Five Things About India That Blew My Mind
Last week, I attended a event organized by TiE on US-India entrepreneurship (the same one I talked about in my other post) and came home with my mind racing. Of the many great speakers at this event, one was Navjot Singh, a Partner at McKinsey&Co. From his talk and over the course of the evening, I learned the following five things about India that blew my mind:
- According to the McKinsey Global Institute, private consumption in India is set to grow 4.1X in the period from 2005-2025.
- In 2012, India is set to overtake China as the fastest growing global economy.
- By 2010, private equity investment in India is set to reach $20bn (A PE Hub report states that VCs have pumped $2.3bn into India so far this year).
- 40 percent of produce grown in India never gets consumed, due to poor infrastructure and inadequate food preservation.
- Healthcare in India will present a $20bn market opportunity by 2015, including fundamental research, drug development and patient care.
India has made a name for itself in IT services so far, but as the economy and old ways of life slowly transform, the enormity and sheer variety of opportunities in the years to come should boggle anybody’s mind.
The entrepreneur-VC hybrid: the philosopher-king of innovation
The act of starting and growing a business takes a lot of faith, passion and endurance. Atomized enterprises and the resulting changes in the economics of starting a technology business, however, have opened the door to a new breed of innovator: one who thinks like a VC but executes like an entrepreneur.
Jeff Bussgang, an entrepreneur-turned-VC has written a fantastic BusinessWeek article on entrepreneurship that explores this theme a little. The central problem Jeff identifies is this:
Unbridled, unfocused entrepreneurial energy can easily be squandered and misdirected. In my last six years as a VC, I developed an appreciation for the attitude and vantage point that VCs have when sifting through business proposals and allocating scarce capital to the best opportunities.
Jeff goes on to talking about how thinking like a VC and executing like an entrepreneurs is desirable for employees, but I want to explore the significance of this advice for technology-enabled enterprises and innovation. Atomized enterprises are capital-efficient ventures born out of momentous, loosely coupled combinations of labor, ideas and capital. To keep permanent overheads low, atomized enterprises must necessarily pursue more rational resource allocation strategies than traditional enterprises.
The tightly-coupled nature (relatively speaking) of a traditional enterprise, where many non-cohesive functions are nonetheless integrated together, means fewer points where rational decisions are made on the basis of market prices. The act of paying a price is a powerful reminder to maintain efficiency and imposes a certain crispness on any transaction. The loosely coupled nature of atomized enterprises has two key implications for innovation:
- more functions are accomplished by relationships to external organizations, which are in turn mediated by rational behavior-enforcing market prices and;
- assuming a relatively liquid market of service providers–which is reasonable for the kinds of commodity functions that are outsourced to external providers–rational decisions to switch to more capital-efficient service providers will be far less expensive.
With sufficiently rational and efficient resource allocation, an entrepreneur may even be able to pull off multiple, loosely associated atomized ventures simultaneously. I came across one example of an atomized enterprise recently when I was speaking with a fully managed Web hosting provider. One of their customers is a dentist who sells dental drug compatibility data online with no overhead of his own, while simultaneously carrying on a full-time dentistry practice. As atomized enterprises become more widespread, I believe we will see more examples of entrepreneurs who manage not one but a portfolio of linked technology-enabled ventures while allocating resources rationally and dispassionately among them. These practitioners of the atomized enterprise, whose passion for execution will be informed by a perspective that enables them to make truly rational decisions, will indeed be the philosopher-kings of innovation.
The Elevator Pitch Fetish
Hank Williams has a great post over at Why Does Everything Suck about why VCs might want to reconsider the conventional wisdom that the best fundable ideas are expressed as an elevator pitch. In addition to the great points Hank makes in his post, there are a few reasons the traditional elevator pitch is at least a little outmoded.
- Incrementalism. Every VC wants to have at least one or two ideas in a portfolio of investments that will ‘hit it out of the park’ and return 10x or more of invested capital upon exit. The problem is a lot of the low-hanging fruit in this case–the sort of idea that can be expressed in a crisp elevator pitch–has already been picked. A lot of today’s Internet startups are either me-too companies or build upon other ideas (Yelp = ‘user-generated Zagat’, or Qik = ‘YouTube marries cellphones’). In these cases, crisp 30-second descriptions may not always capture the essence of the idea like it did with prior successes (PayPal = ’send and get money over email’). It is often necessary to sit down and understand beyond an elevator pitch how exactly the idea builds upon others.
- Or, non-incrementalism. In the case of non-Internet startups–specifically in areas like biotech, cleantech and pharma/medical tech–the problems being solved are significant enough, and fraught enough with policy complications, that they often won’t fit in an elevator pitch.
