Small biz: How to make it cool for the young.

Civil Society News, New Delhi

Everybody has got the lowdown on the unemployment problem. Nobody seems to have figured out how to fix it in real time. There is a rising tide of young people who can’t land jobs with the government or big corporations. Where should they look and how should they meet their aspirations in their most productive years?

Ravi Venkatesan believes the answer lies in the creation of a sea of small businesses, which will meet local needs and generate jobs on a scale not achieved before in India. Mass entrepreneurship of this kind would stimulate the economy and change the way people perceive income generation.

Venkatesan has been an insider to the corporate world. He was the chairman of Microsoft in India and more recently helped turn around the Bank of Baroda. He is UNICEF’s Special Representative for Young People and Innovation.

Venkatesan has founded the Global Alliance of Mass Entrepreneurship or GAME together with Madan Padaki and Mekin Maheshwari. A lean and energetic core team at GAME intends to build purposeful alliances, mostly with governments, to rapidly take the idea of mass entrepreneurship forward.

Civil Society met Venkatesan, Padaki and Maheshwari in Delhi for a wide-ranging conversation on GAME. Below is a formal interview with Venkatesan:   

 

What exactly is mass entrepreneurship?

In any reasonably developed economy there is a good balance between small, medium and large businesses. The main engines of job creation, whether in Japan, Europe or the United States, have been small and medium enterprises and not the large companies.

In India, that part of the economy is extremely underdeveloped relative to the size of its economy. The figure is just 18 percent, which is low compared even to Bangladesh. This is an opportunity. If we can get many more people to start small enterprises and begin to grow them, it can become a very significant engine for job creation.

When we talk of entrepreneurship today we talk about two ends: the technology-driven urban phenomena like an Ola or a Swiggy, a technology company, etc. Or we talk about a very, very large number of self-employed people whom we call entrepreneurs. But that is a misnomer. In fact, we are calling them ‘necessity entrepreneurs’ – they are entrepreneurs not out of opportunity but out of necessity or compulsion.

What we are not talking about, when we talk of entrepreneurs, are the number of completely ordinary, mundane businesses that are serving local needs. It can be the beauty salon, the motorcycle repair shop, the solar panel installer, the small restaurant….There is a significant opportunity here since these businesses are currently under-represented.

Today, what is aspirational for a young person is to go get a government job. For 368 peon jobs, 2.3 million people apply. Working in the IT sector was aspirational. But those jobs have become much scarcer.

What will it take to get millions of young people excited about starting small businesses instead of going and seeking a job? How do we make it cool and exciting? That’s the core of this mass entrepreneurship movement.

 

Why is it that in India we don’t have mass entrepreneurship?

I think the answer is that it’s quite regional. There are some states that have a very strong entrepreneurial culture — Gujarat and Rajasthan, for instance, where you have the Marwari culture. And then you go to other parts of the country and it’s pretty barren. India is obviously not a country, it’s a continent and therefore it conceals very significant variations.

Secondly, I think risk aversion is very, very high across the board. It is seen as a stigma to try something and not succeed, whereas the right kind of failure should be celebrated.

Third, the challenges of starting and running a business are ferocious, notwithstanding the ease of doing business as measured by the World Bank, which is a significant improvement. But, on the ground, it still isn’t easy to start a business, run a business, let alone close a business. And so that discourages many people, I think.

 

Are there certain parts of the country we need to focus on? Surely there could be cross- learning?

My intellectual guru is Ned Phelps who won the Nobel Prize in economics in 2006. Phelps examines why the Industrial Revolution happened in Britain and not in neighbouring Italy, France and Spain, which were more prosperous and advanced. The Industrial Revolution then shifted to the US. Why?

He says in 17th and 18th century Britain and in 18th and 19th century America, conditions were such that an ordinary person of no great means or education or even great ability could tinker and start sometimes great things.

Look at all the seminal inventions of the Industrial Revolution — the steam engine, the locomotive, the spinning wheel, the process for making wrought iron…or look at electricity, the light bulb, the sewing machine. Nine out of 10 of these were invented and great enterprises built by illiterate people of the most humble background like Thomas Edison, James Watt, Isaac Singer.

These countries created conditions that were favourable for ordinary people, not for the elite, to tinker, experiment and launch their businesses.

So what we talk about is a combination of seed, soil and climate. Seed is the capability of the person, then local soil or local conditions, and climate. When you say another state can replicate it, of course it can, but what are the policies out there, what is the ease of doing business and is government a hindrance or help. I think there is great potential and ability.

What we are saying is, let’s focus on young people. Our target group is 14 to 29 and 50 percent of the entrepreneurs should be women. One distinctive pillar of our strategy and focus is encouraging young women to get started on businesses.

 

Even after nearly 28 years of liberalisation why don’t we have a more enabling environment for enterprise for young people? Why do so many people apply for government jobs? 

China decided their export-driven model might not last forever. The aspirational thing for a young Chinese is to go to a city and get a job in a factory in Shenzen or wherever. In a typical top-down way they said they had to change this. So, in 2014 Chinese Premier Li Keqiang decided China needed to implement Ned Phelps’ idea. He said, listen, we need to get many more people starting businesses and stimulate domestic demand. They created a Ministry for Mass Entrepreneurship.

