July 28, 2011

"Startup Financing in India: Then & Now" - Article by Sanjay Anadaram

A sound financial system is the bed rock on which entrepreneurial dreams can be built – within companies as well as without. Access to investment capital and credit financing are critical aspects for any business. Interestingly, in the 100th year of such access in India, it is worth looking back and realizing that it took the efforts of many entrepreneurial, philanthropic and visionary people to achieve all this.

Providing organized professional access to commercial finance in India is at least as old as 21st December 1911 when Sir Sorabji Pochkhanawala set up the Central Bank of India which claims to be the first commercial Indian bank completely owned and managed by Indians. The “Cradle of Indian Banking” - Dakshina Kannada and Udipi districts in Karnataka – saw the setting up of Canara Bank, Syndicate Bank, Corporation Bank, Vijaya Bank, Karnataka Bank, Vysya Bank, State Bank of Mysore among others, thanks in large part to the Swadeshi movement which aimed to cater to the needs of the Indian community. These banks were set up by entrepreneurial and philanthropic individuals with the interests of the community at heart. For example, Ammenbai Subba Rao Pai collected handfuls of rice from each household, pooled it, sold it and used the money as the capital to start Canara Bank in 1906! Syndicate Bank was started in 1925 to cater to the needs of the local weavers after a handloom crisis; Vijaya Bank was started by A B Shetty and others in 1931 to help the farming community. In 1908, Bank of Baroda was established by the Maharaja to serve the people of Baroda with money lending, savings, transmission, and for the encouragement of arts, science, commerce and trade for the people. There are many examples of similar efforts from other parts of India as well.

All these banks were nationalized in 1969 and they started getting again liberated from 1991 onwards.

India has been a capital starved economy for as long as anyone can remember. In the last decade or so, availability of capital has increased for entrepreneurs and businesses. Yet most of this capital has come from outside the country whether be they in the form of private equity and venture capital or from Foreign Institutional Investors in public markets. Domestic banks, government and financial institutions are either inadequately capitalized for funding large projects or are so hamstrung by bureaucracy and regulation that they aren’t able to meet the rising needs of the rapidly growing entrepreneur class.

It is a sign of the maturing of the financing ecosystem that various segments are getting professionally organized and are clearly emerging with distinctive focus areas– angel, early stage and growth. The heartening thing to note is that angel (ie money provided by high net worth individuals who in addition to money provide mentorship and expertise) and early stage capital have, over the past few years, become more widely known and are increasingly becoming the first ports of call for innovative entrepreneurs.

It is therefore important that the efforts of angels and early stage funds that take risk, share the vision of the entrepreneur, mentor and help build companies be rewarded by their investments performing well. It is also important for concerned policy makers and commentators to encourage, by policy and otherwise, fund raising and simplify bureaucracy so that more and more angels and more early stage funds emerge. Media must celebrate the rise of this new category of investors and risk takers and help disseminate learnings and experiences from entrepreneurs, angels and funds across the country. This will set off a virtuous cycle – more angels and early stage funds leads to more entrepreneurs (or is it the other way around?!) which leads to more angels and early stage funds.

It is said that India is a rich country with poor people. It will become a rich country with rich people if all of us who can participate in any way, through any ethical means - by using any of our experiences, expertise, capabilities, resources - actually do so to assist those less fortunate or able but with dreams.

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

July 18, 2011

"The Entrepreneurial Journey from Goan Feni to Scotch Whisky" - Article by Sanjay Anandaram

India is the world’s largest whisky (in all its variants) market and it’s fast growing market for alcoholic products is worth in excess of $22billion. About 40 million bottles of Scotch whisky was imported into India from Scotland last year, up by 40% from 2009. Recently, India granted geographical indication of origin (GI) status to Scotch whisky, a legal protection that will help reinforce the authenticity of the product and enhance the market potential. This recognition is “good news for Scotland and great news for one of its most important exports” according to the Scotland Office Minister. Scotland’s whisky producers naturally see India as a priority market and the granting of the GI will ensure that Indian whiskies (99% of the consumption today) will not be able to use the term Scotch whisky on their products.

What was once an unorganized and illegal family activity of distilling is now a global recognized branded product. The Scotch whisky industry is over $6 billion in size (with 80% being exported internationally), employs around 10,000 across around 140 distilleries and generates a gross value-add per employee of over $400K with employment costs of $72K.

Huge investments in marketing, visitor-centres, processes, education and training, research, technology and production facilities has generated this. Mythology and legend have been created around this product has been created and subsequently consumed around the world.

Now compare this with say, the state of Goan Feni or Fenny which too has a GI tag - obtained in 2009. Most people are unaware of the GI tag (including producers). The industry is unorganized, small and family owned, home run, with low levels of education. The processes and technology are traditional with little or no investment in research and training. Businesses are self-financed. The branded segment is tiny with most of the produce geared for consumption in bars. About 40,000 people are employed across 4000 mini-distilleries/stills and about 1million bottled litres of cashew feni were made in 2005.

