An evening with TN Hari
On March 10, we had a very insightful session by Mr TN Hari, the Co-founder of the Artha School of Entrepreneurship. Mr Hari took us through the history of entrepreneurship in post-independence India. He also explained how the startup system may evolve in the coming years.
About Mr TN Hari
Mr T N Hari is an alumnus of IIT Madras and IIM Calcutta. He wears different hats as an angel investor, an evangelist, thought leader, and influencer in the Startup ecosystem.
Mr Hari has authored 8 books. His books ‘Saying No to Jugaad', ‘From 'Pony to Unicorn', and ‘Diversity Beyond Tokenism’ have been bestsellers. He also writes for the center page of Mint quite regularly.
Mr Hari has been part of the leadership teams at five high growth start-ups and helped shape their growth journeys and exits, including a listing on NASDAQ. Three of these have gone on to become Unicorns. He is also passionate about helping founders build great companies and enabling women leaders to discover their potential.
Mr Hari also contributes at a strategic level through Board positions on companies whose mission he finds inspiring and in alignment with his capabilities.
Brief history of entrepreneurship in India
Phase 1: 1947-1991
This period can be described as a controlled environment. The government, controlled, regulated, and even ran businesses. It was an intimidating environment in which profit was looked upon as a dirty word. Only family businesses operated. It was difficult for first generation entrepreneurs to set up shop. Entrepreneurship was virtually killed. Only those good at manipulation and playing the licensing game to their advantage flourished. In 1991, as we approached bankruptcy, and ran short of forex reserves, we had to pledge gold. This triggered off our economic liberalization program.
Phase 2: 1991-2008
Liberalisation led to increased competition from domestic players and from imports as the customs duties came down. Consider a company like Tata Steel, where Mr Hari once worked. Before liberalization, the sales execs did not have much work to do. They would collect 120% of the payment in advance and refund the excess payment of 20% three months after the shipment. It was all about lunch, dinner and playing golf! After liberalization, the company started facing the heat. 70,000 Tata Steel employees produced 3.5 million tonnes of steel. But the best companies in other parts of the world did this with only about 7000 people (or even less). Fortunately for Tata Steel, Dr JJ Irani led an impressive transformation.
The year 2000 was a turning point. Most computers were using two digits, instead of four, for a year to save memory space. There was the danger than when 2000 arrived, the computers would stop functioning. Trillions of lines of code had to be written manually. India, fortunately, had the required English-speaking workforce. Thanks to India’s contribution to the Y2K project, the country’s talent was recognized. Soon, application development and maintenance work began to be outsourced to India.
First generation entrepreneurs got the break they were looking for. They dealt with western companies on professional terms with contracts which were respected. The culture of businesses changed. Companies began to be professionally run, with respect for employees. Many executives found they could lead amazing standards of living in first class residential complexes. The offices also became swanky and state of the art. However, the general infrastructure outside the corporate campuses remained in shambles.
In short, in this period, Indian entrepreneurs served western companies and solved the problems of the western world. They did not deal with India’ s wicked problems, be it the supply of goods and services to the poor, primary education or poverty.
Phase 3: 2008 –
The establishment of Flipkart was a turning point. Sachin and Binny Bansal inspired many entrepreneurs. Many VCs and private equity investors, encouraged by the spectacular success of Alibaba came to India. (Yahoo had invested in Alibaba. It made more money from the Alibaba IPO in 2014 than from its own sale to Verizon.) The combination of VCs, angel capital, mentors and entrepreneurial energy meant that the ecosystem was ready to solve India’s wicked problems. Swiggy, Zomato, Paytm, Big Basket, Urban Company and many other new age companies were set up. Yet, these companies only targeted the top 100 million people. In this segment, the affordability was good and the price points attractive. The bottom 400 million were still to be served.
