“estest to inging” : Revisiting Customer-Centricity

How many of us are bombarded with advertisements touting that “we are the fastest, cheapest, best...the “estest” of any product/service? From Brazil to Beijing and from unsolicited cell phone calls to online banner ads, it is a non-stop nuisance! How demeaning it is to be viewed merely as a dollar value for some marketer who is desperately trying meet his/her KPIs? Don't we need a bit of empathy? Somebody who understands what we need and exactly deliver that? (or deliver nothing if we need nothing!).

Currently, new product/service development and marketing needs a paradigm shift from being “estest” to identifying the “inging” of the product/service. So what exactly is inging? Let's take an example of gym. It is not a rocket science to recognize that a gym is the place of excercising. But do you really think everyone goes to a gym for exercising? Being a gym enthusiast, I can say this with certainty that exercising is just a functional purpose of going to gym. The rational purpose of going to a gym could toning, body building, slimming etc. Depending upon the rational purpose of exercising, the intensity and frequency of training and other aspects e.g. dieting and living (i.e lifestyle) have to be modified. For instance, for slimming one cannot follow a body building program and dieting habits or go on binge drinking and yet expect to loose weight. Thus, inging allows for a product/service to be “customized” and deliver maximum value to the customer. This paradigm shift to inging requires asking a series of “why” questions until one has identified the rational purpose of the product/service.

A clear insight into the rational purpose of a product/service will reveal product/service attributes and consumer benefit, which is critical for customization. For instance, for nighttime diapers for babies, the product attribute is dryness, consumer benefit is better sleep and rational purpose is healthy baby development. Diapers just happen to be a medium to deliver these needs to the parents. These insights into identifying the rational purpose, product/service attributes and consumer benefit are essential for an entrepreneur to develop a marketable minimum viable product (MVP). Any MVP iteratively developed based on these insights will have a higher success during customer/consumer validation phase. This view on co-developing the product/service development is well articulated by Joanne Bischmann, VP Marketing, Harley-Davidson (currently VP Communications) in this quote - “Marketing and product development are so intertwined at Harley-Davidson that it's hard to say where one ends and the other begins. That's one reason our motorcycles get the response they do from the riders. It also keeps us intensely focused on fulfilling customers dreams in everything else we do” (emphasis mine).

Integral to inging is to understand the distinction between between customer (i.e. one who is buying = dollar value) and consumer (i.e. one who is using = experiential value). This distinction is often blurred in B2C sales because one who pays may also use the product/service but, as in the gym and diaper example above, there are exceptions to this rule. In contrast, customer-consumer uncoupling is distinct in B2B sales where the customer is a company whereas consumer is usually an employee of the company. In companies with a command-control (i.e. top down) culture, it can prevent entrepreneurs/marketers from identifying the exact needs of the consumers (and hence of the company), which can misdirect MVP development. In contrast, in bottom-up companies that decentralize and empower the employees leads to better understanding of their needs and requirements. Entrepreneurs/marketers have to ensure that they are in touch with the consumer and not just the customer during the phase of iterative MVP development.

In either cases of B2B or B2C businesses, there are only 3 outcomes following customer/consumer validation - (i) disappointment, (ii) satisfaction or, (iii) delight. Disappointment results from failing to deliver the promise or meet the expectations whereas satisfaction is being able to meet them. Customer/consumer delight results from far exceeding their needs and expectations. A delightful experience is a transformed consumer/customer who will remain loyal not only to the product/service but also to the company and thus have longer life-time value. For instance, Apple has sometimes failed to delight the customers on some of their products or features e.g. the antennae issue in their first iPhone, maps and more recently in bending of the iPhone 6 models. Yet, they have a loyal customer/conusmer following because Apple has scored overall higher on the number of “delight points” across experiential journey of the user. Thus, to summarize, customer-centricity uses a “sales-centric” approach i.e. what we (entrepreneurs/marketers) want whereas consumer-centricity uses a “journey-centric” approach i.e what they (consumers) want. In today's highly competitive environment, to prevent commoditization of products/service, a consumer-centric strategy and focus on experiential value of products/services is paramount because experience cannot be commoditized.