In other words, the Goan Feni industry is largely like what the Scotch whisky industry was a century ago. And worst of all, because Goan Feni is classified as a country liquor, it cannot be sold outside Goa! Goan Feni is losing market share rapidly as well.

This scenario isn’t unique to Goan Feni but is hugely illustrative of the state of affairs across a range of industries in India. So what’s to be done? How does one convert commodity, fragmented & unorganized, inefficient, self-financed businesses into brands that deliver a value to customers, partners and suppliers who have a choice and who will therefore pay for that value? The lack of an entrepreneurial mindset (one that sees opportunity and solves problems where others don’t) across the value chain – regulators to producers to distributors – is painfully visible.

Investments in technology to deliver products and services efficiently, in a scalable and transparent manner; Investments in marketing understand customers, market segments, define products and create brands; Investments in processes to ensure that consistency, predictability and reduce human dependency; Investments in partnerships and relationships to grow the entire industry; Investments in training, research and development; Accessing and harnessing capital and top quality people to deliver on the vision of the entrepreneurial mindset. It is the aggregation of all of these that create scalable organizations that last rather than small cottage business.

The good news is that a new breed of entrepreneurs are emerging to convert the Goan Feni metaphor to that of the Scotch whisky one. Companies like MakeMyTrip in holiday packages, Via World for travel, Flipkart in retailing, Vaatsalya in healthcare, redBus in bus ticketing, Bharat Matrimony in matrimonials, Bill Junction in bill payments, Naukri in jobs are some examples. The bad news – there’s a need for many more such entrepreneurs in many more areas!

The word Whisky comes from ancient Gaelic that means “Water of Life”. There’s a need for more passionate people with the entrepreneurial mindset to deliver the water of life to the India story and to convert Goan Feni to Scotch whisky!

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

"Startup Employees: The Heroes and Villains" - Article by Sanjay Anandaram

It takes a village to raise a child, says an old African proverb. It takes more than just the founder to raise a startup. It takes people of all types, some who join and stay, some who join and exit rapidly, others who join and after a while move on, and finally those who join, grow and become leaders.

It is the last category that needs to be nurtured by startups. Large companies have elaborate HR plans and policies for identifying, training, nurturing future leaders. In as much as it is a truism that it is more expensive to acquire a new customer than to keep and mine existing one, it is also true that growing talent in-house, especially in a startup, is crucial. VC backed startups splurge money on attracting and hiring the “best” and “most experienced” from larger companies but then apart from raising expectations all round (within and without the startup), it is hard to put one’s finger on the real value of such hires. The situation is particularly acute in India because of the overall lack of managerial talent along with the difficulty in attracting experienced executives to a startup. The “best and experienced” therefore command hefty premiums.

On the other hand, how many startups really invest time, energy and effort in growing leaders. Of course, not all employees can become leaders. But everyone’s capacity and capability can be enhanced through exposure, responsibility, training and mentoring. Here, based on my experience, are typical attributes of employees who need to have their capabilities and capacities enhanced so that they can continue to contribute to the company. Without adequate attention, they can become road blocks to the growth of the company:

Khoon Pasina:
The backbone of the company. They’re the ones who’re the passionate, driven and “no problem is too hard” sort. They can go overboard with their passion as they don’t know how to get their passion to permeate across the company.

Main Sundar Hoon (MSH): These are employees who’s self-image is at variance with their actual capabilities. MSHs are parsimonious with information and cagey with their plans, are loath to disclose reasons for their actions, aren’t excited by performance reviews and the like. They’re happy being in their comfort zones and are generally reluctant to experiment and attempt new initiatives. They’re very good at what they do and know it.

Laawaris: This type suffers from low confidence. This type needs constant molly coddling and reassurance. Have fragile egos as well. They shy away from confrontation and cannot say “No!” to anyone’s face. They’d rather send emails justifying or rationalizing or complaining.

Awara: These are people who have ideas galore, many of them very good. Problems occur when they’re asked to implement them. They prefer a “seat of the pants” management style and hate working to a plan or following guidelines. They roam around the company and have a good understanding of the various functions that exist.

Gumnaam/Anamika: These are the silent largely unknown and unheralded diligent workers. They enjoy the comfort that anonymity confers on them. They’re the worker bees in the company.

And then watch out for these attributes that can harm a company:

Chupa Rustom: These are the dangerous ones. One never knows where they stand on an issue. Seeing isn’t believing with this bunch! They always seem to say the right thing, are there at the right place at the right time when things are going well and it is always someone else’s fault when things don’t go well.

Rajneeti: The “politicians” who carry tales from one end of the company to another. Who revel in gossip and innuendo.

The incompetents who are a drag on the company. They neither have the inclination or the desire to learn, take feedback and contribute.

Khuddaar: The selfish kind. Who’re in it for personal glory and for making money, never mind the company. They aren’t also immune to resorting to throwing tantrums to get their way.

Kaminey: The blatantly unethical kind. They will resort to lying, cheating, fudging bills and the like.

It is the job of the leadership to identify these employees and put in place mechanisms to ensure that the right kind of employees remain and thrive while removing the ones that work to the detriment of the company. Those who remain must believe and work towards making their company “Hero No. 1”.

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.