A new phase
We have now entered a new phase where companies are targeting even the poor. UPI, Aadhar, Jio have come together to enable this. It has now become possible to deliver small packs at affordable prices to the poor. This idea was first mooted by Mr Chinni Krishnan a Cuddalore based businessman. He felt that the poor might not be able to afford expensive products but would be more than willing to try out small portions of these products on special occasions.
Note: On September 3, 2021, in the WiseViews series, we had featured Mr CK Kumaravel, the founder of Natural Salon. He is the son of Mr Chinni Krishnan. Mr Krishnan would buy pharmaceuticals in bulk, repack them in smaller sizes and then sell to pharma shops. Once while travelling to Singapore, the shampoo bottle Mr Krishnan was carrying in his suitcase broke and spoiled all his clothes. Instead of complaining, he looked at it as an opportunity. He applied the principle of his pharma business to shampoos. That is how Velvette shampoo was born. He made his own packing machine and offered the shampoo in small affordable packets or sachets that even poor people could afford. Mr Krishnan’s philosophy was what the rich people could enjoy, poor people should be able to afford. The Velvette shampoo was later voted as one of the 50 revolutions which changed post-independence India.
Entrepreneurs are now emerging from Tier 2/3 towns. This is a welcome development as they best understand the problems of these towns. Mr Hari also referred to the emergence of talented players from these smaller towns in the IPL. (There was a time when a few cities like Delhi, Bombay, Bangalore and Hyderabad dominated Indian cricket.)This is also an indication that the action is shifting to these parts of the country. We as a nation are becoming confident and rural India is becoming aware of its potential.
Products
We succeeded in services. But what about products? Working in the services sector, we began to understand western consumers well. This gave us the knowledge necessary to develop products. The success of deep tech companies like Skyroot and Agnikool, is a good example.
Concerns and the road ahead
One concern is that many of the startups who have made IPOs are still not profitable. If this problem is not addressed, the start up optimism may evaporate. We need Sustainable Honest Enterprises (SHE) for entrepreneurship to flourish.
Another problem is that despite all the attention IT services companies have got, they have generated only about 5 million jobs in the past 25 years or about 0.2 million per year. We have 12 million youth entering the job market every year. So, we need to create more jobs. Otherwise, we will not be able to reap the demographic dividend.
India’s answer to the problem of jobs lies in micro entrepreneurship. We are rolling out the red carpet to large companies. But an Apple factory, announced with a lot of fanfare, may generate only say 5000 jobs. That is just not enough to solve the jobs problem. We need millions of micro entrepreneurs who can create, say 5-10 jobs each.
Q&A
Mr Hari mentioned that as far as possible, we must find the things we enjoy doing. At the same time, we must do diligently things which come our way even if we not like them. Mr Hari feels happy that in the last 7 years, he has been able to leverage his strengths. He is good at communicating difficult concepts in a way that people can understand. In the last 7 years, he has written 7 books. In short, as Sudhakar summed up, we must do things we enjoy, take things which come along our way in our stride and wait for the time when things come together, and we can really enjoy what we are doing.
Mr Hari feels that the failure rate is high among the VC funded startups. VCs withdraw when they find the venture is unlikely to meet their growth expectations. But in case of startups run in a traditional way without looking for explosive growth, the failure rate is much lower.
However, Mr Hari emphasised that entrepreneurship is not for the faint hearted. There may be excitement and ecstasy but there will also be near death moments. We should not become entrepreneurs because it looks cool, or we can make money. We must have a burning desire, a deep hunger, to solve a problem. We should be clear in our mind that it is ok even if we fail. We should also feel that we are the right people to solve the problem.
Industry keeps complaining that our universities are not able to produce the talent they need. Instead of complaining, they must partner more actively with universities. In Silicon Valley, there is Stanford and in Boston, there is MIT. In these innovation hubs, there is an amazing relationship between industry and academia. As such, students are exposed to an industry relevant curriculum. In India, industry maintains an arm’s length relationship with academics and does not take ownership of the skilling of students. We also need to give flexibility to our educators to do things which are relevant to the industry.