7 Habits of Highly Effective Entrepreneurs: Habit 1 - "Be Creative"

Entrepreneurship is hard. It is possible only for those who stick to the path and never give up. The question that follows is what gives the successful entrepreneurs the tenacity required for success? Is it that because they are seduced by those potential billions of dollars that they may get in future? Or is it something much deeper and fundamental to their identity? While researching an answer to these questions, I read hundreds of blogs and watched equal number of videos. For some blogs and videos, I read a list of entrepreneur attributes and for others I saw a pattern in entrepreneurial behaviour but could not find a succinct way to articulate my research. Much to my surprise, I found an eloquent articulation in some Sanskrit texts. Based on my research and some experience, I have identified 7 principles that an aspiring entrepreneur needs to absorb until they become habits. For some entrepreneurs these habits could be natural and for others, these habits can be inculcated. In my blog, I will discuss the 7 Habits of Highly Effective Entrepreneurs.

For brevity, I will discuss only one habit in each blog post.

Habit 1: Be Creative

To be a successful entrepreneur, one should have an unlimited amount of Creativity Quotient (CQ). Steve Jobs, the best example of creativity that all can relate to, said in his 2005 Stanford Commencement address:

(Modified from www.desktopaper.com)

I have read and heard the above sentence repeated through videos, blogs etc. However, I could never put this in a scientific framework [sorry but my PhD training (or conditioning?) that compels me to formulate everything into a set of principles :-)]. In mathematical terms, I was searching for a framework that will increase one's "CQ". Herewith, I will share with you two of my findings that helped me to understand creativity and provide a conceptual framework that one can adopt to augment one's creativity:

Recently, I read a publication from Saras Sarasvathy from Darden Business School, University of Virginia, (Please click here for the original publication) in which she gave a very interesting explanation on the various types of creativity. Based on her research, she has categorized creativity into three types - managerial, strategic and entrepreneurial. Please see below a figure from her publication:

(Sarasvathy Saras, Darden Business School, University of Virginia. Please click here for the original publication)

Usually in our education or jobs, we are encouraged for managerial or strategic creativity. Managerial creativity involves using a set number of means (e.g. M1 to M5) to meet the company goal. Strategic creativity builds on it to use more number of means (e.g. M1 to Mn) to reach the goal. The goal can be for individual performance, delivering a new product, increasing sales or profit margin etc. In any case, the goal is pre-defined. One has to use existing internal and external resources to meet the goal faster, cheaper and/or better. 

In contrast, entrepreneurial creativity is totally different. It is about connecting the dots (or means) to come up with something brand new. For example, all of the Apple products the Mac, iMac, iPod, iPhone and iPad -  all of these were about connecting the dots or inventions/technology available at the time and imagining the next-generation product. It was believing that these dots could be connected and not allowing our critical/analytical reasoning to jeopardize our creative thought.

However, all of us cannot be Steve Jobs! (and we should never forget that!) While Sarasvathy's publication above explained to me what is entrepreneurial creativity, I still did not have a conceptual framework on how could one increase the CQ. I was researching whether creativity could be made into a scientific process i.e. it has to repeatable and accessible to everyone. Finally, I found an answer in the following interesting creativity model from Prof. Tina Seelig at Department of Management Science and Engineering at Stanford University. While all of her videos are awesome, if you are very busy then I would highly recommend the readers to watch at least this, this and this. 

To summarize, what I call it as the Seelig Creativity Model: 

(Reproduced with permission from Tina Seelig. 
Image from her book: inGenius - A Crash Course in Creativity)

Seelig says creativity is the "innovation engine". According to her model, at the inside of this engine is us with our attitude, knowledge and imagination and on the outside are our resources, culture and habitat. These six components are integrated like a Möbius strip and all components are interdependent. The beauty of this model is - one can start anywhere and yet unleash one's creativity to the fullest. (please check her videos to know more about her creativity model). Based on this model, one can identify what are the current external and internal resources (i.e. what is) and put a conscious effort in change them to suit the goal (i.e. what ought to be). For instance, one could identify one's knowledge about entrepreneurship and improve it by educating oneself through various online resources. Once the knowledge is improved, it will trigger our imagination and affect how we see opportunities (thus changing our attitude). We will then seek out the required habitat or network to realize the business idea. Associating with entrepreneurial network will further affect our culture. Similarly, one could start at any point in the model and realize how all the above dimensions are interdependent. The more you iterate and apply this model, the more creative you will be!

