Do Indian Startups Need a New Model of Incubation?

A recent comment made by the founders of two of India’s most celebrated startups — Flipkart and Ola — evoked a strong and somewhat divided response from the entrepreneurial community in the country:

  • Sachin Bansal’s remarks that India needs to emulate China’s model of attracting global capital whilst keeping foreign companies out of the country, were later qualified as an attempt to stop the unfair practice of capital dumping (a practice in which a foreign company uses profits and capital from their home geography to subsidise their products and services in another less profitable region with the singular motive of putting local players out of business).
  • Bhavesh Aggarwal from Ola Cabs echoed Bansal’s sentiments by adding that “non-Indian companies espouse the narrative of innovation but the fight is really about capital”, adding that innovation and customer experience were perhaps irrelevant in the current debate.

Without actually naming them, both these founders were alluding to their fiercest competitors and global majors, Amazon and Uber.

The comments provided ample fodder for the media spectacle that usually follows a provocation like this, and perhaps the right frame for the discussion should have been as much about innovation as it is about capital.

From our perspective at Quicksand, I wanted to use this as a segue into more systemic issues around innovation — its link to design and the experience economy, why it is critical to agree on a long term innovation quotient for Indian enterprises, and how that may be accomplished.
Mapping the experience of customers as a first step towards innovation — at an innovation bootcamp hosted by Quicksand for a food major. © Quicksand 2016

The dominant narrative around entrepreneurship in India in the last decade, and more so in the last five, has been about two aspects: a) startup funding that rose to approximately USD 5 billion in 2015 — a 125% increase over just one year, and b) technology based startups that corner approximately 80% of this total funding. Neither of these should be a surprising statistic — post the 2008 global financial crisis, India has been one of the more resilient economies in the world and hence a favoured investment destination for global capital looking for relatively high growth rates. On the other hand, the success of Indian IT services industry and a higher education system that has consequently become lopsided in its focus on technology, has led to one of the biggest, reasonably competent skill base of developers and programmers in the world (NASSCOM’s Startup India report gives an exhaustive though visually distracting summary of these trends).

What the narrative has missed are more fundamental aspects of an innovation economy which are still nascent and poorly developed in India. The state of the startup ecosystem in India is somewhat symptomatic of this malaise with the oft-heard cynicism that the chances for entrepreneurs to get funded are much higher if they can demonstrate that the origins of their idea lie in an existing, successful business model elsewhere, especially in the US.

The incentive, support, and capacity to build enterprises that are solving problems ground-up remains underdeveloped.

Why a long term view on innovation is absolutely critical

The innovation imperative in India has both a social and economic dimension to it.

On the economic side, the need for innovation and in particular the role of design within it, needs to be understood in relation to two markets that define the big Indian opportunity.

The first category is where the battle is being fought by the likes of Uber and Ola Cabs (highlighted also by the recent debate referenced above). This is a fight for the top 10% of the consuming class who are being wooed by all and sundry. Ecommerce, hyperlocal services, healthcare, financial services, food—there is an Indian startup equivalent for almost every conceivable business idea that has captured the global narrative in recent years (think Whatsapp, Amazon, Uber, TaskRabbit, Zipcar, Booking.com, Expedia, Truecaller, Airbnb, Zagat et al). The Indian story here has been of adaptation, innovation and of course capital on the back of which indigenous startups have been able to fend off challenge from their global counterparts.

And this is where the debate on capital vis-a-vis innovation is perhaps a bit misplaced. On the face of it, startups in India have been pushing the innovation agenda with much gusto and therefore it is hard to fault them on that (in my research for this article, I came across Bhavish Agarwal’s recent keynote on Ola Play — the pride in delivering what he claims is world’s first interactive car entertainment system, is unmistakable). And yet the differentiation they seek, will have to come from a far more measured approach to design — one that places human experiences over technology driven spectacles.

The long term value, customer loyalty and differentiation design can deliver, is now part of design thinking folklore globally. A recent study published by Design Management Institute measures and tracks the Design Value Index (DVI) of 16 publicly traded companies that are considered to be “design centric” reflecting best practices in design management. Measured over a ten year period, their stocks have given a 211% return over the S&P 500.

This shift that Indian startups must make is more than just a recalibration of product development or hiring design talent. It is a much more daunting challenge of changing cultures and mindset of both the entrepreneurial and the investor class in India.

The second category comprises much of the underserved markets in India, which though untapped, present a compelling economic rationale for startups. Mega trends around urbanization, media proliferation, technology access, and financial inclusion have brought a much larger populace tantalisingly close to mainstream consumption accompanied by disposable income, increased exposure, and a growing ambition.

