Home Changing the Status Quo: On Innovation and Entrepreneurship in India

Changing the Status Quo: On Innovation and Entrepreneurship in India

by Hemant Kanakia
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For years, commentators have been throwing up a lot of smoke about innovation and entrepreneurship in India, but I have yet to see any fire. In my defense, I would blame my training in IIT (in the early 70’s) for turning me into a first-grade skeptic. I did, though, put that cynical attitude to constructive use after I moved to firangi land to get a PhD education. It helped me become a researcher at Bell Labs and, ultimately, a successful entrepreneur.

In 2010, I returned to India and started investing in smart young people who wished to turn their innovations into successful businesses. It was a bit of a culture shock for me, particularly when it came to entrepreneurship.  I’d returned to a different India than the one I left behind. In my batch of ‘75, I don’t recall a single person that talked about becoming an entrepreneur. Of course, there were plenty of rebels in the batch. There were two who wanted to be Naxalites, one who became a leader of a major labor movement, and one who became a politician. But, mostly the batch was full of traditionalists who joined family firms, went to business schools or simply went abroad. The attitudes and actions of recent batches seem vastly different.

I am not nostalgic about those old days. But, I do find myself a bit suffocated by all this talk about innovation and entrepreneurship in India. Will all that smoke be a precursor to a giant fire, or, is it simply due to some wet, smoldering leaves?

I am not nostalgic about those old days. But, I do find myself a bit suffocated by all this talk about innovation and entrepreneurship in India. Will all that smoke be a precursor to a giant fire, or, is it simply due to some wet, smoldering leaves? Are we going to create next-generation Indian equivalents of Mark Zuckerberg, Larry Page, and Sergey Brin? (If you do not know who these folks are, I would advise you to turn to a different article.) My answer to this last question is a nuanced yes.

It is important to separate innovation and entrepreneurship as two distinct words that denote two separate spheres of activity that are only partially linked. Some, but not all, innovations can be commercialized, and some, but not all, entrepreneurs focus on building innovation-based businesses. In this article I will focus on innovations that lead to commercialization and on entrepreneurs that build innovative businesses.

The word innovation has been so overburdened all over the world, and especially in India, by MBA types that it now requires a bit of clarification. Simply put, innovation is about changing the status quo.  In my opinion, the more radical the change, the more interesting the innovation becomes. Innovations don’t have to be technological; business models can also be innovative. For instance, Bill Gates innovated by starting the trend of shipping half-ready software and then forcing everyone to buy a new operating system every few years! People fell for this trick and made him ultra rich. We didn’t mind the fact that this new OS did mostly the same thing as before but would now need a faster computer to do it. What an innovation! Several others, such as Amazon, eBay, PayPal, and Walmart, have similarly built very big businesses by changing the existing business models in their sector.

Technological innovations generally make things faster, cheaper, or more efficient. Innovation is needed to put 1024 microprocessors on a single chip that would’ve once contained only one; it is needed to build super data centers that house not one or two but hundreds of thousands of servers, which all work in tandem to handle queries and transactions by Google or Amazon; it is needed to build autonomous vehicles that can cross a desert or prowl on the crowded roads of Palo Alto, California. Or, the innovation could be about building chips that fit inside a handheld device and perform medical diagnostics tests within seconds, at a fraction of the costs incurred in a clinic.

The word innovation has been so overburdened all over the world, and especially in India, by MBA types that it now requires a bit of clarification. Simply put, innovation is about changing the status quo.  In my opinion, the more radical the change, the more interesting the innovation becomes. Innovations don’t have to be technological; business models can also be innovative.

The first type of innovation—business model innovation—can emerge anywhere in the world. All it needs is the willingness to do something radically different. Many new business models have historically emerged from the USA, and they were often enabled by technology innovations that also emerged from the USA.  But, there is no reason why this type of innovation-based business can’t emerge from elsewhere. Skype is an example. Developers based in Estonia, Denmark, and Sweden were the ones that developed Skype. Skype uses peer-to-peer technology to offer free voice communications to people.  The peer-to-peer data exchange technology was invented in the USA. But Skype was the first one to use it effectively to disrupt the traditional telephone network model of voice communication.

So far, breakthrough applications like Skype have not emerged from India, but there is no reason why entrepreneurs from India can’t do something spectacular with business model innovations. Maybe the real block here is in the attitudes of individuals and in society’s social set-up. Perhaps I’ll have to write another article about that in the future.

The second type of innovation—technology innovation—is harder to visualize happening in India. Our engineering education is the main culprit for this state of affairs. Even at the finest institutions, like IIT, we have focused on teaching by rote and on evaluating students’ performance with written examinations. There is not enough flexibility in the system to reward those who excel at building things over those who excel at taking written exams. Such an environment is not conducive to developing curiosity and experimentation among IITians.

Technology innovation is harder to visualize happening in India. Our engineering education is the main culprit for this state of affairs. Even at the finest institutions, like IIT, we have focused on teaching by rote and on evaluating students’ performance with written examinations. There is not enough flexibility in the system to reward those who excel at building things over those who excel at taking written exams.

A recent initiative taken by alumni from the batch of ‘75, supported by the current IIT-B administration, called the Tinkerers’ Lab, is a tiny move in the right direction. Tinkerers’ Lab is a place where students can meet in groups, outside of the regular curriculum. The workspace at Tinkerers’ Lab is being equipped with tools and materials to allow students to break down and rebuild gadgets to learn how they work, or to build novel gadgets. To a large extent, our engineering education at IIT-B is being treated as a queue where once you enter you wait your turn to get out and start making big bucks by getting jobs with global consultancy firms, or joining MBA schools. Tinkerers’ Lab will hopefully encourage those who want to be different. Maybe these students prefer to become great entrepreneurs rather than small, desk-bound cogs in big global firms.

