E: By your definition then, who is an industry rockstar?
KM: Those who are innovating and have been on the top, even above the expert level; those who use their celebrity status to give back to their community. The movement around the world now is that people are able to put their wisdom, experiences, mistakes and advice together in packaged systems [DVD sets, e-books and CDs] and sell this information to teach people the world over.

Jeff Slayter (JS): They also have a heart that wants to contribute and give back something to society. By that definition, an industry rockstar is also a social entrepreneur. People like Sir Richard Branson, Bill Gates and the late Steve Jobs are all examples of industry rockstars. One of the blessings of a public business like ours is it gives us exposure which allows us to carry the message of social entrepreneurship.

E: What are the common mistakes entrepreneurs make that hinder the growth of their business?
KM: There are many such areas. One of them is personal branding, which has been well-known in the U.S. and other part of the western world as an actual business tool. The music industry has been using this forever! Specifically in India, we are teaching people what’s been going on in the history of the entertainment industry so they can build their personal brand along with their business brand and connect with customers. Other mistakes are underdeveloped internet marketing strategies, using new distribution methods [webinars and tele-seminars], selling business information or providing free information on their subject matter in exchange for a lead on websites as a way to engage with customers. Lastly, to save money, they don’t invest in a coach.

E: What challenges do Fortune 500 companies face while managing a large resource base?
KM: The biggest challenge is regarding communication and leadership issues. These words mean 600 different things to every company but essentially it means how to interact with each other in a mutually beneficial way. I see large corporations spending most of their time battling who is right instead of having sophisticated communication tools, listening and understanding each other better. Also, leaders are not clear about their vision, don’t get employees to take accountability of projects, some don’t know the problems going on, while others are not building sustainable businesses or influencing people with their power and ideas.

JS: Many employees don’t feel connected to the CEO. I have seen many CEOs who, when they just start talking to their employees, learn so much about their own company. The ability of people to communicate is directly proportional to the revenues they make.

E: Why do 90 percent of startups fail world-over?
KM: I will add another figure: 97 percent of franchises succeed. So, the difference between a franchise and a startup is that the former has a system. We are not advocating running a franchise if you don’t want to, we are saying they have a proven system with a mentor.

JS: A coach understands the system and guides an entrepreneur through it. Nobody becomes successful alone.

E: What are the differences and similarities between Indian entrepreneurs and those in U.S.A.?
JS: In India entrepreneurs don’t promote their services, personal brands or clients as well as they can. These are best-kept secrets. In the U.S., they can be more sustainable. A business must stick out and be seen to get customers.

KM: In the U.S., the situation is just the opposite. The culture is around materialism—entrepreneurs go out there and promote themselves. In India, they are not comfortable saying, “Look at me, I’m awesome!” and subsequently closing a deal. On the similarities side, the youth are common across the two countries. The Internet has broken down many barriers and we all belong to the largest country in the world called Facebook!

E: Your immediate impressions on first generation Indian entrepreneurs you’ve met so far?
KM: They are thirsty to know where the world is going and how to get in there first. There are a couple of issues holding back what could be a big explosion of entrepreneurship in India. One is people want to start very complex businesses; we are telling them to go simple. Second, everyone thinks they need funding and that is stopping them from starting their business. We have something called bootstrapping in the U.S. It is a term of endearment, I’d say!

E: Can entrepreneurship be taught in a classroom?
KM: No, it’s taught by getting out there and losing money!
JS: But it can be experienced in a school by building businesses real-time.

As coaches, consultants and seminar leaders Jeff Slayter and Kane Minkus have worked with top executives and teams at Fortune 500 corporations, using techniques like neuro science, neuro linguistics and social dynamics.

Entrepreneur (E): What role does cultural background play in the mind of an entrepreneur?
Eric Morse (EM): Culture and institutional settings play a significant role in shaping an entrepreneur’s mind. Let me use some examples. Japan, as a country, culturally and institutionally discourages entrepreneurship. The Japanese are more tuned to working for a large corporation; entrepreneurship is less important for them. However, in Hong Kong, entrepreneurs are considered the heroes of the country. This cultural difference is evident in the number of entrepreneurs trying to start/starting a new business there. Typically, we see that churn is a positive thing for the economy. The more startups you have—though many will be unsuccessful—the more business ideas you generate. These, in turn, tend to create employment, contribute to the GDP and increase a country’s wealth.

E: You speak of entrepreneurial cognition. What is it all about?
EM: It deals with how entrepreneurs think and has been my area of study for some time now. Entrepreneurial cognition looks at why some people recognize a business opportunity when others don’t; why some people act upon it and start up while others fail to take up the challenge. It is a popular misconception that successful entrepreneurs are special people who have eureka moments while starting up. The truth is a lot more mundane. Entrepreneurs who succeed are ones who keep their eyes and ears open to changes in the business environment. They are aware of changes in government regulations, opportunities and market conditions. They find opportunities for something new in these changes. It sounds simplistic but most of us go through our work days solving micro problems associated with our work. We do not think of solving problems on a different, or larger, scale. Those who find an opportunity tend to be looking for it. How to look for such opportunities is something you can be trained in. We conduct a number of programs where we train younger students to keep an eye out for opportunities.

E: Why is it that even after spotting an opportunity, only a few manage to start a business addressing it?
EM: The answer is again mundane. There tends to be a background knowledge which allows you to see what the next steps should be, after an opportunity has been identified. This background may refer to prior work experience in the same industry, good contacts, or technical and domain knowledge.

E: Can the art of learning to recognize an opportunity be taught?
EM: What can be taught is that you have to be searching all the time. It is all about pattern recognition and that comes through experience. We can offer our students some experience in our classroom by looking at case studies which allow them to develop the art of recognizing patterns. For example, if you travel to a different country and see something going on which will work in your own country, take back that knowledge and start a venture around it. You take an idea from, say, a logistics company, and use it in your pizza delivery service. Basically, you take a process and put it in a different industry by recognizing a pattern. Some of this understanding comes with experience and time. We accelerate it by making students understand what pattern recognition is all about.

E: So, in a sense, entrepreneurship and startups are not always about innovating or starting something new?
EM: It is an important distinction because too many people think that to copy something successfully and improve upon it is the way to succeed. Sometimes this works but often it fails too. Existing successful companies know what they are doing; competing merely on price competitiveness is not enough.

