Module 4: Starting Your Venture

Module 2 asked why you started. Module 4 asks how you started, and then closes the whole course by naming the two frameworks that turn all of this from description into method.

There are three parts. A second classification axis, deliberate versus accidental, which crosses the necessity versus opportunity axis rather than replacing it. A seven-way taxonomy of routes into a venture. And the course wrap up, which contains the colonisation-window argument, the unified typology, and the two named methods the whole degree programme builds on: Lean Startup and Effectuation.

The second axis: deliberate and accidental

The official summary of this clip, transcribed:

The two axes cross

Deliberate versus accidental is a second axis, not a replacement for necessity versus opportunity. You can be an opportunity-based venture started deliberately, or an opportunity-based venture started accidentally.

Common trap: Reading founder stories as if they were plans. On Shark Tank, on YouTube panels and at conferences, founders sound like they had everything figured out, which is intimidating. In reality it is quite likely that they did not figure it out, and that the clean linear narrative was constructed in hindsight, years later, as separate events merged into a story.

Case: RedBus

The trigger. Phani and his friends were planning a Diwali trip to Hyderabad. Standing at Silk Board in Bangalore they could see that plenty of buses were running visibly empty, and yet every travel agent they asked said there were no tickets.

The structural problem. Bus owners handed their seats out to travel agents, three or four or five seats each. Once an agent had sold his five, his honest answer was "no tickets on that day at that hour", so you went to the next agent, who said the same. Inventory was fragmented across agents and invisible to everyone, including the bus owner, who could not answer the question without ringing round every agent to find who still had unsold seats. It was a badly organised market with no view of supply.

The plunge. They quit their jobs on the strength of that observation. No prior thinking, no burning desire to disrupt bus ticketing. Mango and Amagi and Zoojoobe were thinking about their industries. These founders simply saw something in the world and decided to solve it. That is the definition of accidental.

The hard part, and the pivot. They spoke to roughly 3,000 bus owners to build their first platform. And they built the wrong thing: a bus operating system, which nobody would adopt. Why would a bus owner change? He has two or three buses, his system has worked for years, everybody in the chain is comfortable, and if some inventory occasionally goes unsold, so be it. The pain was the customer's, not the operator's.

Somebody then suggested the move that made the company: do not ask the industry to change, enter the value chain as just another agent. New agents appear all the time. Everybody already understands what an agent is. Take whatever seats you are given and put them on your platform.

Why it worked commercially. Their customers were young people in IT parks in Bangalore and Hyderabad who had jobs and therefore credit cards. Contrast with Flipkart, whose customers largely did not have cards, which is precisely why Flipkart had to invent cash on delivery.

The punchline. A student later asked Phani how RedBus survives now that KSRTC and VRL have their own websites and their inventory is not on his platform. His answer: which platform do you think those websites are running on? The bus operating system he originally set out to build, and could not sell, is what he ended up owning after all.

Memory hook: RedBus succeeded by entering the value chain in a role the industry already understood, and only later got to build the thing it wanted to build in the first place. A to B to C, as the professor puts it, with no linear plan at any point.

Case: Instant Pot

The electrical pressure cooker is now a market worth hundreds of millions of dollars. The striking fact is who did not build it. It was not TTK, not any established pressure-cooker maker, not any existing kitchen-equipment company.

It was a young engineer with a couple of young children who lost his job, and who was looking after them while looking for work.

Why it was technically easy and yet nobody did it. All the components already existed: pressure sensors, temperature sensors, timers. It is not a simple device, but it is not rocket science either. The sensors just needed to be coordinated and put together into one appliance.

What it replaced. For Indian households, cooking under pressure meant counting whistles: rajma seven whistles, dal two, rice three. Mental arithmetic standing in for heat, pressure and time control. Ask relatives in the US whether they have an Instant Pot. Most do.

The counterfactual the lecture wants you to sit with: what would have happened if this man had not lost his job? For decades there were no electrical pressure cookers. We might still not have them.

Wheels on suitcases

The rhetorical device that generalises the Instant Pot point.

• We put a man on the moon in the late 1960s, sent rockets into space and built devices that run on solar power on the lunar surface.
• We did not put wheels on a suitcase until the 1970s.
• The wheel was invented thousands of years ago. Suitcases have existed for hundreds of years.

Nobody put the two together. When the professor was in his twenties, everyone simply carried heavy suitcases, because rolling luggage did not exist.

