Nitin Seth

Keynote address at Entrepreneurship Awareness Drive at Guru Nanak Dev Engineering College, Ludhiana, 29th September, 2017, organised by The Entrepreneurship Cell IIT Kharagpur

I am very happy to be sharing my insights on entrepreneurship today with you. My insights are based on 4 sets of experiences – starting and failing in my own startup (ActiveKarma 2000-02), many years as an intrapreneur in McKinsey and Fidelity, leadership role in Flipkart India’s largest start-up, and mentoring a number of start-ups. I will share 5 sets on insights in my talk today:

1. How the business environment is changing
2. Why it is a good time for young professionals to become entrepreneurs
3. Success mantras for entrepreneurs based on my experiences
4. Current state of the Indian startup ecosystem
5. What Indian entrepreneurs need to do better

Section 1: Technology disruption leading to unprecedented velocity of change

We are living in a world of unprecedented technology disruption. The velocity of technology change that we are seeing is one of the highest in annals of human history. Just a few years back there was a lot of talk of Technology Megatrends like Mobile, Ecommerce, Social Media, Cloud and Big Data. All of these so called Megatrends have become mainstream and a part of our daily lives. The new Megatrends are Artificial Intelligence, Machine Learning, Robotics, Blockchain, and Internet of Things. The impact of each of these trends is likely to be profound (especially Artificial Intelligence and Robotics) but I am sure even this list will change in a few months!

This constant Technology Disruption is creating an environment I call the VUCA world. It is,

• Volatile – constantly changing,
• Uncertain – difficult to predict,
• Complex – cause and effect are difficult to decipher, and
• Ambiguous – reality is hazy

Technology disruption and the resultant VUCA world has many implications for business. The intensity of implications may vary across industries but they are present at some level for all:

1. Customer behaviors changing. Customers are going digital, having greater pricing transparency and choice, and are thus becoming lot more demanding. Implication of this for many businesses is a squeeze on margins
2. Industry structures getting disrupted. Many industries that have traditionally enjoyed fat margins and have been dominated by a few very successful companies are getting disrupted by new players, who often come from unexpected directions. In many cases it is leading to creation of totally new industries as the likes of Facebook, Uber and Airbnb have shown
3. Shrinking business cycle. Product and business cycles are becoming shorter and shorter. You cannot rest on your laurels. It does not take much for the hunter to become the hunted. Indian IT industry is good example. Over the past 20 years, Indian IT companies have been a big disruptor, but now there is a threat of their business model getting disrupted
4. Speed is king. Businesses are facing constant change and need to have fast response and that too in the face of uncertainty, complexity and ambiguity.

The traditional organizations are struggling in the VUCA world.

• “Innovator’s dilemma” – new, disruptive technologies cause great firms to fail. The same practices that lead the businesses to be successful in the first place can also result in their eventual demise.
• Inertia and “Risk averse” culture – afraid to fail, destroy a legacy
• Lack of capabilities required to compete in the new business environment esp. Technology DNA. Dramatic demise of the Traditional Retail giants in the US is a good illustration. They were not able to anticipate and then build the technology capabilities required to compete with the Ecommerce onslaught

VUCA world can be very threatening but it is also a huge opportunity. Those who master it stand to win very big. If the environment is changing, you cannot win with the old rules, you need new rules.

Section 2 – Why young professional should become entrepreneurs

I strongly believe it is a great time to be an entrepreneur today in India and all of you should consider this path. There are at least 5 reasons why I believe so:

1. Technology disruption creating unprecedented new opportunities. We just talked about the unprecedented velocity of change because of technology disruption. Technology change is a great equalizer. Big companies don’t have an advantage at leveraging technology change, often they are at a disadvantage. Smart entrepreneurs are best placed to experiment and leverage new technology. We have seen with the example of Flipkart, Paytm, MakeMyTrip and Ola how you can leverage new technology (Ecommerce) to create a huge business in less than 10 years. And this is just the tip of the iceberg.
2. Accelerating personal growth. If you are ambitious and want to change the world then entrepreneurship is the path for you. Pursuing your own idea provides great sense of ownership and independence, which is difficult to find in a job. It creates a sense of purpose and energy that helps you grow as a person and achieve things which will be impossible in a standard job. I meet many young entrepreneurs and always get amazed at how much they have grown and matured in a short period of time. In addition to personal growth there is off course the opportunity for life-changing wealth creation. Jobs today pay well but nothing compared to the wealth you can create through a successful venture.
3. Availability of risk capital and entrepreneurial ecosystem. A positive development in India over the past 15 years is the development of the venture capital industry and entrepreneurial ecosystem. Capital is now available for each step of the entrepreneurial journey, even for very early stage ideas. This makes it easier for young professionals to pursue their ideas without betting on hard-earned money of their parents. Capital also helps them scale up their ideas rapidly. Most importantly, there is development of an active entrepreneurial ecosystem where experienced entrepreneurs and professionals are themselves investing into ventures and are available for mentoring and support.
4. Cost of failure is not high. My parents generation saw a lot of hardship and was very risk averse. These conservative mindsets have historically permeated in our society and acted as a deterrent for taking risks. However, the India of today is very different. The cost of failure is low. I have already mentioned the availability of risk capital. Even more importantly, there are abundant opportunities and company mindsets have changed. An individual whose start-up has failed is not frowned upon. In fact, failure is increasingly seen as a positive experience. I have seen it in my own example. I did my venture ActiveKarma in 2000-02. The venture failed but I was able to bounce back very quickly. In fact, a lot of what I have achieved in my corporate career is because of the invaluable learnings from ActiveKarma.
5. Make a contribution to the country. India’s biggest asset is it’s age pyramid. More than half the population of 1.25 billion is below the age of 25. However, this also presents a massive challenge of job creation. Government and the public sector will never be able to create the required of jobs. It needs massive entrepreneurial activity to create jobs. Moreover, entrepreneurs can create world-beating success ideas and companies and put India on the world map. IT and BPO industry, which was driven by first generation entrepreneurs has done that very successfully over the past 20 years. Opportunity is there for Indian entrepreneurs to rise and dominate in many more sectors.

So, hopefully I have convinced all of you to become entrepreneurs!!  Let me now share some insights based on my experiences that can help you succeed as an entrepreneur.

Section 3 – Ten success mantras for young entrepreneurs

Exceptionally successful entrepreneurs are often mavericks, they have an X Factor which is difficult to replicate. However, I will still attempt to share 10 mantras based on my experiences that should improve your chances of entrepreneurial success.