Bigger companies can lower prices accordingly and this may spell the end for a startup.

Merely bringing an idea from a different country and expecting it to work at home is not a sure-shot formula, since every market is different.

E: In a country like India, where you have social entrepreneurs trying to solve basic grassroot problems, do emotions play a part?
EM: In any business, an entrepreneur has to be passionate about what he/she is doing. Starting up is hard work, and your belief in what you are doing keeps you going. There are emotions involved and these are important to success. Entrepreneurs are people who see an opportunity in a problem and have the passion to solve it and win the game. More often it is more important to them to solve the problem than merely make a lot of money.

E: Does this mean you can be an entrepreneur if you set your mind to it?
EM: Technically, yes, anyone can be an entrepreneur but being successful is another story. A successful entrepreneur has experience which comes over time, a good mentor and a committed group of people or co-founders around him. He also works hard, is resilient and is always willing to learn from his mistakes. However, though these are certain traits you usually find in successful entrepreneurs, there is always a lot more that goes into making their DNA. There can be no generalization or compartmentalization that one can make in these cases.

E: So what LRN does is help companies understand that the paradigm has changed? How does it do so?
DS: We have a presence all over the world, including Mumbai. And we consider ourselves entrepreneurs because we are really in the business of helping ‘principled performance.’
Further, we have a view on how things should be and not just on how they are now. We have a view on how leaders can be more inspirational for their teams.
How companies can forge deeper connections with their employees and customers… and how these various aspects affect the overall sustainability of the business.

E: From the time you started in ‘94, a lot has changed. Would you say there is a slow shift towards better social responsibility, ethics and compliance?
DS: There has been an enormous change since the 90s. The fundamental difference is that we have gone from the era of ‘Just To Do It’ to the era of ‘Just Do It Right.’ From ‘Greed is Good’ to ‘Good is Good.’ We have gone from ‘Too Big to Fail’ to let’s become ‘Too principled to fail.’ We have gone from profits and shareholder returns to a deeper moral responsibility to community and society.
Companies in the U.S. used to stick to the idea that man is rational and all they have to do to motivate employees is use carrots and sticks. But now they have realized that what people really want is a sense of purpose, dignity, and happiness. It is a very different world now.
Compliance is something that I have a lot of thoughts about. The act of complying is about following rules and regulations and policies. Our opinion is that if we first have the right rules and right policies, then we can easily motivate people to not cross the line but play by the rules. But what we notice is that many times, the systems of compliance choke the business when an attempt is made to scale up. And at the same time, they are not very effective. Rules have their limitations when it comes to their behaviors.

E: Could you elaborate on that? If rules and regulations can indeed choke a business, then where is the workaround for entrepreneurs?
DS: We are realizing that every business must first have core values, to which all the people must adhere, but not a thousand rules and regulations. If you give me a thousand rules, as an employee, I would not be able to adhere to all of them and they will choke me. The reason for that is that business today is about differentiating to win. It was about doing something better, cheaper and faster back in the 90s. But the world evolved, and indeed India did too. To use a metaphor, companies that strived to answer the phone in two rings were great businesses. But when everyone started answering the phone in two rings, which is what is going on now, businesses had to quickly find a way to stand out and be unique. And this uniqueness comes from how we do things, how we treat others, how we add value to the community, etc. It is an evolutionary shift of the highest dimension in terms of creating an advantage.
Let me put this in a clearer way. You would agree that business is about progress. Progress could be in terms of growth, revenue, and innovation. But to have progress, you need innovation. Innovation proceeds progress. But to have innovation you need risk capital. You need new ideas. You need new people speaking about new things in meetings. But when do people take risk? They take risk when they are in a high trust environment. And that is what entrepreneurs must create. That is the goal.

E: Creating a high trust environment sounds easier said than done when you are in a very competitive, emerging economy…
DS: We at LRN call it going on a TRIP, which stands for a Trust Risk Innovation Progress.  Trust is a ‘how’ question actually. How do we intend to treat our people and do our things? This is an important question that, if answered at an early stage, helps entrepreneurs build a sustainable business.
Most people think that trust is all about who we trust. And we scale that idea in to rules and regulations and approvals. So before you spend $8 you need to ask three different people. This is because we mistakenly believe that trust is about whom can we trust.
The virtual value of trust, however, is actually in giving it away. The entrepreneurs who give trust away are the ones who are creating sustainable organizations. I want to give you an example of this donut guy who trusted customers with what they would like to pay for his donuts. The donuts were equally fresh and the same price as those across the road. He just put an open try-out there on his stand. And he started outselling his competition 3 to 1 because of how he behaved. That is what entrepreneurs must do. Give trust away.

E: Is that too romantic a notion for somewhere like India, which is a growing economy with the same sort of competitiveness that you saw in the U.S. in the 80s and the 90s?
DS: I know in India there is a lot of attention on corruption and I am aware of the work of Anna Hazare in recent times. But the fact that it is a growing economy should not be an excuse for not creating an environment of trust. I want to give you an example of another fast-growing economy here.
In Indonesia, they have now 10,000 honesty cafes where schoolboys and girls can take fruit off the shelf and, instead of going to a cashier, pay their own in a jar. So, instead of putting more controls in place, there are trying to inspire young people with the principles of honesty and integrity.
Entrepreneurs who build companies from scratch have a choice to make. They can put all these controls in place. Or they can create a high trust environment based on shared values and they can then see the business scale to a level they would not have imagined.
Just because the U.S. was just doing it in the 80s and 90s, before it decided to change, should not be the reason India does the same. They cannot say that they will all be just doing it for a couple of decades and they will then get back to being socially responsible when a crisis hits. There is no time. We are now not having a crisis every 10 years, but sometimes every 10 hours. Your own stock exchange plummets when there is a bond crisis in Greece. The world is too flat for that thinking now.