Another big disappointment in this regard is the lack of interest displayed by industrial families like Birla, Ambani, and Tata in creating innovations-based industries. They have the resources to promote innovation in a big way. But, these family-based conglomerates seem to prefer to buy technology via joint ventures with foreign firms. Their focus remains on short-term profit. They maximize profits by understanding how to operate within the peculiar and often nonsensical constraints for Indian businesses that our bureaucracy creates. If one contrasts that attitude with Korean industry giants like Samsung and Hyundai, one is bound to feel depressed. In Silicon Valley, successful entrepreneurs from one generation routinely participate in the ventures of the next generation. They fund innovations by contributing capital to venture capital funds or by directly investing in start-ups. The companies they control also fund research both inside the company and in collaboration with universities. Many of these companies have created venture funds to nurture new innovative businesses (e.g. Google Ventures, Dell Ventures, and Intel Ventures). I don’t understand why the founders of our modern industrial empires are so different. Alas! I don’t think this attitude will change for a long time to come.

I would advise you to clear the cobwebs from your mind. These cobwebs are terms, which were often generated by MBA-types and NGO-types, like “social impact innovation” and “bottom-of-the-pyramid business.” If you want to be a great entrepreneur, stay focused on technology, and, in particular, on how one can use technology to radically alter the way people live. If you are successful in doing that, then you will have a social impact.

The Indian Angel Network, which I participate in, provides seed funds to start-ups. Last year, the network received about 4000 business proposals.  That number is going to be handily surpassed this year. But, out of the proposals we received last year, I would say that only about 30-50 business plans are based on technology innovations. And, none as yet, have shown a wide-sweeping vision for changing the world. Based on that evidence, I have to surmise that we have a long road ahead before entrepreneurs like Bill Gates and Mark Zuckerberg emerge from India.

If this all sounds negative, rest assured that I am indeed fairly positive about India’s potential for innovative entrepreneurship. But to fulfill that potential we need to change some of our attitudes and habits. The changes I propose are simple and practical and can be made without simultaneously demanding changes in government or bureaucracy.

I have been amazed at times by stories about founders that start paying themselves exorbitant salaries or who buy a new car worth 20 lakhs for personal use out of funds collected before the company has become profitable. That is like eating your own child to satisfy an immediate hunger. Using company money for short-term gain implies that you have no faith in the business you founded.

First and foremost, we all, individually and collectively, need to develop a deep love—I think almost a reverence—for technology. Getting into IIT requires putting off everything inessential and suspending one’s life until the JEE. But that kind of rigid focus on doing well in written examinations isn’t something that makes for a good entrepreneur. Chasing grade point averages are good activities for some to pursue. I would say pursue them if you can, by all means, but while doing that don’t forget to build some novel gadgets, write an awesome program, and participate in activities whereby you learn engineering by doing things and not just by reading about it. Become an active member of Tinkerers’ Lab! I assure you that the distinction one can thus achieve will land a better paying job offer after graduation from companies like Facebook or Google than a topper will secure. What’s more, those jobs will be more fun than the certain drudgery awaiting you at global management consultancy or accounting firms. If you harbor any doubts about this advice, I would recommend you read biographies of Bill Gates and Mark Zuckerberg.

Second, I would advise you to clear the cobwebs from your mind. These cobwebs are terms, which were often generated by MBA-types and NGO-types, like “social impact innovation” and “bottom-of-the-pyramid business.” If you want to be a great entrepreneur, stay focused on technology, and, in particular, on how one can use technology to radically alter the way people live. If you are successful in doing that, then you will have a social impact. The term “bottom-of-the-pyramid” is indeed catchy and worthy as a subject of several business school case studies. But, I see this exercise of isolating the poor as a different class of customers as being equivalent to calling untouchables by a better sounding name like harijan. Instead, your aim should be to build something useful and affordable for a large section of population, poor or not, and to use technology to make this business profitable and scalable.

Stop wasting time with trivialities. This is not the time to worry about the title you should carry or the corner office space you should have. It is time to aim for the moon, taking care of big priorities first and believing in your self. That attitude is at the core being of a great innovator and entrepreneur.

Third, I would advise one to get out of India. I do not mean get out literally but figuratively. Given the technology deficit one currently observes in our research and academic institutes, the best bet for an entrepreneur is to turn to the world in order to stay abreast of development in a chosen field. Given the large Indian diaspora, an emerging entrepreneur should find it easy to arrange to spend 3-4 months in the USA observing, talking and absorbing emerging technologies. Build your founding team globally right from the beginning. Moreover, although India may become your initial market-entry point, try to build businesses that have universal appeal.

Fourth, keep the long-term focus. I have been amazed at times by stories about founders that start paying themselves exorbitant salaries or who buy a new car worth 20 lakhs for personal use out of funds collected before the company has become profitable. That is like eating your own child to satisfy an immediate hunger. Using company money for short-term gain implies that you have no faith in the business you founded. To shortchange the company of money in order to meet the personal needs of founders is to deprive the business of oxygen at a crucial stage of development, and that ultimately reduces the value of shares for everybody, including the founders.

Fifth, stop wasting time with trivialities. This is not the time to worry about the title you should carry or the corner office space you should have. It is time to aim for the moon, taking care of big priorities first and believing in yourself. That attitude is at the core being of a great innovator and entrepreneur.

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