Memory hook: "We do not know the universe of solutions that do not exist because nobody put two things together." That is the strongest single argument in the course for why an ordinary person, with no special resources, can still find something worth building.

Necessity via credentialing failure

A worked example of how necessity entrepreneurship arises even for highly skilled people.

Imagine a mathematics professor from a war-torn country who reaches a new country. He cannot produce his certificates and cannot demonstrate his credentials, so he cannot present himself as a mathematics professor. What does he do? He gives tuition. Or he bakes cakes. Or he makes samosas, because there are few good samosas nearby and there are people who want them.

The generalisable rule:

Opportunity-based ventures usually demand legitimacy artefacts, such as certificates and recognised expertise. Necessity ventures do not. Nobody asks a samosa seller for a degree.

If hiring ever moved to evaluating what people actually know rather than what they can document, far more of these migrants would have opportunity-based options.

The plunge is orthogonal to scale

The sharpest formulation in the clip:

Deliberate and accidental is only about the plunge. Did you jump off the cliff because you wanted to, or did you slip and fall off it?

It says nothing about what follows. Scalability has nothing to do with your starting point and nothing to do with the industry you are in. Two cases make the point in opposite directions:

ID (idli-dosa batter): starting small and becoming large. The founder is a software person with an engineering degree and an MBA from IIM Bangalore. Announcing in Bangalore, the Silicon Valley of India, surrounded by full-stack developers and Hadoop engineers, that you are going to sell idli dosa batter, would have been a family joke.

Why Bangalore specifically: unlike most of South India, Bangalore is cool enough that batter does not ferment reliably at home. So a properly fermented batter does not need to be marketed. It sells itself. Once that took off, convenience carried the brand into other cities, and the company expanded into parathas, coffee and bread. The market is seriously large and growing fast.

Kayani Bakery, Pune: being able to scale and choosing not to. A bakery that everybody goes to, which does not make tons of stuff and does not want to grow, because the owners are happy serving the customers who come. There is an equivalent in every city.

Memory hook: Scaling is a choice, not an obligation. Whatever the reason for starting, and whatever state you start in, it is a journey. All you actually have to do is have a sustainable business model. Do not judge people by whether they intend to put a dent in the universe.

Seven common ways of starting a venture

Prof. Bhagavatula puts together seven routes, and invites students to identify others.

Note the vocabulary point: the slide says "user entrepreneur" while the transcript and the handout say "scratch your own itch". They are the same route, and both labels are worth knowing.

1. Desire to disrupt

This is the version that dominates media and popular literature. It brings a whole vocabulary with it: moonshot, blitzscaling, network effects, and Series A, B, D, G, which are simply successively larger chunks of money (Series A is small, a Series H can run to hundreds of millions of dollars).

The phrase for it is Steve Jobs' "put a dent in the universe". Founders in this mode want the world to look at their venture as the inflection point after which things were not the same.

2. User entrepreneur, or scratch your own itch

You solve your own problem, on the reasonable bet that there are others like you.

The Truvy case. Mansi, a PGP student at IIM Bangalore, became a mother and found there was not enough genuinely safe food available for children. Not baby food, but food for four- and five-year-olds. Processed food is full of additives nobody can identify. Her question was whether there could be processed food that is actually good for children, and she started a sauces company, Truvy, on that basis.

The general pattern: you want to change your health, your diet, something in your own life, and you realise you could build a venture for everyone else with the same problem. Solving your own problem can lead to a very large market precisely because your problem is not unique.

3. Moonlighting

Keep the job. Build in the evenings.

Apple is the case. Steve Wozniak was working at HP when Apple started. HP's employment contract had a fine-print clause that anything he built in his spare time also belonged to HP. Jobs and Wozniak went to HP, showed them the extremely rudimentary machine they were building, and HP said it was not interested and told them to go ahead. Wozniak later quit and continued.

Common trap: Assuming your side project is yours. Read the fine print of your employment contract. Some employers claim IP in anything you build in your free time.

The professor's actual recommendation, which he says he gives often:

1. Do not leave your job to find out.
2. Wait until there is a customer.
3. Wait until there are paying customers.
4. Wait until there are enough paying customers.
5. Only then let go of what is in your hand.

Moonlighting is a sandbox. It is harder because you are doing two things at once, but it is much safer.

4. Bootstrapping

Starting small with whatever you have: a garage, some capabilities, and customers' money. (Module 3 covers the technique set in detail.)

