March 26, 2012

"Good Intentions alone don’t ensure good outcomes" - Artice by Sanjay Anandaram

In the recent Union 2012 budget, the government (GOI) announced that an investment by an individual into an Indian company would be treated as income from other sources, taxed at the rate of 30% on the difference between fair market value and the premium being paid, with the assessing tax officer being the arbiter! This regressive measure led to a hue and cry being raised with the Government agreeing to take a relook at this issue.

But what of the many thousands of crores that are allocated for entrepreneurship with no discernable impact? No hue and cry?

The budget also announced the setting up of a Rs 5000 crore India Opportunities Venture Fund to help micro, small and medium enterprises. In addition, the GOI extended by 5 years weighted deduction of 200 per cent on R&D expenditure as well as introduced weighted deduction of 150 per cent on expenditure related to skill development of employees. 40% of India’s exports and 45% of India’s manufacturing output is contributed to by these enterprises.

Over the past several years, there’s been a Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) that essentially offers collateral free term loan and working capital credit to enterprises up to Rs 100 lakhs. The Fund essentially guarantees the lender that a significant percentage (65% to 85%) of the credit would be guaranteed by it.

These are but three examples of the plethora of schemes and thousands of crores made available each year by the GOI under different schemes and departments for a range of activities including R & D, skill and technology upgradation, packaging, and even for travelling overseas for exhibitions!

The GOI also, for example, funds Entrepreneurship Development Institutes and provides for setting up incubators at educational institutions around the country under a Department of Science and Technology (DST) initiative.

Yet the impact of these efforts is yet to be seen. It is not clearly for want of money or intent. The focus as in most government projects appears to be on vast outlays of money and not on outcomes. Most of these schemes are not well known; in fact, they appear to be closely guarded secrets for the most part, and not just to most of the intended beneficiaries, but also to the institutions that have been earmarked for disbursals of funds! The paperwork required to access these funds is cumbersome and time consuming, there’s lack of any objective criteria for receiving funds, measurement criteria for determining progress don’t exist,and most importantly, lack of appropriately qualified personnel on the ground who can,on the one hand,work with these funding agencies in creating and managing implementable programmes and with the enterprises on the other. Enterprises who receive the money need help in processes, technology, sales and marketing, HR, and the like in growing. In the absence of these, outlays become the sole measure of “success” of a programme.

On the other hand, why doesn’t the Government work in partnership with private citizens and expert groups that will help create objectives, measurement criteria, put together training and mentoring programmes, help create technology driven resource centres for sharing knowledge, practices, HR and help channelize the money in the most efficient and effective manner to the most deserving candidates? In addition, the government can play the role of a limited partner in a venture capital fund by selecting the independent fund managers based on track record, expertise and approach. The government can define the desired outcomes – development or financial as the case may be – and then pick the best set of fund managers to identify, support and grow the ventures to meet these desired outcomes. These fund managers in turn can be incentivized based on the outcomes.

The role of the government as a limited partner in private funds has been seen in the US (through the SBA’s SBIC programme), Israel’s Yozma effort and now even in Singapore. The Technology Development Board under the DST has taken some steps in this regard by backing some funds. Most of the money being invested in Indian entrepreneurial ventures is raised overseas which clearly and rightly has its own priorities, assessment criteria and focus areas. The impact of “Indian” funds on the Indian entrepreneurial landscape is yet to be felt; there are a vast number of ventures that aren’t able to access capital (that’s actually available with the government) and expertise (that’s also actually available but not with the government) to startup and grow. That’s a tragedy because it is India’s entrepreneurial energy that will propel it forward through the creation of jobs and wealth.

It is important to keep the old adage in mind: the road to hell is paved with good intentions.

March 07, 2012

"From Elvis Records to Surf Boards: Imported Contexts that Don't Click" - Article by Sanjay Anandaram

At the beginning of the last decade of the last century when the internet started permeating the consciousness of the educated middle class Indian, launching ventures by copying successful American business models seemed de rigueur. I remember seeing a hoarding in Bangalore, from that time, put up by the Indian version of eBay. The hoarding read “Wondering what to do with the Elvis records in your attic?” or something to that effect. I don’t know how many Indians rushed to find Elvis records but am sure many more would’ve rushed to figure out what an attic was, and if they knew, then rushed to locate it in their house and if they indeed kept their records there! Of course, how many would’ve responded to Elvis and records is another matter as well.

Recently, a month or so ago, I was part of an evaluation team at a startup event. One of the teams presented their idea of setting up a web-site for people to lend and borrow common every day items that one uses occasionally and therefore doesn’t buy it. The example product they used in their presentation was a lawn mower! While lawn mowers are used quite frequently by the average person in the US (who has a house and a front yard), it isn’t something the average person in India has or uses. The team that was presenting was led by a few who had recently relocated to India from the USA. The lawn mower was a great example in the context of the US but an entirely inappropriate one in India.

An Indian fast foods company was planning a revamp of its menu. It wanted to offer a meal to the young working professional that included 2 parathas and a vegetable and some raita for a little over 100 Rupees. Their competitor offered a full meal, including a choice of parathas and rice, for less than 100 Rupees. How many young working professionals would spend over a 100 Rupees every day on lunch alone and that too for just parathas?

Myntra, an Indian ecommerce website, has been boisterously advertising itself on TV. The ads show a bunch of hip youngsters running through the streets and alleys of small town India carrying, of all things, colourful surf-boards! I don’t know how successful this ad campaign was but it certainly looked incongruous. How many Indians swim in the sea, let alone surf? And running with a surf board through an Indian street?! The logo of Myntra too appears to have been made up of these surf-boards.

A telegenic personality espousing apparently worthy causes and calling for action, receiving media coverage while travelling all over the state, caters perhaps well to the English speaking well-heeled class in urban India. But that class isn’t voting as the recent UP election results show!

A well meaning earnest social venture wanted to build toilets for the urban slum. They had designed a low cost dry toilet and tied up with NGOs for distributing the product. Everything looked great. But the product didn’t take off. Among the many reasons – people didn’t know how to use the toilet and felt uncomfortable in a small closed room, there wasn’t enough space around the slums to house these toilets, security for women at night in these closed spaces was an issue and so on.

These examples show the importance of (mis)understanding the market-customer context. Does the communication convey the value proposition of the offering to the customer? Does the customer understand what is on offer, how to buy, why to buy? Does the company understand the market context within which its target customers reside? Just because a product or service has worked well in another environment where it conveys meaning doesn’t mean it does the same in another environment. What prevents someone from trying out a product or service, while being able to afford it and avail of it, brings into question the relevancy of the market-customer context and whether the product or service fits this. Understanding the context – market and customer – is therefore crucial. This understanding parlays into product design, packaging, pricing, distribution and customer support methods. Observing how people behave, interact with and use products and services is a crucial requirement for developing this understanding. Something no market research report will tell you. But something every entrepreneur has to learn to do by actually doing the observing, using, interacting with the product/service or with those using the offering from the company. As the old saying goes, you don’t learn swimming reading books, you learn swimming by being in the water!

What do you think?

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.