Finally, habit of creativity is not only useful for entrepreneurs but for everyone! So just to tickle your imagination, what can you do with 500 post-its???

Submit your comments/videos/pictures!

Revisiting the Trifecta of Market Leadership

Product design, customer intimacy and operational excellence are the trifecta of a successful marketing strategy. A model based on these three "value-disciplines" was proposed by Michael Treacy and Fred Wiersema in their book "The Discipline of Market Leaders". In this blog, I will discuss a few musings on the topic:

To begin with, let's understand the Treacy-Wiersema Model:

Product Excellence: It is a relentless pursuit to innovate and design next generation products and services. Such companies build a culture of innovation and entrepreneurship. They are excellent talent scouts, teamwork and portfolio management. They invest heavily in R&D, are product-centric by definition and excel in creating an unprecedented "product experience". A few examples of market leaders in product design are Apple, Nike and Ferrari.

Operational Excellence: It is optimization of business processes and supply chain to deliver products faster, cheaper and better. They build a culture of cost saving. They are excellent in harmonizing workflows and automation to reduce costs. They invest heavily on creating error free "engines" of profitability. A few examples of market leaders in operational excellence are Southwest Airlines, Ikea and McDonalds.

Customer Intimacy: It involves developing a deep, long-lasting relationship with the customers to offer them the products and services that best matches their needs. They build a culture of developing personal connection with the customer. Thus, they are excellent in aligning the whole company to think 'customer first'. They invest heavily in market research, big data analysis, SEO and digital/social media marketing (in recent times). They are customer-centric by definition and excel in creating an unprecedented "customer experience". A few examples of market leaders in customer intimacy are Amazon, Facebook and Linkedin.

From the attributes that define each value discipline, we can see that to excel in all three value disciplines is rare for any company. The reason for this rarity is the company culture, structure, human resources, processes, facilities and revenue models that are optimized for a value discipline are incompatible to excel in other value discipline.  For instance, a company that is optimized its resources for operational excellence would have limited range of products and production pipelines that will make innovation difficult (please check my blog on corporate entrepreneurship here, wherein I discuss more about balancing innovation and performance). Hence, the company has to make a strategic decision to channel their resources into one of the value disciplines.

The power of the Treacy-Wiersema model is that the value disciplines sets the criteria for competition in the industry. The model states that for any company to be competitive, a minimum threshold of competence is required in all the three value disciplines. However, to be a market leader, it has to excel in just one of the value disciplines. Hence, choosing the value discipline is a strategic decision for every company. However, in my opinion, the choice of value discipline to gain the market leadership will depend upon the nature of industry. For instance, the core of e-commerce industry is to deliver the right products faster, cheaper and better to the customers. Thus, the e-commerce should be aware of the customer needs (hence customer intimacy). In contrast, the heart of biotechnology industry is R&D and they need to develop innovative solutions to cure disease (hence product excellence). Likewise, the minimum fair value for aviation industry is cheap and punctual flights (hence operational excellence). Thus, the type of industry pre-defines the value discipline determinant for market leadership.

Next, I set out to research if we can find any instances wherein a company has been successful in excelling in all three value disciplines and emerge as market leader. Interestingly, I found a couple of examples:

Walkman: This product may not be so well-known in the younger generation. Hence, the history of the Walkman is very interesting to read. Please click here to read more. Briefly, in the 1970s, the concept of portable music player was non-existent. The personal tape players were expensive and heavy. Hence, the customer need was to make the music players portable and affordable. In 1979, under the leadership of Akio Morita, Sony released the Walkman. It was a disruptive innovation at that time. Thus, an example of product excellence. Next, the challenge was to make it affordable to the masses. Sony worked on the operations and manufacturing to bring down the costs. It enjoyed ~50% market share in the music player industry, a huge success. Thus, Walkman became an example that excels in all three value disciplines.

