Early-Stage Enterprises Need More Than Money

Corporate Lawyer, Angel Investor and mentor at Ennovent, Ajay Seth on the field with Saral Jeevan at Ennovent Kickoff Session in Jaipur. (Photo courtesy of Ennovent)

Although the World Resources Institute reports that low-income segments represent a US$ 5 trillion global market, entrepreneurs catering to low-income markets find that developing scalable business models is often complex and risky. There is often little or no existing infrastructure, and since India is a vast country, the culture changes every 100 kilometers. As a result, innovative business models that take into account challenges related to distribution and educating communities, for example, are important.

Early-stage enterprises that have high-potential ideas often lack the support required to develop and refine such innovative business models. These entrepreneurs face seemingly insurmountable resource constraints such as information asymmetry, sporadic support of varied quality, and limited budgets.

The Indian startup ecosystem, where my organization, Ennovent, works to accelerate innovations for low-income markets, is still in its nascent stages. As a result, investors seeking to fund early-stage enterprises have little appetite for risk. Where investment is probable, the provision of capital is often contingent on startups refining their business model or even their overall approach. This renders non-financial resources—such as mentorship, expert guidance, and access to industry events—essential for entrepreneurs.

Accessible and affordable non-financial resources, however, are scarce, especially in India’s small towns and cities, where many entrepreneurs with innovations for low-income markets are often based. As a result, many high-quality entrepreneurs are unable to engage with thought leaders and mentors, and cannot access the support required to effectively tailor their business models for low-income markets.

The challenges of traditional incubation

India has a robust landscape of traditional brick-and-mortar incubators that cater to startups across a wide spectrum—from those serving low-income markets to high-technology startups targeted at the affluent urban Indian. Many of these services offer non-financial support through structured models, such as three-month sessions with short-term access to mentors, or longer, three-year programs.

However, early-stage enterprises serving low-income markets often have innovations in sectors that lack precedent business models. Therefore, the standard theoretical curricula offered by traditional incubators—developing effective marketing strategy or scaling businesses, for example—are often too generic to help solve the specific problems faced by these entrepreneurs.

In addition, many traditional incubators follow a fixed schedule, which means that to attend programs, entrepreneurs often must leave their business for an extended period of time—something that is especially difficult during the initial stages of operation. Short or fixed-term support is therefore insufficient for entrepreneurs working to develop innovations for low-income markets.

Structured yet flexible support

Since most traditional incubators are unable to effectively support a broad community of entrepreneurs, the value of a mentor who has years of diverse on-ground experience cannot be stressed enough.

However, identifying and engaging with high-quality mentors in a way that is mutually beneficial is challenging—sometimes impossible. Entrepreneurs need help here too: Clear goals, timelines, and inputs are critical to long-term success for both the mentor and the mentee.

Participants at the Get your Financial Model Right Workshop hosted by Ennovent on 22 March in Delhi. (Photo courtesy of Ennovent)

Rustam Sengupta, founder of Boond, described the mentor role this way: “There is a difference between an advisor and a mentor. While an advisor may provide strategic guidance on a short-term or one-off basis, a mentor needs to be a subject-matter expert and be committed to providing hands-on help to a startup.”

Identifying knowledge gaps

Non-financial support—especially mentorship—also helps entrepreneurs identify and work through their own knowledge gaps and biases, which can sometimes lead to ineffective decision-making and jeopardize the long-term effectiveness of the startup.

Mentors, with a diverse background of professional experience and exposure, are well positioned to actively challenge entrepreneurs’ personal assumptions about the market, customer base, and even the innovation design itself.

This point can be highlighted by what Gauri Gupta, founder of The Skilled Samaritan had to say, based on her interaction with mentor and Ennovent Circle director, Digbijoy Shukla: “Digbijoy told me to stop going around taking advice—India being a country with a diversity of opinions—and get things moving by starting something as simple as organizing excursions at the village, and that's exactly what I did. As simple as the advice was, the external lens on the organization was what added value for me.”

Success is best created with a stake in the results

Entrepreneurs are motivated by the impact of their innovation or idea; mentors and others providing non-financial support are motivated by the idea of using their own experiences to foster new, sometimes unexpected, positive changes for an early-stage impact-focused venture. But the provision of this kind of support, especially over the long-term, can’t be free.

Coaching, connections, as well as expert advice offered by mentors and experts, must be highly valued as an investment of both time and resources that enables an organization’s success.

Rohit Luthra, director at Progression Infonet Pvt. Ltd and an Ennovent mentor explains, “While the mentor-mentee relationship is largely based on trust, it is important to have a contractual agreement that identifies the ‘skin-in-the-game’ that both parties bring to the table. Often the lack of a contractual agreement, for example, where a mentor spends only three months with the enterprise and demands a 2 percent equity stake, or where an entrepreneur works with a mentor for six months but never discusses compensation, results in one or both parties feeling shortchanged.”

Therefore, offering milestone-based equity within the company as payment for long-term mentorship services rendered, for example, enables both entrepreneurs and mentors to remain engaged and linked to the growth of the enterprise in the long-term.

While entrepreneurs often challenge the status quo to address pressing global, regional, or local challenges, it is the non-financial support they receive through workshops, thought leader sessions, and flexible mentor engagements that enable long-term preparedness for investment, profit, and long-term social impact.

Read more stories by Perzen Patel.