E: Is a rethink of values what is needed then? How can entrepreneurs and the people around them introduce changes to become sustainable in this era of crisis after crisis?
DS: We have to rethink business leadership and think beyond situational values. To explain situational values, the most basic example is an entrepreneur thinking that he will pay whatever it takes to get something done, hire somebody, market something etc. This is called being situational and this makes you think in terms of what you can and cannot do.
These were the values in the 80s and the 90s, where our institutions thought of carrots and sticks for every situation we can think of. But now we need sustainable values and not situational values. These are integrity, honesty and dignity. These are the ones that build long-term relationships.
Earlier, you would buy from a company on price. If one company undercut the other on price, the customer would go with the cheaper one. This allowed companies to capture people. There was a lot more distance between companies. But now, this is no longer valid.
Today, there is some much more room to move around and companies are forced to find deeper ways to connect with their clients. And the sustainable values we talk about are the game changers here.
Secondly, entrepreneurs must ask internally why do people work for them? If it is only for the money, then they have a problem. The reason today why an employee is working for an entrepreneur must be based on these sustainable values. That reason cannot be based on situational values such as money.
You know what gets me? That when an entrepreneur approaches a mentor or an investor, the first question he is asked is how would you scale your business? How would you bring more customers and revenue?
What if we ask from every entrepreneur how would you scale your values? How do you scale what do you stand for? These are the questions entrepreneurs need to be asked.
And the ones who have answers to these questions are the ones who would build sustainable long-term businesses.

E: How is VC funding different in the U.S. versus India? What does an entrepreneur need to secure funding?
AS: The VC industry is not that substantially different from other parts of the world, other than cultural norms which are different. Environment for success and growth, or efforts made by the government to encourage entrepreneurship, are different. In China, the government goes out of its way to encourage entrepreneurship and innovation in technology, by providing incubation centers, buildings and facilities.

E: Which sector will be the big game changer this decade? Where do you place your bets: mobility or consumer internet?
AS: In India, you are benefiting from a very high growth rate. India is going to experience 7-10 percent growth in the next seven-10 years and that provides a different growth opportunity for startup companies. Not like the U.S., where growth rates are not more than a couple of percentage. Criteria for investing in the U.S. will be different from what a startup company will do in India and China. We are investing in applications, devices, software and services and data centers. You cannot pick one and put all resources there, as they all move together. Without a wireless device or communication infrastructure, investing in data centers is meaningless as devices have to be connected. These all go together in the form of an ecosystem and have to be invested in and pushed forward at about the same speed. As far as mobility and consumer internet go, we are investing heavily in both and the potential for each is great.

E: What are the emerging opportunities for entrepreneurs in the tech space?
AS: In India, technology adaptation is at the low end of the scale. There are opportunities in data centers, communication and infrastructure. Education is big, because in India ultimately there are not going to be enough schools to house the growing youth population and it will all have to be done online.

E: You made your first investment in the healthcare sector this year in India. A late entry into this space?
AS: We have invested in this space in other parts of the world. Our focus is on connected devices and computing all over the world. Healthcare is going to be one of those applications that is part of the overall connected world.

E: You don’t have any investments in pharmaceutical, bio-technology or retail?
AS: Our latest investment Fashionandyou is, to some extent, in the retail space. We are unable to comment on or describe what our next investment will be. We announce it as it happens.

E: How has entrepreneurship changed in India?
AS: A lot of role models are now in India. Infosys was a role model in the technology space. The seven founders did extremely well and it is now a global enterprise and listed. That’s a fabulous example that other companies are looking to follow. India is a very entrepreneurial country, with people who are just as entrepreneurial, if not more, than in other parts of the world.

E: What do Indian businesses and/entrepreneurs lack?
AS: I don’t find them lacking in any respect. If anything, a startup entrepreneur faces more hurdles in India than any part of the world.

E: What is your investment strategy?
AS: We do a very vigorous due diligence. We are looking for financial viability of the company as well as strategic relevance to our ultimate goal. As any VC would, we look at the founders, capability, their understanding of the market, skills and background at being able to manage a startup. We look for a management team, founders who are capable and have the entrepreneurial drive to get things done. So, basically, the right set of skills. Plus an idea, which has a total available market, that is worth pursuing. If the market size is Rs.100 crore, then it is not worth it. Then we look at competition; if it’s already been tried out, it’s not very interesting.

E: In which regions do you see maximum entrepreneurial activity?
AS: We are investing aggressively in emerging countries. We have just started investing in Vietnam, South Africa and Turkey as well.
E: What advice do you give startups when acquiring customers?
AS: For startup companies, acquiring companies is the hardest thing to do. One of the things we do is help them with that. Offer a product tailored to meet the needs of functionality which is cost-saving. Large corporations are not looking for just a product but also good sales service.

[The author was on a sponsored trip to
Intel Capital Global Summit 2011 in California]

E: You have entered into the mobile banking space in a big way. What was the opportunity you saw here?
HM: We look at all spaces where banks see an opportunity and can really make an impact with technology. When we launched Mobile 1.0 it was purely transaction based. Mobile 2.0, launched in November 2010, is a paradigm shift, as it is complete relationship oriented as against transaction based. The whole idea is that if customer X goes to a shopping mall and wants to know if he can buy a product which costs Y amount of money, he needs to know, the amount available in the bank account to buy the product along with a complete view of account, cash flow, how many assets, liabilities, and if an equated monthly installment option is possible. The idea is to take a relationship view and give complete control to the consumer than to the bank.
Plus, we are bringing in advancements in terms of device independence. Roughly about 8,000 different devices can be supported with our technology, right from the most basic to the most advanced smart phones.

E: In your opinion, what are the further opportunities for entrepreneurs in space of mobile payments and banking?
HM: Today, there are many players writing applications for mobile phones, which will definitely continue, according to me. There is an opportunity for smaller entrepreneurs to piggyback on bank services without having a full fledged banking application. The whole collaborative space, on mobile platform per say, is an opportunity, whether it be a generic application or for a specific segment.

E: What do you think are going to be the differentiators for Mobile Banking 2.0?
HM: It’s a generation different from normal mobile banking, as it does not look at only the transactional side, but also the relationship side. Then, it’s also device agnostic platform. In a market like India, all levels of economic strata are adapting mobile banking. Third, when you are using any mobile, my product must render to the richness of that device, while the product should also be able to leverage the features of each device.
Security is a big criterion too. Going forward in our global market, we have opportunities like cheque truncation. In some countries, I can take a picture of a cheque and send it to bank; just an image is good enough. It’s called remote deposit capture and today it’s happening at a bank level. Fundamental shift for me is the move from transaction to relations. You can actually open an account using your device; very different and very state-of-the-art.