After the Walkman, we witnessed the discmans and MP3 players. While these were innovative products but none enjoyed the success of the Walkman. The only product that rivaled the Walkman is the iPod.

iPod: From a product innovation perspective, iPod (a portable MP3 player) was 3 years late as compared to the MPman - the first portable MP3 player. However, downloading MP3s was time-consuming and the internet bandwith was not fast enough. And unlike the cassettes for a Walkman, one could not purchase the MP3s in retail stores. It was only in 2001, when all the components to download MP3s were in place and then came the iPod. Steve Jobs knew that until the relevant supporting technology is not available, portable MP3s will not be the next Walkman. Thus, launched at the right time, iPod became an icon of product excellence. Next, iPod + iTunes store gave a hassle-free access to millions of songs for 99 cents apiece - an example of customer intimacy. But what about operational excellence? Shouldn't the products deliver by excellent operations be cheaper? (iPod was sold at $399, remember?). But that was exactly Tim Cook's role when Steve Jobs was still leading apple. Tim, COO then, is an expert in operations. Apple redefined operational leadership and took it to the next level (Click here to read how iPod broke all Sony's records and here and also here to read about Apple's operational excellence).

In summary, the Treacy-Wiersema Model is still valid because it is rare to excel in all the three value disciplines. But for those who do, they create history. The people who are crazy enough to think they can change the world, are the ones who do.

Entrepreneurship after PhD

PhD is a passport to academic elite. But is this really true? Not really. To substantiate my claim, I will share with you the following figure from a publication in Nature Biotechnology:

(Source: Schillebeeckx et al., (2013). The missing piece to changing the university culture. Nature Biotech. 31(10): 938-940; Reproduced with permission from Nature Biotechnology)

As you can see, in last 30 years, only 1/8th of the PhDs in science and engineering ended up in faculty positions. What happened to the remaining ~90% PhDs? Probably they took one of the career paths discussed in the PhD Career Guide. 

In this blog, I will focus on pursuing an entrepreneurial career after a PhD. I will build a case by highlighting a few similarities between PhD and new venture creation.

1. Commitment: It takes ~5 years to finish a PhD. In some cases, it could take even longer! It is a lonely road that is full of hard work and frustration interspersed with moments of joy when experiments are working (which is rare :-)). To be able to effectively handle the frustration, one has to be committed to get a PhD. For those who lack this commitment, it is not uncommon to see them drop out of their PhD program. 

Starting a company is also a road less traveled. With >90% failure rate of startups, one has to be fully committed to the company. Unlike a well-cushioned job in a big company, starting one's own company will be full of frustration. Many things could go wrong e.g. co-founder leaving, no seed capital that will require bootstrapping etc., all of which will test the entrepreneurs perseverance. Depending on the product of one's startup, it could take anywhere from 1 to 5 or even more years before their startup becomes profitable.

2. Research: The core of PhD is research. The following figure depicts the recursive loop of doctoral research:

The above process is very similar to the development of a Minimum Viable Product (MVP). In the following infographic, Eric Ries (the author of "The Lean Startup") explains process of continuous innovation while developing an MVP:

Thus, we can see that the recursive hypothesis testing during PhD is very similar to the development of an MVP.

3. Handling Failure: During PhD, failure is an integral component of hypothesis testing. It is very rare that an experiment has worked in the first instance. But, based on each data point or more precisely building on failures, a PhD student keeps trying different hypotheses, various experimental conditions, discussing with mentors and fellow students and searching literature - one way or the other, the student makes the experiments work.

In startups, developing an MVP is fraught with failures. Until an MVP is ready, the founders have to keep trying. And, after customer validation, the MVP has to be improved further. Besides, there is >90% chance that the startup will fail. But, the entrepreneur keeps going - trying one hypothesis after another or in some cases starting one startup after another!

4. Pitching to investors: An integral component to PhD training is presenting at conferences, lab meetings and journal clubs. The presentations can range from discussing a journal paper over lunch or presenting a poster or giving longer presentations to a diverse audience. Besides, our friends and family are always curious to know why we are so busy!

