Tips to become a successful entrepreneur

The Indian Angel Network is one such organisation that invests in early stage businesses of entrepreneurs who can create immense value. The members of this network have prior entrepreneurial and/or operational experience that they bring to help nurture and grow early stage businesses.

Ranjit Shastri is one such influential member of the Indian Angel Network. He co-founded PSi, Inc, an investment advisory firm incorporated in New York with an associated company in India. PSi has assisted a wide range of international investors in India, including both strategic investors and private equity firms, in identifying opportunities in India.

In the first of a series where members of the Indian Angel Network offer their tips to entrepreneurs in India, Ranjit Shastri discusses his experience and what he has learnt from it. A Get Ahead Special.

Over the past couple of decades I've observed many entrepreneurs in India and abroad, and have seen some of them achieve great success and others stagnate or sink into oblivion. I've been asked to share some of these experiences, and can also share some more recent experiences that I've had through the Indian Angel Network, India's largest and only-pan India network of individual early stage investors, which has been instrumental in kick-starting a number of ventures in India.

The tips that I've listed below are not based on anything that I've read -- in fact, numerous books have been written on the subject -- but on real experiences with people that I've met and done business with over the years. This is not a scientific or exhaustive list, but the thoughts that have come immediately to mind. I'm sure my entrepreneurial friends will add many more ideas in articles that will follow in the future.

There are three sets of issues that one must consider when thinking about how to become an entrepreneur, particularly if you are born into a middle-class family of professionals (one or more of your parents work for a large company).

The first involves getting started, leaving a safe job or career prospects and jumping into the entrepreneurial fray.

The second issue has to do with maintaining and building a viable business, successfully scaling up so that one has not just managed to 'survive' but also to grow the business and create great value for investors.

Finally, there's the issue of knowing when to move on, either by selling the business or handing over to someone who can bring new energy, skills and ideas to bear. Let's take each of these issues in turn, and examine some of the things you can do to address them.

Getting started

Tip #1: Don't worry about not being courageous enough for the uncertainty of the business world, as being an entrepreneur has nothing to do with courage. People who observe entrepreneurs leaving a secure job and taking the plunge into the unknown sometimes marvel at their courage (or foolhardiness).

Most successful entrepreneurs that I've met, however, don't see themselves as particularly brave. In fact, they do a lot of homework and make contingency plans that take into account the possibility of failure.

I've met a number of entrepreneurs who have left McKinsey & Co., my first employer after business school, because they recognised that becoming a director at McKinsey is not guaranteed for even some of the hardest working, smartest people that you come across in the business world.

Becoming a director at any large organisation has much to do with factors that are not in your control, including personal relationships and the economic cycle that the company happens to be in when promotion decisions are made. While organisations try to be fair, they operate in a world that isn't, and if you recognise that staying put is not necessarily safe you are more likely to get over the fear of venturing out.

Tip #2: Look for a big idea, and be rational.

There's no point taking a big risk if you have a small idea, and from an economic perspective, it's logical to concentrate on expected value, which means the potential value creation times the probability of actually achieving it. So if your job is 100% secure, and the chances of entrepreneurial success are only 10%, then compare your future salary against the expected future value of your venture (the 'payoff') times 10%. 

If the expected value (payoff times 10%) is more than your salary, then logically you should give it a try. However, most people are irrationally risk averse, so if the expected value is not vastly higher than their salary, they would opt for the more certain outcome.

On the other hand, people who are destined to become entrepreneurs are more likely to be sceptical about the security of their job, so they wouldn't assign a 100% probability to the so-called safe option.

Tip #3: Start small.

In Tip #2, I said it's important to think big, but for most entrepreneurs it's also important to start small. A good example is SchoolTrainer, which was started by a Delhi-based Hindi and Math tutor. He has a big idea, but has started out small (just himself).

He currently has less than 100 teachers on his panel, but expects to scale up to a thousand over the next few years. Starting small enables you to experiment, work out the bugs in your systems, and prove your idea. The discipline of a tight budget also forces small companies to do what customers ask them to do. Companies that start operations with a lot of resources often scale up too quickly, waste money and enjoy the luxury of not having to listen to customers.

Tip #4: When faced with the fear of giving up a secure job, concentrate on the equally frightening possibility of someday looking back with regret.

In other words, if you think the risk of entrepreneurship is high, consider the risk of losing a fortune by letting an opportunity slip out of your hands. Of course, explaining this to conservative family members (usually a parent or spouse) may be difficult. For some people, even a 10% chance of failure is too high to contemplate, no matter how big the potential payoff is.

A 90% chance of failure is out of the question. Conservative family members will only be convinced if you have an airtight back up plan, which leads to Tip #5.

Tip #5: Have a backup plan.

One entrepreneur I know asked his employer, a very prestigious professional services firm, for a leave of absence. This gave him time to verify that his idea had merit. He knew that if he failed (which he assumed was likely), he could always return to the relative safety of a conventional career. His friends and acquaintances thought he was gutsy, but he knew he had a safety net.

In the end, he was able to prove his idea during his leave of absence and was able confidently to convert his leave of absence into a separation. He was shrewd, not brave.