E: What does it take to build a successful product in software space?
HM: If I have an idea, I can get a product out to the market and funding as well. However, in my experience of over 20 years in the product space, you need much more than an idea and funding to be successful. First up, having a robust architecture is important. When I develop an application, I should look at number of users and the kind of concurrency it can generate. Even if your product is the best, it may not sell on its own, and thus branding is important.
Then I’d say customer advocacy is critical too. Ultimately no one sells by advertising alone; understanding customers’ needs, as well as the micro and macro requirements of customer segment is important. Next up, I’d list delivery excellence. Unless all the features of a product are used and deployed well its futile. Especially, when developing large enterprise applications.
The eco-system is equally important. For a product company it’s important to take care of an eco-system. Lastly, I’d say funding. However, without the before mentioned aspects, it’s not easy to create a successful product company. Infant mortality rate of product companies in India is high. The brand concept for products has still not sunk in with Indian products vendors; the concept that one needs a larger canvas of architecture has still not been understood either. Plus right customers, planning and delivery is important.

E: What are your comments on the Indian entrepreneurial eco-system? Has it matured or is there some way to go?
HM: The eco-system is not developed. The US market is forgiving, as there no stigma associated with initial failures. In India, though, that’s not the case, but its changing slowly, with expatriates here now as well as young graduates from IIT’s and IIM’s starting ventures. It’s a lot better now, but for a software eco-system of our size, the product export revenue is still small.
There is a lot more opportunity for us to build here. The idea is that you need to stay invested, because products are a deep pocket game, but not in terms of money. Your investment and returns will not be in the same cycle, there will be a phase back but you’ve got to manage. Not only terms of revenues but also engaging your employees, as they need to stay connected and motivated. Your product will not sell 20 million licenses over night!

E: Where do you see the Indian IT sector growing this decade? Will we see more products versus services?
HM: Yes, I think so. There is a lot of maturity in the market now. Clearly, standardization is the primary driver for products. When you are able to standardize all requirements, that’s when products emerge. Products are not one single universe; there are multiple types, from simple, small applications to large complex ones.
Depending on the nature of opportunity, my sense is that we will be a lot more successful in business applications because of the proximity with services space, as well as content richness. I won’t be able to predict which verticals will have more products, but I do believe this decade you will see more product companies.
However, what will count is how many can touch Rs.10 crore in revenues, that’s when people’s perseverance and continuity will matter. It’s a long gestation period and entrepreneurs must realize that.

E: What is your advice to entrepreneurs in software space? Especially to those trying to break into the products space.
HM: Consider all the basics I mentioned earlier. Think big! Your architectural blue print should survive on a larger level, look at your customer domain, stay close to the customer, and make sure you deliver excellence. Make sure you have a broader pyramid of employees and eco–system to support you. You can’t do it all alone. At startup stage itself, entrepreneurs must strive to have a smaller share of a larger pie than vice-versa. A startup’s biggest challenge is reach, so if you are able to piggyback in the early days and share the successes with someone who can be a production shop, it will help you in long run. Also, make sure where ever you go for funding that they understand the intricacies of your venture.

©Entrepreneur October 2011

E: Why should an SME be interested in getting listed on the exchange?
LG: SMEs till now have been looking at debt options only to raise funds. But, they cannot leverage debt beyond a point as they exhaust collaterals. SME exchange will help such companies raise equity capital as the debt and equity ratio is very important in financial markets. The ratio has to be as per financial market norms. The exchange will help enterprises encash many opportunities. SMEs need money to achieve economies of scale. Amongst various equity expansions, listing on the exchange is the best since it brings all classes and types of investors together. Capital market already has about two crore investors and the SME platform will bring in FII, PE, VC, angel, HNI, banks, QIBs and the entire gamut of the investment community. It is a good opportunity to showcase a business model and gain advantage from it.
Listing on an SME exchange will also attach credentials with a company. It creates visibility and transparency and, thus, corporate governance of a company improves manifold. Faith associated with a listed company is also very high. Domestic as well as foreign investors trust the enterprises and, thus, it becomes easier for these enterprises to find an alternative source of raising funds. Companies can come out with follow on issues and raise more capital. In medium to long term, the exchange will give a better valuation and help these SMEs in wealth creation, for themselves and investors.

E: One of the highlights of the SME exchange is that for three years merchant bankers will be responsible for market making. Do you think merchant bankers will be interested in putting their time and effort into such an activity?
LG: Market making is difficult for traditional merchant bankers as their role is limited to primary market issues. Handling additional responsibilities of secondary market will be a big challenge for them. However, if you see the scenario of merchant banking in India, many banks have different offerings under one roof. For example, ICICI has a merchant banking division, investment banking division, broking arm spread across the country, HNI clientele and NBFCs tie ups, all under one roof. Market making becomes easier in such a scenario. It might be difficult for standalone merchant bankers but it is important for them to identify the right partners, network with them and create a system where activities can take place under one roof.
Considering the potential of SMEs that can be listed on the exchange, it is a huge opportunity for market intermediaries–merchant bankers or market makers. Like merchant bankers, members can command fees for market making out of issue expenses. Members are already enquiring about some SMEs they have identified and are ready to do market making for these enterprises. We at BSE are trying to involve all market intermediaries, professionals, sub-brokers and stake holders in promoting the exchange as everyone has a business interest. Exchange is a facilitator and all stake holders have a huge role in mobilizing the SMEs to find an opportunity to list.

E: While to list on the exchange a company needs to file its red herring with SEBI, the market regulator will have no comments when it comes to SME exchange. Does this leave a gap from where undeserving companies can slip through?
LG: There is a limit to which the regulator can cope up with load. There has to be a time when some work is delegated—to exchanges and market intermediaries. In this case, merchant bankers have been assigned a primary role in doing the due diligence. Ours is a disclosure-based, and not merit-based, regime. Processes have only been simplified. Filing of DRHP, getting in-principle approval from the exchange and SEBI and filing a public notice for a month are some steps that have been waived off since these were time consuming. However, the regulator has not stated that the standards have been diluted. The offer document has to be the same as that of the main board standard and similarly there is no relaxation in terms of corporate governance. In SME exchange, the merchant banker has more responsibility in terms of pricing the issues and giving returns to secondary market investors. In this case the merchant has to do a conservative pricing of the IPO so that returns are good for both primary and secondary market investors. I do not see fraudulent company coming through as I do not see why a merchant banker would allow this to happen. A merchant banker will have to purchase all the shares if investors do not buy these. We have a fairly robust system in India and I do not see a problem.

