India Dispatch: All-or-nothing start-up entrepreneurship is common in the West but rare among graduates of India's business schools. That is starting to change.
A risk-taking culture rises in India
Among his peers, the decision to spurn the plum job offer to start his own business was considered professional suicide.
When he graduated from the Indian Institute of Management in Ahmedabad in 2006, Sarath Babu was offered an annual pay package of 800,000 rupees (Dh66,000) by a multinational company scouting for managerial talent at the campus.
It was a dream offer - more than enough to pay off his family's debts. Turning it down was risky. Mr Babu grew up in a slum. His mother's meagre income from selling steamed rice cakes on a pavement shack supported a family of six. His education at IIM - the South Asian equivalent of Harvard Business School - was considered a ticket to a high-flying corporate job that would lift his family out of poverty.
But while his peers were busy counting the zeroes accrued to their pay packages, Mr Babu chose to pursue a path less trodden. With an investment of 1.17 million rupees - most of it taken as a bank loan - he started Foodking Catering Services, which supplied teatime snacks to corporate houses, banks and software companies in Ahmedabad.
His boldness paid off well: Foodking has since expanded to five cities and has blossomed into a 70m rupee enterprise.
His inspiration, he says, is Dhirubhai Ambani, a pioneering business leader who started as a small trader of synthetic yarn and built the multibillion-rupee Reliance empire that has become India's largest industrial house.
"I, too, wanted to become an entrepreneur," says Mr Babu.
In recent years, multinational companies have looked to India - beyond Harvard and Wharton - to tap the world's brightest intellectual talent. Business schools such as IIM have long fostered prestige by maintaining rigorous entrance criteria - with a success rate among applicants of about one in 200. Recruiters are drawn to such schools like bees to honey.
In the summer placements on campus, MBA graduates are known to land high-performance managerial jobs, many of them overseas, with monthly pay equal to what their parents earned in a lifetime.
Most are risk-averse, preferring secure salaried jobs over starting their own businesses. Traditionally, entrepreneurs in India have come from families that control flourishing business empires.
But that is slowly changing.
In recent years, a growing number of MBA graduates have rejected opportunities in investment banking and hedge funds to pursue unconventional careers such as starting a chain of coffee shops, selling scented candles and creating consultancies to help hotel resorts create habitats for butterflies.
In the past five decades, IIM Ahmedabad has produced 800 to 1,000 entrepreneurs, says the institute's director, Samir Barua. He says it plays an active role in encouraging entrepreneurship among students.
Its Centre for Innovation, Incubation and Entrepreneurship, a unit on the campus dedicated to this goal, offers graduates the option of "deferred placements" - which means they can come back to the institute after two years for recruitment by companies scouting talent on the campus if their startup venture fails.
In Jamshedpur, the Xavier Labour Research Institute (XLRI) is another top management school that offers students the same fallback.
"We have some students who continue with their own ventures alongside their jobs, or take up entrepreneurship a couple of years down the road," says Rajiv Misra, the chairman of XLRI's placement committee.
None of the students who have chosen to defer placements have come back to participate in placements, he says.
The IIM campus in Bangalore, another premier school, offers entrepreneurship to its students as an elective subject. It recently partnered with the global chip maker Intel to launch "Next Big Idea", a business plan competition aimed at encouraging entrepreneurship.
The Indian School of Business in Hyderabad, which typically attracts the highest-paying recruiters on its campus every year, recently shortlisted 110 entrepreneurs from across India to receive funding and mentoring for their new ventures from professionals on campus.
The research firm Venture Intelligence says angel investors and venture capitalists invested nearly US$440m (Dh1.61 billion) in new enterprises in India last year, compared with $320m in 2009.
Brisk economic growth in recent years that promises a high rate of return has encouraged many such funds to invest in new businesses. Boston Consulting Group says India was the world's fourth-largest wealth creator last year after the US, China and the UK.
India is widely unpopular among investors for its stringent regulatory hurdles. But it is improving, the World Bank says in the report Doing Business 2011, published last November.India had moved up by one rank from a year earlier to emerge as the 134th easiest country in which to do business.
India also has a rich tradition of jugaad - Hindi slang for a unique, low-cost solution cobbled together amid a shortage of resources to fix a vexing problem.
In recent years, several jugaad-style innovations have captured a sizeable chunk of the bottom-of-the-pyramid market in India. In 2008, India's Tata Motors launched the Nano, a car publicised as the world's cheapest. Launched at a price of $2,500, the Nano fulfilled the dream of millions of scooter-riding Indians to own cars.
The following year, Tata also launched the Swach water purifier, priced at 1,000 rupees. The low-cost device, which operates without electric power, assured millions of India's poor access to clean drinking water, which is scarce in many areas.
This month, India's ministry of human resources unveiled the prototype of an iPad-like computing device, available for $35.
But while low-cost innovations have flourished, experts say the vision to create a Google or Facebook in India is missing.
Research conducted in 2008 by two graduates of the IIM in Bangalore found that out of a few graduates from their institute who moved towards entrepreneurship, more than 60 per cent took the plunge after six years as salaried employees with companies.
Sambit Patra and Prasun Mathur discovered that most of the ventures lacked scale - they were small and mid-sized enterprises with fewer than 100 employees. Most did not opt to raise capital via initial public offerings or venture funding, and they "scored poorly on innovation".
"When it comes to innovation, there is a huge gap," John Sculley, a former president of PepsiCo, said at a leadership summit in Mumbai recently. "Indians have built a huge reputation in the field of frugal engineering. But innovation takes both right and left brain thinking, and the right brain is about taking risk. Risk-taking is not part of the culture of India."
Rajiv Deep Bajaj, the vice chairman of Bajaj Capital, a leading finance company, and chairman of the Delhi chapter of the US-based Entrepreneurs' Organization, says risk-taking is not built into India's cultural DNA.
Indians need to adopt "the attitude of an entrepreneur, which is the mindset of risk", he says. "They need to understand the risk-reward equation, and that for high risk there is high reward."