Transitioning from Startup to Scaleup
Startup needs both vision and execution to scaleup.
Economic Times article on Can India make the transition from a startup nation to a scaleup nation? by Sanjeev Aggarwal, senior MD at Helion Venture Partners: I have been fortunate enough to participate in two new industries in the last 15 years — the outsourcing sector which today comprises about 9% of Indian GDP, and the consumer internet industry is one of the fastest-growing sectors of the economy. If we execute right, the consumer internet sector could add 5% to our GDP over the next decade. Both industries are primed to be the pillars of modern India. However, the big question that is still unanswered in the Indian consumer internet sector is this: Can India make the transition from a startup nation to a scaleup nation? As a venture capitalist who gets to meet young tech entrepreneurs for a living, I have been dazzled by the quality of teams that are coming out to build companies in the tech sector. This young breed has no fear of failure, and their aspirations are far ahead of their resources. They have an innovative mindset, they operate from first principles and exude clarity of thought.
What, therefore, is the recipe for building enduring companies in the consumer internet sector? Some cues lie in the sector that preceded this current startup wave — outsourcing. Many factors led to the scaling up of the outsourcing sector, but the one that stands out was the quality of the human capital programme these companies put in place. The underpinnings of the programme lay in a high degree of empowerment, strong employee engagement and a culture built on basic values. I think a company run on values has a better shot at longevity. Identifying core principles that you care about (speed, integrity, customer orientation, etc) and grounding them in the organisation is the key. You co-create them with your team, ground them through constant communication, embed them in your hiring and development process and exemplify employees that live them day in and day out. Conceiving these is not hard, but to make them work while scaling up is a Herculean effort. It is like an operating system of the computer, invisible but essential.
I think the other cue we must take from the outsourcing sector is the role of an investor. Given that outsourcing is a relatively capital-efficient sector, the entrepreneur was always in command. This is not true for the consumer-internet sector, which is capital-intensive. It is common knowledge that entrepreneurs in this sector are driven by investors, who are often driven by market sentiment. We have seen that the mantra in recent years has been 'growth at any cost', but we are now witnessing a complete reversal in favour of capital preservation. Enduring companies are built when growth and efficiency are driven concurrently, not sequentially, or in fits and starts. Also, every enterprise must have a leader, and that has to be the entrepreneur. However, in the consumer-internet sector, leadership is split between the investor and the entrepreneur. It is time for the entrepreneur to seize back the leadership, and investors must take a back seat.
While these are valuable lessons from the outsourcing sector that entrepreneurs of consumer-internet businesses can adopt, I would like to highlight some other aspects they need to pay attention to. Founders must look for complementarity of skills — someone who envisions the future and someone who executes, The Brahma and the Vishnu. When this union happens, magic occurs. I had this partnership with my co-founder Pavan Vaish at Daksh. Even a person of the calibre of Bill Gates needed a Steve Ballmer to complete the equation. The other important aspects are customer-centricity and separating 'value creation' from 'valuation'. Sustainable value is created through employee and customer-centricity. Valuation is driven by market forces. Entrepreneurs building enduring companies should focus on input and not output. Valuation is only an output.