TiE ISB Connect

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Today was the first day of the two day TiE ISB Connect annual networking event for entrepreneurs and investors. Organized by the TiE, Hyderabad Chapter and the Wadhwani Centre for Entrepreneurship Development, ISB, TiE-ISB Connect facilitates the interaction of aspiring entrepreneurs, early-stage ventures, and growth-stage ventures with potential investors, successful entrepreneurs and mentors. TiE stands for “The Indus Entrepreneurs” and is a global, not-for-profit network of entrepreneurs and professionals dedicated to the advancement of entrepreneurship. A board member for TiE who was a part of the inaugural addresses focused his speech on the current “missing link” for Indian entrepreneurs, lack of early stage funding. The Executive Director of Corporation Bank followed up by reinforcing Corporation’s dedication to SMEs as well as listing some new product innovations available to the general public. One that was especially interesting was the ability to pay taxes via Corporation’s ATMs. Interestingly enough, customers can now pay direct tax through ATMs upon registration.

The Chief Minister of Andhra Pradesh also added a few key points during the inaugural address attributing the fact that India was not beat up too badly by the global financial crisis to the role entrepreneurs play in India’s economy. The economic development fueled by India’s entrepreneurs has enabled the country to sustain a reasonable growth rate despite the global recession. Better access to capital for middle and bottom of the pyramid entrepreneurs and increasing consumption combined with improved access to goods, particularly in the rural areas, were major reasons cited as growth drivers for new business development opportunities.

One of most interesting presenters was the Group Chief Executive Officer of The Future Group, Kishore Biyani. The Future Group is one of lndia’s leading companies, with a presence in consumer finance, capital, insurance, leisure and entertainment, brand development, retail real estate development, retail media and logistics. Mr. Biyani opened by explaining the flow of consumption goods. First, he explained, in any market you must take care of the basics for the population, such as access to healthcare, shelter, food and the then move towards aspirational goods (“the wants”). India is starting to move towards the aspirational area now and he sees a large market opening up for retail in the coming years. In Mr. Biyani’s opinion, it is the duty of retailers to create demand and drive consumption and he used two items that originally had little to no market (terry towels and rugs) that now are huge sellers at his retail locations as examples. Retailers must build the demand and drive consumption. Increasing consumption then leads to economic growth.

He views good startups as a result of having a “great iterative plan” with a large majority of new businesses ultimately moving away from plan A and following Plan B, with some even on Plan C. He characterized Western thinking as wanting to segment into rights and wrongs. For instance if a method solved a problem in the past, it must be the “right” way to do it. Whereas in the Indian culture, partly a result of the religious influence, there isn’t a right or wrong as we know it as Westerners. For instance, in the Hindu religion, there is no good and evil as Christianity portrays it. There is no final battle between these opposing forces, nor are these qualities necessarily embodied in a single entity. Good and evil can be a part of the same thing: that which appears as good in one case, may appear as evil if the conditions change and the results will be different (such as fire that provides warmth at one point time but may also destroy at another point). Mr. Biyani’s point here was that just because something worked once, does not mean it is the right way to do things again and strongly encouraged this generation of entrepreneurs to be prepared to “go with the flow” and be adaptive to changing methods.

Another great example he gave was from an early film he made. He and his crew had become quite attached the idea behind this film - it was going to be a blockbuster. They grew to love the film through the production; however, after the first day it was released, it was apparent that it was not going to do too well. He said at that at point it him that you cannot get attached to a product that you have created. You must be dispassionate towards it in some respects because everything you create, you must be able to destroy, to sell, or to exit from. In terms of workforce management, Mr. Biyani explained that he believes that most every person had talent and that every person needed certain things: economic stability, emotional security, intellectual stimulation and health and family well-being. He was interested in how happy his employees were and after two years of development, has started using an internal measure called a Happiness Index for the first time last year. This index measures how much happiness each employee was spreading, which is most likely a product of how happy those individuals themselves were. Now there is a quantitative measure to the impact employees had on each other.

