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.
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.