Similarly, integral to entrepreneurship is pitching to the investors, who are not subject matter experts. Hence, jargon should be avoided and the business has to be explained in an interesting way. Alike PhD, when we venture into a startup, our friends and family are always curious about what is keeping us busy and where are all the savings gone! :-)

Thus, presenting our research as well as pitching to investors both require that the topic should be explained in a way to grab attention of the audience.

5. Handling rejection: PhD prepares us to handle rejection. For example, it is seldom that a submitted manuscript will be accepted immediately. In many cases, it is rejected or accepted with comments. The usual first response to the rejection is pain - why was it rejected? Given the effort that we put into writing the manuscript, we always find a reason to disagree with the reviewer's comments. Nevertheless, we have to respond to their decision. Either we can write a rebuttal or resubmit it to another journal or perform additional experiments that were recommended by the reviewers. Thus, one way or the other, we find a way to deal with rejection.

While starting a new enterprise, one will be rejected in many different ways. For instance, the customers may not immediately accept the product or in other cases the potential investors will reject the proposal. But, without loosing enthusiasm, one has to be determined and keep going.

6. Constant worrying: If a graduate student is not working at nights and weekends, then one is at least thinking about it! No matter how much one tries to take a "break", usually it does not last long. For many, these "breaks" turn to be eureka moments that help in making major progress in research. It is not unusual to have a "brilliant idea" while watching movies, in the middle of the night or while partying! I have seen some graduate students maintain an "idea book" to ensure that they do not miss any ideas.

Unlike working for an established company, where all infrastructure and processes are in place and the focus is only to "perform and deliver", nothing is in place in a startup. The product, website, brand, logo, strategy, sales, marketing, finance, human resources, legal etc. everything has to be put in place by the founders. This requires a constant engagement of the founders.

Thus, without being seduced by the potential title of "Doctor" or with the potential of making billions after exiting from the startup, both graduate students and entrepreneurs are constantly thinking about their research/startups.

7. Low income: Let the truth be told. The graduate student stipend is barely enough to make ends meet! In developed countries, it is still decent enough to afford a reasonable standard of life for a single person. In contrast, in countries like India, it is barely enough to buy a laptop on loan installments! (car is definitely not an option for graduate students in India). Nevertheless, we learn to manage with available funds and be happy!

The founder of a startup has to bootstrap (mostly without salary) until there is the first investment. Even after the first investment, the salary will not be equal to what one could get in an established company. Yet, the entrepreneur voluntarily accepts the economic hardship to "build" the company.

Given these similarities, in my opinion, PhD training provides the necessary foundation, soft skills and mind set that can make one an entrepreneur.

Corporate Entrepreneurship: "The Other Side of Innovation"

Currently, I am reading "The Other Side of Innovation" by Vijay Govindarajan and Chris Trimble. The book is packed with theory, practice, examples, recommendations and strategy on how established companies can innovate. Being inspired by the book, I decided to write a blog post on the topic. In my post, I will refer to the book and also other resources that I have referred to understand more on this topic of Corporate Entrepreneurship. 

What is Corporate Entrepreneurship? I found an interesting definition while reading MIT Sloan Management Review -  "(corporate entrepreneurship is) the process by which teams within an established company conceive, foster, launch and manage a new business that is distinct from the parent company but leverages the parent’s assets, market position, capabilities or other resources". It is different from corporate venture capital that primarily aims at investing in external companies and spin-offs, which are created as an entity independent from the parent company. I will separately cover both the topics, corporate venture capital and spin-offs, in future blogs.

How can business organizations encourage entrepreneurship and innovate? To answer this question, Vijay Govindarajan and Chris Trimble bring about an interesting conflict that established businesses face while innovating - "Business organizations are not built for innovation; they are built for efficiency". Thus, the question is how can a business organization balance efficiency and innovation? As an answer to this question, the authors quote Ray Stata (founder and chairman of Analog Devices) who said (paraphrasing) innovation in business organizations has nothing to do with creativity or technology but management capability to convert ideas to impact (emphasis mine). However, as you might agree, questioning the managerial competence that has successfully delivered innovative products, is rather provocative. But, based on the authors' research, it indeed seems to be the case. In The Other Side of Innovation, the authors address this provocative question and give a blue print on how big organizations can simultaneously deliver efficiency and innovation.

