Startup Ecosystem: Myths and Realities

Seven years back, there was no Ola. Six years ago, it was confined to Bengaluru. Four years back, there was no Ola Auto. A year back there was no Ola Australia. Today, it is said to be offering cab services in 75 Indian cities claiming a market share of 60%. Recently, it has raised $1.1 bn from Tencent and Soft Bank at a valuation of around $7 bn. Startups are getting bigger, that too, faster than ever. It however, doesn't mean that every startup will be successful.

No wonder, entrepreneurship ecosystem has emerged in the recent past as an economic development strategy. And the belief is: the more the startups, the stronger is the entrepreneurship ecosystem. But Daniel Isenberg, Professor of Entrepreneurship Practice, Babson College, observes, “There is no evidence that increasing number of startups per se stimulates economic development.”

Launching “Startup India, Stand Up India” scheme from the Red Fort on August 15, 2015, Prime Minister, Narendra Modi projected it as the “most effective campaign which will create more job opportunities to the Indian youth”. However, there being no one who owns an “entrepreneurship ecosystem”, it is difficult to perceive that a single objective of job creation could motivate all of the actors in the system. For, the government agencies would be interested in tax revenue and job creation, while the entrepreneurs and their investors might be interested in wealth creation.

Nevertheless, the government’s active interest in fostering startup ecosystem has certainly helped its growth, for to a great extent it has eased bureaucratic hurdles and also made possible the availability of scarce early stage capital for the startups to get incubated. Such interest of government in the system made sourcing of talent too feasible. All this cumulatively helped startup ecosystem register a 40% growth in the number of startups and incubators in 2016-17. In fact, India has emerged as one among the top five startup communities in the world. 

That said, it must also be admitted that all is not that sublime with Indian startup story. During 2014-16, startups were said to have been pampered with excessive capital and high valuations. But as the conditions changed, they were forced to bootstrap focusing exclusively on profitability as their definitive means to survive. They are slowly coming out of the trap of chasing an idea as the first one and instead are now focusing more on bettering a solution to consumers’ problem so as to afford more value to the consumer.

Launching a startup is easy, but to develop a product, scale up its production, create market, sales, customers, and relationships is an altogether different ballgame. Rather than chasing revenues, a startup has to perhaps stay focused more on evolving a product as envisaged while incubating it and deliver it to consumer as a better solution to his problem so that money would flow in as a by-product of success.  

Startups have, of course, three ways of moneymaking: one, by capturing a piece of the existing market; two, by expanding the existing market; and three, by creating an entirely new market. And of the three, it is creation of an entirely new market, like Ola has done, for cash generation, which is more attractive for venture funds to invest and support with the required capital. Next in preference would be: a startup that aims at expanding an existing market.

The founders of a startup must be ready to manage a plethora of embedded risks like design risk, capability risk, development risk, funding risk, demand risk, etc. And most importantly, human factor plays a critical role in its success. Sourcing and hiring qualified staff without threatening one’s budget is a big challenge. Once recruited, retaining them till the end is an equally daunting task. And to manage knowledge workers, the promoter has to be a capable leader—a leader who can trust his recruits and share his mission and vision freely with at least the mission-critical employees and offer them space to express themselves freely.

Importantly, in their anxiety to come out with the product soon, the promoters should not expect employees to slog for long hours, for it not only kills their creativity, but also distances them from the mission. The founders must lead the employees into the unknown by giving them a direction that ensures their staying on the mission-path.

It also pays well if the founders realise that success of a startup involves some art, some science—and some serendipity. And therefore, mistakes are the inevitable consequences of attempting something altogether new. So, failures should not deter them from pursuing their crazy ideas. Rather, aim at streamlining their processes: start small and grow carefully, be sure that right people are on the right job, and encourage cross-pollination. And importantly, document the benefits—customers, markets, people involved, future trends, process employed, etc.,—that can be extracted from the blown projects.

It also makes great sense to hire specialist functionaries such as HR, sales, marketing, operations, etc., for such an arrangement enables founders to stay focused on the mission. And the founders who could tread a middle path— a path between the extremes of ad hoc and prescriptive organization can find edge over the rivals to march ahead.  

Finally, the difference between the winners and losers is how they handle their losing. That’s where, confidence matters most! For, the key factor for success is: bouncing back from the low points. Resilience is not a mere individual affair, or a psychological phenomenon—it is mostly contagion. Which is why the leadership must nurture such an environment at the work place that it nurtures confidence.

What ultimately counts is: learn, adapt, and keep on going. The job of creating is that big a challenge, really!