The never ending debate about quality vs. quantity among #startups

Yesterday we had a debate at the Microsoft Ventures Accelerator Demo day about whether the ecosystem needed to provide more support for existing startups or get more new entrepreneurs into the fold.

On one hand there was Sharad Sharma of iSpirt who made a very cogent analysis of where engineering education is in India currently (vs. 5 years ago). His point was in 5 years we have increased the # of engineering graduates by 10-fold and that has resulted in many disillusioned parents and students, who have paid lots of money to engineering colleges to get a degree, but find that there are not as many jobs as they thought there would be. This has resulted in social unrest in a couple of states. There is even a state considering a student loan waiver (similar to farm loan waivers in India).

His analogy was: if we get too many early stage entrepreneurs and not enough capital to help them or policy related changes to support them, there will be too many failures and a backlash against entrepreneurship.

His suggestion is to help support our existing entrepreneurs with the intent to make them successful.

Ravi Gururaj and I, on the other side, were of the opinion that we should focus on quantity given the maturity of our ecosystem. India is a largely nascent technology startup community and what works in Israel, China or US does not work here given where we are.

That does not mean we dont support our existing entrepreneurs, but a call to focus only on existing entrepreneurs does not help our cause. The best is we can do both, but if we had to prioritize one, I’d advocate quantity right now over quality. When the ecosystem gets large enough (we will know when it is too large based on lagging indicators, not leading), then the focus on quality alone *might* help.

I am going to outline my case for why this is the better approach based on data that I currently have. I’d love to have you debate this with us. I dont speak for Ravi, so please review the below as my opinion alone.

To set context, there are over 60K (30K product) tech companies that get started in the US annually. The comparable number in Israel is about 400 and India is about 500 (Over a 1000 ideas and entities get started every year in India, but a large number end up not becoming companies).

Of these in the US over 30K (About 3K get VS funding) get some form of funding, about 50% of starts in Israel and 25% starts in India get some money (friends and family, angels, VC’s, etc.)

The bottom line is that we are a very nascent ecosystem. There is largely insufficient data to make meaningful predictions on our successful startups yet.

The second set of data points (read the larger Kauffman foundation report later) are on shutdowns and “failures”.  If you classify success as an exit (which is bizarre, but humor me for a bit) then 97% of startups fail. If you broaden success to those companies that are profitable / operating then 75% of tech startups fail and if you further broaden the definition to those that have not “shutdown” then that means over 61% of startups fail.

Note that these are all US numbers and we dont have significant, meaningful or valuable information for India, but we can largely assume that the failure rates are similar if not worse.

So we are a very nascent startup nation and we have lots of failures.

That would lead many to advocate that you should focus on creating winners. Like there’s a formula for that.

Here’s the thing – there’s NO formula for a startups “success”, except great founders, solving a large problem, which has large market and of course – LUCK.

I dont understand why people dont give a great importance to luck as a significant aspect of any startup’s success. Maybe it is in our psyche to discount the intangible. Anyway, that’s a whole another discussion.

Anyone that claims we can “engineer startups to win” has not realized that it is impossible to pick the winners. Even the best “pickers” average 30% or less “winners”.

So the best you can do is really to get more people to believe in the “religion” and thus turn into more converts.

As a nation we still have many folks who are not entrepreneurs directly who influence our entrepreneurs. We need them to believers as well.

The “get a safe job” instead of a risky startup parent of an engineering grad needs to be converted.

The “I wont let you marry my son /daughter” because you dont really have a “job” father-in-law needs to be converted.

The “I need to maintain our lifestyle so lets buy a imported car instead of your Alto, so dont give up your (ed: dead-end boring) job to start a company” husband needs to be converted. P.S. This is a true story of a women entrepreneur whose husband said these exact words. Sad really.

The argument that they will see many failures and hence will be disillusioned is going to be invalid, since there are few other options.

Let me segue to Sharad’s argument and the comparison to engineering education for a bit.

To those parents who, after asking their kids to get an engineering degree, are now finding them without a job, I ask “What was your option”? Arts? Law? Commerce? Medicine?

While they are all equally good options, none of them are guaranteeing your children a “job” either. And the jobs they deliver are likely going to pay a lot less.

In fact going through an engineering education at a “not-top-tier” college is probably as good for children as going through a top arts college in India.

Why?

Simple. Even the arts are being “scienced”.

Back to our regular programming.