They have a website. It says since 2014 they have been creating 14,000 businesses per day. That number last year accelerated to 18,000 per day. This has resulted in the creation of millions of new jobs. Why am I saying this? I think China has shown you can do certain things top down.  That may not be very effective or viable in India or Africa, which is the other place we are focused on.

 

So what can India do? 

Job number one is to make mass entrepreneurship aspirational for young people. Take a look at the big shift that happened in the 1990s. IT became aspirational. Why? Because people saw role models. Not only self-made billionaires like Narayana Murthy or Azim Premji, but you also saw the person next to you go get a great job and vault their way into the upper middle class in a very short period of time.

So, they saw successes and they thought, I can also do it. Many more people, the security guard’s son, the chowkidar’s daughter, did an IT course. It became aspirational. That’s because people could see success.

What we are trying to do is find role models, local heroes that young people can relate to. How can we create a massive campaign that can make this aspirational and exciting not only for young people, but also for their families. Parents discourage their children. So we have to transform the mindsets of young people, their families and the environment.

Job number two. And this is really important. Go into schools and right from Class 8 onwards get children to not only think of entrepreneurship, but do it. Mekin's non-profit, Udhyam, for instance, goes into schools, teaches children about business and gets them a loan of `10,000 to, say, launch a lemonade stand in the summer months, run it and return the loan at the end of it — and it has a 90 percent success rate.

Mekin is now involved with Manish Sisodia and from July Delhi schools are going to make entrepreneurship mandatory. Now 700,000 kids a year are going to be taken through the entrepreneurship curriculum which is modelled on pedagogy that Mekin has developed. So that will begin to change things.

And we are also doing measurement and evaluation in this experiment. What changed and how many more children decided to try their hand at entrepreneurship? Were you able to take that percentage from 2 percent to 10 percent to 18 percent?

How do you evaluate and then inspire other states to embrace this in a big way? Are private schools keen to include this? We are looking at 100,000 people. This will not happen quickly. We have said this is going to take 10 to 11 years but what we have seen on a limited scale are significant signs of success. And the scale-up to Delhi schools is the giant one so all credit to Manish and the bureaucracy. I think they are pathbreakers.

The third big thing is to create spaces where you can become part of a cohort of young people creating their own thing. That’s been the biggest success of China’s mass entrepreneurship initiative. They have created tens of thousands of hubs where business incubation is happening. Just being part of a cohort of similar-minded people on the same journey gives confidence.

In those places can we provide assistance particularly where interacting with the government is a source of friction? That’s why we work with a retired IAS secretary who is top-notch. He has agreed to work with us on how we can streamline those interfaces.

The models are probably going to be very different between peri-urban and urban.

Part of what we are trying to do in the next 24 months is to understand which are the different types of models out there that have a reasonable probability of success. How do we tweak them and figure out a way of franchising those models.

For instance, in a town like Satara if somebody has figured out a fairly effective model for incubation of these businesses, what is it that truly makes it work? We put that in a box that can be taken to other similar-sized towns.

 

Your presentation mentions at one point that a majority of these businesses in China are in urban settings. There is a huge explosion of urbanisation here as well but there is also a huge rural and peri-urban crisis.

The real crisis is rural and less so peri-urban. Bill Gates made the same point. He said that agriculture is still huge and you need to figure out what are the agriculture-related businesses that can be started. Focus on that and figure out how you can franchise them.

For instance, there are businesses that are common to any rural area. Like equipment rental. Somebody buys a tiller and then rents it out. Another is vermiculture. One person produces compost and sells it to everybody else. Another would be seeds. Agro-processing. Tomatoes is one of the most cyclical vegetables. Prices vary hugely. The farmer can decide that instead of selling his tomatoes, he is going to make sundried tomatoes and he has figured out demand in Bangalore. His price realisation goes up. Simple things, like small cold storages.

 

So these are the kind of opportunities we tend not to look at?

Bill said you should characterise the hundreds of businesses that could be agri-related and then find models that are working and get those people to build franchises. He felt that franchising propelled the US.

In any US city today 80 percent of businesses are actually chains and only 20 percent are local. In India, 95 percent are local. The chain opportunity is lost and we don’t mean global chains. So if somebody has figured out the mini cold storage business, how does he franchise it? I think we have to identify and crack these models.

 

A lot of this is human-related. We know so little about our young people, especially in rural areas. We have preconceived notions of their aspirations and where they want to be. Is this a challenge?

It’s a huge challenge. Typically most of our interventions, not just in India, but around the world, have been top down and what is called ‘spray and pray’.

Let a thousand flowers bloom and something will become a tree. Successful businesses start with understanding their customers. They start by segmenting a disparate population and saying, okay, we are going to focus on this affluent segment or this age group.

We haven’t done the same thing to your point: who are these young people, what are their aspirations and how do we segment them? Not everybody is cut out to be an entrepreneur. In any population, less than 10 percent is actually capable of the tenacity, risk appetite, and all those qualities.

We have designed research projects to actually address these things. Through psychometric and behavioural testing you can quickly assess if a young person is even cut out for this. Because, if I am not, spending a disproportionate amount of effort on this is not a good thing. However, everybody will benefit from an entrepreneurial mindset.

So a lot of our research efforts in the first year and a half are on understanding these foundational things. Otherwise we will be, just like everybody else, trying things and hoping something will work. And that is what has not allowed us to really address the issue.