Monday, March 21, 2005

Creating Indian Entrepreneur - Rajat Gupta, ex-CEO, McKinsey.

Rajat Gupta
India Today
February 12, 2001

India needs entrepreneurs. It needs them for two reasons: to capitalise on new opportunities and to create wealth and new jobs. A recent McKinsey & Company-Nasscom report estimates that India needs at least 8,000 new businesses to achieve its target of building a $ 87 billion IT sector by 2008. Similarly, in the next 10 years, 110-130 million Indian citizens will be searching for jobs, including 80-100 million looking for their first jobs; that's seven times Australia's population. This does not include disguised unemployment of over 50% among the 230 million employed in rural India. Since traditional large employers – including the government and the old economy players – may find it difficult to sustain this level of employment in the future, it is entrepreneurs who will create these new jobs and opportunities.Fortunately, today's knowledge-based economy is fertile ground for entrepreneurs in India. The success stories of businesses built on a great idea executed by a talented team have great appeal in India, where access to capital is scarce and regulation has often created barriers to success. And young Indians have a dream: to be the next Sabeer Bhatia of India. Estimates indicate that several thousand 'new economy' businesses were launched last year in India. This is not just a "big-town" phenomenon. For example, when McKinsey & Company launched India Venture 2000, a business plan competition to catalyse entrepreneurship in India, many of the 4,500 teams that participated were from small towns such as Meerut, Siliguri, Warangal and Pollachi.I believe India has an extraordinary talent pool with virtually limitless potential to become entrepreneurs. India must, however, commit to creating the right environment to develop successful business builders. To do this, I believe India must focus on four areas.
1. Create the right environment for success: Entrepreneurs should find it easy to start a business. To do so, most Indians would start slow with capital borrowed from family and friends, the CEO playing the role of salesman and strategist, a professional team assembled months or perhaps years after the business was created, and few, if any, external partners. Compare this with a start-up in the Silicon Valley: a Venture Capitalist (VC) or angel investor would be brought in early on; a professional management team would drive the business; a multifunctional team would be assembled quickly; and partnerships would be explored early on to scale up the business.To a large measure, culture shapes this style. Silicon Valley is abuzz with ideas to build global businesses; deals are continually being negotiated, teams are pulled together and partners are identified. There is almost unlimited access to multiple VCs and angel investors. Critical support services abound, including professional managers, legal firms, venture capitalists, angel investors, and placement agencies. Combine this with excellent infrastructure – connectivity, communication, and office space – and getting started is easy.A first challenge for India is to create a handful of such areas of excellence – the breeding ground where ideas grow into businesses. Some already exist in a very preliminary way (the businesses are there). For example, Gurgaon and Hyderabad for remote services, or Bangalore for IT services. But these areas of excellence need strengthening before they can claim to be India's own "Valley." One way of strengthening these areas is to consider the role of universities and educational institutions - places where excellence typically thrives. Creating such educational institutions by strengthening the Indian Institutes of Technology (IIT's) and starting new ones is going to be very important.
2. Ensure that entrepreneurs have access to the right skills: A survey McKinsey & Company conducted last year revealed that most Indian start-up businesses face two skill gaps: entrepreneurial (how to manage business risks, build a team, identify and get funding) and functional (product development know-how, marketing skills, etc.). In other countries, entrepreneurs either gain these skills by hiring managers or have access to "support systems" such as universities or other institutions that may nurture many regional businesses. In addition, business schools give young graduates the skills and knowledge required for business today. India can move toward ensuring that the curriculum at universities is modified to address today's changing business landscape, particularly in emerging markets, and to build 'centres of entrepreneurial excellence' in institutes that will actively assist entrepreneurs. We believe the Indian School of Business (ISB) at Hyderabad provides a start in developing outstanding entrepreneurial leaders. ISB's program is designed primarily to prepare managers to respond to the challenges of rapidly changing business environments. Within an environment of intellectual vibrancy, the 500+ students who graduate each year will have studied entrepreneurship, strategy and the impact of technology on commerce. They will have spent time developing their own projects, while utilising state-of-the-art communications technology to interact with members of industry and experts worldwide. The ISB will have an Entrepreneurship Centre founded, led and managed by several leading Silicon Valley entrepreneurs, who are on the school's Governing Board. The Centre will help students become successful entrepreneurs by offering a diverse set of programmes, activities and facilities such as a New Business Development Project, an on-campus incubator, an Entrepreneur-in-Residence programme, field projects, and a Young Entrepreneurs Club.
3. Ensure that entrepreneurs have access to 'smart' capital: For a long time, Indian entrepreneurs have had little access to capital. It is true that in the last few years, several Venture Funds have entered the Indian market. And, while the sector is still in its infancy in India (with estimated total disbursements of <$ 0.5 billion last year), VCs are providing capital as well as critical knowledge and access to potential partners, suppliers, and clients across the globe. However India has only a few angel investors who support an idea in the early stages before VCs become involved. Our experience during India Venture 2000 showed this to be a critical gap. While associations such as TIE are seeking to bridge the gap (by working at creating a TIE India Angel Forum), this is India's third challenge: creating a global support network of 'angels' willing to support young businesses.
4. Enable networking and exchange: Entrepreneurs learn from experience - theirs and that of others. Much of the success of Indians in Silicon Valley is attributed to the experience, sharing and support TIE members have extended to young entrepreneurs. During India Venture 2000, we were delighted by the eagerness with which established entrepreneurs, who still remembered the challenges they faced, offered to support start-ups. Clearly, India would benefit from creating a strong network of entrepreneurs and managers that entrepreneurs could draw on for advice and support.The rapid pace of globalisation and the fast growth of Asian economies present tremendous opportunities and challenges for India. Through planning and focus, India can aspire to create the pool of entrepreneurs who will be the region's – and the world's – leaders of tomorrow. Rajat Gupta is the Managing Director of McKinsey & Company and also the Chairman of the Board of Governors of the Indian School of Business.
This article was first published in India Today, February 2001.