Seen in the context of the global economy, this is the proverbial next billion — an emergent class eager to participate and partake in the economic progress. Sustainable growth for businesses lies in their ability to develop products and services that cater to the unique needs of these segments, the precedence for which is hard to find in developed markets. The successful case studies have to be built through the long and patient task of understanding these consumers, building a new portfolio of products and services, and responding rapidly and iteratively to challenges that will almost surely be new and without ready answers — a hallmark of the human centred design process.

Nigeria is the biggest market in the African continent for most global consumer companies. Image above is from a Quicksand project in Lagos that sought inspiration from the vibrant informal economy of Nigeria to rethink Unilever’s product portfolio. © Quicksand 2016
BTPN Wow is a USSD based, ultra low cost banking product launched by Indonesia’s largest pensions bank, BTPN. As of 2016, it has reached approximately 2 million unbanked / under banked users providing mainstream financial services. © Quicksand 2016

On the social dimension, for-profit institutions of tomorrow operating in emerging contexts like India, must necessarily play a role in bridging the gap between the excluded and the included. Sustainable Outlook 2017 by Forum for the Future highlights how global business growth can no longer be de-linked from more systemic issues around climate change, inequality, depleting energy reserves, ocean stress et al. For economies like India, sustainable macro-economic growth is impossible to conceive without building out the social infrastructure in areas like health, education, skilling and gender equality. It represents, simultaneously, an opportunity and perhaps the biggest impediment to economic progress for the masses. The challenge here is to build credible partnerships between academia, startups, financial markets, and public policy as a way to prioritise and invest in these sectors for the long haul. This too remains without precedence and the relevant models have to be “designed” from first principles.

Public and community sanitation services in India are broken and a dire need for communities. Yet private interest and investment to figure a viable business model remains largely non-existent. © Quicksand 2016
Our proposition as a design thinking firm invested in shaping the innovation capacity of institutions, is therefore two-fold —
a) design-led innovation is the missing dimension of this entrepreneurial capacity we see a surge in, and
b) there is a strategic imperative to nurture and build this within the Indian startup ecosystem.

Creative economy, design thinking and the role it must play

A recent innovation program announced by NITI Aayog, a premier think-tank of Government of India, pledged support for a hundred new incubators across the country focused on specific sectors of national importance that would foster inclusive growth. This is significant given that the total number of accelerators and incubators in India in 2015 stood at about 110. Under this program, incubators could be set up by the private sector, public-funded institutions, or both (under a public-private partnership). More significantly, the Government also launched Startup India a few months before this — an action plan to boost entrepreneurship and encourage startups with jobs creation.

This program became a trigger for some of us at Quicksand to speculate on what might be a new incubation model for startups in India and prompted us to submit a proposal to NITI Aayog. With a rather emphatic policy outline taking shape, it is perhaps appropriate to also think of the entrepreneurial capacity that must be simultaneously developed — one that equips startups to have a long term view on innovation and build their capacities appropriately.

When we started Quicksand as a design strategy and innovation consultancy in 2005, our ambition was to build a practice that would work on business and social challenges while being anchored in a few fundamental principles:

  • celebrate diversity of skills and perspectives within the practice while retaining a core set of shared values;
  • nurture empathy and curiosity as an essential skill to explore and engage with the society around us, and
  • bring together the vibrancy of creative disciplines — like design and arts — with the analytical rigour of science and management

Over the last twelve years, these principles have found resonance in the growing discourse on design-thinking and innovation globally. Specifically applied in the context of entrepreneurship, design thinking expands the notion of entrepreneurial capacity beyond just business acumen and individual tenacity. An open, inter-disciplinary, creative environment is the ground on which ideas flourish. Creating space to nourish an individual’s capacity to think and express while rallying around a collective vision and purpose, are the building blocks for teams that can disrupt status quo. A people-centered approach also forces a values-based framework that ensures that as businesses scale, social equity and sustainability are not short-changed.

The recent turn of events in the Indian startup industry therefore present an important inflexion point where the new model of startup incubation must be thought of as a combination of at least three aspects — a) a policy climate that sets the necessary priorities and intent, b) an investment climate that provides capital access and business mentorship and c) an incubation environment that embeds the principles of design thinking at the heart of new businesses.

We believe that this combination can be more than just a predictor of success — it points the way for the kind of institutions we need in years to come.

Quicksand is working on a blueprint for a design-led incubator and we are eager to make a start in 2017. Holler at ayush@quicksand.co.in if you are interested in exploring this together.