Reimagining India as a Startup Country

As the world continues to struggle for growth, India stands as an island of possibilities amongst the despair. For a world where the largest economies are struggling to grow even 2%, India is a USD 2.225-trillion economy growing at ~ 7.5% annually. It is the world’s seventh-largest economy by size and slated (by IMF) to become the third-largest by 2030 with a USD 10 Trillion economy.

But the world as we know is shifting. This isn’t the time to be the new China of manufacturing, or the new anything from the past; rather, it is the time for reinvention. There are three meta-trends that provide a humongous opportunity for India to fulfill and reimagine its place in the world.

  1. India’s economic rise has been a child of globalization. This meta-trend is under threat due to rising economic disparity in the nations that drove much of globalization. The globalization of manufacturing and services can potentially give way to glocalization of innovation. This may seem impossible till we begin to challenge our own mindsets. Some of the smartest organizations on the planet like GE are already doing this.
  2. Digital technology is replacing human labor at a speed that makes the demographic dividend in the traditional sense less of an incentive. FoxxCon is the best example of how a factory that employed hundreds is now being run with just supervisory teams.
  3. Nations without legacy debt can potentially leapfrog the fourth industrial revolution. The arms race for digital capabilities is being fought by the bigger economies but the pace of adoption will necessarily be slow due to legacy. Simply put, just as India leapfrogged into mobile adoption without the cumbersome rollout of a landline infrastructure, it has to structurally convert lack of legacy debt into a leapfrog moment.

My perspective is for the exponential opportunity these meta-trends present to the government of India in reimagining India as a startup country. Attracting startup ecosystems has been the key focus area of various governments. The reasons behind why governments are coming up with startup-friendly policies are primarily due to the long-term benefits in terms of employment generation and investments coming to the city and country. This is a fair expectation from the government. However, the mantra of making startups successful in any country needs a different approach from the government. It’s a relationship that could change the landscape of any country/state.

A startup ecosystem is different from the SEZ ecosystem

The first is for the government to let go of the template of a SEZ that incentivized India as an outsourcing hub. These are very much relevant and will continue to be so for the short to medium term but as a startup, the advantage of a having special tax-free zones, cheap power, land and other facilities are meaningless! This may come as a shock but an entrepreneur is typically working out of her/his own home or a co-working space where the cost to convenience ratio is nominal.

India already is a robust platform for providing incentives to organizations that want to scale the people costs for well-defined, high-quality processes. This is a unique value proposition that we have been perfecting over two decades but it is a proposition that is attractive to mature organizations and those in need for enterprise scaling. The startup ecosystem, on the other hand, needs support much before this phase and can get into this phase once it has achieved scale. India has the opportunity to be the incubator hub for a whole host of technological breakthroughs because of its lack of legacy debt and associated vested interests.

Startup Expectations from Government

Many governments have been coming up with incentives for startups. Most of these policies are focusing on ease of business, investments, accelerators, office space, etc. Do they really solve the problems or help startups? To understand this problem, let’s understand the word startup and also types of startups.

What is a startup?

Types of startups:

  1. Early-stage
  2. Established ones with revenues
  3. Unicorns

Startup Policies

Most of the startup policies focus primarily on:

  1. Investments in startups
  2. Accelerators/incubators, etc.
  3. Exemption from stamp duty and registration fees
  4. Exemption of all state and local taxes
  5. Expediting process for land acquisition
  6. Stipend/allowance to startups
  7. Access to startup events
  8. Office space/SEZ

There are many important announcements that are being made by governments to attract startups to start operations in their state and go on to expand and invest in the state. Most of the policies are silent on how the states can actually help in solving the challenges being faced by startups. The startups don’t expect the states to solve their problems/challenges but can be the conduit through which the startups can find a way around the problem. To understand this in more detail, I have looked at what the characteristics of startups that succeed are. The number one characteristic of a successful startup is market fitment. The offering by a startup is able to find the market that has the problem. All the startups start with a problem that is pretty big to solve and has a good solution to solve the problem. Where most of the startups fail is to find the market which is keener to adopt the solution. The journey to find the market is quite laborious and most of the startups struggle with this.

The objective of the government should be to enable startups to succeed and not to scale. The scaling can happen without government incentives. Here are the ways in which governments can enable startups to succeed:

  1. Adoption of the solution by the government if it directly impacts any of the government’s activities
  2. Indirect pilots with departments under state
  3. Regulatory hurdles
Expectation of Governments from Startups

Let’s also try to understand the expectations of governments from startups:

  1. Employment generation
  2. Ideas that could potentially solve some of the most serious problems
  3. Improving the quality of life for its citizens
  4. Bring innovation culture to its citizens/students
Economic Stakeholders

While governments could be the catalyst for startups to take the next steps, for the scaling of a startup, we also need economic stakeholders.

The below diagram illustrates the interest of various stakeholders

As illustrated above, there are various scenarios and challenges that emerge.

Scenario A: This is the common area where we can see the amalgamation of the government's priorities, solution fitment from the startup and interest by economic stakeholders. This is a win-win situation for everyone and all stakeholders should come together, prioritize and work together.

Scenario B: In this scenario, the government’s problems are being solved by the startup. These set of problems may not have a good business model/revenue in the short term. However, this set of problems would have a larger impact on the society and the startup may have good solutions. Governments should support such startups and provide direct subsidy and work with them.

Scenario C: In this scenario, the startup doesn’t have a solution set for government problem but there is a business case which can be built. The startup solution may not be a good fit. The government should work with larger IT companies to solve the problem. The government should treat such initiatives outside the startup policy and own them.

Scenario D: In this scenario, the startup solution doesn’t solve the government’s problems directly. Since the startup has a strong business case, it can be built and economic stakeholders can be found. Hence, the role of government should be to connect the startups with economic stakeholders.

The below table summarizes the role of responsibilities in each of the scenarios:

Scenario Government Startup Economic Stakeholder Scenario A Active Active Active Scenario B Active Active No role Scenario C Active No role Active Scenario D No role Active Active

Working Model

A good working model is the one where we can identify the common areas of focus between startup ideas and the government. I suggest a three-phase model for an effective collaboration between startups/governments and economic stakeholders.

Phase 1: Problem Identification

A good starting point for this would be if the government can shortlist a few areas for which its needs startups to focus on. These are not technology trends but problems that the government is sincere in solving and needs faster solution than the traditional IT companies that it is working with. These are genuine problems where the government is not able to solve a problem using traditional means.

Phase 2: Solution and Pilots

The next step would be for startups to do an assessment if it can resonate with the problems identified and has an effective solution. The government should have a forum where it is able to understand the solution provided by the startups and is able to quickly decide if it’s in mutual interest to work together. The next step would be to do a small pilot. This would give both the startup and government a means to analyze the effectiveness of the solution.

Phase 3: Business Model

Once the startup has got the confidence, it needs to work with other stakeholders to formalize the business model with all the stakeholders. These stakeholders could be banks/educational institutes, etc.

The effectiveness of any model is the cost associated with finding the market fitment for the solution provided by the startup. Government policies should be aimed at smoothing the process and helping the startups in the process. A scalable model would be able to help all the stakeholders in achieving the objectives and better utilization of time and energy.

Please watch out for the next series on this topic where we will talk in depth about the working model.