There is also a cultural problem to address. We have traditionally given more importance to knowledge and less importance to skills. That is why the craftsmen who work with their own hands have been relegated to the lower strata of society.
We should also define jobs more imaginatively. There is no need for a qualified doctor to check the power of our eyes when an optometrist can do the same. It has taken us 75 years to come up with an education policy that recognizes these problems.
Mr Hari felt strongly that ideas are commodities. If we put a group of smart people in a room, several ideas can be generated within a day. it is the quality of execution that really matters. How do we respond to situations in an agile manner? How do we pivot when needed? How good are we at solving the problems that invariably crop up during execution? How resilient are we to ups and downs? Ideas can easily be copied but not execution. That is why most VCs bet on the founders rather than the idea.
Responding to another question, Mr Hari made it clear that he does not attach much importance to patenting ideas. In any case, once we patent ideas, they will be known to the outside world. The real IP lies in execution. Perseverance cannot be copied. It is the ability to execute which can create strong entry barriers, not patenting an idea.
Mr Hari recommended the following books:
Peter Theil: Zero to one
Ben Horowitz: Hard thing about hard things
Morgan Housel: The psychology of money
The big question is: Will the companies that have gone public become profitable or fizzle out? It is likely that going forward, the traditional ways of doing business will prevail. Scale without profit will no longer be a favoured idea. But we can expect entrepreneurship to thrive in India. The country is full of problems and hence a fertile ground for potential entrepreneurs.
Despite various government initiatives to ease the process of doing business, more can be done on the ground. Getting an electricity connection is still difficult. There are harsh penalties for unintentional violation of laws. The fear of going to jail is high. To prevent a few people from defaulting, we are penalising a large number of people. We must give exceptional punishment to wilful defaulters and ease the compliance burden for honest entrepreneurs. The red carpet is being rolled out to the big businesses, but the little guys are not getting their due.
However, compliance should be stringent for the listed companies or private companies on the path of going public. Board members should be asking the right questions. Some blow ups are inevitable. They often lead to improvements in corporate governance standards.
Incidents like the Paytm IPO are avoidable. There was no need for Paytm to charge such a high premium and ignore the interests of retail investors. Loss making companies should not be allowed to make IPOs.
The concept of minimum wages is not relevant for such enterprises. Labour laws, especially the exit clause need to be revisited. The intent of the top government officials is good. But on the ground, things are different.
They are a necessary part of the innovation ecosystem. They help entrepreneurs to work on their ideas, go to the market faster and mobilise funding. The incubator on the IIT Madras campus is making a good impact. Despite the good work these incubators are doing, no systematic study has been done so far, of the impact they are making.
THub is driven with a lot of passion by leaders like Mr KT Rama Rao, Mr Jayesh Ranjan and Mr M Srinivasa Rao. There are not many states which have a similar capability (Kerala may be an exception with its Startup Mission.). The THub model should certainly be replicated in other states.
There are two ways to look at this problem. What is the idea we are deeply passionate about, totally engaged with and believe we can solve the problem better than anyone else? The second way is to ask if the idea is good enough to create a big business even if it may not excite us personally. Between the two approaches, Mr Hari prefers the first.
One can start a business without any background in finance. But then one would have to come up to speed quickly. It is important to understand the P&L, cash flows, etc. Without a good understanding of finance, it is difficult to run the business.
We may not have a big network when we get started. But we should build one quickly. Ultimately it is through networks that we will be able to find talent, mentors and mobilise capital.
It is difficult to compare the two sectors. There are opportunities in both the sectors. But the government has been giving a big push to manufacturing through its make in India program, especially for the defence sector. So good opportunities have opened in recent years in manufacturing. Mr Hari agreed with the government’s approach. In strategic sectors, it is necessary to have our own manufacturing capabilities to have muscle during important international negotiations.