Encouraging Failure In Entrepreneurship

Encouraging Failure In Entrepreneurship

Aditya Jadhav, CFA, SIDBI Venture Capital

An alumnus of CFA Institute, Aditya is a skilled professional with expertise of working for leading VC & Private Equity Funds. Currently, he is responsible for managing, sourcing and screening equity investment opportunities for SIDBI VC.

Today, India is at the cusp of transformation and serendipitously, it has aligned with a much larger trend, a global economic and technological transformation. McKinsey in its Urban World Report estimated that, by 2025 50 percent of global Fortune 500 companies will hail from emerging economies like India, Vietnam and China, and according to NASSCOM, there is a huge shift underway in the global technology market. It is estimated that by 2025, 60 percent of the total spends in IT will be on digital technology, the same study also highlights that India is a hub for digital talent.

In a transformative environment, it is imperative to have a constant addition of new ideas in order to completely capitalize on opportunities and given the nimble nature of how startups function, it is necessary for a nation to have an active startup market. Startups take the business risk that established organizations are seldom willing to take and that is one of the key factors that defines any organizations’ success. However, we always tend to forget that return and risk are two sides of the same coin. While entrepreneurship does have the potential to make billionaires, there is a very high chance that a startup may not succeed.

An IBM-Oxford study conducted in 2016 points-out that, about 90 percent of the startups in India fail within five years of their inception and these odds are where ideas like the 70-20-10 rule in the VC space stem from. It must be internalized that not every startup may sprout to become a unicorn. In fact, the odds of it failing are far more likely. At the same point, we must recognize the fact that failure is a major part of being an entrepreneur, for an individual, it should be more about the journey than the destination and one must know all the ways to do it wrong to actually get it right. That is what having experience is all about!

India has always had a risk adverse culture, wherein every parent has passed on the ‘study hard - get a good stable job’ ideology as the mantra to living a prosperous life. While there is nothing wrong with that approach, it isn’t the formula that leads to a vibrant startup atmosphere. In order to have an active startup industry in India, the one key ingredient that is missing has been the ability to accept failure as a product of entrepreneurship.

A large part of an entrepreneur’s life revolves around learning and performing tasks that he/ she has little to no experience in. It is the part which sets them apart from the rest, and this process is bound to be a highly stressful journey. Entrepreneurs are exposed to the lowest point in the Dunning-Krueger curve all the time, be it with regards to the firm’s operation or with regards to its financial success. Emotional support can really take
them a long way and provide that motivation to push forward in times when things do not look too rosy.

However, in Indian homes entrepreneurship is perceived as an unnecessary risk and failure is not looked as a point in one’s journey to success, but rather as something that defines a person. It takes one look at the statistics of successful startup founders to fully understand how integral part a failure plays throughout the process. The LinkedIn page of Kunal Shah, the founder of FreeCharge, states that he was the Founder & CEO of multiple startups for a period of over 10 years before he made it big with Free Charge. It took him a decade to find his winning formula and it would not have been possible if he were to succumb to criticism over the times he did not succeed. Even Ritesh Agarwal, the founder of OYO Rooms has publicly accepted that he had failed six times before coming-up with OYO. For Ritesh it was a question of either making it big or sitting at a small business in Orrisa and despite his failures, he decided to keep at it.

Success, as a metric should not be limited to valuations, but rather be measured under a more qualitative light

In the current context, failure should not be limited to an objective definition of a founder shutting shop. Failure could also be looked as a strategic misalignment. Every firm is analogous to a good story; and like a good story it needs to have all its components making-up a ‘right’ mix. If a firm is not strategically aligned to its target group, capital management, product and solution offering or any of the million factors that make for a truly great organization, it is extremely difficult for it to succeed. Founders need to keep in mind that a strategy is far more than a plan and do away with the myopic view that everything will go according to plan. VSS Mani, the founder of Justdial, had initially founded AskMe in 1989 and had to shut shop due to an unfavorable business environment. He reentered the same venture later in the form of Justdial and managed to go public with the firm, but today we see Justdial losing traction and its share price is proof of what not responding to a changing market could result in even for a successful enterprise.

Criticism may not be all that bad. Criticism is a necessary input to one’s success as long as it is augmenting a founder towards perfecting his business idea, but when a founder’s kin is critical about the very idea of his/her decision to pursue entrepreneurship, it can be a big bone of contention within his/her psyche. There are two key factors that may mitigate the current situation. Founders need to be mindful of the fact that a career as an entrepreneur is going to be a rough ride and the ride is a part of their personal growth.

The end goal to start a company should be replaced from creating a unicorn or a massive company to implementing an idea that they feel strongly about. Success, as a metric should not be limited to valuations, but rather be measured under a more qualitative light. They must recognize that not every idea will fetch them a billion dollars and it is completely alright as long as they have a firm resolve. The other factor, which more often is not under their control is to ensure that failure is a part of the process and as a key stakeholder, must ensure that the one’s around them are aware of this fact and can accept that it is not diminutive to fail or not achieve success in the first shot.