1. Passion for your idea. This has to be the starting point of your entrepreneurial journey, a core idea and/or purpose that is really driving you. Entrepreneurship is a tough journey and there will be many moments when you might feel like giving up. It is this passion for your idea, a sense of mission that will keep you going. Moreover, entrepreneurship is a journey into the unknown. When you are creating something new it is difficult to be clear about your strategy and plans at all stages. Your passion and mission will give you direction in moments of uncertainty. For example, Flipkart has a clear and strong mission, “transforming lives of a billion Indians through technology”. While the Flipkart strategy might have kept changing over the past 10 years, this mission has provided a strong anchor and inspiration for the organisation.
2. Route to clients. Customers are the lifeline for any business and this is even more critical for a startup. You might have a great concept or product but if you can’t get clients your business will never take off. That is why you really need to think back from a client perspective on what real needs you are looking to solve and will the client pay for it versus thinking about a business idea just from your perspective. For a B2B business, your first few clients might come based on your relationships. While for a B2C business the key consideration is customer segmentation and targeting. You will not be able to be everything to everyone, certainly not in the early stages of your business.
3. Audacity. Audacity is the willingness to take bold risks. This is a core aspect of the culture I saw at Flipkart and one that inspired me a lot. To build something new especially in a new or changing industry, you cannot be incremental. You have to think big, take bold risks and believe you can change the world. The great Steve Jobs famously said, “those who are crazy enough to believe they can change the world are the ones who actually do so!!”  This is a key success factor for successful entrepreneurs across generations. This is certainly true for this generation’s superstars like Jeff Bezos, Elon Musk and Jack Ma and a key factor behind their companies astounding success. This is also the quality that makes companies like Flipkart and Ola dream big and take on giants like Amazon and Uber.
4. Innovation. Innovation is the foundation of a start-up, the key value an entrepreneur brings. To drive innovation, deep customer understanding is key. You need to have an intimate understanding of their pain points. This will not happen sitting in a room. So, go out and have a range of life experiences.Most powerful innovation often happens by connecting the dots across different areas. This was the unique strength of the great Steve Jobs. He was able to connect the dots across his many life experiences and passions to create many market defining innovations. iPod was a celebrated example where his passion for music, technology and design all came together (Read, Lessons from Steve Jobs incredible life story). The other key requirement for innovation is deep product-tech expertise. As we have discussed earlier, technology disruption is the most defining feature of the world we are living in and at the heart of breakthrough opportunities for entrepreneurs. So, will encourage you to learn and build deep engineering expertise.
5. Team. We are in an increasingly complex environment where it is almost impossible for any individual, however talented, to have all the skills required to build a successful business on his own. Therefore, it is very important for an entrepreneur to build an effective team. While building a team we often seek people like us (I did that when I built my venture ActiveKarma, all 3 of us from IIT Delhi!!). While it is critical that you work with people who have similar values, it is important that from a skills perspective you bring together people who have complementary skills. Most successful partnerships have been of leaders who had such complementary skills. For example, Bill Gates – Paul Allen at Microsoft, Steve Jobs – Steve Wozniak at Apple, Larry Page – Sergey Brin at Google, and nearer home, the team of Infosys founders.
6. Funding. It is critical that you secure adequate funding sooner than later for your venture. While the power of your idea and team are the most important determinants of success of your venture, lack of funding is the factor that can take you to failure immediately and irreversibly. Many entrepreneurs try to time the market or to delay funding to maximize value. Don’t delay raising funding; secure the future of your venture first. If your venture survives and thrives, you will create enough personal value for yourself. If it gets strangled for funds and dies, your high ownership of the venture will not help. Another point on funding is that the questioning you face in the process also helps you sharpen your idea improving your chances of success. A final point on funding (which I will expand upon in a later section), while raising too much capital can be problem (can lead to inefficient use of funds), make sure you raise adequate capital required to scale up and fight the competition.
7. Patience and Resilience. Entrepreneurial journey can be a roller-coaster with many ups and downs. I have not yet come across any successful startup that has not gone through a near death experience at some point in their journey. Therefore, you need to have the patience to play for the long-term and resilience to bounce back. As mentioned in the first point, deep passion for the idea and sense of purpose inspire you to see the long-term and help you tide through the short-term challenges. It helps you value and enjoy the daily journey and not be obsessed about outcomes. In addition to this, I believe it is important to have anchors in life outside of work. They give you strength, help you see the big picture of life and bounce back from disappointments. For example, my anchors are my family, spirituality (Meditation + Bhagavad Gita) and sports. These anchors have made me resilient and helped bounce back from the many challenges I have faced.
8. Communication & Networking. It is very important that you as an entrepreneur are able to tell your story passionately, clearly and repetitively. You need to do so to sell your idea to investors, to attract talent to join your team, and most importantly to convince customers. And, you have to do so multiple times over because you will not succeed in any of the above 3 tasks first time around. Nobody else can tell your story with the authenticity and power that you can do so yourself. You cannot delegate this to anybody else.You will also need to become a master networker. In today’s interconnected world, you will have to build a web of partnerships – with customers, suppliers, investors, advisors and mentors. For this you have to be proactive and learn to reach out. Sometimes entrepreneurs especially technologists can be introverts. You have to get out of that and build both your willingness and skills to network. Future of your venture depends on it!!
9. Humility. World is changing so fast that you can never sit back on your laurels and allow hubris to settle in. Arrogance is a sure shot recipe for failure. A strong trait of a successful entrepreneur is that he/she approaches life as a student. We meet people we learn, we read something we learn, we watch a movie we learn, we have any expereince we learn. If one is not  humble, one will not learn. Who does not learn will not succeed. This has never been more true.
10. Managing opposites. This is a philosophical point but a very important one. In the complex and fast evolving business environment today, you need to build the ability to manage many opposites. You need to have very sharp execution focus, at the same time you need to be strategic. You need to survive in the short-term while also need to build for the long-term. You need to ensure outstanding customer experience and growth while also ensuring profitability. These opposites can becomes difficult to manage, however they are inevitable. It is important that you recognise this and build your mental ability to balance these opposites. Ability to manage this duality will be one of the most important skills in the 21st century.

