Failures in Entrepreneurship and Investment
“There is a need to set up an environment to talk about our collective failures” Elena Casolari began, setting the appropriate tone for the proceedings, “If we don’t talk about it, how do we expect to learn?”. This specific panel was ideal for such a discussion, as it featured what most would perceive as two groups at loggerheads when it comes to social entrepreneurship investors providing capital and entrepreneurs brimming with ideas. As Vineet Rai, the founder of Aavishkar, chose to put it,
“In funding, there’s a hierarchy where investors sit at the top and the entrepreneurs at the bottom. If there were an intellectual pyramid or hierarchy, it would be the entrepreneurs at the top and the investors at the bottom.”
Social enterprises endeavour to create positive social impact, sustainable change and tackle problems that cover a vast variety of fields. This often entails working in environments that are a bit challenging and not exactly conducive to business, it also requires time, unlike traditional enterprises. While there are many types of enterprises, all undergo similar indeterminate phases, a good example being the nascent, unsure years of the IT boom.
Investors in this sector, like all others, often look for what we can term as ‘Unicorn’ enterprises, ‘disruptive’ companies that pose less of a risk and guarantee financial growth. It is this schism that ensures interesting, urgent and necessary conversations between investors and entrepreneurs.
Losing Sight Of What Consumers Really Want
U.S Mahendar is the founder of the popular Hatti Kaapi, it’s retail outlets serving coffee to Bengaluru right from the airport to students outside the cities popular college, whilst employing individuals with special needs to man their counters.
“I would consider not being able to complete my graduation as my first failure”, he joked starting the discussion on failures of entrepreneurs. After moving to Bengaluru from his native Hassan and managing to secure loans from the bank, Mahendar was quick to ape a model that was popular at the time, contracting coffee vending kiosks to various corporates, as this was seen as a safe investment that guaranteed returns.
However, something about this model didn’t click the way Mahendar had imagined. He didn’t let it go there, Mahendar made visits to these offices, asking his customers what was missing, what was it that kept them from coming back for more cups of coffee during the day. His research led him to one man who remarked about how inauthentic the coffee vending machine felt, that it simply didn’t match up to a traditional cup of coffee.
In Mahendar’s quest to grow, riding the wave of a popular market trend, he realised that he had lost touch with what consumers actually wanted.
This made Mahendar reconsider his entire business model, he decided to stick to more authentic South Indian practices of making coffee, opening his first retail outlet soon after and redesigning his business model on the value of a good cup of coffee.
While Mahendar has expanded his operations to two cities and has an annual turnover of 15 crores, the vital lesson that he gleaned from his initial failure hasn’t left him, as evidenced in this recent interview with him “Morning walkers, mostly senior citizens, are our taste makers and critics. They will tell us if there was change in the blend or brew”
Staying True To Your Core Value
In the chase for investors and funding, Dhruv Lakra of Mirakle Couriers experienced a similar momentary lapse, not with his customers, but with his own internal personnel.
“We hire deaf women because deaf women are at the bottom of the disability space when it comes to employment for various reasons. So two of our supervisors in the Bombay warehouse are deaf women. One of them came to me and told me that she hasn’t eaten since the previous night. I was shocked and thought there were troubles at home and inquired if everything was ok. She replied that I haven’t paid her salary. I mean, we have pay day on 4th of every month and we missed that pay day. And it dawned on me that things are getting serious. People have expectations from you….that moment really, really moved me. We pay our employees punctually every month now. Those are our priorities”.
The fine balance that social enterprises toe with financial profitability and impact often leaves them chasing for investments and funding while losing sight of their core vision — the reason they would have started in the first place.
Tall Tales And ‘Dumb’ Models
With investors, Dhruv, who runs a courier service, realised that often the best way to get funding was to play up the idea;
“So we’d find ourselves saying that we’re the next Fedex”.
For Vineet Rai, an investor, a golden rule that has seen him through the years is the brevity of the pitch.
“If someone can’t explain what they are doing in the span of a few minutes, it simply will not work”.
A former forester, Vineet takes a more pragmatic approach to impact investment,
“In some sense, you can say I am driven towards so called ‘Dumb’ models, where you have a simple idea and a brilliant management team, something that is crucial towards making ideas work, and be scalable.”
When Vineet entered the space, he harboured more idealistic notions of how business could create impact and prosperity all around, but developed the method he now practices after years in the field, facing pressure from his investors, which focuses on scale and returns.
“Honesty can work sometimes, being truthful to your investors and still raising money. VCs (Venture Capitalists) don’t want to hear the truth, so it helps to set unrealistic targets.” he adds “In 2001, I was under the impression that business could help the poor, but I’ve gotten richer and the poor have remained the same.”
Towards A New Understanding Of Risk And Capital
Manoj Kumar, a senior advisor at Tata Trusts and co-founder of FISE takes an altogether different approach, one that stems from his belief in the market’s failure to take on and engage with complex ideas that could potentially lead to long term impact.
“We need at least 3 months to decide if an idea is worth investing in. We see people in small towns scattered all over India, who have great ideas and really want to create impact. ” he says, with a cautionary footnote “But these ideas can take time, they need to be worked on. They solve complex issues and there are no simple solutions”.
Manoj then expands on this vision of patient capital, “A new vision of capital needs to be created, one where investors are not looking at returns in 4 or 5 or 8 years, one where they are willing to take great risks that are aren’t commensurate with returns, and one that exists between philanthropy and venture capital. If not, I’m sorry to say that most of these entrepreneurs will not get funded”. He is also quick to issue an important condition; “My solution is not to throw money at something. In fact, if you see a lot of failures these days, the primary issue is overfunding.”
The Q & A session that ensued also provided some interesting perspectives on the issue of capital and defining it in new terms.
“While a lot has been said about investment and entrepreneurship, I would like to bring up the issue of power” Stan Thekaekara chimed in, suggesting a different vision of capital he calls ‘Participative Capital’ that puts producers on an even platform as shareholders in enterprise.
Overall, talks about newer models, transparency over failures on part of investors and entrepreneurs, and a need to escape older, established cycles that lead to stalemates for both parties were the issues that were constructively debated.
For more detailed insights on what ensued in the Failures in Entrepreneurship and Investment panel at the Impact Failure Conclave 2018, watch the video below.
For more details visit our website: www.impactfailure.org or write to us at impactfailure@selcofoundation.or