The trade-off framing that belongs here: bootstrapping means you are not taking outside money, so you are not diluting your stake and not reducing your control. You hold 100 percent, or 90 percent, of your own venture. The moment you take money, ownership starts to decrease. That is a real cost to weigh against the speed outside capital buys, and it is why the outside money is risky for investors but leaves you holding only a small slice if the company becomes big.

5. Social enterprise

Two sub-routes, both covered in Module 3:

• For-profit social venture: solve the social problem and make money. Rescript and Gud Gum.
• Not-for-profit: solve the problem and leverage grants and CSR money.

IIM Bangalore's not-for-profit incubator, now called Social Orbit, incubated several of these:

Observation worth keeping: NGOs and not-for-profits used to be founded late in life, by people who had worked for decades and then decided to solve a social problem. They are now being founded by young people, which is why early-stage support for subsistence matters so much: social problems demand a lot of attention and resources, and young founders do not have either.

6 and 7. Accidental and necessity, and the founding-age distribution

Both routes have already been covered as classifications. What this clip adds is the empirical fact about age, which is the single most striking data point in Module 4.

When researchers plotted the age at which people start ventures, the distribution turned out to be bimodal. Two peaks, not one.

The most successful age to start is early to mid forties, around 44. The reasoning:

• years of experience
• connections and networks
• capabilities
• understanding of industries
• and still 20 to 25 productive years ahead in which to run the venture

The retirement route belongs here too. Sixty is not what it used to be: today's sixty is the old forty, people live longer and healthier, and someone retiring at 60 still has ten or twelve energetic years. There is only so much television you can watch. It is an excellent time to start a venture, and a particularly good time to start a not-for-profit.

Common trap: Believing entrepreneurship is a young person's game. It is bimodal. The word to remember is bimodal, and the number to remember is 44.

The Common Ways summary sheet

The official summary of this clip, transcribed:

Course wrap up

(This clip has no summary sheet anywhere in the course materials. Everything below is from the transcript, and it contains the two frameworks the whole degree programme is built on.)

The restated definition

Entrepreneurship is pursuing an opportunity although you do not have all the resources with you.

And the reasoning attached to it, which answers the common student instinct of "if somebody gave me a million dollars I would start":

Why would anyone give you a million dollars? Money does not grow on trees. When someone gives you money it is because you are going to double it, triple it, or return it with interest. The only exception is when you are solving something socially relevant, which is the grant and CSR route from Module 3.

The professor's honest framing of entrepreneurship as a career: entrepreneurship is the cornerstone of capitalism, and the quality of life we enjoy exists because many people put their attention, time and money into solving problems we now benefit from. But he does not recommend chucking away what you have to start a venture just because it looks mature, or hot, or because everybody around you is doing it. What has changed is the environment: compared with 15 years ago there are now resources, free resources, understanding, opportunities and available investment. It is a far more active space than it was.

The colonisation-window argument

This is the most examinable single claim in the course, and it reframes all of Module 1.

Abroad, people will say Indians are entrepreneurial while struggling to name ventures that came out of India. Historically, though, India was entrepreneurial for centuries, wealthy enough to produce a large part of what the world required, and it did so through entrepreneurial means. Then came a setback of roughly a hundred years.

The argument is about timing, not about colonisation as such:

Being occupied in that window meant India could not do what it wanted to do and instead did what the British wanted done. India was configured as a repository of resources, so it did not become entrepreneurial in the industrial sense at the exact moment industrial capability was being defined.

The suppression continued after independence too, for domestic reasons (the License Raj material in Module 1). Roughly a hundred years of industrialisation and entrepreneurial development was lost. Then, at the first opportunity, after liberalisation, India started to grow again.

Memory hook: It is not simply "colonisation was bad for Indian entrepreneurship". It is "the specific window mattered". Occupation from 1550 to 1750 would have cost far less. The 1840s to 1947 window overlapped exactly with the arrival of modern technology, and that is the loss.

The unified typology

The wrap up treats the four splits taught across the course as one connected system, all of them describing different questions about the same venture.

The aside worth knowing: Tata Sons is substantially owned by trusts, so a great deal of the money that flows into Tata goes back out into philanthropy. Philanthropy, through grants and other means, helps people solve social problems without making much money at it.

The entrepreneurial method, and the swimming analogy

What do we now know about starting and running a venture that we did not know before? We now know there is an entrepreneurial method.

The analogy: entrepreneurship used to be being thrown into the water and expected to swim. Most people flail, learn some form of dog paddle, learn to float, and slowly work it out. That is one way.