In "The Other Side of Innovation", the authors explain that a Performance Engine of a business takes care of ongoing operations. This engine has to be routine, repeatable and risk-free. In other words, it has to be reliable. Thus, it is the mechanism that ensures delivering reliable profits every quarter. In contrast, innovation is non-routine and uncertain hence non-repeatable. But is it possible to repeatably deliver innovation without compromising efficiency? Indeed yes, but for this, the performance engine and innovation initiatives have to be organized and planned differently. The essential components of the organization and planning of an innovation initiative are:

innovation = idea + leader + team + plan

Importantly, because each idea is unique, it implies that each idea requires unique leader, team and plan. In these components, the most critical is the team because the challenge is not dearth of ideas but execution of ideas. So, how will you build the innovation team that efficiently executes the ideas? The authors propose that such a winning team is built on a partnership (highlighted as + below) between members dedicated for leading innovation and members from the performance engine. Thus:

Winning Innovation Team = Members shared from Performance Engine (routine tasks) + Members dedicated for the innovation (non-routine tasks)

Some of you may be curious to know why does one need members from the Performance Engine for an innovation initiative? Isn't the Performance Engine designed for routine tasks? Will it not compromise the efficiency of the Performance Engine if their members have to divert their attention to an "additional task" (= innovation initiative)? Will it not be more efficient for an organization to have team independently dedicated only for innovation? To know answer to these (and many more) questions and how to build a winning innovation team, I encourage the readers to read "The Other Side of Innovation". It is a must-have book for any entrepreneur and innovator.

Purpose of Business

Leader is a servant

100,000 Startups: Are we there yet?

In my previous blog, I discussed that entrepreneurship is not an option but a necessity for India. I also tried to quantify this necessity, which is 100,000 startups that in turn can generate ~50 million jobs, the current unemployed population of India. Thus, the next question is how ready are we to facilitate starting 100,000 startups? In this blog, I will share my views on this question.

I remember reading two years ago that Indian middle class does not encourage entrepreneurship. The reasons for this reluctance to entrepreneurship are not purely economic. So what are the factors that repel general Indians from entrepreneurship? Sanjay Anandram from seedfund has described the situation succinctly: The three reasons why Indians like to stay away from entrepreneurship are: (i) fear/rejection from family and friends, (ii) lack of seed capital and (iii) lack of awareness.

In my opinion, the biggest of the three reasons is lack of awareness about the entrepreneurial process. For instance, entrepreneurship is a subject in the curriculum of only business related courses. Entrepreneurship is not taught in pure sciences, engineering, medicine, pharmaceutical, agriculture, law etc. and all the non-business majors. In contrast, the focus is always on getting a good job in a good company or a government job. Hence, students usually plan their time in studying for competitive exams like GRE, GMAT, CAT, IAS or are busy with interview preparation, resume writing etc. It is not a surprise that recruitment agencies and soft skill training is a thriving business! Thus, the whole educational and social system “conditions” us to think like and be an “employeE” rather than to think like or be an “employeR”!

The lack of entrepreneurial awareness leads to entrepreneurial fear. This fear is primarily the fear of failure and financial loss that leads to risk aversion. Given that > 90% of startups fail, this risk aversion is not totally unwarranted. However, it is important to distinguish the “actual” versus the “perceived” risk. The actual risk is inherent in the entrepreneurial career and is impossible to avoid. However, it is possible to manage the perceived risk through entrepreneurial education. Also, such education will help understand the difference between the actual and perceived entrepreneurial risk. I propose that including entrepreneurial education in the curriculum is a must to manage the perceived risk and encourage entrepreneurship in India. The entrepreneurial pedagogy can be classroom based lectures and case studies as well as hands on experience through internships in startups (early, mid and/or late stage). Thus, a combination of theory and practical training in a startup atmosphere will expose students to the actual risk and its management rather than fearing the perceived risk.