- Ubiquity of communication. Time was when access to VCs was really limited and the elevator pitch was pretty much the only way to get them interested. To be sure, it’s not that VCs have not gotten any more time, but several of them (especially the smartest ones) blog and serendipitous relationships and investment opportunities may surface from these media. This sort of sustained relationship building may often prove more prudent than chance encounters.
- The emerging cult of ’show not tell’. Things have changed a lot in the world of Internet startups. It’s a lot more prudent to get a prototype out that users or potential investors can just take for a test run. A crisp elevator pitch is essential when that’s all you have to lure an investor with, but when you have a functioning service and a user community, it’s hard to argue with success.
All this is not to say entrepreneurs shouldn’t bother with an elevator pitch. The discipline you need to come up with a compelling elevator pitch is essential in distilling an idea down to its barest essence. Another reason is plain pragmatism. It took some time before a non-technical entrepreneur I am informally advising was able to distill his idea down to a manageable set of features. Working against an elevator pitch improves the likelihood that you’ll get something out there (not doing this is perhaps the biggest reason startups fail).
- Elevator pitches are certainly not outmoded for the next big areas in which smart money is investing these days. For Internet and mobile startups, elevator pitches are not outmoded at all for emerging markets, which will have vastly different characteristics than the North American techno-cultural situation. But Hank is spot in advising VCs to open their minds a little and re-examine their fetish of the elevator pitch.
the enterprise software landscape beckons
These days, enterprise software seems to be the doddering fool of the software world that some like to mock and others like to lament. After turning around billions of dollars in return on invested capital for much of the 80s and 90s, enterprise software today has come to be associated with the institutional trauma that conventional cubicle farms inflict on employees. To be sure, consumer-oriented software and Internet startups have led the charge on innovation in recent years for a number of reasons, not the least of which are generational changes and the Darwinian nature of the market. No matter how much enterprise software may have fallen in favor relative to the hot consumer Web startups of today though, I think it is and will be one of the hottest sectors for innovation and investment for a number of reasons:
- Enterprises still have the money. All the recent attention paid to consumer Web services has reduced the gaping void that used to separate the erstwhile ‘enterprise-grade’ (read serious) and ‘consumer-grade’ (read crappy) services. What hasn’t changed is the access enterprises have to the resources needed to buy these services. The average consumer has become used to cheap or free services that don’t give consumer Web service providers much wiggle room for channels or cross-promotion. The lack of viable business models not based on advertising isn’t helping either. Enterprises, on the other hand, will pay for a reliable, well-managed product or service that is valuable to the business, and in deal sizes that will sustain an ecosystem around the service provider.
- Traditional enterprise software doesn’t serve Atomized Enterprises. We have seen in some of my earlier posts that Atomized Enterprises are beginning to emerge as a result of several economic, organizational and technological changes. Enterprises in this class must stringently maintain three kinds of discipline for their very survival, and will need a whole new class of software to help them do so. Analytics for RoI tracking, internal chargeback and immersive collaboration are but three kinds of software that aren’t served well enough for atomized enterprises by the traditional enterprise software sector. Atomized Enterprises will realize that attempting to build these on their own isn’t viable or even advisable and will be hungry for vendors that serve this sector.
- Old enterprise software ≠ enterprise software now. Even if we take Atomized Enterprises out of the picture, the enterprise software market that produced impressive returns on invested capital was built on a set of assumptions that have been disrupted massively by the emergence of open source and software-as-a-service. In particular, open source has commoditized a lot of the lower end functionality that enabled vendors to command high margins on their sales. Not only is innovation pushed further up the value chain, the periodic payment model of software-as-a-service holds vendors accountable for delaying their innovation agenda with a too-long product cycle. Several VCs already realize that this enterprise software market is different than the one 20 years ago, but it bears repeating.
- Innovation happens worldwide. In past business cycles, investments in enterprise software were done almost entirely in the American technological context. Now, a large contingent of international entrepreneurs from Eastern Europe, Asia and Latin America is better connected to a global pool of capital. Historically, these regions have evolved radically different modes of doing business in the face of severe economic constraints, and these modes are rather underserved with the current enterprise software market. In addition, for areas like mobile technology, India and many Asian countries, uninhibited by an installed base of legacy technology, have leapfrogged corresponding technology in the US. This combination of constrained modes of business and advanced technology open up several opportunities for innovation in enterprise-oriented products and services.
Investment interest from a lot of Silicon Valley VC stalwarts may be moving away from software and Internet services to cleantech, biotechnology, medical devices and other capital intensive investment areas. Software and Internet services, however, continue to be a significant investment area for midsize to smaller funds. In so far as software continues to be a viable investment theme, enterprise software is somewhat underappreciated as an investment area. Fundamental structural change in the consumer and market profile for enterprise software is something any good VC should recognize as a good investment opportunity.
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