‘Entrepreneurship is a great economic activity’ – Prof. Sabarinathan, NSRCEL, IIM Bangalore

[ This article is part of the YourStory series called Startup Hatch, about incubators and accelerators in the startup ecosystem. See earlier profiles of incubators at IIT Bombay, BITS Pilani, NCL, Tata Elxsi, NID, IIIT-Bangalore, IIIT-Hyderabad, Vellore Institute of Technology, and PSG Coimbatore. ]

Professor Sabarinathan, PhD, is a faculty in finance and control at IIM Bangalore. He allocates his time in some random fashion across running the N.S. Raghavan Centre for Entrepreneurial Learning (NSRCEL), teaching corporate finance, tormenting his colleagues at NSRCEL, enjoying the greenery on the beautiful campus and reading PG Wodehouse and inflicting his brand of classical (Carnatic) music on his family and neighbours. He joins us in this exclusive and insightful interview on the vision and accomplishments of NSRCEL, and outlook for entrepreneurship in India.

YS: What was the founding vision of your incubator, and how is it supported?

SG: NSRCEL was founded to promote education and research relating to entrepreneurship. Around the time it was being established, Global Internet Ventures proposed that an incubation centre may also be set up as part of the Centre. Thus the Centre started getting involved in both the academic aspects of entrepreneurship as well as ecosystem-related engagements.

YS: Which companies have graduated from your incubator so far, and which are currently being incubated?

SG: More than 35 companies have graduated from NSRCEL so far (see Table 1 and 2 at the end of this interview).

YS: What is the profile of the managers of your incubator?

SG: NSRCEL’s operations are usually headed by the Chairperson who oversees its entire gamut of activities. The Chairperson is usually a member of the faculty at IIMB. The day to day operations of the ecosystem-related activities of the Centre are headed by a professional manager working under the supervision of the Centre. The Manager is supported by an operational team.

NSRCEL is one of the few entrepreneurship centres which has its own faculty (two full time and one on a joint appointment with Darden Business School, University of Virginia) focussed exclusively on teaching and research relating to entrepreneurship: Professor Kumar K, Professor Suresh Bhagavatula (both full time) and Professor Saras Saraswathy (also see earlier YourStory interview with Professor Saras Saraswathy).

They in turn employ research staff to support their research endeavour. NSRCEL’s faculty collaborate extensively with counterparts elsewhere in the world and are among the most research active faculty in entrepreneurship in the country.

NSRCEL’s approach to entrepreneurship is also highly integrative, attempting to create a close connection between the theory and practice of entrepreneurship.

YS: What would you say are the Top Three opportunities for Indian startups and social entrepreneurs?

SG: I would like to go beyond the standard approach of identifying sectors and look at themes for opportunities. The big themes lie in the intersection of (i) the changing life styles of Indians of various demographics at the middle income levels and above, and technology; (ii) the potential for efficiency in many business processes and technology; and (iii) the need/potential for raising the quality of life in the lower middle income levels and below, and innovation.

I prefer this approach because this will enable an aspiring entrepreneur to look beyond the standard flavor of the season such online commerce, IoT for homes, healthcare/education delivery, logistics solutions, and so on. While those are certainly large opportunity areas, I believe they will soon be fully harvested with numerous ventures. Entrepreneurs instead need to reflect deeply on problems around them to come up with ideas.

For example, a faculty colleague of mine asks his students who take his course on business plans to come up with ideas and some of the students identify truly original needs waiting to be fulfilled. Similarly, those who are steeply engaged in specific verticals or processes can always come up with product/service ideas for improving some small aspect of their area of work. This solution can then be extended to other verticals. Similarly, a serial entrepreneur I know - Manjula Sreedhar - talks about micro entrepreneurship where the potential for coming up with ideas are limitless.

Net net, my take is good quality entrepreneurial thinking has to look beyond the beaten path for looking for marginal tweaks on the hot investment flavours of the season.

YS: What are the key challenges faced by startups in India, and how can you help bridge the gap?

SG: Startups and entrepreneurs have evolved a great deal in the past decade thanks to the development of the ecosystem. That said, they continue to face numerous challenges. First and foremost, the fact that startups need to acquire customers in order to validate the basic thesis of the enterprise is an obvious thing to state. The challenge is to try and figure out a business and revenue model that will persuade customers to sign up. Often what appears to be a lack of fit between product or service idea and the needs of the customer can be addressed by tweaking the business model. Startups can benefit in this area by having the right advisors and by following some contemporary approaches like pivoting. Talking to other entrepreneurs also helps. This is the big value that incubators and accelerators can add.

Second, startups need access to the relevant network. A very small set of investors seem to be able to introduce their investees to the right connections. But most early stage investors at present are still learning on the job, coming as they do from a motley set of backgrounds with an investible surplus being the only trait that is common to all of them. To some extent, the gap is being bridged today through meetups, conferences and so on. But they all provide the equivalent of a shotgun to borrow an often used hunting metaphor as opposed to a sniper’s rifle which enhances the efficiency of networking. In the olden days when every other startup was a software services enterprise, these shotgun approaches to networking would suffice. Not any more with the specialised enterprises that are coming up.

