04 Mar 2024  |   03:44am IST

The unstoppable pace of Indian startups

The unstoppable pace  of Indian startups

Eugenio Viassa Monteiro

Some years ago, in a colloquium at the University of Goa with students in the 2nd year of their MBA, I was surprised that no one wanted to work for someone else, a Co., for example, but were determined to launch their startups. Maybe it was the Me Too effect where one follows the tendency of the most respected or outspoken ones.

That made me think, and in the Colloquium, I just hinted that entrepreneurs are needed, but also other professionals: police, teachers, accountants, financiers, engineers, farmers, taxi drivers, etc. And that no one would feel frustrated if their newborn Co. was not a success or even had to close down. Failures teach us a lot because they oblige us to think and rethink so that we can act much better in the future. Everyone must discover his professional vocation, where he can better serve society and be happy with it.

The will to undertake.

Along with my observations, I reminded that, generally, workers with any qualifications in India were more likely to be recruited to fill administrative requirements in proportion to the firm’s activity. In general, their wages were meagre; they had no assigned objectives, and no one paid attention to their training; they learned by themselves, and there were no challenges from daily assignments/routines to overcome their limits. 

Until a particular moment, perhaps already outdated in some more dynamic and export-oriented types, companies recruited workers, even with suitable professional qualifications, and they were put “on depot”, not knowing what they were doing, what responsibilities attributed, nor their capabilities and abilities. 

During the time of the Soviet-style economy in India - from independence till 1991- the economic growth rates were, on average, 3.5% for a country that was very poor, destroyed and robbed by the colonizers. So low the growth rate!

The brilliant and valuable minds received compensation of the same level as all others, and the best thing they could do was to migrate at the first opportunity to the USA or elsewhere, where their merit could be valued. 

That is why it seemed reasonable that at the University of Goa, each one should think of launching his Co. instead of working for others, where their value and contribution to the Co. would be poorly recognised, if not at all.

Those considered very good, from well-known families, would be placed at the lines of observation apt for promotion. 

High staff turnover? How do you try to retain talent?

Some years ago, a significant concern was raised about talent retention, as some IT companies had a high turnover, more than 25% in some instances. The managers were trying to find a way to stop the exodus.

When someone received an invitation from outside and said goodbye, the company owners would think that a hundred plus were waiting for hiring. They never thought that each one exiting took with him the knowledge acquired; besides, the need to train the new hires was an additional cost for the Co. All this seemed irrelevant to the old management.

Until recently, workers received their combined wages. Their performance and effort were worth nothing; it seemed that the good results of the Co. were exclusively on account of the capital holders. Therefore, there was no emotional connection with the Co. 

If I am not mistaken, participation in the capital of the Co. with the option to purchase shares started with Infosys in the 1990s. Above all, it was a means to reward those contributing with ideas and deeds for the future success of the Co.

For many large employers (IT Co., for example), establishing many GCC-Global Capability Centers in India had a strong impact. These GCCs are evolving from being a source of cost arbitrage to becoming Global Value Organizations to drive digital transformation and innovation. Over 500 GCCs will join India’s current presence of 1,500+ GCCs by 2026 (Nasscom). GCCs are the tech and shared services centres of MNCs in India, increasing as global companies search for talent to help them transform digitally. The 1,500 GCCs in India employ 1.3 million people. (TOI)

Multinational Cos look for the best specialists and do not mind paying well. And, hence, the drain of talent. I find the departures of high-value workers excellent and vital: the best ones usually leave because of their value; others, with good personal skills, will specialise and stand out, waiting for some outside invitation soon.

This fact is good for the high-value workers, as well as for the country. Each person gives more of herself and becomes more specialised. It is unsuitable for the company because it has to replace those who leave. The management feels scared but does not wake up to give more attention to the workers, their current skills and the ones they must develop for their excellence and of the Co.

Startups, unicorns and job creation Setting up as an independent operator has risks but can be a great driver to creating new companies, wealth and jobs.

India has emerged as the 3rd largest startup ecosystem globally with over 112,718 recognised startups across 763 country districts as of October 3, 2023. According to the Startup India action plan, these firms can access financial incentives. These startups have collectively generated over 1.42 million direct jobs, contributing significantly to the economy.

In 2022, more than 1,300 startups with a technology focus bring the number of active tech startups to 25,000-27,000. In addition, India added around 23 unicorns in 2022 (a unicorn is a company with a valuation of more than $1bn), which was the second-highest number in the world.

It has 89 technology-focused unicorns and 174 potential unicorns, of which 60 grew in 2022. The Venture Capitalist may have the temptation to manipulate the value, intervening in the acquisition of shares when the price is low and selling them in total or part once the value per share is high. That is why many shareowners prefer the dispersion in many hands instead of letting it concentrate in the hands of one or two wealthy capitalists.

The influence of women in the startup ecosystem is growing. At least one of the founders/co-founders of 36% of unicorns and potential unicorns is a woman.

About 17% of all investment deals between 2019 and 2022 were raised by women-led startups, and nearly 18% of all startups in the ecosystem include at least one female founder or co-founder.

(The Author is Professor at AESE-Business School (Lisbon), at I.I.M.Rohtak (India), author of The Rise of India)


Iddhar Udhar