Lessons from the Silicon Valley

The Indian technology ecosystem has unique potential. To realise it, we need to learn from more mature markets  

Published: 06th February 2017 04:00 AM  |   Last Updated: 06th February 2017 07:32 AM   |  A+A-

The Silicon Valley area see more technology investment than the next seven global cities combined, capturing over 25 per cent of global venture capital investment. India has only two cities that have made it into the top 20, seeing just 2 per cent of the VC investment in the world.

This article explores just a few of the higher-level insights that contribute to the success of the Valley. The Indian technology ecosystem has some unique advantages and these can be leveraged incredibly over the next decade. To realise this potential though, we must learn from the more mature markets of the world.

Across the Valley, the ties between industry and academia are extremely strong. A little known fact about the origin of Silicon Valley is that it emerged largely due to this connection. Frederick Terman is regarded as the father of Silicon Valley due to his contribution whilst part of the faculty at Stanford to the formation of companies such as GE, HP and Lockheed. Emergence of companies like Google, VMWare and technologies such as Spark and Mesos are examples of the continuing tradition of technology companies coming from academia.

India currently has a very low participation of research and academia involved directly in industry. This is concerning especially since even long term incumbents such as Flipkart continue to avoid drawing from academia.

For a stable long-term growth of the technology sector, experienced professors, PhD students and postdocs who lend their expertise are needed. Fundamental technology is always more defensible. Once such people get involved in founding start-ups, they would find that fund raising is far easier for them. Venture Capital firms are always on the lookout for defensible companies, and technology that is patentable or verified by years of research meets this high bar.

Understandably, a large number of Indian technology companies have sought to leverage the relatively cheaper labour in India to build a competitive advantage. Many start-ups that seek to emulate companies from the Valley have followed the more labour-heavy start-ups such as Uber and Foodpanda and emulate the service-driven model of older Indian companies such as Infosys. In most of these businesses, the core human contribution is largely replaceable; drivers, delivery folks and even software developers tend to be hired in abundance with each individual contributor responsible for relatively little. The objective of these companies seems to be to execute as quickly as possible to gain advantages in the market they are in.

This goal is a noble one but the path is far from ideal. In scaling an organisation to such large numbers quickly, companies compromise on some issues vital for their long-term health.

Hiring too quickly leads to a relaxation of standards to meet large quotas. The employees are not given significant responsibility leading to even senior employees often not being able to contribute in proportion to their time spent in the company. The culture of the company is the next to suffer. The culture is what enables organisations to survive the inevitable dips in morale and outlook for the firm. The culture is a product of the people. When hiring is done too quickly, it is impossible for a company to maintain a coherent culture.

In contrast, in the Valley, a large segment of a company’s focus is on growing the talent of existing employees and investing in their success so as to retain them. Companies scale very slowly initially, making sure that a very clear product market fit and company culture is established before substantial growth. Because the ask is so high of these initial employees, firms maintain a very high bar throughout the hiring process. Keeping the smartest people around leads to a cascading effect where more high-quality people are attracted to the company. Indeed, making this investment has often helped the engineers, product thinkers and executives in these places to become much better over time. Companies have, as a result, remained leaner, more effective and quicker to produce products compared to their Indian counterparts. Flipkart for example has 35,000 employees, around the same as Alibaba and more than 2.5 times the number of employees of Facebook but is valued at over 15 times less than either company.

The alignment of employee incentives is essential in any industry where the core value is derived from the human capital. Indian companies tend to be cautious in giving equity or options to their employees; many large start-ups avoid doing so completely. Even the ones that do, only offer it to very senior employees. In Silicon Valley however, students right out of college are granted equity in even the largest companies such as Google and Facebook. This binding of interests leads to a much higher employee retention even as competitive pressures grow. Often Indian start-ups we have worked with complain of a high degree of churn in their employees. A start-up’s success often depends on sheer willpower and determination of the team to execute the shared vision. Not aligning the team’s interests financially to the success makes the task of creating a technology firm tougher than it already is. Attrition rates in India tend to be almost 30 per cent higher than the rate for start-ups in America.

As a relatively nascent market with incredible potential, India will continue to grow and develop unique frameworks for success. As the number of internet users in India grows exponentially, new, innovative companies would come to serve these users with uniquely Indian products; there are many models we can borrow from the places that have passed through these stages already.

Arpan Shah
(A technology professional who has been in Silicon Valley for the last 7 years. email: arpanshah29@gmail.com)

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