E: These days, a company may release results on its website and is not required to publish it. Then what is the rationale behind allowing SMEs to publish results every six months and not every quarter?
LG: The idea is to bring down recurring expenditure. For an SME which is not used to capital market practices, it becomes difficult to churn out numbers every quarter. Considering this, it has been mandated that these enterprises release results every six months. If any SME wants to do it every quarter, it is welcome. Since almost everybody has access to internet these days, we have allowed results to be filed on the website. An abridged version can be sent to investors and shareholders.

E: For SME exchange, SEBI has done away with the clause that an enterprise should be profitable for three years prior to listing, as mandated for the main board. What is your take on it?
LG: SME exchange is trying to bridge the gap between growing companies which find it very difficult to get listed on the main board, need funds to grow and become profitable and, at the same time, have the potential to do well. We are trying to manage the transition that companies may have between the SME exchange and the main board. Management in many of these SMEs may not understand financial results, annual results and many financial terms since it is more promoter centric. If we really wanted to help these companies, waiving off the profit-making criterion was necessary. Having said that, it does not mean any company can get listed as it has to have something to offer to the investors.

E: Another rule talks of the shares on the exchange being traded in lots. Will this not bring down liquidity?
LG: Most investors investing in SMEs are foreign investors, VCs, PEs, institutional investors and banks. At the same time we need to give opportunities to retail investors.
Given that investors in retail category can invest upto Rs.2 lakh in an IPO of a main board company, they can easily invest Rs.1 lakh in our exchange. Also, it is not good exposing small investors since it is a new exchange and an evolving concept. In India, we are very protective about the interest of small investors and feel that only informed investors should make investments in the SME exchange where minimum investment is of Rs.1 lakh. This may affect liquidity but we will limit investors this way and it will be easier to find and manage them.

E: What challenges are you facing and which ones are likely to crop up in future?
LG: There was a lot of apprehension and resistance from market intermediaries. We have successfully overcome these in the last seven to eight months via one-to-one sessions and explanations of the model that the exchange will operate on. We have a bigger challenge of educating promoters of SMEs. The number runs into millions; in every nook and corner of the country. Reaching out to these people and making them aware of the capital market issues is a big challenge. It will take some time and here I think professionals such as CAs and CSs have a big role to play. The other challenge that I foresee is for the investors. In India, retail investors are more use to short-term investments and returns and the good habit of staying invested for long is diminishing. We need to educate investors again that if they are interested in wealth creation, they should go for medium- and/or long-term investments.

E: What has been the response so far? We heard that 1,400 small firms barred from trading on BSE for various compliance issues may find their way to this exchange. Is this true?
LG: So far, about 50 firms have shown interest to be listed on the exchange. They are from across the country and across different industries and sectors. Suspended firms are not allowed to list on the SME exchange. A firm under main board, even if suspended, continues to be under main board and it cannot be under both the exchanges at the same time. We have given an option to the main board companies, which have a paid up capital of less than Rs.25 crore, to migrate to the SME exchange after taking necessary approvals. For suspended companies, these have to first comply with main board norms, get their suspension revoked, get two-third of the shareholders to back the move and then apply to the exchange. They also need to appoint a merchant banker and go through the market making process.

©Entrepreneur October 2011

Also, you must look at the quality of the labor force. A lot of people who are graduating out of the system cannot be employed. Another issue is that of qualification. Regular degrees like BA, MTech or MA are just not enough. What worked in the past will not work in the future and you need disruptive changes by making people pursue courses which bridge the demand and supply gaps. The NSDC’s role is to facilitate or catalyze initiatives that can potentially have a multiplier effect as opposed to being an actual operator in this space. The NSDC looks to involve the industry in all aspects of skill development. The approach is to develop partnerships with multiple stakeholders and build on current efforts, rather than undertaking too many initiatives directly or duplicating efforts currently underway.

Our objective is to skill/upskill 150 million people by developing ultra low-cost, high-quality, innovative business models, and by attracting significant private investment.

E: Which are the sectors that the NSDC operates in?
DC: The NSDC provides services to 21 sectors including automobile/auto components, electronics hardware, textiles and garments, leather and leather goods, chemicals and pharmaceuticals, gems and jewelry, building and construction, food processing, handlooms and handicrafts, and building hardware and home furnishings.

E: What is the role of private sector here?
DC: One way that businesses or the system can bridge the demand supply gap is by roping in the private sector. If you look at Indian institutions, some of the best universities in India still follow backdated syllabi. Some of the best automobile engineering schools are still teaching students on the Premier Padmini engine model. We need investment to come, which will only happen if you have a very clear return on investment. You can do that without profiteering. There is a difference between sustainability, profit and profiteering.

People see through the system. You need an ecosystem that allows you to get investment value. We, at the NSDC, are trying to put in large scale systemic models in the areas of vocational and skill development. It may not necessarily be aimed at a school dropout but can be aimed at a graduate or in-service people. If you take 500 million people and say it will cost Rs.2,000 to skill per person, you essentially need Rs.1 lakh crore. This money is not available in the government system. You need to generate it from the private sector and the private sector will come in only when there are for-profit entities or not-for-profit entities which are sustainable and ploughing back their money. We also need innovations and technology.

If we look at an engineer or a doctor, they are all skilled people and are willing to pay for their education because they get something in return. So, if you change the ecosystem and make the output demand-driven [like an education which will help you get a job] people will pay for it. If you take that as a system and reduce the cost of training; if you get the cost of education to be repaid back in some particular way, then it becomes fully fundable.

Again, how do you get innovation to play a part in the problem? How do you take a few teachers to a million students? People are doing that. Pratham, for example, is setting up a skill development initiative through innovative means. It is an NGO but also making surpluses and reinvesting it. Centrum is also doing the same thing. They are making money for the investors. Remember, if you need Rs.1 lakh crore to come in, you need private money. There is a lot of private equity possible in this space.

