In this short essay I want to spill my own thoughts on the debate around the importance of capital abundance in shaping the best possible entrepreneurial infrastructure. An article, I read a couple of months ago (http://bit.ly/2RulMc) seems to reflect a general view in India: that a better capital market for startups is the ‘Golden Cow’ that will boost the Indian startup scene to the next level once and for all and potentially bring us closer to the Israels and Americas of this world.
There is certainly truth in this assertion, a lot of it backed up with empirical evidence. However, below I argue that Financing is only an external factor that brings startups to a high-volume level, but that there are other, more important factors that initially determine how far a business can go. Commercial viability is something that can and often has been achieved on a shoe string. Then, of course, the next step is where Financing becomes extremely important. Scalable business models can often only reach their full potential with the help of external funding. Otherwise larger firms with greater financial muscle will catch up and eventually expand much faster than you.
What I did not like about the article, cited above, is its slightly negative tone. I strongly believe that the following 4 ingredients are enough to start your own business:
1. Innovative spirit
No doubt, there is more than enough of that in India. You start out with an idea that is either completely new or an improvement to an existing product/service. This is something that happens on a daily basis at Indian colleges. The question is, how can this idea be converted into a prototype? I know that in America it is common practice for VCs/Angels to invest just based on the product prototype (… well at least it was before the crisis). But the commonly prevailing argument says that even just to make a prototype requires external funding. I fully disagree with that view.
There HAVE TO be people other than external investors that believe in this new idea. Firstly, the founders themselves should have enough faith in their great idea to commit some money to take things to, at least, the first level. For example, if it takes specific lab equipment or machines to make this prototype then maybe the University has to be convinced of the idea. Next, family and friends will surely support your brave efforts, if not for your aspiration to be independent, then at least for your creative innovation that you managed to excite them about. Bottom-line: where there is a will there is a way!
2. Vision
The vision helps you to identify what you are actually committing yourself to. Creating a vision involves drawing on your imagination to picture how your innovation can be useful to the world. At the same time, this is the first step to testing the market viability of your idea. Can you build a commercial model around it? Is there a NEED in the market place or at least a hidden desire for your product/service? Outline the path leading from your R&D to the customer and therefore map out your value proposition in exchange for which you can command a price that will make up your revenue.
3. Motivation and Persistence
Once you have come up with a great new or improved product/service, the first thing you will need, even before a commercial framework, is a big, fat dose of excitement about this new creation that you would love to share with the world. Irrespective of whether your idea will end up being for profit or not, it will only ever make a difference in someone’s life, if you have the motivation to do the hard work to make it available to people.
The road to realization of a vision can be a long and tough one for the average guy, but the initial motivation and excitement can turn this into a fun ride. There will still be pitfalls and delays that have the potential to frustrate you to a depressing level. This is where persistence comes in. You need to constantly zoom out and remind yourself of the bigger picture and why you are here. Keep thinking of that initial excitement you felt and how great it will feel once you succeed.
I think it helps not to be excited solely about the product/service, but also about its place in society. This means that your end goal will not remain to just build a prototype, but go a step further and create a business model around it.
4. Commitment
The next ingredient for a successful launch of a company is full commitment to your idea and its realization. This should be relatively easy to achieve, if you are highly motivated about the product and your vision of its position in the market place.
Arguably, this is the most important trait an entrepreneur needs to have. Commitment weeds out the boys from the men and differentiates the talkers from the walkers. Without 100% commitment from the innovator, he will find it hard to:
- put up his own money during the most risky phase of a business (pre-revenue)
- dedicate all his to working on this project
- find creative ways to make it happen in an economical way
- excite others to join his mission (be it for financial or other support)
If you are not able to fully commit yourself, despite your motivation and good intentions you are likely to run out of steam very quickly, because the all important moments of success will take even more time to come by.
Conclusion
If you have an idea, which you are are really excited about it, a plan as to how it might be implemented commercially and you are sure you want to pledge your full efforts and focus towards this project; in my opinion you are already half-way there. Of course, there are tons of external factors that will eventually decide whether your business becomes success or failure, but with the emotional pre-conditions in place, you are at least sure to give it your best shot.
Globalization also comes to the rescue of financially strapped youngsters. Today, it is possible to develop samples of almost any complicated high-tech product in China for less than 15,000$. So it is not just internet or other service startups that have a chance at creating a big impact in their respective fields.
Generally, I’d like to see more articles encouraging entrepreneurs, while of course clearly pointing out that it is no piece of cake, rather than discouraging articles that make it sound like only really rich people can give entrepreneurship a go. Don’t forget that India is the country with the most entrepreneur’s. Enterprising Indians come from every strata of society and have found the most astounding ways to create a livelihood for themselves. So why should it not be a fully respected career option for fresh University graduates?
This is not to say that the startup capital supply does not need to be cranked up significantly. Here, the immediate focus should lie on good PR. Wealthy individuals and smaller VC firms need to hear about past investment successes. While we increasingly hear of high-profile funding rounds, it is more rare to get inspired by exit stories sporting huge returns, actual numbers to get excited about. This is extremely important so that angels, seed funds and VCs do not shy away from early-stage companies wanting to expand, but who often do not have an extensive track record.
It would be cool to hear what other people think about this topic or what your experiences have been with the Indian startup scene.
Oh, and of course I wish everyone a HAPPY and HEALTHY 2010!!!
Paul Schwarz