So the 3 main arguments I make for continuing to focus on quantity are:

1. Our ecosystem is too nascent and we have too few data points to focus on quality alone.

Why? Do a lot of experiments, figure out which ones work, rinse, repeat, hope for the best. We cant be Steve Jobs and assume we know a winner when we see one. We are better at being a Jeff Bezos and trying a lot of things, willing to be misunderstood for long periods of time and finally making a few dents.

2. You cannot guarantee quality.

Why? We dont know how to pick winners. We dont know which startups will succeed and which will fail. So, it is best to support all, and the winners will rise to the top.

3. We need more converts to the religion and the failure rate should not be a deterrent.

Why? The options are not many. If you are graduating now and expect to get a “job” at a large tech company, the chances are getting slimmer and the likelihood of you liking your job in a few years are slim.

That’s my argument. Your turn.

15 thoughts on “The never ending debate about quality vs. quantity among #startups”

  1. Let us take a look at the most entrepreneur potential state Kerala for a ground reality. I think it is a matter of Resource matching, environment and some mentors to blend available resources.
    Large number of Graduate engineers- many of them can be molded to entrepreneurs with suitable mentors
    NRK Parents with substantial savings- willing to invest on children for a start up under their care , rather than helplessly observing them crossing marriageable age with out a job
    Unrestricted import of simple consumer goods from china- Most of these products can be manufactured in India at competitive cost
    We have a ready supply demand gap and potential resource even with out tapping external funding.
    What is the problem- environment created by successive government is so adverse, that it is difficult for a start up to get out of teething stage.
    Register your company in any of the free zone in Middle East, manufacture same item and import it back to India at considerably lower cost, using the same Keralite skilled workers at two to three times of the labor cost we have to pay in Kerala..
    Is it really impossible to correct this situation …..

  2. Hi Mukund,

    You wrote: ‘Anyone that claims we can “engineer startups to win” has not realized that it is impossible to pick the winners. Even the best “pickers” average 30% or less “winners”.’

    My 2 cents says that if it were easy to engineer startups to win, the winners would all be poor.

    Rob Wood
    HyperGold

  3. I would go with Mukund sir, as it is said well begun is half done. There a huge number of companies with good deeds, struggling in very first step. I do believe that a strong basement is necessary in building huge building .

  4. Starting up and being in a startup should be branded as cool and sexy, if you want more and more raw talent into the system, i guess that is what US is doing and its working. This is an interesting video of Varun Agarwal.: From failing in engineering to co-founding a million-dollar company- http://youtu.be/nMPqsjuXDmE

    On the other hand if as an eco-system you want more and more professional to become entrepreneurs, you need serious exits.

  5. Maybe focusing more on early-stage investments rather than late ones can accelerate the maturity of ecosystem.

    1. People who are supporting their startup with the money they get from their day jobs, working side-by-side,
    2. Early stage struggling product companies supporting their product development with services they have to provide side-by-side
    3. 2-3 people companies with one full-time founder, others being part-time developers
    4. Founders not from IITs/IIMs but have a great idea and little money
    5. Early stages where team lacks one of the crucial skills be it programming or design or business or experience of domain.

    Above cases need a real investment and that too at an early stage. Most of them fail / can’t proudly pronounce them as entrepreneurs and there’s already a backlash if you ask me.

  6. The deep dependence on a dysfunctional system and infrastructure is why it will be years before India can produce a sustainable start up worthy of being on the global stage. Another challenge is cram oriented schooling and graduate education coupled with the value system that does not allow building skill set a number of components necessary to create innovation and product development. I respect the start up community but hate the hype when there is not a single success worth calling out. Quality takes precedence over quantity as of now, once we see a few successes, the tide will turn the other way.

  7. Nice post, Mukund.

    We do have a large population of engineers but not enough jobs, so that’s why we need more entrepreneurs for job creation. But our ecosystem doesn’t have a good track record of promoting entrepreneurship, when we all see this is actually the solution to unemployment. So, we need to have good policies too. Here’s why.

    A trend that you’d see is that large disposable incomes of parents have made children averse to sweating out for success as much as their previous generation; they want things to be easy. Just what entrepreneurship is not.

    So, I see students first by will or by force (from parents, family, etc.) becoming engineers aplenty thanks to the IT dream. Later on when they see the dearth of jobs, they opt for less stressful jobs than entrepreneurship or working with startups (like banking). A real waste of talent, degrees, national resources.

    I’m not saying that starting up is for the meek but what if we’d a more conducive environment, would we still have parents not supporting their child’s idea to start or further youngsters not wanting to start? And good policies would promote existing startups too, which would create a better ecosystem. What say?

