skip to navigation skip to content

Brain food

 

Then? Silicon Valley. Now? Bangalore

Indian startups are twice as likely to be worth $1bn than UK ones. This is their secret.

2016-brainfood-prabhu-thensiliconvalleynowbangalore-883x432

It’s been ten years since school friends Sachin Bansal and Binny Bansal took the gamble of their professional lives. Leaving established jobs at Amazon, and with just £4,500 between them, the pair founded their own e-commerce company out of a small apartment in Bangalore.

They were taking a huge risk. Indians had not embraced online shopping, and the received wisdom was that a culture of seeing and touching goods before buying was going to be very hard to overturn. Today, the pair – who share a surname but who are not related – are jointly listed as the 64th richest people in India, with a fortune – each – of $1.2bn (£800m).

The story of FlipKart, the Bansals’ company which now employs 33,000 staff and on one October day in 2014 made one billion online sales in just 24 hours (in a domestic market that wasn’t supposed to be interested) is astonishing. But it is far from the only Indian business to become a “unicorn” (the term for a start-up valued at more than $1bn). “India is the third largest startup country, only after the US and the UK,” India’s Commerce and Industry Minister Nirmala Sitharaman said recently, “thanks to the entrepreneurial skills of Indian youngsters.”

Indeed, far from being rare, Indian unicorns are more numerous than almost anywhere else in the world. Four per cent of all unicorns around the world are Indian – nearly double the percentage of those from the UK. But why – and what can British firms learn from them?

Professor Jaideep Prabhu

Professor Jaideep Prabhu

“There are a couple of reasons so many Indians launch start-ups,” says Professor Jaideep Prabhu, Director of Cambridge Judge Business School’s Centre for India & Global Business. “It’s partly due to the sheer size of the population and the country’s economic history. Until the early 1990s, the economy was highly controlled with few opportunities for entrepreneurship and growth. The opening up and freeing of the economy since then has unleashed the vast entrepreneurial potential of the country.

“Second, India has a young workforce – in 2000, the median working age was only 24, compared with 36 in the US and 38 in the UK. The Indian median has now risen to 31 but it’s gone up everywhere else, too – in Britain it’s now 44 – so it’s still a young workforce in a young economy. The result is a large, energetic, hungry group of entrepreneurs who understand the global potential and are aspirational – many want to be the next Steve Jobs, Mark Zuckerberg or Jeff Bezos.”

They also make the most of their opportunities, says Professor Prabhu. “They are hungry but they are savvy, too, and they realise that university and business schools are great places to incubate and accelerate their fledgling businesses, taking advantage of the expertise around them.”

So far, so good – but why do so many Indian start-ups become unicorns while more than half of British SMEs fold within five years?

“Some of it is to do with culture and geography,” says Praveen Paranjothi, venture capital investor and founder of the Startup Europe India Network (SEU-IN). “Indians learn to hustle for everything all the way from high school to a competitive working environment. India is about work – personal celebrations are also based on professional achievements. High education and business achievements are reflected in social status, and everyone is respected for working hard. Even taking holidays is a more recent phenomenon.

“Indians also have to focus more on efficiency – if sometimes access to the right infrastructure can be limited, you cannot afford to waste time and you need to be efficient in getting things done with minimal resources. This is perfect for building startups – resources are always scarce in building a startup.”

India’s internal market also yields enormous opportunity to grow a business. “The country has a vast, untapped market,” says Professor Prabhu. “There is a lot of ‘low-hanging fruit’ just waiting to be picked – in agricultural services, financial services, retail, energy, healthcare, education and so on. Flipkart took advantage of a huge untapped market. In contrast, the UK is limited by the size of its domestic market, which is why it needs a bigger area to tap into, such as the EU or the US.”

But it’s not just about culture – and that is where Britain can learn other lessons. “India’s Prime Minister Narendra Modi came from the most entrepreneurial state and his initiatives and policies are encouraging people to grow their businesses.”

And as Modi’s government announces plans to set up 70 new start-up incubation centres around the country, he can indeed take some credit: his Make In India initiative to encourage manufacturing in the country has coincided with India surpassing China and the US to become the top destination for foreign direct investment; his Digital India programme identifies nine “pillars” to improve digital connectivity, infrastructure and learning; and his Start-Up India project not only promotes investment in start-ups, but has also reduced many statutes and other legal barriers that have hitherto prevented or complicated entrepreneurship.

“It’s not perfect,” says Professor Prabhu. “Much of the start-up revolution is happening despite, not because of, government bureaucracy. But it is making a difference. There is other support for start-ups, too – Delhi, Mumbai, Hyderabad, Chennai, Pune and Bangalore all have large technical firms based there, and these firms all engage with the start-ups and educational institutions in their environment. There is a growing entrepreneurial eco-system in these cities.”

The UK has similar initiatives and ecosystems – but more British entrepreneurs would grow successful businesses by thinking differently and exposing themselves to a range of problems, says Mr Paranjothi. “You can’t build global companies without globalising your eco-systems,” he says. “Many British start-ups only target the EU or the US. The growth markets are in Asia – and the potential in India is huge. But you have to spend time there – you won’t be successful there if you are not plugged in and understand the culture and local needs and problems. It’s taking you out of your comfort zone but you will differentiate yourself, and you will reap the rewards.

“It’s also about ambition and mindset. Indians rarely have a financial safety net, but the family culture where living with parents is not uncommon, the family pressure for winning can be high, which also fuels greater ambition and high appetite for taking risk.”

“There is greater access to capital in India at the moment,” says Professor Prabhu. “A lot of venture capitalists are flooding the market. Many companies are not making the returns to justify this but it’s a risk the investors are willing to take, simply because so many start-ups then go on to become unicorns. Indians have hunger, ambition, aspiration and supportive education, business policies and eco-systems that give them a successful, positive mindset to grow. These are the lessons Britain could learn from to compete.”