But there is another. Coached, lesson-based swimming. Watch your elbow. Learn how to breathe. Learn breaststroke, freestyle, butterfly. There is training for swimming, and there is training for being an athlete. There can equally be a systematic process for starting a venture.

Two such methods are named, and they are the two that have become popular and successful worldwide. They are not the same kind of thing, which is the distinction to hold on to.

Lean Startup

A systematic playbook. The loop:

1. Start with a hypothesis about the venture: who the customer is, what they want, what they will pay.
2. Take the hypothesis to potential customers and talk to them.
3. Test whether what you believe matches what they actually want.
4. If not, revise the hypothesis and go and talk to a different set of people.
5. Iterate.

It is an iterative way to build your venture, and it is prescriptive: it tells you what to do next.

Memory hook: RedBus is Lean Startup discovered the hard way. Hypothesis: bus owners want an operating system. Contact with reality: nobody would adopt it. Revised hypothesis: enter as an agent. That worked, and the original hypothesis eventually came true anyway.

Effectuation

Prof. Saras Sarasvathy's framework, and it answers a different question: how do you take decisions under uncertainty?

Recall the course definition of the entrepreneur as somebody taking judgement calls about the future without knowing what will happen. Uncertainty is a key aspect of entrepreneurship, so the question is how you mitigate it. Effectuation is the answer.

It consists of five principles, described explicitly as heuristics or thumb rules rather than a playbook. That contrast is the point: Lean Startup gives you a systematic sequence; Effectuation gives you rules of thumb that let you be creative about assembling opportunity and resources and then scaling the venture.

The five principles, as the framework is standardly stated:

Note: the lecture names Prof. Sarasvathy and states that there are five principles, and says the detailed treatment comes in the next course. The names above are the standard labels for those five heuristics.

Lean Startup versus Effectuation

These are the two frameworks the course closes on, and they are what the next courses in the programme are built around.

Founder interviews linked to this module

Lecture mirrors

• Entrepreneurship: Deliberate and Accidental: https://www.youtube.com/watch?v=d_HbIvFEYiI
• Common Ways of Starting a Venture: https://www.youtube.com/watch?v=0omUf7M4SPM

Key takeaways

1. Deliberate versus accidental is a second axis crossing necessity versus opportunity. It describes only the plunge: did you jump, or did you slip?
2. Founder narratives are constructed in hindsight. Nobody had it figured out at the time.
3. RedBus entered an inefficient, fragmented market and failed with a bus operating system nobody would adopt, then succeeded by becoming just another agent, a role the industry already understood. Its customers had credit cards, which is why it never needed cash on delivery. KSRTC and VRL now run on the platform it originally set out to build.
4. Instant Pot came from an unemployed engineer, not from TTK or any cookware incumbent, and merely integrated sensors that already existed, replacing the counting of whistles.
5. Wheels reached suitcases in the 1970s, after the moon landing. We do not know the universe of solutions that do not exist because nobody put two things together.
6. Opportunity-based ventures demand legitimacy artefacts; necessity ventures do not. A displaced mathematics professor without certificates ends up giving tuition or making samosas.
7. Scaling is a choice. ID batter grew large from a family joke, helped by the fact that Bangalore is too cool for home batter to ferment reliably. Kayani Bakery could scale and does not want to.
8. Seven ways to start: desire to disrupt, user entrepreneur (scratch your own itch), moonlighting, bootstrapping, social enterprise, accidental, necessity.
9. Flipkart's real contribution was legitimising India as a market for investors, changing entrepreneurship's status as a career and a social choice, not just changing retail.
10. Moonlighting is a sandbox: wait for a customer, then paying customers, then enough paying customers, before you let go of the job. And read the IP clause in your contract, as Wozniak's HP agreement shows.
11. Founding age is bimodal, with a young peak and a second peak after 40. The most successful time to start is early to mid forties, around 44, because you have experience, networks, capabilities, industry understanding and 20 to 25 productive years left.
12. The colonisation window is the point, not colonisation itself. 1550 to 1750 or 1750 to 1850 would have cost far less. 1840s to 1947 is precisely when power, flight and modern technology arrived, and India was occupied and run as a repository of resources throughout.
13. The entrepreneurial method exists. Lean Startup is a systematic playbook of hypothesis, customer test, revision and iteration. Effectuation, from Prof. Saras Sarasvathy, is five heuristics for decision-making under uncertainty. Coached technique, not being thrown in the water.