Hon’ble Prime Minister of India
New Delhi
Subject: “Start up India Project” – Suggestions Reg.
It is a matter of great pleasure and pride that your goodself has launched a much needed scheme like- “Start up India”- for benefitting the nation from the “Entrepreneurship & Innovative Skills” of our people.
The main objective of the project as understood by me is to make maximum benefit of those young entrepreneurs who have skills, abilities, innovative ideas and ambition and wish to implement the same by becoming “Job creator rather than the Job seekers”
During my last 35 years as a Project Consultant, I have come across many start up SME projects by working with State Financial Corporations (SFC’s), State Industrial Development Corporations (SIDC’s) and Banks. I have observed and experienced that these projects carry tremendous risks for their ‘Survival’ as well as ‘Growth’. This results into large sickness of such projects and their consequent failure.
The twin purpose of writing this letter is-
- To appraise your goodself about the ground realities responsible for large sickness/closure of Startup small sized projects; and
- To suggest the remedies which can be considered while formulating and implementing Startup schemes.
Core Problem Areas:-
- Resource Constraint Sector:-
What we desire:-
Your goodself will agree that there is a need to develop a system where such an entrepreneur focuses his fullest time and energy in the productive areas of his competence and the rest of the functions are handled by the support organisations.
Ground Realities
The new entrepreneur may have good idea or product or service to sell but has little or no industry, business or market experience which is required to sustain a business. The Small size restricts the promoter to develop professionalism in the business by appointing skilled professionals who require handsome remuneration. In absence of this, the entrepreneur has to depend on his own for the various functions of the business which consist of many areas beyond his/her core competence. This process wastes his time and energy to a large extend and he is left with very limited time for the areas of his core competence.
Suggested Remedies
I personally feel that a large business house may develop a “Cluster” to inhouse many small units owned by start up entrepreneurs, providing them input facilities like Building, raw material, quality control, supervision, R&D and last but not the least the Marketing. The Small units may produce similar items or the different Components of a final product to be marketed by the large business house. This concept has been successfully implemented by some countries in the world.
Another solution to above constraint may be to encourage such small start up units for producing or distributing or serving the items which fulfil local indigenous needs. The sale of such locally demanded product or services will help the new entrepreneur as he can understand and can have control over the market.
- Financial Mis-management:
Ground Realities
The financial mismanagement in a start-up project starts with the ‘under the table’ payments to the government and its agencies, It continues by ‘Managing’ the capital contribution by the promoters.
Moreover, inspite of success in business, many new projects fail because of financial mismanagement. An inexperienced promoter is not able to differentiate between ‘Profit’ and ‘Liquidity’ nor does he understand ‘Business cycle’. If by any good luck, he does well, he poses himself as a rich person in his family as well as the society and starts spending lavishly on living, jewellery, house, marriages or other social functions etc. Not only this, he develops other businesses also. Being a successful businessman, he gets loans and other finances from all the sources- may be banks, NBFC’s, FI’s as well as Private finances in the form of hundies etc, which sometimes are ‘off the balance sheet’ liabilities. All these have the combined effect of increasing the cost, reducing the profits and steady repayment obligations. This coupled with recession in business later on surely takes the heavy toll of insolvency and consequently the closure of business.
During this process, the entrepreneurs learns and adopts ‘accounting & other manipulations’ also. As his only objective in this situation is to get out of the mishap by hook or by crook. This situation is like one faced by the great ‘Abhimanyu’ who knew to enter the Chakravyuhu but did not know how to exit.
Suggested Remedies
The Solution lies in either the ‘Cluster Concept’ discussed earlier or by appointing or engaging Independent Professional financial controllers who shall have access to and control all financial dealings.
As the projects under the scheme of ‘Start up India’ shall be innovative one, they shall definitely carry high risk of failure. Such project needs to be apprised indepth and from different visionary angles. Moreover the entrepreneurs should also not be burdened with lifelong loan liability obligations. In case of genuine business failure, I suggest a scheme of ‘Participative Project Financing’ under which the venture capitalist/Banks/Financers shall extend their contribution as ‘Capital’ and not as ‘Loan’ and shall share the fruits as well as the ‘losses’ like a promoter. Gradually, the financer may get exit route on business getting established and being profitable, either by purchase of capital by the promoter or other persons or capital market listing etc.
Conclusion:
To sustain:-
- The Business Units, under the scheme of “Start-up India”, are intended to be set up by the young Indians having innovative ideas but without or with very little business background. Such youngsters, who are the great assets of our country needs support as well as protection against the complexities and risks of business; hence there is a need for innovative schemes of project formulation and monitoring.
- The atmosphere should be such that the entrepreneur contributes his best in the areas of his core competence and rest of the activities are taken care of by the honest and efficient support organisations;
- The financing of such project should be on risk-sharing basis and not in traditional manner of loan financing. This will also ensure proper appraisal, monitoring and financial control; and
- The Government’s efforts should not be restricted till the provision of incentives and imposition of regulations; rather the government should shoulder the responsibility for the success of the individual projects.
I hope your good self shall appreciate the above ground level realities and would take care for the above aspects in formulating and implementing the great concept of start up India. No doubt, the focus of the Central government instead of regions would help in formulating the uniform policies as well as the solution mechanism for the entire nation as a whole.
I strongly feel that above measures would be able to turnaround our economy especially into a self reliant one.
Wishing a great success for your ‘Start up India’ project.
Yours Faithfully
Rajendra Goyal
