the product together, getting the idea executed. You should ideally have complementary skills so that everyone brings the right skills. The second is—the journey is a very lonely one. It gives you a partner to share the journey with.”
The support provided by co-founders worked at many levels, which is why it was so important. The most obvious one is that the work of setting up a business would now be shared between two or three partners. To the extent they bring complementary skills to the table, the founding team would be far stronger than any individual could have been. But there is the other equally important aspect of having someone to share the journey with— for all its highs and lows. And someone who cares about this as much, with similar stakes—the companionship.
And then again, there is the reality that many co-founders are paid in sweat equity. Perhaps this is an economically sensible way to bring high talent within an early cash strapped organisation.
Research on the structure of founding teams in the US, finds that one of the strongest factors that has guided the structures of founding teams is in fact Homophily— or the tendency to enjoy working with others like oneself. This gets reflected in the fact that in all of the teams studied for this paper, co-founders had common ties either through a common college, a common work organisation, or even familial ties (such as spouses or father and son). Further, there was almost no gender diversity in the pairings of founder teams, a phenomenon observed in many other parts of the world too.
While a founding team definitely benefits from a diversity of skills, research suggests that the desire to work with those who are similar proves far stronger. This is very interesting because it illustrates that most founding teams tend to be first and foremost a group of like minded people coming together. Perhaps, to the founders—the emotional support provided by such teams far outweighs the rational advantages of diversity.
There seems to be yet another implication of the founding team’s past corporate affiliations. It has been found that when founders have worked for a common organization in the past, they start off with a shared language and common mental maps. They are then able to bring this common understanding to bear on exploiting opportunities with speed.
In contrast when the founding team brings together varied backgrounds, they first need to work towards these common mental maps. This takes longer. And could potentially be frustrating. What they lose in speed, however they have the potential of making up in being more innovative and unconventional. Their different backgrounds allow them to tap into the wisdom of different worlds, all while bringing together their unique networks of resources.
In fact, a recent study of over 400 new ventures in Sweden showed something very interesting— teams comprised of strongly homogenous founders (by age/sex/work experience) don’t do as well over the long term (5 years) as do teams with greater diversity. Like many other studies of the effect of diversity on performance, in start-ups too, over a period of time the advantages of diverse perspectives do outweigh the initial ease of team formation.
What about the structure of the founding team? We find that in the early stages of the business, the tasks at hand are varied and continuously changing. Challenges unfold on a daily basis in unexpected and unpredictable ways. Roles within founding teams therefore tend to be very fluid. However, research does suggest that despite this fluidity, founding teams do benefit from having at least some fundamental roles outlined— such as who will have the primary responsibility for interacting with the outside world, or who will look after operations. This understanding is critical to ensuring that none of the key tasks of setting up a business are overlooked.
The third important support system is provided by investors. While early money often comes from “fools, family and friends”, even a good idea will starve if it doesn’t get an infusion of funds at the right time. This is where the investors come in. And this is perhaps where the most significant shifts have happened in India.
“Someone introduced us to a professor at IIT Madras who while an academic was also a great influencer in the government. We wrote to him and he said we should take a flight and come and meet with him. He was very quick in dissecting why our business plan didn't work.
But he said “I give it to you guys that you have a technology flair, you have built something very interesting”. He had already spoken to some of our customers and saw that we had done a lot of running around. He pointed out that we lacked business acumen. Which was not unexpected since we were straight out of college.”
“For a year we worked on developing the prototype for our technology at a lab at IIT. Getting our first few customers was not hard, thanks to the IIT brand”.
The importance of investors goes well beyond the obvious. For many first time entrepreneurs, investors can provide much needed advice, recommend tried and tested partners and sometimes provide access to their own professional network. Further, successfully raising a round of funding is an important signal to the market. These valuations make news. Faith from a well respected investor signals to the environment (and sometimes even to the entrepreneur), the potential of a business well before it actually gets there.
So what happens when an entrepreneur does taste success?
Many of the entrepreneurs I spoke to were just a few months/ or years into their first taste of success. They had just hired their first 50-100 people, opened their first set of offices and received their first 2 or 3 rounds of funding. I observed a confidence and joy that I will call the “entrepreneurial glow”.
Perhaps this came from beating the odds to have come this far. Perhaps this came from recognition they had begun to receive from their family, friends and significant others. Or, perhaps it came from finally being in charge of their own ship. Almost everyone had had to develop many new (and sometimes unexpected) skills. They had become their own best salesperson, media spokesperson, HR manager, accountant all rolled into one. Through the course of these few years, they had necessarily learnt to reach out to many many others whose expertise they valued. Their own networks were now large and they had learnt who to turn to for specific problems. Perhaps they had even been written about in a popular business newspaper or magazine. Or even received an award or two.
I asked a successful first time entrepreneur, who had also been very successful in the corporate world how the confidence he had today was different from the past.
“When you are successful in the corporate world, it means that you have understood how to navigate a particular system. You feel that you know how to make a budget, beat the budget. You know who to speak to, and you have a great deal of financial comfort. However, the feeling of confidence you have as an entrepreneur is that you feel you can do anything you set your heart to. You feel you can do anything you want and there is nothing that can stop you.”
“In the last few years—I have found my voice—I find myself being able to be far truer to myself than I ever could be earlier. Somehow when you are in the corporate world, you do not even know that you are too scared to voice your own views.”
While it was harder for the younger entrepreneurs to reflect on this, I did observe in them a confidence that was very different from that of others of a similar age whom I had met through my career.
Another interesting anecdotal observation from talking to our entrepreneurs is the joy they have experienced from meeting and interacting with people of different backgrounds. Perhaps many may have enjoyed interacting with diverse groups even before they became entrepreneurs. Then the very act of entrepreneurship needed them to be connected with many diverse groups—for the discovery of ideas or for building their business. This then fundamentally alters the social networks they are part of.
“As an entrepreneur you get to meet more and more different kinds of people. Your universe is magnified by an order of magnitude. Now when I go for the Gurgaon get together I find it very boring. The worlds are much narrower when you are in the corporate world.”
Was there any downside? Well I did observe that many were not the best of listeners, and some even a bit impatient. As one explained.
“The other thing is that people become very impatient. If someone is telling you something where you feel there is a lot of corporate mumbo- jumbo you don't want to spend any time on it.”
So there it was—the process of becoming a entrepreneur perhaps changed the entrepreneurs. For those who were successful—the confidence experienced was a glow in its very own category. The glow of having dug deep and discovered your own abilities. The glow of building something new right from the ground-up—on your own.
(Dr. Shalini Lal is the founder of Infinity OD, an OD consulting firm specializing in Organizational Change. Earlier she worked as Director HR, Deustche Bank and CHRO, Escorts Agri-Machinery. She has a PhD from UCLA, and is an alumnus of IIM-A and St. Stephens College)
March 05, 2017
March 05, 2017