Third, funding for startups is still a challenge. There is a lot of money chasing too few deals not because there is too much money but because they are chasing the same few deals. By kick-starting another round of public-supported funds, this challenge can be addressed.

YS: What is the selection criteria for startups in your incubator?

SG: NSRCEL is an open incubator, which means that enterprises or entrepreneurs need not be affiliated with IIMB to qualify for incubation. The Centre is also sector agnostic. Within these parameters it follows a broad set of criteria for selecting enterprises to come on board. They have to be innovative, impact making and implementable by the team. For ease of reference we referred to them as the ‘3I’ criteria. Finally, NSRCEL brings on board enterprises that often have nothing more than a founding team and a slide deck, as long as the idea appears promising. This is based on the need that the Centre perceives in the market.

YS: What support and services do startups receive in your incubator?

SG: Apart from getting to locate in a facility in one of the best maintained academic campuses in the country and access to all the hard and soft infrastructure that goes with it, incubatees at NSRCEL get to meet a whole lot of people in the ecosystem whom NSRCEL invites over frequently to engage with the incubatees.

They also get to participate in the 30 or more events that NSRCEL organises every year in addition to the numerous talks and other events at the vibrant IIMB campus. These events double up as useful networking opportunities. These opportunities are in addition to the standard access to business services and mentoring for support.

NSRCEL also puts in considerable effort to present the work of its startups to the media. This has helped many incubatees get noticed. In short, it is a fairly unique package of social network and academic infrastructure that the Centre offers.

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YS: What kinds of IP are being created by your startups?

SG: Since NSRCEL is sector agnostic, the IPs created at the Centre vary considerably in terms of the nature of the IP (trade marks, copyrights and patents) and the field that they relate to (technology versus non-technology). Given that the Centre looks for innovative business ideas, the potential for creation of IP among the incubatees is relatively high.

YS: How would you differentiate your incubator from others in the field?

SG: NSRCEL’s first source of differentiation comes from its motivation. NSRCEL runs the incubator as a means to give back to the ecosystem and to stay engaged with the ecosystem to further its academic agenda of understanding and influencing the movement of entrepreneurship.

Second, as a corollary to the above, NSRCEL’s incubator is funded by a generous endowment from Mr. Raghavan. That allows the Centre to provide an affordable incubation facility with many of the networking events referred to above being offered as pro bono services.

Third, and perhaps most importantly, being located inside India’s leading business school provides the incubatee an unequalled access to academic firepower. The IIMB name also helps bring in many leading personalities and entrepreneurs who engage with the incubatees in multiple ways thanks to the IIMB brand.

Finally, as a matter of philosophy, while NSRCEL encourages its incubatees to realise their full potential, it believes that each entrepreneur should be given the space to follow their own individual style in building the enterprise. It does not believe in micro-managing the incubatee’s destiny.

YS: What would you define as success for your incubator?

SG: At the basic level the number of enterprises that manage to remain in business is one indicator. At a higher level, NSRCEL looks at the mobilisation of external funding by an incubatee as indicator of success. On both counts, NSRCEL is fortunate to report a decent performance.

YS: How do you compare and contrast India’s incubators with that of other countries like US and China?

SG: Indian incubators, more particularly accelerators, seem to model their activities along the lines of their counterparts in the US. But as with many other spheres of business, here too there are many contextual differences that make it important to evolve an approach that adopts best practices from the US and to adapt it to Indian requirements.

One key source of difference in India is that much of the incubation in the public space seems to happen in institutions which are not organisationally prepared or equipped to run a meaningful incubation programme.

Often they also do not seem to take cognisance of the need for adapting the incubation programme to their local settings. (For example a public institution running an incubator in a city like Bangalore or Chennai will/ought to have a programme that is different from that of an institution in a place like, say, Dharwad.)

Incubation centres also need to have a cadre of trained managers who are appropriately incentivised. The US may have learned some of these lessons. Literature seems to suggest that the incubators even in the US may not have managed to assimilate all these lessons adequately or uniformly across institutions and reflect the same in their practice. This perhaps explains the somewhat patchy performance of public as well as private incubators even in the US.

The recent performance of Y Combinator or 500 Startups is inadequate to arrive at any enduring conclusions or lessons about the performance of incubators or accelerators. There have been far too many false starts in the past that make me want to be wary of drawing any hasty inferences.

YS: What are your plans for the coming three to five years with respect to new startups?

SG: NSRCEL would like to grow its incubation activity and engagement with the ecosystem considerably. Our experience in the past five years or so suggests that we have the potential to continue to serve early stage entrepreneurship in distinctive ways in the medium term. We would want to leverage the positive externalities that will accrue to us as a Centre as well as to our incubatees by being part of and helping creating a large and vibrant community of startups.

This will in turn help build on our current understanding of entrepreneurship as an economic phenomenon.

YS: What are your recommendations for Indian policymakers to make business easier for incubators, investors, researchers and startups in India?