  8. Very pertinent post Mukund and you hammer the nail on the head of what the start up ecosystem in India needs 🙂
    The 2 critical gaps in India’s start up ecosystem is quantity and mindset.
    Firstly about the quantity:
    Increasing the supply quantity of the start up ecosystem is a bigger current priority than ensuring current entrepreneurs succeed. As compared to US, Europe, Isreal or even China, the support available to entrepreneurs in India is pathetic.
    It is not only about funding, networking & start up gyaan but also more critical things such as mentoring and counselling, infrastructure access and facilities; for which Indian entrepreneurs and would be entrepreneurs have woefully low access in India.
    The situation is even worse is Tier 2 & 3 towns in India especially those towns which are based in North, Central & North East India.
    Outside the major metros (Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Pune) where else are fully functioning, accelerators, incubators available ?
    Even governmental initiatives are too bureaucratic, perceived to be red tape friendly rather than entrepreneur friendly, poorly designed, horribly executed among st other drawbacks !!!
    Secondly about the mindset towards entrepreneurship in India:
    It is sadly true that any youngster (engg/non-engg) interested in entrepreneurship is socially brainwashed to give up such anti-national, anti-social ideas as setting up a venture. The incessant hammering into young minds that they should do follow the safe, tried and tested path of doing a MBBS,B.Tech, MBA, IT course and then join a investment bank, consultancy or IT services MNC is simply too great to not succumb to.
    And this starts right from K12 where kids spend their entire school and college days in mugging up and attending coaching classes that they never really have a chance to think for themselves, explore options, try stuff, do extra curricular projects outside the rigid academic domain; and after enduring this so called education for more than 16 years, our best and brightest are too jaded to think outside the box or even at the edge of the box !!! and then our tax payer funded government committees, experts and everyone concerned about entrepreneurship wonder why we have so few Indian Steve Jobs and Richard Bransons !!!!
    We need hundreds if not thousands of organizations and individuals ASAP to support and develop the start up ecosystem in India, across the entire spectrum of start up support activities including but not limited to ideation, mentoring, facilities, infrastructure, marketing, funding, networking, support services amongst others, so as to achieve the critical mass to nurture, encourage and support entrepreneurship in India.
    Also the sooner youngsters are targeted so that at least they are aware of the existing start up support options (however minimal) available in India, so much the better.
    It seems budding singers (Indian Idol) and cooks (Masterchef series) seem to have more opportunities to hone and exploit their talents than budding entrepreneurs in India !!!

  9. There was a time when MNC companies / pvt companies were not considered a good option. Then people started seeing other neighbour’s son buying cars and houses etc. and got fascinated. This led to opening of lots of IT educational institutes. People accept that now. Media talks about the high salaries which students from IITs and all are taking and there is more motivation and much support in ecosystem. People invest in B.Tech of their children, if that does not work MBA, if that does not work, talk to neighbours on what is needed to be like their son who is buying houses and cars.

    Startups situation is a similar problem. Society should promote that experimentations are for good and success stories need to shown to all and promoted. A belief needs to be nurtured. Thats the most important thing to focus on in parallel to access to fundings to empower this ecosystem.

    How it can be done? I think media will contribute maximum to this by sharing success stories to the masses and we will also have a day when movies are built on startups’ successes and distributed to smallest of the towns.

    Why entrepreneurs fail or why startups fail is a simple reason, they stop experimenting hard. Lets remember the definition of startup as most of us have learnt it – Startup is an experiment to answer a problem and an attempt to convert into a viable business. Media will be the biggest contributor for making ecosystem better because they have to make people believe that startups work. Experimentation is for good.

  10. At this point of time, the need is for quantity. The raw numbers are still too small, and so the comparison with 10x engineering colleges isn’t that meaningful just yet.

    First of all, I strongly believe that the set of addressable users for tech ideas is poised for growth over the next 3-4 years, with smartphone growth, (hopefully) easier transactions, and 3G+. There are lots of pain points and room for new ideas, especially for the Indian context.

    Many new entrepreneurs will fail – which is par for the course. But the experience and learnings at a startup (whether one that lasts or shuts down) are valuable, and will help in a subsequent venture. You’ll learn about product/market fit, co-founders, building a team, design, raising money, acquiring customers/users, marketing, and legal/corporate stuff. You’ll make a ton of mistakes in each of them, and learn from those. (This applies to early employees too)

    The real challenge is whether these entrepreneurs can pick themselves up (emotionally and financially) after shutting down a startup. If an entrepreneur can manage to survive for 4 years (whether in one startup or more), i’m convinced that (s)he is highly likely to eventually build something of value.

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