Despite lack of entrepreneurial courses in Indian educational curriculum, we do see a few good examples for entrepreneurial encouragement. For instance, some of the Indian Institutes of Technology of India have started entrepreneurship cells, 10000 Startups by NASSCOM and changes in government policies. Prime Minister Narendra Modi has already given a mega boost for entrepreneurship by reducing the bureaucracy and red tape and starting the Skill India Mission. Such measures are creating a very favorable environment for entrepreneurship. Thus, India is witnessing a meteoric rise in startups. For instance, $5 billion were invested across 300 startups in the year 2014. And, it seems that 2015 will beat 2014 in attracting investment! The Q1 of 2015 has already witnessed ~$2.4 billion, which is 3x the funding that was seen in Q1 of 2014! No wonder Indian startups have been reviewed as the fastest Asian fundraisers! This momentum is due to only a handful (remember we are 1.2 billion!) of Indians who dared to take a different path. I am tempted to speculate how many more startups will we see if entrepreneurship is encouraged in Indian educational curriculum?

Finally, how close are we in starting 100,000 startups? Well, in my opinion, we are just warming up!

Entrepreneurship: A necessity for India

Indian population stands strong at 1.2 billion people. Thus, India is ~1/7^th of current world population. By 2030, India will surpass China to reach 1.5 billion people. Thomas Friedman, in his book The World is Flat, mentions that by 2030 India will produce the maximum number of technical graduates in the world. How is India poised to handle this quantum of educated population? In this blog, I share my views on this topic. I encourage the readers to post their views below.

Food security of the billions of Indians has often been highlighted as one of the most important issues facing the country. However, herein, I propose that the economic empowerment of the billions of people is more important than food security. You might wonder why wonder, how economic empowerment can be more important than food security? To understand this, we should look what is the meaning of economic empowerment. One good definition that I read is “economic empowerment is the capacity to bring about economic change for oneself, including a fair income and a raised standard of living,which are crucial for diminishing inequality and poverty.” Thus, economic empowerment will allow people an equitable access to food as well as other necessities of life. The burning question for me is: Is India equipped to economically empower the billions of educated (and uneducated) people? In the following paragraphs, I discuss this question.

An average size of Indian family is of 4 persons. Thus, for a population of 1.2 billion, ~300 million families dwell in India. Usually, 1-2 members/family are working in India. Thus, India employs 300-600 million people/year. On the other hand, the unemployment rate in India averages to ~ 4% for past 10 years. Thus, ~50 million people of Indian population are still unemployed. To put things in perspective, 50 million is the population of Burma and South Korea respectively or the combined population of Hungary, Tunisia, Czech Republic, Belarus and Belgium!!

                                                           (Unemployment Rate in India: Data from World Bank)

Enrico Moretti in his book, The Geography of Jobs, has shown that each job in the US creates 5 jobs by the multiplier effect (this effect is clustered in areas where new ventures are concentrated). The magnitude of multiplier effect varies with country e.g. 5 for US, 3 for Sweden and negative for Italy. For India, NASSCOM in 2007, calculated the multiplier effect to be 4. With improvement in Indian economy in past few years, we could assume 5 as the multiplier effect for 2015. With a multiplier effect of 5 and a requirement of ~50 million jobs, we can back calculate the number of jobs required to zero the ~4% unemployment rate. A quick math will tell us that ~100,000 jobs could create 50 million jobs by multiplier effect (e.g. 100,000*5 = 500,000 more jobs*5 =…..=50 million jobs).

So the big question is how can we create 100,000 jobs? The only answer is Entrepreneurship. Let us analyze this further. If we assume, each startup employs ~10 people, thus 10,000 startups are required to create the 100,000 jobs that in turn are necessary to trigger the ~50 million employment generation by the multiplier effect. But it is known that <10% of startups succeed, thus 100K startups need to be started, out of which 10K or (~10%) will survive. 

But is India ready to launch 100,00 startups? Not yet. In my next blog, I will discuss some of the challenges faced by Indian startups.