SG: First, the regulatory regime in India needs to become far more conducive to starting up. Over the years and decades, several factors have been pointed out to make it easier to start up. Instead some of the changes in the past five years such as the taxation of capital mobilised by startups, the process of issuance of capital and a one-size-fits-all set of compliance obligations under the new corporate laws are examples of changes that have gone in the opposite direction.

Second, there is a huge wave of IP-intensive businesses moving out of India in the form of externalisation transactions. The aggressive solicitation by the governments of Singapore and Hong Kong and relentless pressure from foreign VC and PE funds investing in Indian startups out of their off-shore domiciled funds seem to play an important part in fostering these externalisation transactions. But just as equal is the current regulatory regime in India that makes it easier for Indian enterprises to relocate. That is a compelling reason to think of a regime that thinks of the needs of startups afresh. The success of the State of Delaware is a great example of how the regulatory regime alone can help move the locus of economic activity.

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This relocation of business to more favourable destinations is likely to result in an economic damage to the nation that is as bad as the brain drain of the 1970s, if not worse. The watchful eyes that the RBI and other wings of the government cast on these transactions are no match for the gritty ingenuity of startups in coming up with structures that will allow them to relocate their enterprises to jurisdictions of their choice.

Third, the state ought to loosen up the purse strings to support a host of new initiatives to make funds available to startups. The phenomenon of too much money chasing too few deals in India is not as much due to the surfeit of funds as it is due to the paucity of investment opportunities. There is plenty of evidence and learning available now based on which policy planners can come up with mechanisms to ensure that companies are not affected by the bandwagoning tendencies of private capital; instead money flows to other promising sectors and the attractiveness of those sectors is demonstrated in the process. Even a small fraction of the money that is spent on so many other sectors of the economy can help address these needs.

These interventions can help broaden and deepen entrepreneurship in India. There is an urgent need to raise the quality and quantity of entrepreneurial activity in the country. As with many other spheres of life we have this habit of living in our “hoary past” and delude ourselves that the quality of Indian entrepreneurship is great. That is possibly true to the extent that Indians have the potential but I suspect that this potential has been successfully destroyed through years of an indifferent if not hostile environment and social stigmas which prevail to-date.

The reality is that both the quality and quantity have still room to grow. Unfortunately this starting end of the chain does not seem to receive adequate attention, a realisation that is acknowledged by the Europeans in their context.

YS: What are your recommendations to the startups and entrepreneurs in our audience?

SG: First, entrepreneurship is a great economic activity to engage in. The prospects for entrepreneurship are brightening in spite of an administrative regime that is anything but supportive thanks to its growing social acceptability and the evolving supportive ecosystem. And it is only getting better by the day.

Second, that said, enterpreneurship is not for all. And it is something to be embarked upon with thought and pre-meditation. The decision to plunge has to be the result of an “inner calling,” to borrow a colleague’s metaphor, and a clear sense of the business one wishes to be in.

An example that was cited by Dominique Turpin, Dean of IMD, in a speech some years back of how an entrepreneur in Switzerland zeroed in on an idea, comes to my mind. The entrepreneur started a bakery chain because he wanted to start a business that would not require him to fight the Chinese and the Indians in the marketplace, a product that would make customers come to him every day, where he did not have to explain the product to the customer, and the customer was not price sensitive. It is an example of clear entrepreneurial thinking that results from a lot of observation and cogitation. From my perch at NSRCEL I wish I could see more often such clarity of thought which is reduced to simple propositions. I present it as an example of good and clear entrepreneurial thinking.

Third, do not let the media hype inform or influence the why of your decision to take the plunge, the how (what business do I start) or the when (the timing). Accidental entrepreneurship of the Phani Sama (redBus) kind is not the norm. (Sama reportedly decided to aggregate demand for bus tickets because he could not find a ticket to go home for Diwali - and the rest as they say is now history.)

Entrepreneurship requires some thought and reflection.

Entrepreneurship is not a one-way street to instant wealth, fame and freedom from the tyranny of bosses. It may not give you any of these and you have to be ready to ride the yin and the yang, even if not with equanimity. (On a partly humorous note, that is why I never see myself as an entrepreneur.)

Fourth, some sections of the media give the impression that to be a successful entrepreneur one has to be young and impulsive. Neither is true.

In short, turn to entrepreneurship only when you are sure you really want to be one, not because the media tell you it is groovy, when you have a good sense of the business you want to be in and you are confident and self-assured enough to be able to say to yourself: ‘This ride is going to be fun though it ain’t going to be easy; but I am ready for it.’

Finally, in the past few years, an unfortunate view has been gaining ground that the only entrepreneurship that is worth doing is the Flipkart or Ola variety that involves blasting into billions of dollars of sales before one can say Indian Jones, backed by VC funding. Painstaking research by Professor Amar Bhide and other scholars in the US, perhaps among the most entrepreneurial economies, suggests that the bulk of the entrepreneurial world is made up of humbler, simpler businesses that stitch uniforms, run eateries or salons and so on that grow at humbler rates, are profitable, yet are not VC funded.

It is time to reiterate that lifestyle enterprises can be as much joy and economic utility as long as they are profitable and financially self-sustaining.

Table 1: Current NSRCEL Incubatees

Table 2: NSRCEL Graduated Incubatees