During Q&A, when asked about market opportunity and demand creation, he made and interesting point telling the audience a story of two market researchers who went to Africa to assess the shoe market for a consumer goods company. One got to Africa and saw that no one there was wearing shoes. He reported back that there is no market opportunity for shoes - no one is wearing them in Africa. His point was that market opportunity depends on the way you look at it. The second after seeing the same situation came back and said there was an amazing market opportunity in Africa - no one is wearing shoes! He intimated that opportunity was really a function of who was looking at it. Lastly, it was encouraged to learn from mistakes. One common theme through many speakers was recognition of the stigma attached to failure in India. Biyani suggested learning from failure, telling others about it, and embracing it. His closing point was that entrepreneurs must remove the fear of failure in order to succeed.

There was also a panel discussion, featuring several venture capital investors as well as entrepreneurs. The VC’s were asked to individually talk about their “best investment”. Rather than answering directly, one VC listed out his major questions to potential entrepreneurs that his firm first considers: Is the market large enough, is there an advantage that your solution can bring to bear, and do you have a business model that is able to leverage this advantage? . Another VC described the difference between a good company, and a good VC investment. For the VC, it is other people’s funds that are being invested under a certain mandate, which is to search for a potential exit in multiples of the current investment. Good companies don’t always fit that profile. The last VC discussed types of good investments. The first that came to his mind was a recent 25x return, however after further consideration he added in several others that exhibited unique qualities. One was a management team who was given $500K. After just a few months the owners said the current plan was not working and they were going to change directions. Fifteen months later the team said that plan was not working and that they would need to shift gears again. This new path worked and three months later they raised $7M. The investor was impressed with the flexibility of the management team as well as the ability to try three different business models out on the same $500K. Lastly, he commented that most entrepreneurs come with an idea but the team is usually full of holes. He commented on this one individual who had just come back from Silicon Valley, told him about his idea, and then disappeared for a while. When he returned, he came back with a whole team of co-founders who also backed his idea. The VC was impressed that he was able to bring an entire team on board without yet earning a cent…”if you have a powerful enough vision, people will join”. The entrepreneurs fielded questions primarily related to talking to VC’s, finding angels and rates on convertible notes (one mentioned 20%!). The challenges they discussed as it related to funding ranged from not taking money when it was offered, to being so used to not having any money that they had problems spending it, and not being able to get money when it was needed.

Several different startup companies were exhibited outside of the convention center in booths. A vast majority of the companies were service companies. There was one company that I did find that was doing something quite different, which was manufacturing shoes for children that were carcinogen free. Apparently a vast majority of kid’s shoes in India contain a certain type of carcinogen due to the synthetic materials used in the sole and outside of the shoe. He did not comment on the actual end result of these carcinogens in shoes, but had several prototypes of his vision for leather, DuPont treated water proof shoes. He said he was looking for VC funding and when I asked how it had been going, he said not well. He mentioned that the biggest problem was that he had a product - most VCs want service companies and having a product was not working to his advantage. Another interesting company was a boutique matchmaking company catering primarily to Indians who want to find spouses. I asked if this was like a dating service in the US and the main difference sounded like the short term goal of everyone who signs up is to get married. They are even helping Indians in the US who are searching for spouses in India. In the marketing material I thought it was an interesting touch to quote Warren Buffet’s informal Q&A session with MBA students at the Richard Ivey School of Business In Canada: “One of the things I use with students is that I ask you to imagine that I am going to give you an hour and in that hour you have to pick one of your classmates to own 10% of for the rest of your life, or even better someone who you have to work with for the rest of your life and another person whom you would short-sell or disassociate yourself with. Now, on the buy-side you list the qualities of the person you want to own a share of or partner with and on the sell-side you list the qualities of the person whom you want to disassociate yourself from. On the buy side, you won’t necessarily pick the one who is the richest, first in your class or the one with the highest IQ; you will pick out the human being that is going to be effective, sincere, generous, humorous and forgiving. On the sell-side you would pick the qualities of the person whose qualities turn you off. It could be selfishness, hypocrisy, envy, short temper or any other negative attribute. It is such an elementary proposition. Everybody, absent some terrible illness or tragic death, has a passion for happiness. A spouse is the most important thing. It is important to have a job you love, it’s not so important how much you make at it.” This was a nice marketing touch given the attending audience and target consumer base.

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