What is a Startup
What are Startups?
Different experts have different views, so do different countries. For example,
Steve Blank and Bob Dorf define a startup as an "organization formed to search
for a repeatable and scalable business model".
Eric Ries, the author of The Lean Startup, defines startups
as "institutions designed to deliver a new product or service under conditions
of extreme uncertainty".
Paul Graham of Y-Combinator wrote an article, Startup = Growth, which implies
startups are fast growing babies.
Babson College, globally recognised as one of the best in entrepreneurship,
defines entrepreneurship as "a way of thinking and acting that is opportunity
obsessed, holistic in approach, and leadership balanced.”
Howard Stevenson of Harvard defines entrepreneurship as, "the pursuit of
opportunity beyond resources controlled".
At The Entrepreneurship School, Gurgaon, I have worked with several startups. In
my experience, nascent businesses struggle to find the right fitment between idea
development, product development and market development, often with very
little resources. Higher the degree of innovation, greater the challenge and risk of
balancing product, customer and business model.
Though the list of definitions are limited, we start getting the features of a startup.
These are:
1. Startups involve innovation.
2. These are journeys of exploration and discovery.
3. These journeys are of building new products, services or
business models
4. Usually these journeys begin with little resources
5. Thus, startups entail that reduce the chance of success
Action Plan's Definition of Startup
On the basis of above understanding, it is imperative to examine the definition of
startups in the Action Plan 2016. Organisations like TiE, Nasscom and iSpirt have
worked with Department of Industrial Policy and Promotion of Government of
India to help build this definition.
Startups have been defined in Annexure A of the document for the purpose of
Government of India schemes. It defines a startup as:
"an entity, incorporated or registered in India not prior to five years, with
annual turnover not exceeding INR 25 crore in any preceding financial year,
working towards innovation, development, deployment or commercialization of
new products, processes or services driven by technology or intellectual
property".
Thus, a startup, according to Action Plan has following features:
- it should be a Private Limited Company or a Partnership Firm.
- it must aim to develop and commercialize a new product or service or
process; or a significantly improved existing product or service or process
that will add value to the customer.
The document goes on to add, "the mere act of developing products or services or
processes which do not have potential for commercialization; or undifferentiated
products or services or processes; or products or services or processes with no or
limited incremental value for customers or workflow" would not be covered under
this definition.
Does the definition work?
This is the first attempt by Indian government to define startups. They have done
a laudable job in capturing the broad contours of a startup. But they have missed
a few salient features of a startup.
The most glaring is conditionality to commercialization. It is well known
that commercialisation power of disruptive ideas are often difficult to be
recognised. For example, in early 1990's business leaders glossed over
commercialisation ability of Hotmail. In the context of present policy, chances are
high that the Hotmail idea may not be considered as a startup.
There are other lacunae in definition with respect to ignoring the exploratory and
discovery phase of venture building process. Similarly, Further, there are
subjectivities around terms like "limited incremental value".
In order for a “Startup” to be considered eligible, the Startup should:
• be supported by a recommendation (with regard to innovative nature of
business), in a format specified by DIPP, from an Incubator established in a
post-graduate college in India; or
• be supported by an incubator which is funded (in relation to the project)
from GoI as part of any specified scheme to promote innovation; or
• be supported by a recommendation (with regard to innovative nature of
business), in a format specified by DIPP ( Department of Industrial Policy
and Promotion), from an Incubator recognized by GoI; or
• be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/
Accelerator/Angel Network duly registered with SEBI* that endorses
innovative nature of the business; or
• be funded by GoI as part of any specified scheme to promote innovation;
or
• have a patent granted by the Indian Patent and Trademark Office in areas
affiliated with the nature of business being promoted.
In addition, to qualify for any of the tax breaks, your firm's "innovation" needs to
be whetted by "An Inter-Ministerial Board setup by DIPP".
And, according to the document at least, there are no plans to do away with the
"Startup / Angel Tax" (which treats equity investments over Fair Value as income
in the hands of the company). All it says (after describing the issue beautifully) is:
"Currently, investment by venture capital funds in Startups is exempted from
operations of this provision. The same shall be extended to investment made by
incubators in the Startups."
"Start Up India, Stand Up India" is clearly a great booster for government
supported incubators and startups associated with them.