E: What is the NSDC’s funding role?
DC: The NSDC provides financing either as loans or equity, providing grants and supporting financial incentives to select private sector initiatives to improve financial viability through tax breaks etc. The exact nature of funding (equity, loan, grant) depends on the viability or attractiveness of the segment and, to some extent, the type of player (for-profit private, non-profit industry association or non-profit NGO). Over time, the NSDC aspires to create strong viable business models and reduce its grant-making role.

The NSDC is taking equity not as a means to earn money on investment, but as a way to support entities involved in skill creation. When we started this a year and half ago, we put a strategy in place. The strategy has very clear elements: You have people who are below the poverty line and have no access to training centers. You need to make the entire ecosystem inclusive. You need new instruments in the form of educational norms, skill norms and equity participation.

E: How do you make vocational education attractive?
DC: The entire employment scenario in the organized sector is skewed. People perceive vocational education as something you do if you cannot get into a mainstream course. It is believed that a vocational course will take you to a shop floor while a graduation will lead you to a good office. Moreover, the working conditions in many industries are not very conducive for people with vocational training and the pay is not good. All this has to change and people’s perception needs to undergo a change.

E: What are the issues we need to address?
DC: You cannot do anything in a piecemeal fashion. You have to address the ecosystem. Unfortunately we are coming with a lot of baggage and history in the education sector, where private engineering and medical colleges and the entire capitation fee issue spoilt the initiatives. On the political side, we need to settle the profitability issue. Unless we address the entire ecosystem, we will not be able to change this. If you look at the education system and see the huge demand for people who want to be educated and skilled and, on the other hand, industry which needs people, there are many areas where there is no regulation.

These are the areas for private institutions to come up and work in a manner which is profitable and sustainable. The danger is if you have profiteering and people just want to make a quick buck, you will see a whole set of new regulation and caps being applied.

A new breed of social entrepreneurs is needed to transform the entire space as, by 2022, we would be the human capital of the world. Everyone will be looking to us for talent and we can transform the dream into reality if only we manage to focus on education in a much more sustainable manner.

©Entrepreneur June 2011

Entrepreneur (E): What is your role at IMD?
stuart read (sr): : All we do at IMD is executive education, designed for people who hold high posts in MNCs. We do pretty well in the ranking, especially in the MBA world. We don’t have any undergraduate programs. So, these executives who come in from big companies usually have something on their mind. For instance, we get a group of people from a particular company who want to be more innovative. That’s where I come in. I teach aspects of entrepreneurship and innovation.

E: What is IMD’s role in fostering entrepreneurship in the west?
sr: Our stakeholders are mostly MNCs, all of which are looking at creating new opportunities at all times. They all need to create new products, generate new customer segments. In a big company, how do you do that? We offer our guidance in such cases. In addition, IMD’s MBA programs can take in 90 students, who have worked for 8-10 years. It’s more selective to get into IMD than Harvard University. We teach entrepreneurship too. The deal from our MBA program is that a third of our students will start a venture at some point. Additionally, IMD is located right down the lake from a big polytechnic school in Switzerland, called EPFL. We actively connect their engineers with our executive participants/MBAs. But we don’t have any formal incubation/entrepreneurial cell. Our faculty independently fund many companies but not through the school.

E: Your personal interest in entrepreneurship?
sr: I invest in people and ventures I know about. I’m a magnet at IMD for people who want to start ventures. I like collecting stories about entrepreneurs which are there in my book. I write a story every month for British Airways.

E: You’ve done some research on entrepreneurship. Can you tell us about this experience?
sr: My co-authors and I realized that people place more importance on marketing and management than on entrepreneurship. A big company makes a big plan. An entrepreneur must do the same. Most entrepreneurs never use a B-plan. Even if they write one, it’s more of a marketing document to raise money. As soon as this is done, the B-plan is forgotten.

In marketing too, the whole idea is to learn about a segment and then to promote it. We teach that to entrepreneurs. But that’s not what entrepreneurs do. They are more interactive with customers, they co-create with them. That’s not what marketing tells you to do, it says sell what you’ve got. So, the bottom line is that many ideas from marketing and management used in entrepreneurship weren’t exactly working.

I also realized that there must be some characteristics about entrepreneurs that make them unique. For years, there has been research and studies on what makes an entrepreneur successful. The answer is that no physical or psychological traits can define an entrepreneur.
Then there is the finance view. We teach people how to write a B-plan, market and raise money. But few new ventures ever talk to a VC. And out of those, we know how many will get funded. So, what’s the point of teaching it? That’s why my co-authors and I decided to look at expert entrepreneurs and see what they do and teach those findings.

E: Can you explain these findings?
sr: There are five main points. First is the means vs goal debate. In B-school, we tell entrepreneurs they must write a B-plan. But expert entrepreneurs don’t. Instead, they start with what’s available and the people they know. This makes perfect sense because they don’t have to wait for some genius or a VC to start up.
The second point is to focus on partnership instead of competition. The basis of strategy is competition. How do you look at an industry, its competition and the condition yourself?

How much competitive analysis do you think an expert entrepreneur does? Not a whole lot, especially when you are creating a market. What expert entrepreneurs care about is their business and those who will work with them: their partners.

The third aspect is risk. How do we teach people to manage risk at any B-school? The obvious answer is to make a forecast with an expected rate of return. What is fascinating is that is not how expert entrepreneurs handle risk at all.

They look at risk from the downside. Thinking in this manner gives an entrepreneur the ability to control how much risks he/she can take. What we teach in business schools is to take bets, but expert entrepreneurs actually take small affordable loss bets! It’s upside down! The fourth aspect is the surprise element. The one thing that expert entrepreneurs learn is that surprise is inevitable in business. So, instead of trying to figure out a way around it, they look at it as a new opportunity.

The final aspect revolves around the need vs find debate. Management, marketing and finance believe that opportunities exist and all you have to do is find them.

But the other view is that opportunities can also be created by entrepreneurs. Some opportunities wouldn’t have arisen if entrepreneurs didn’t actually get up and do it. It’s really an important philosophical distinction because it guides your actions.

E: Your reflections on entrepreneurship in India as you see it?
sr: I see entrepreneurship everywhere in India. Someone in the middle of the road is creating a market and that is economic activity at its most grassroot level.
I’m also very impressed with the activity in spite of the lack of infrastructure, regulations against it, and everything else. If you really had policies that encouraged it and infrastructure that enabled entrepreneurs to share information and learn from each other, imagine how much you could do here!