Section 4 – Indian startup ecosystem has grown rapidly but still has a long way to go

Entrepreneurship has caught the imagination of this generation. There is significant increase in the number of startups – both those starting out and those getting funded. For example, India now has the 3rd largest startup ecosystem in the world (after the US and the UK). Entrepreneurs are younger and lot more risk-taking. It is not uncommon now to see school going teenagers launching their own startups (Read my speech at National School Entrepreneurship competition, Your time is now!! – 8 mantras for young entrepreneurs). Moreover, ambitions are higher – many Indian startups have global ambitions even at early stages

However, while the size and impact of the Indian startup ecosystem has increased rapidly but it has a long way to go in both scale and effectiveness to be sustainable and to have meaningful impact for the country. Some numbers and comparisons are very instructive:

• India has between 5-10,000 startups while US has over 100,000
• Mortality rate of Startups in India is very high. Consensus estimate is 90%+. By some accounts it is as high as 97%
• Few really scale up – India has less than 10 Unicorns, US has over 100
• Capital inefficient models – investment of over $15 bn has gone into Indian Ecommerce to produce Annual GMV of <$15 bn!!
• Revenue or Valuation per employee is much lower for Indian startups vs. Western startups even for similar models, even when both are competing in the same market (such as India). Indian entreprepreneurs are not yet trained to think lean
• Returns for Investors are very low. Very few Venture Capital funds have been able to meet the hurdle rate of return, let alone deliver promised returns on actual (cash) returns to their investors (limited partners)
• In 2017, India ranked 69 out of 137 countries in the Global Entrepreneurship Index (though up 29 places from 2016). Predictably, most developed countries have higher institutional factor score w.r.t individual factors score, while it is opposite for India. However, India also ranks fairly low on “startup skills” – 92 out of 137 countries

Clearly, it is not just about doing a startup. It is about developing a strong customer proposition that helps it survive, to scale up and build a sustainable business model, and to return good returns for the investors. Unless we solve the problems of high mortality, limited scale-up and poor returns, Indian startup ecosystem would remain fragile, more hype than substance. It is imperative that entrepreneurs, investors, government and other players take a number of steps to build a more sustainable startup ecosystem. In the next section, I will suggest some actions that entrepreneurs can take.

Section 5 – What Indian entrepreneurs need to do better

Indian entrepreneurs are talented and ambitious but I see some repeat patterns of mistakes they are making. They need to make at least 5 key shifts to address the challenges we just discussed and to be more successful and raise the impact of the startup ecosystem in India to the next level:

1. From “Me Too” to focus on Innovation. There is a lot of entrepreneurial activity but lot of it is “Me Too”. Till recently, we had a deluge of Consumer Internet startups spurred by the success of the likes of Flipkart, Snapdeal and Paytm. More recently there are many startups coming up in AI, Machine Learning and IoT – it seems everybody is building a Chat Bot nowadays!!  Most ideas tend to be copycat and that too clone of Western models, and follow the prevailing wave. This is one of the reasons why mortality rate for startups in India is so high. If your idea and business model is just a me-too chances of success are low.
   Innovation is even more of an imperative in India as the challenges of our country are unique. It is a low income economy with huge infrastructure bottlenecks. The customer pain points are totally different from the West and thus require deep customer understanding and India-specific innovation. One of the reason for Flipkart’s initial success was its focus on India specific innovations (e.g., Cash-on-Delivery, 30-day returns, focus on Mobile exclusives). This shift from copy cat models to India specific innovation is perhaps the biggest opportunity for startups in India.
2. Building deep tech capabilities. Technology disruption is perhaps the biggest Mega Trend of our generation and one that is the main driver of creating opportunities for startups. However, technology leverage by entrepreneurs in India is often shallow. It is typically based on their own understanding of a technology trend, which might be superficial rather than something that is cutting edge. Moreover, we do not have a deep tech ecosystem in India. While we have a large IT services industry and a lot of software developers in India, I see a dearth of deep product-tech talent. As a result we see little technology led innovation and even fewer product-tech startups.To develop strong technology depth we will need to build strong links and crossover opportunities between the academia and the industry. Universities like Berkeley and their collaboration with R&D hubs like Xerox and Bell labs played a key role in development of Silicon Valley as the Technology innovation mecca of the world. We need to develop similar institutions but that will take time. Best alternative for entrepreneurs in the short-medium term is deep research on technology trends. The current information age and cross-flow of the Indian diaspora based in Silicon Valley and elsewhere can facilitate this learning process.
3. From obsession with funding to building hi-quality business models. Our entrepreneurs are very focused on funding and rightly so. It is critical that you secure adequate funding sooner than later for your venture. Lack of funding is the factor that can take you to failure immediately and irreversibly. However, while funding is critical, an obsession just with funding can be fatal. I want to call out 4 significant negative outcomes of this obsession with funding:
   • I see too many entrepreneurs who are putting most of their energies in the next round of funding rather than solving for customer pain points and building a proper business model. Hi-quality business models take thought, effort and time to build. Put your energies there. No amount of funding can paper over a poor business model. Many startups often chase growth (and more funding) to grow out of structural Unit Economics problems, which is a futile effort.
   • Another  challenge is raising too much capital. Frugality is the cornerstone of innovation. Too much capital can give you momentary high but can often kill hunger and innovation. I have seen startups whose core dna was frugal innovation. However, post funding were not able to generate innovation despite pouring in millions into misconceived innovation efforts.
   • Too much capital can lead to lazy business models that bleed too much money and will never scale up. I have seen many startups who have built a lot of fat in their operations (e.g., multiple layers, redundancy, lack of cost control, leakages). It is not just about capital inefficiency, fat hampers speed & quality of execution and makes it very difficult to scale up operations.
   • Even more fundamental problem with funding is that startups can get seduced by valuations and get caught in a vicious cycle. Investors have expectations of exit and rightfully so. Problem is that the time horizon of investors is often different from time required to build a proper business especially in a tough market like India. Therefore, instead of building a proper business, you end up chasing fast growth to achieve higher valuations for the next exit. Consequences of this approach are, you never build a sustainable business model, you burn a lot of cash, and are always dependent on next round of external funding. This is a dangerous game and one that is difficult to sustain. This is perhaps the most fundamental problem that many ‘supposedly’ successful startups face today in India.
4. From the “star founder” to building hi-quality teams. Startups are understandably about the founder. Entrepreneur’s vision, passion and resilience are key to a venture’s success. However, an inexperienced but overconfident entrepreneur can also be a big problem (perhaps even fatal) for a startup’s future, something we have seen more than a few times in the Indian startup ecosystem!!In India, the current media frenzy around startups can give founders a distorted self-image and king-size egos. Arrogance and failure to listen can trigger a death spiral for the start-up. Humility is vital for sustained success – both for continuous learning and building teams.
   Startups that have scaled up might need to bring senior professionals from outside. To integrate them and make them successful takes time and effort. You have to set realistic expectations and give time for the professional to settle into the team and the organisation. Moreover, these senior professionals might be coming from diverse backgrounds. Therefore, it becomes very important to have a common purpose and strong culture that will bind these disparate individuals together. This process of building a team of senior professionals is a big test for the founders. Sometimes they might need to re-evaluate and step back from their own role as the CEO/CXO. This “letting go” can be a very hard thing to do.
5. Ensuring the right values and ethics to build a lasting institution. Many of our entrepreneurs are in a mad rush to scale up their ventures and indeed the speed of actions that most startups have is a big virtue in today’s fast-paced business environment (Read, Winning in the VUCA World – key principles and transformation priorities for enterprises). However, Rome was not built in a day. It takes time and thought to build a lasting institution. For that it is necessary to have the right foundation of values and ethics, and build a strong culture. Unfortunately I see some founders cutting corners on this front. Issues range from unacceptable interpersonal behaviors to lax regulatory compliance and dodgy financial practices. If the organisation is not built with the right values and ethics, it will not last. It might shine like a meteor but also collapse quickly like a House of Cards. The recent struggles of Uber and nearer home that of Snapdeal are a good reminder of how quickly a star can fall. Indian entrepreneurs would do well to learn from the recent examples.

Technology disruption and growth of the Startup ecosystem are among the biggest opportunities for India. They can help India leapfrog and achieve discontinuous growth. There is much to celebrate in the progress of the Indian entrepreneurs and startup ecosystem over the past few years. However, there is still long way to go to turn the undeniable potential into real impact, hype into substance. I hope the 5 shifts that I have suggested help the entrepreneurs be more successful and to raise the bar for the startup ecosystem in India.

I hope the above insights inspire you to pursue your entrepreneurial journey with even more passion and clarity. The time to start your journey is now, so go forth with hope and energy and let a thousand flowers bloom. This is the best possible journey you can take for yourself and for the country. So, go forth and shine on you crazy diamonds!!