Creating Indian Entrepreneurs

By Rajat Gupta, the former Managing Director of McKinsey & Company andalso the Chairman of the Board of Governors of the Indian School ofBusiness (ISB), Hyderabad.

India needs entrepreneurs. It needs them for two reasons:
to capitalize on new opportunities andto create wealth and new jobs.

A recent McKinsey & Company-Nasscom report estimates that India needsat least 8,000 new businesses to achieve its target of building a $ 87billion IT sector by 2008. Similarly, in the next 10 years, 110-130million Indian citizens will be searching for jobs, including 80-100million looking for their first jobs; that's seven times Australia'spopulation. This does not include disguised unemployment of over 50%among the 230 million employed in rural India. Since traditional largeemployers - including the government and the old economy players -may find it difficult to sustain this level of employment in thefuture, it is entrepreneurs who will create these new jobs andopportunities.

Fortunately, today's knowledge-based economy is fertile ground forentrepreneurs in India. The success stories of businesses built on agreat idea executed by a talented team have great appeal in India,where access to capital is scarce and regulation has often createdbarriers to success. And young Indians have a dream: to be the nextSabeer Bhatia of India. Estimates indicate that several thousand 'neweconomy' businesses were launched last year in India. This is not justa "big-town" phenomenon. For example, when McKinsey & Company launchedIndia Venture 2000, a business plan competition to catalyzeentrepreneurship in India, many of the 4,500 teams that participatedwere from small towns such as Meerut, Siliguri, Warangal and Pollachi.

I believe India has an extraordinary talent pool with virtuallylimitless potential to become entrepreneurs. India must, however,commit to creating the right environment to develop successful businessbuilders. 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, mostIndians would start slow with capital borrowed from family and friends,the CEO playing the role of salesman and strategist, a professionalteam assembled months or perhaps years after the business was created,and few, if any, external partners. Compare this with a start-up in theSilicon Valley: a Venture Capitalist (VC) or angel investor would bebrought in early on; a professional management team would drive thebusiness; a multifunctional team would be assembled quickly; andpartnerships would be explored early on to scale up the business.
To a large measure, culture shapes this style. Silicon Valley is abuzzwith ideas to build global businesses; deals are continually beingnegotiated, 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 placementagencies. 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 ofexcellence - the breeding ground where ideas grow into businesses.Some already exist in a very preliminary way (the businesses arethere). For example, Gurgaon and Hyderabad for remote services, orBangalore for IT services. But these areas of excellence needstrengthening before they can claim to be India's own "Valley." One wayof strengthening these areas is to consider the role of universitiesand educational institutions - places where excellence typicallythrives. Creating such educational institutions by strengthening theIndian Institutes of Technology (IIT's) and starting new ones is goingto be very important.

2. Ensure that entrepreneurs have access to the right skills:
A survey McKinsey& Company conducted last year revealed that mostIndian start-up businesses face two skill gaps: entrepreneurial (how tomanage business risks, build a team, identify and get funding) andfunctional (product development know-how, marketing skills, etc.). Inother countries, entrepreneurs either gain these skills by hiringmanagers or have access to "support systems" such as universities orother institutions that may nurture many regional businesses. Inaddition, business schools give young graduates the skills andknowledge required for business today.
India can move toward ensuring that the curriculum at universities ismodified to address today's changing business landscape, particularlyin emerging markets, and to build 'centers of entrepreneurialexcellence' in institutes that will actively assist entrepreneurs.
We believe the Indian School of Business (ISB) at Hyderabad provides astart in developing outstanding entrepreneurial leaders. ISB's programis designed primarily to prepare managers to respond to the challengesof rapidly changing business environments. Within an environment ofintellectual vibrancy, the 500+ students who graduate each year willhave studied entrepreneurship, strategy and the impact of technology oncommerce. They will have spent time developing their own projects,while utilizing state-of-the-art communications technology to interactwith members of industry and experts worldwide.
The ISB will have an Entrepreneurship Centre founded, led and managedby several leading Silicon Valley entrepreneurs, who are on theschool's Governing Board. The Centre will help students becomesuccessful 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, fieldprojects, and a Young Entrepreneurs Club.

3. Ensure that entrepreneurs have access to 'smart' capital:
For a long time, Indian entrepreneurs have had little access tocapital. It is true that in the last few years, several Venture Fundshave entered the Indian market. And, while the sector is still in itsinfancy in India (with estimated total disbursements of <$ 0.5 billionlast year), VCs are providing capital as well as critical knowledge andaccess to potential partners, suppliers, and clients across the globe.However India has only a few angel investors who support an idea in theearly stages before VCs become involved. Our experience during IndiaVenture 2000 showed this to be a critical gap. While associations suchas TIE are seeking to bridge the gap (by working at creating a TIEIndia Angel Forum), this is India's third challenge: creating a globalsupport network of 'angels' willing to support young businesses.

4. Enable networking and exchange:
Entrepreneurs learn from experience - theirs and that of others. Muchof the success of Indians in Silicon Valley is attributed to theexperience, sharing and support TIE members have extended to youngentrepreneurs. During India Venture 2000, we were delighted by theeagerness with which established entrepreneurs, who still rememberedthe challenges they faced, offered to support start-ups. Clearly, Indiawould benefit from creating a strong network of entrepreneurs andmanagers that entrepreneurs could draw on for advice and support.
The rapid pace of globalization and the fast growth of Asian economiespresent tremendous opportunities and challenges for India. Throughplanning and focus, India can aspire to create the pool ofentrepreneurs who will be the region's - and the world's - leadersof tomorrow.