E: The Indian entrepreneurial ecosystem is still evolving. Your comments?
sr: There is great potential on the financial, infrastructural and regulatory side in India. A formal infrastructure for the ecosystem would be a big help.

E: What are the new opportunities for entrepreneurs in the next decade, globally?
sr: I’m fascinated by waste. It’s free and readily available. For an entrepreneur the question is, “How do I turn all this waste into an opportunity?”
And it’s really amazing to see what people are doing. The richest woman in the world is Cheung Yan of China whose company is called Nine Dragons Paper [Holdings] Limited. It exports waste paper from the U.S., sends it back to China, recycles it into packaging material and sells it back.

E: Your advice to entrepreneurs?
sr: Start now! It’s the essence of turning everything upside down. Start cheap, fail cheap, but just do it.

©Entrepreneur May 2011

Entrepreneur (E): What are the differences between entrepreneurs in India, China and the U.S.A.?
PETER YIP (PY): The Chinese economy opened up only 20 years ago. Since then, a huge shift has taken place in the mindset of Chinese businessmen. For most of them, business is all about making money. Most enterprises are export-driven. Industries built between 1960-1980 were fundamentally lower cost manufacturing units, making electronic toys and other electronic components; they weren’t technology-related ventures.

On the other hand, India has many soft and creative industries, because Indians have been exporters for the past hundred years. Indian entrepreneurs are comparatively more global. Chinese entrepreneurs only concentrate on finding customers for their manufactured products. They lack exposure and many of them cannot speak English. There are a lot of Chinese visiting the U.S.A. but they are mainly tourists or students.

In the U.S.A., there is a history of entrepreneurship, entrepreneurs are more confident and availability of money makes things a lot easier. Every sector is advanced and many entrepreneurs are creating new products and ideas. It’s a universal center of innovation where a number of venture capitalists are present. So, in the U.S., entrepreneurship is much more sophisticated compared to China while India is somewhere in between.

As an investor I would prefer India over U.S.A. as the evaluation is reasonable here. In the U.S., there is too much money chasing too few quality deals, so the evaluation is high.

E: Which are the companies in India that excite you?
PY: We have recently invested in a company called Ebiznet in India. On our own business front, we have moved from a major R&D center to the value chain, managing several marketing procedures for the entire South East Asian region from India. CDC is different from other investors as we are an evergreen fund, whereas a lot of other funds have a 7-10 year life span and need to sell. But we don’t need to sell, so we can be long-term investors and that is what differentiates us.

As long as a company has the right plan and is looking at the right kind of products and offering them to customers, we are ready for a long term investment with it. We are mainly looking at establishing a strong long-term business relationship. Establishing a business can take time so an entrepreneur needs to come up with solutions that truly offer value.

E: Regarding management methodology, what are the key points the U.S. and China can learn from India?
PY: China has more to learn from India than the U.S., especially the globalization aspect and the Indian best practices. Indians have done a good job when it comes to outsourcing and China will have to learn how to move offshore. Chinese businesses can no longer afford to hide behind government policies and the only option for them is to be bold.

E: If an Indian software company wants to expand to China, what would be the target areas and problems to focus on and what would be the opportunities available?
PY: To capture the IT industry, Indians have to localize a lot in China. There are also many Chinese engineers looking for jobs so there is plenty of cheap labor available in that country. So, being cost-effective, you won’t be able to compete with Chinese counterparts.

The reason for the success of the U.S. is that the product-consumer ratio is smaller; but when it comes to India or China, one product can have several buyers. I think many of them are already beginning to learn from companies like Wipro, Infosys and Tata, which have ventured into China. Some of these companies are on their own while others partner with locals. Having operations in China would also help in servicing the eastern market including Japan, because many Chinese speak Japanese as well.

Lastly, you need to be patient in China and learn to navigate the government machinery as it is a controlled society and not as open as the U.S.A.

E: What has been your experience of doing business in India?
PY: India could be the fastest-growing market for us. We have people who are more than just developers; they are helping us implement a product map. For instance, our new product with Microsoft is completely manufactured in India and we didn’t need any inputs from the U.S.

E: What are the main challenges that entrepreneurs face in India?
PY: Our biggest challenge has always been to find the right partners and focus on executions. Of course, we all like to focus on the way the world economy is recovering because our market is global. The world is interconnected today. India and China are becoming big players on the global platform, and all companies have to work keeping in mind the world economy. We can no longer run a company on a quarter-to-quarter basis. It’s important to tap all resources and recognize the market requirement.

Customer demands and complains are usual, but you must be able to find an appropriate solution. In a way, all companies should focus on working round the clock and try to maximize opportunities. Like India, China would be a big challenge for other countries to get a foothold in. Although the Chinese have started speaking in English, at most times they fail to relate to western cultures. Because the Chinese usually never spend much time overseas, they are deeply rooted to domestic values and interests. Thankfully, they have now started to become more open-minded.

E: What are the unique points of doing business in India?
PY: India’s diversity is very interesting; every city/town is different from the other with a number of languages and dialects being spoken. The history is fascinating and there’s a lot to learn. It’s a country comprising 1.2 billion people, which is enough to explain its massiveness. There is a wide disparity between the rich and the poor, much like China. The situation is somewhat similar to the one depicted in the movie Slumdog Millionaire although it was slightly exaggerated in the movie, I think.

Also, in India’s democratic political setup, you have choice and freedom. China, however, doesn’t have freedom. The Chinese government indulges in cosmetic thinking and there are huge censorship rights owned by them. India fascinates me, and I want to come back here all the time.

©Entrepreneur October 2010

Entrepreneur (E): You’ve had a history of being a risk-taking serial entrepreneur. How has your journey been?
K.B.Chandrasekhar (KBC): In any entrepreneurship story there are always ups and downs. Unless you are willing to fail you will never know if you are pushing boundaries. And unless you push boundaries you are never going to make something that changes the world, or fundamentally what I call the next big step, that begins to happen in the process of human invention. This journey has been since my early days. When I was 16-years-old I used to play with the stock market at a time when no one understood what it really meant.

My parents were very supportive and thought I should take the risk and were also willing to risk their money. These were part of my early values and upbringing that have stayed with me always. I have put all my early learnings into practice in all my ventures. The journey has been all about finding something new with interesting twists and turns.

