When do startups seek regulation: Is it too early for India to have rules?

The stories of new frontiers — how the East appeared to Europeans in the 1500s, and how California appeared to Americans in the late 1800s — are well-documented. The startup world in India appears to be the frontier for a new India. Every day we are told stories breathlessly — India has the third largest number of startups in the world, India’s entrepreneurial system is growing rapidly, foreign money from China, South Africa and America is betting on India, and, finally, that startups will create the much-needed jobs in India. Some believe in this narrative and others think this is the most hyped up poppycock! Can history guide us a bit through the maze?

In the last month, I have had exposure to ideas, which are revolutionary. Arunachalam Muruganantham, ‘Padman’, inventor of the inexpensive sanitary pad, has been at it for over 15 years. In spite of having a proven product and business model, he refuses to let corporates take the idea into rapid adoption among consumers. Of the 300 million women who need the product, how many have been touched?

During the last few years, three brilliant youngsters have presented revolutionary innovations. Young Nilay Kulkarni has worked on a life-saving innovation that prevents stampede and loss of lives at Kumbh Mela and Haj. Fourteen-year-old Harshvardhan Jhala has designed a drone to detect landmines and save soldiers’ lives. He has got Rs 50 million funding for further development. Fifteen-year-old Akash Manoj has designed a skin patch that can predict a heart attack six hours before occurrence by measuring a protein, FABP3. All three have rightly been lauded by VIPs; they speak brilliantly with effective TED training. India can be proud of such young people, innovating to solve real social problems.

The question I am struggling with is: will these ever see the light of day as commercial unicorns? Padman refuses, the other three have a long way to go. Every interviewer applauds them for their innate qualities of genius and brilliance. Children, who are declared to be genius, fail to live up to expectations. I wish their work and effort is applauded, rather than any inherent brilliance. Personal praise is toxic and counter-productive.

In her book, HBS Professor Debora Spar describes lessons from history. (Ruling the waves, Harcourt, 2001). She argues that there are four phases — innovation, commercialisation, anarchy, and, finally, rules. In the first phase, there are no rules and governments underestimate the role and impact of new technologies. During the second phase, young pioneers and pirates set forth to commercialise the innovation. The story of TCS, Infosys and Bharti some decades ago is illustrative of the path of pioneers. They operated above the government, who just did not understand how these companies worked, or what their customer offering was. The current digital successors come through as the pirates; they smell the big money and they flock to the frontier, taking big risks — with foreign money.

India’s technology startups are now into the third phase of creative anarchy. Ownership in this phase is less important than speed, land grab and scale are more important than building customer value, raising capital is more important than profits, and entrepreneurs kill to grow on the premise that the winner takes all. Their mantra is valuations and exit, a bit like raising a child for sale/adoption to someone else — for a price — it is completely mercenary.

Indian technology startups are hovering around, or are into, the fourth phase now. They now seek government rules to prevent the ‘unfair players who deploy foreign money to fight a battle on unlevel grounds’. That is the grouse of OLA about Uber, of PayTM about Facebook and WhatsApp, and of Flipkart about Amazon. Further, VCs with foreign money question the applicability of taxes after every round of higher valuations and new funding. The merits of their arguments are not the subject of my commentary, their behavioral pattern is. 

It suggests that the phase of welcoming regulation and government intervention, which is the fourth phase when some players seek rules, has begun. The cycle of history repeats itself. Is it too early for India to have rules? Will they be Indian rules or foreign-influenced rules? These issues follow a global trend.

There are deep societal worries about the stranglehold of Google, Facebook and Apple in the world, as well as Baidu, Alibaba and Tencent, which are spreading out radially from dominance in China. History also tells us that successful pirates also nurtured big political patronage. Sir Francis Drake, the pirate of the seas, received special patronage from Queen Elizabeth I, while, more recently, Rupert Murdoch, received the special patronage of Margaret Thatcher. 

Interesting times, for sure!

The author is a distinguished professor of IIT Kharagpur and author of A biography of innovations: From birth to maturity. Email: rgopal@themindworks.me