Research Paper: Start-up Entrepreneurs as a Niche

Research Paper By Prakash Nedungadi
(Business Coach, INDIA)

Introduction

Being a Start-up entrepreneur is becoming an increasingly popular career choice for several bright and ambitious men and women.

The reasons for this include:

• the seemingly magical success of several people who started virtually out of a garage tocreate cult brands like Apple, Google and Facebook, and thereby achieved early and massive wealth, fame, freedom (from employment)
• the ability of the Internet to make new ideas work and scale up easily and rapidly
• the increased availability of funds from Angel/ Venture Capital/ Private Equity investors
• the lack of opportunities and the apparent boredom of repetitive, large-office or blue collar work; furthermore, these days, very few career paths offer a “permanent, stable job”

Bangalore was recently identified as one of the top ten hubs for Start-ups in the world. With a number of people now moving towards becoming entrepreneurs in the city, it was felt worthwhile to find out whether this was a viable niche for a coaching practice. Why would Start-up entrepreneurs need coaching? One reason is their high failure rate. Data suggest that only 29%, i.e. about 3 of 10 businesses, survive the first 10 years following their creation. For the entrepreneurs who begin starry-eyed with visions of success, the emotional impact of such a low success rate could be very high.

Source: “Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By” by Scott Shane (2008)

Furthermore, coaching might prove integral to Start-up entrepreneurs, especially since their success relies upon their ability to grow with the organization, or indeed, ahead of it. For example, the personal skills required to create and run one small quick-service restaurant are different from those required to handle a dozen of them in a city, and then several in a number of cities. This is compounded by the sheer speed at which growth has to happen. Entrepreneurs don’t get enough time to emotionally adjust to new situations because the demand from investors for them to grow rapidly can be ruthless. Finally, being an entrepreneur can be at times a heady job (e.g., when the  funding just comes in!) or a very lonely job (when times are challenging). This can impact the morale and balanced thinking of a young entrepreneur unless he/she is supported to grow as a person and given the tools to manage, and indeed, benefit from, this roller-coaster journey.

Finally, research shows that coaching improves organization performance in stable companies by 37%, according to Manchester Inc,

Executive Coaching Yields Return On Investment Of Almost Six Times Its Cost (Source: Manchester Inc).

It could be argued that Start-ups are more in an “infant” stage in an organizations life and hence the gain can be several times higher.

Given the above, several questions seem to arise:

Why is it that a flourishing coaching business for start-ups hasn’t happened yet (in Bangalore)? Can start-up entrepreneurs afford coaching and do they WANT to spend money and time for it? If so, what kind of coaching, at what stage? What influence do investors have when determining the need for coaching? Can they be the “gatekeepers” who, when convinced, will nudge or insist upon coaching sessions for entrepreneurs they are investing in? Is there a business model for a coaching practice that aims at Start-Ups as its niche?

1. Determine the WANT for coaching amongst Start-ups and investors (i.e. what is the basis for a sustainable revenue model?)
2. Assess the nature of coaching demanded across different stages of Start-up– from bootstrapping to early stage to mid-stage.
3. Determine to what extent investors (VCs) encourage/incite start-up entrepreneurs to get coached
4. To understand possible Customer Propositions for a successful Start-up-focused coaching practice

Methodology

Design two structured questionnaires to understand.

a) from Start-ups: their needs/ wants, triggers/ barriers (i.e. factors that prompt them to, or discourage them from, seeking coaching) (Pl see Ann 1)
b) from investors: can they be “gate-keepers” through whom a coaching practice can successfully reach the start-up entrepreneur? (Pl see Ann 2)

3.2 Interview:

• 5 Start-up entrepreneurs in Bangalore/ India
• 5 venture capitalists

Findings

Note: interviewees names have been kept confidential, but their quotes are given in blue and their initials are shown against the quote

4.1 ALL Start-up entrepreneurs felt that coaching was required at every stage of evolution and could impact the success of a venture tremendously.

Specific areas were:

Aside from the above, in ALL stages, all the entrepreneurs I spoke to had the following common issues that could be addressed by coaching:

a) Loneliness . the feeling, especially in tough times, of being completely alone and unable to share problems even with close family.

• “ I had to sell part of my residence and there were months when I borrowed from friends to make salary payments to my team” (HD)
• “I have no one to turn to, unlike when I was a professional and had a boss to mentor me” (PG)
• b) Doubt . at times there were doubts about whether the sacrifice was too much (most of them had given up good jobs to become entrepreneurs)
• “I was making Rs 1,00,000 in my job and now I could scrape up just Rs 30,000 with so much work and tension” (PG) “ I have so much expectation of myself and so do the VCs and my employees from me....will I deliver?” (VJ)

c) Responsibility . being responsible for many people– both front-line staff and senior team members– and being the person where “the buck stops” every time.

• “ There is no let up; initially, I had to get up everyday at 6 a.m., head to the vegetable market to buy for the restaurant; now, I have people to manage things, but when they don’t, it ends with me” (GJ)
• “Often I have felt drained with everything that is on my shoulders” (VJ)

4.2 The reason they had not taken up coaching so far was:

a) not aware of good coaches and the power of coaching (GJ, VJ)
b) used “local” help and managed (PG, HD)
c) felt that some entrepreneurs would not like to believe that the skills they required had changed or that a coach could really help (VG)

4.3 Key characteristics looked for in a Start-up coach:

a) Trust is most critical: Entrepreneurs felt that their time was precious and they could only spend it with a coach they could really trust.

“If I found that my coach was also coaching a competitor or talking to my investor or customer, I would be really let down” (VG)

b) Understanding: a Start-up’s life: the speed, management of uncertainty and acting from the gut were so important for a start-up that entrepreneurs needed a coach who could be perfectly sensitive to that need “Some people who have not been entrepreneurs don’t understand the pace at which we have to make decisions” (PG)

c) Consultancy-cum-coaching is sometimes a requirement i.e. blended coaching

“Would love to have a sounding board, but also ideally should be able to give me specific advice on the business”(VG)

4.4 Role of the Venture Capitalist or Board Member as a Coach or Mentor:

There seem to be conflicting views, with some saying that they implicitly trusted their VC’s judgment, whereas others said that there was some formality in the relationship and full trust could not be assumed

• “ Sometimes, you can’t open up to your investor or Board member 100%” (PG)
• “You can talk about your business pressures to the VC, but he’s probably not interested in all the rest that’s going on in your mind” (HD)