E: What has been your biggest learning from your entrepreneurial experience?
KBC: There are five important lessons actually. First, people are the key assets. When you are an entrepreneur, and not a big brand name, the kind of people you attract is the only factor that differentiates you from another company.

Second, be willing to fail because if you are not willing to fail, you will not be willing to take the risk that is required.

Third, communicate openly about problems and opportunities. My simple message to people has been enjoy the journey because when you reach the top the only thing is to come down. Fourth, balance family and work life.

Lastly, be unconventional in everything you do. There must be something that defines your personality, or what we call the mudra.

E: Everyone is talking about cloud computing these days. What potential do you see in it?
KBC: In 1994, when I started Exodus Communications, it was the first wave of cloud computing. We used to call it internet data centers and that was the first wave of cloud computing. The second wave was application service providers.

After that came software as a service on top of it. Then many of these components started maturing over a period of time. India and emerging nations are the biggest markets for cloud computing, though some of the analysts have not bought into the argument.

E: What is your vision for Jamcracker as its CEO and chairman?
KBC: Jamcracker has had a single vision from day one—how to enable frictionless delivery of a collection of IT services to target customers. Over a period of time, the phrase ‘cloud service broker’ has come into existence and Jamcracker is a pioneer in this area. It is able to act as a trusted broker that enables management delivery, aggregation and usage of a multitude of services, irrespective of the source they come from.

On demand services delivery simply means you will be able to consume it. In fact for over a decade people have been consuming on demand services, for instance when you use e-mail. You don’t even know where it is sitting, but you are able to use it on demand. That has basically evolved into cloud computing, which includes the most commonly used applications e-mail, collaboration and HR applications, compute as a service application [which means you can rent the computing capacity by the hour/day as you need it].

In short, the whole IT infrastructure which you thought you would need to build, you will be able to assemble with a product like Jamcracker.

E: Your comments on the Indian entrepreneurial ecosystem?
KBC: In India we are beginning to see the first cadre of successful entrepreneurs go back and start putting money back into other entrepreneurs. I think Narayana Murthy is showing the way with Catamaran Venture Fund where he is going to work shoulder to shoulder with entrepreneurs. It takes a lot of effort as people are not just depending on money but are looking for your advice. That’s why it is called sweat equity.

It’s going to be an evolution and you will not see the next Google spring up from here overnight. However, over a period of time, I feel India will become the birth place of the Google[s], and Facebook[s] of the future. Also, there are a lot of non-technology areas of entrepreneurship and we have plenty of opportunities in innovation, too.

E: How can this ecosystem improve?
KBC: Our ecosystem has many lacking, but I won’t call it stagnant lacking, it’s part of the evolution process. First and foremost, look at our system of labor laws. We still take a very long time to start a company because the laws have not kept pace with time. We have a long way to go when it comes to streamlining the labor and company laws that impede the starting and shutting down of companies.

Second, we need to create different shareholding structures and unique instruments so it’s easy to raise money for enterprising entrepreneurs.

Thirdly, we are still based on the British model in many ways. From a government’s perspective we have only recently started embracing some of the American concepts of venture capitalism. But if we have to be at the top of the pyramid vis-a-vis high-value job creation, entrepreneurship is the only way because this is where our intellectual property can be showcased to the world and you can get the best back. Our infrastructure is still spotty; services like broadband is still over priced.

E: Where do you see India progress/evolve over the next 10 years as far as IT entrepreneurs/innovators are concerned?
KBC: India will become the future capital of the knowledge industry. It’s not just IT but areas like life sciences [Kiran Mazumdar Shaw], innovative designs like Tata Nano, all show that we are beginning to see original thinking come out of India. We are at just the beginning, where we will become the leaders of the next generation of innovators. For that to happen, we have to encourage a lot of original thinking at universities.

Today, most of our universities are still run as training centers, unlike the U.S. which has created an endowment-based system over the past 200 years. This means there is always enough capital base available at the university to fund research and the government spends a lot of money. However, India is slowly coming in.

I set up the AUK research center 10 years ago. The lab-based inventions that get translated to commercial success is the dream of the country at the end of the day and very few countries have been able to achieve and sustain it. India is capable of it. We need a passion for research innovation, invention, an ecosystem of angel investors, and people who can take the concept from lab to market. Plus, we need those who will join these bright minds and dream of building the next big company.

E: What are your future plans?
KBC: For me, creating new companies is a way of life. I’ll die if I don’t create! I have a simple philosophy of building a new startup every 12-18 months. I also assume a lot of them will go bust.

We currently have five in incubation between Chennai and Silicon Valley. One of them, in India, is in the area of taking complimentary medicine system like Ayurveda and spreading it globally. The second one is in the area of social networking-inspired mobile coupons. It is being incubated in the U.S. and will move to India. The third one Serendio, incubated in India but now marketed globally, enables mining customer sentiments from social networks, blogs/conversations. Some others are in the areas of speech recognition, spread of education to secondary markets and low-cost diagnostic kits [bio-medical].

E: How many Indian startups have you invested in directly?
KBC: Since 1999 when I started investing in India, I would say about 25.

E: Why did you start a research center at Anna University, Chennai? What is its goal?
KBC: Oh, a very simple one—how to create an applied research center that can create a bridge to the lab-to-market concept. In effect, research is a means to create something useful to people. We work in the area of information sciences and life sciences. Serendio came out of it, all we need is one success and that makes us quite happy.

E: Your worst business decision till date?
KBC: I invested in eight mobile companies in 2000 only to find that by 2002 they had all shut/were sold. The market was just not ready. For entrepreneurs, worst business decisions usually involve wrong timing, betting on the wrong entrepreneur and thinking it’s a monster market when in actuality it turns out to be a very small one.

E: Who has been your mentor? Who would you call your role model?
KBC: My mentor has been Kanwal Rekhi. I would say my role model is Sam Walton because he came from a mid-town, no flashy background and built something step by step. He cared for and valued customers, was a simple man who understood the power of IT back in the 60’s and applied it to retail.

E: Your advice to entrepreneurs?
KBC: Stick to your convictions and do not listen to naysayers. India is a fertile bed for entrepreneurship. Don’t get too complacent with high-wages, high salaries and comfortable life. We need to be able to feel restless, dream and achieve the impossible.

©Entrepreneur August 2010