Moving from 1 to n

The Indian start-up ecosystem has exploded in recent times, evident from both measurable yardsticks (300% increase in VC inflow this year, total # of VC deals being completed, number of accelerates and entrepreneurs mushrooming etc.) to softer aspects around how entrepreneurship has stolen limelight from being an aberrational fools obsession to becoming a socially and professionally accepted career path. However, the boom has received flak from a particular section, claiming that the high wave of Indian entrepreneurs is simple reaping benefits of seeds sown elsewhere, in that the eco-system lack any true innovation and is bound to falter. Peter Thiel fuels this line of thought in his business saga Zero to One, arguing that anything great can happen only once, and draws that as analogous to moving from a state of 0 to 1. He claims that the recent phenomenon of model replication, which has been a spin-off of globalization and increased connectivity and accessibility, is analogous to moving from a state of 1 to n (with a negative connotation). He goes on to argue that not matter how hard you try, at some point in time this line of replication and re-application is bound to run out of ideas and will eventually fail. The bottom line to the narrative being a push towards “ true innovation” of moving from 0 to 1, and not mere 1 to n movement.

This viewpoint conforms to a much larger school of thought that disparages the larger entrepreneurial community in most developing economies for merely copying established models from elsewhere and lacking any true innovation. However, through this piece I wish to question some of these concerns, and also make a case for the viability and rational for pursuing model replication in new geographies. I wish to argue that innovation could have multiple facets, the idea being just one of them.

Going back to fundamentals, cumulative knowledge accumulation is the very foundation on which the human race progresses. Re-inventing the wheel every time someone wants to build a car would still have kept us in the age if inventing better wheels. The sequential flow follows from invention of the wheel to successful and efficient distribution of the wheel to every corner of the world. Model replication in contemporary times works as the logical extrapolation to that idea.

I will make the case for model replication on 2 fronts.

1. From an economic standpoint, arguing why model replication makes sense financially, and
2. From an innovators’ standpoint, arguing why model replication is akin to the original innovation itself

The Economic Standpoint

Picking up the economic standpoint, it works well for the following reasons:

• PPP differential, a.k.a. cheaper resources– Once the foundation of the outsourcing industry, the price parity differential has now started playing an important role for the entrepreneurial community as well. The logic extends to every cog of the machine, right from a bike driver to a full stack coder. Availability of quality labor for relatively cheaper allows businesses here to scale much more rapidly and efficiently
• Potential scale — Developing nations dwarf (quite literally) the developed nations in terms of the addressable market. India and China have total population of ~2.5B, with a internet user base of over 900M users and an ever increasing penetration of smartphones and internet connections
• Growing affluence and reducing consumer skepticism — The “flattening” effect of the internet has led to converging tastes and consumer habits and preferences for the younger demographic across the world. The cultural differences between this demographic (across the traditional west and India) has been bridging at a very fast pace. Add to the that constantly growing affluence and reduced skepticism to use services over the internet (either to buy a book or a television), coupled with the above mentioned scale makes the potential here even more potent
• Greater government / ecosystem support — In retrospective reflection of the start-up boom in the US, governments like India have taken several steps to make it as easy as possible to establish businesses. These steps have also been prompted by massively increased interest from institutional investors from around the world. Coupled with the mushrooming of services catering to these early stage businesses, it has become much easier for someone to start, find funds for and run a businesses here.

This play and its benefits have been epitomized by the likes of Rocket Internet, which has done extremely well by replicating models from the US across a number of emerging markets, including India. They have been followed by a slew of such players (including the likes of Flipkart, Snapdeal etc.) that have picked up established models and contextualized, and done rather well!

The Innovator’s Standpoint

Moving to more moral grounds and putting on an innovators hat, model replication poses more challenges than realized. The idea is to counter the point that replicating the model in a different geography requires a different class of innovation, and this may be due to a host of reasons:

• Lower cost of convenience: Borrowing from the PPP argument above, given the availability of cheap labor, majority services here are correspondingly cheaper and more accessible. Hence, ideas and models have to cross a much harder threshold to move the needle and move consumers away from traditional systems
• Logistical pain points –
• Last mile connectivity is tougher owning to the poor infrastructure
• Weather conditions and other such phenomenon have a much stronger ripple on logistics
• Credit cards — People still (both by choice and by force) prefer cash to plastic money, bringing obvious pain points to the model. Additionally, points like two-step-verification make it hard for model running on automatically charging a credit card, hence requiring some heavy contextualization
• Customer Acquisition– Businesses have to make a strong move away from traditional online channels given the shorter customer attention span and lower approachability online

Lastly, lets not forget that competition also breeds efficiency and innovation, the classic argument against all monopolistic systems. The likes of Flipkart / Snapdeal have forced giants like Amazon to re-think their operating models and innovate heavily on customer acquisition and retention methods. This self-insinuating efficiency should be argument enough for many-fold replications of models in the same geography.

In conclusion, as the cliché’ goes, the builder is almost as important, if not more, than the architect. Strongly evident from the fact that majority VC’s in India today back good teams, rather than backing ideas, going to show that the key skill-set in demand is strong execution rather than innovation on the idea front. Replicating successful models into markets like India does in fact give strong returns, and also involves innovation of a different class, hence passing the moral test of sufficient innovation. Re-inventing the wheel has never made sense, nor should it right now