Tuesday, June 21, 2011

Does an entrepreneur venture for money?

When one talks with young graduates, they feel that one becomes an entrepreneur for money. However in my research on careers of over 7 years, i have found this to be untrue. What do you feel about it?

Starting a venture

Money, as Peter Drucker says, is not the purpose of doing business. Money is necessary to do business, and is also a byproduct of doing good business. But money is not the reason why entrepreneurs do business. In my career research, i have met many entrepreneurs. None of them, i observed, ventured for money, although they wanted money to gain the necessary freedom.

If you read the interviews of founders of Apple, hotmail or any other idea, ( Do not read biographies, because they tend to be coloured by the interpretation of the author), you will realise that these entrepreneurs developed a particular business idea because they enjoyed the difficult challenge; or they wanted to achieve something of significance. It is rarely about money. One of the good compilation of such interviews is 'Founders at Work" by Livingstone.

Also read this Sanjiv Bhikchandani's old blog ( Founder of Naukri.com) who talked about the same aspect. This is the link below

Exception to above

However, if you are uneducated and migrant ( leaving your home state or country to reside in new place), then you are an ideal person to become an entpreneur for money. Entrepreneurship demands large amount of 'change' in a person. A person with options, more than often, finds an easier exit to avoid 'change'. However, when a person is a uneducated migrant, an ideal combination, he does not have any option. He therefore 'changes'. If you observe the success of entrepreneurs in USA, you will observe this pattern. You will observe the same pattern in entrepreneurs who come to a large city like Mumbai from far-off places!

Entrepreneurs may also fall in Money trap

I have also observed a curious phenomenon of these entrepreneurs in my research. Once the entrepreneurs achieve their first success, many fall in, what i call, as money trap ! Money, instead of becoming means, becomes an end. Money, instead of enabling experimentation and exploration, ties them to tested and obsolete ways of doing business.

Many examples of this trap can be seen in the field of film industry, for instance. Many actors work hard to get their first break, but very few actors manage to avoid the lure of money later to continue to experiment and explore. One of the notable exception is Aamir Khan who despite the huge benefits works for one movie at a time. I have also observed few notable exceptions to this pattern amongst entrepreneurs. When i met these exceptional entrepreneurs, i discovered the challenges one faces to avoid this trap which i shall share later in this blog!

Today i observed a systemic pattern in the careers of entrepreneurs that makes it difficult to avoid this money trap. Today, I read an article in Times of India ( dated 22 June ) about Sahil Parikh, Founder of Deskaway. When he moved from web service development to his e-enabled project management product, he said that service business was lucrative. Moving away to a product was risky as it meant diverting attention from something lucrative. And it took 3 years to make profit on a new product!

Giving something steady and moving away to unknown territory naturally provokes lot of uncertainty & anxiety. I have observed that freelancers, such as trainers, chartered accounting consultants, and even doctors , find it more difficult to surmount this challenge than an established entrepreneur with a business unit. Currently, i am observing a trainer who is facing uphill task of moving away from his established business of training to SME consulting. Would you advise anyone to do it?

Thursday, June 9, 2011

Sixth challenge of Entrepreneurial career

Read about Map my India's short story in TOI which was started by Rakesh Verma. It explains a significant challenge of an entrepreneur that I missed articulating in my first blog of five challenges: How to produce money outcomes? One of my entrepreneur friend pointed me this miss of mine !

A corporate professional can use his niche skill ( be it programming, designing, recipe building, or training) and expect his organisation ( intermediary) to convert his output into a 'business result'. While his organisation 'synthesises' rest of the resources to do the conversion, the professional gets his money through skill market. An entrepreneur, on the other hand, has to encounter this challenge all by himself/herself.

Further, he faces different challenges at different times, necessitating different strategies. Initially, the challenge is of producing immediate 'result' from the planned idea. This is the challenge of Exploration. Like Rakesh Verma's case, he got his first assignment for his 'software service' company from Tata Steel at Jamshedpur. That kept them in the business. Another entrepreneur i know started with a product idea from software service for students. Some entrepreneurs encounter a stiff challenge at this stage itself. They move from one 'service' to another 'service', never consolidating their skill base, and therefore struggling for a long time. Sooner or later their business model ( of getting new customers plus delivering service to them on consistent basis) gets consolidated. If it fails to produce results, the entrepreneur may just exit.

Second stage of this challenge faced by an entrepreneur is being able to do what one wants to do. This is the challenge of Consolidation in a specific direction. At this stage, the challenge is to find what one should do and then 'let go' the old business idea,if required. If one is lucky, one can extend the initial business idea of 'exploratory' stage further. This is what happened with Sanjiv Bhikchandani from Naukri. Online diversification of recruitment idea helped him extend his business model further. However Rakesh Verma faced a stiffer challenge. He and his wife had to decide what to do and then 'invest' all the money in one 'basket' to make it happen. As initial customers tend to 'determine' the path of an organisation, letting this go is very difficult. Rakesh Verma invested in GIS solutions, when maps were not produced in India, and then proceeded to invest all his money ( 2 crores) in it. Sometimes, entrepreneurs take long time to find their new business model. I know of a Trainer who is currently going through a tough period of this transition. After running his well-oiled 'Corporate training' business venture for a long time, he is trying to move into new business model that is completely untested in Indian Market, SME consulting.

Third challenge is the challenge of 'Growth' beyond a particular scale. This is a stage where most entrepreneurs falter, because it demands too 'different' skill-set. I am currently working with a first generation entrepreneur who has made significant inroads with his new business model in real estate business. However, as the challenges of growing a 'small set up' into an 'organisation' to sustain the 'growth' demands too many changes for the entrepreneur team, very few entrepreneurs manage to negotiate this hump.

The skill required in each of the three stages is so different that many entrepreneurs do not move from one stage to another. They get stuck in one stage. First stage is facilitated by 'Management' knowledge taught in MBA colleges. Many would-be entrepreneurs therefore ask me if they should do MBA before venturing into something. MBA knowledge is useful; but only for moving into 'Exploration' stage, i tell them. For producing outcomes in other stages, MBA knowledge alone is not enough, as entrepreneurs have to bring together the new skill-set (that is not available with them) and mind-set ( that requires too big a change for them).

Exploration stage skill is so different that some entrepreneurs only specialise in this. These are called as serial entrepreneurs. They bring their set up to stage of growth, sell their stake and walk away for others to take the company to next stages. In US, which flourishes on new ideas, venture capitalist and PE funds nurture this community of explorers. Now a days, even fresh MBA's start their venture with VC funding.

We shall explore the challenges at each of these stages in this blog.