Introduction

As more first generation entrepreneurs come up in the growing economies of Asia, the success stories dominate the media space. However we know that the percentage of start-ups that fail in the first three years is quite high.(1) Entrepreneurship educators and trainers are interested in knowing more about the causes of such failures and the possible remedial steps. Of course, all those who finance the start-ups would also have an interest in knowing about the causes of start-up failures that point to the need for greater care in selecting entrepreneurs for financing. Considerable research work has been done in the advanced economies of the world on causes of failures in new ventures.(2) However, this kind of research needs to be done in the Indian situation, which has seen a surge in entrepreneurial activity post liberalization.

If we go by the premise that behaviour is the outcome of personality interacting with its environment, then we can group the causes of failure as associated with Personality of the Entrepreneur and the rest belonging to the Environment of the start-up. Research would help us identify those behavioural competencies that help avoid start-up failures. This understanding could be applied at the time of selection and training of potential entrepreneurs.

This paper attempts to gather pointers about the leadership dimensions from some published material about successful entrepreneurs and put them in a conceptual framework that can be useful for research in behavioural competencies.

Leadership

The concept of leadership that we use here is a set of behaviours that is consciously undertaken to influence the thought, feelings and actions of a group of people. In this sense, the start-up Entrepreneur is not only directing the work of team members, but also influencing their mindset through the activities. Importantly, s/he is helping build faith in the concept and optimism in the eventual success of the start-up. The leader sustains this positive orientation despite hurdles and setbacks.

The Start-up phase and its challenges

As the enterprise activity begins in this phase, it becomes necessary to establish the production/operation process parameters. The procurement, conversion and delivery processes need to take place according to standards and as these meet the standards, the next stage is to establish cyclicality. So in this initial stage, the group of people in the start-up phase has to sort out problems relating to quality of output and then the difficulties in maintaining uninterrupted functioning. Once the quality and cyclicality of the process are established, it becomes necessary to check the actual cost of operations with the standard costs worked out for the purpose of pricing. The entrepreneur then has to deal with the variances if any.

At the same time, the product needs to be established in the market through stages of customer acceptance of the product and the price, followed by a cyclical distribution process. No one expects these stages to go through smoothly in the first few trials. Adjustments, changes and improvisations on minor scale are easily foreseen by the more experienced businessmen. There could be major revisions needed if the market does not like what it gets or the price that it pays.

The operational and marketing difficulties can compound into financial problems of working capital. The buffer funds need to be brought into use and additional funds need to be quickly accessed. If this does not happen in good time, customers can desert on the ground of insufficient or erratic supply, putting utilization also in jeopardy. Staff can get restless about the success of the venture and that may further affect the productivity.

It is at such times that the venture cannot afford to run into Leadership Deficit. It may be less difficult to overcome funds deficit, but Leadership Deficit can deal a big blow to the chances of success of the venture, if key people, inside and outside, lose faith in its viability.

Leadership challenges

The leader, who succeeds, not only believes in the project but also injects that belief in the entire team and all the external constituents. The key issue is to deal with failures and setbacks in a manner that wins back confidence.

The effective leader puts the setbacks in perspective, interprets their significance for the whole project and makes course corrections. In doing this, s/he is convinced that the basic concept is sound and worthy of pursuit. The key leadership task here is to create a calm atmosphere in which team members can objectively analyze the setbacks, identify the basic causes and determine the action needed in terms of course correction and or concept revision. The underlying faith in the venture would be wavering but the leader would address it and set it at rest.

Mr Kunver Sachdev is the founder-CEO of Su-Kam Power Systems Ltd, India’s leading manufacturer of Power Inverters. He started with the business of Cable TV Operator, giving and managing cable connections to household TV sets. Later he shifted to making Inverters, which are a power back-up system – essential in all parts of India which face frequent power outages. When he first made the inverters and sent them out in the market, he had the unenviable experience of seeing the entire lot come back for defects. From managing a profitable service operation to jumping into manufacturing must have appeared a big mistake at that point. It is interesting to see how Mr Sachdev responded to this failure.

Mr Sachdev did not get bogged down by the setback. He analyzed the cause to be the level of technology, decided to get help, and then engage in repeated testing to produce a reliable product that became (and has remained) the market leader. In the process he demonstrated four types of competencies – Thinking, Self-managing, Achieving and Influencing.

Given the nature of the start-up activity, these competencies seem very crucial to the success of a venture.

When a new project is being implemented, some of its features are quite likely to be rejected by the actual turn of events. Things in real life go according to their momentum and not according to our plans. We cannot fully gauge that momentum in advance. For instance, the market response may ask you to rethink your price or product features. Your sourcing of raw materials can run into trouble. In the case of Su-Kam, the dealers rejected the product for not meeting the performance requirements. The start-up Entrepreneur needs to remember Murphy’s Law at all times: everything that can go wrong. will (go wrong).

There are both functional and dysfunctional responses to such situations. The dysfunctional response consists of first refusing to believe there is any problem, then blaming it on others and finally putting it on the shoulders of external agencies. The bottom line is not to take any responsibility for the failure. Many competent professionals analyse failures away to distant causes.

The functional response consists of acknowledging the problem, accepting responsibility for one’s own actions and then doing what is necessary in the situation – corrections and revisions. For the functional response to materialize, the Entrepreneur needs to be in control of self. He needs to keep his temperament and state of mind in check. He needs to guide the analysis and discovery of root causes and put the process of correction in motion. Self Control, Analytical Thinking, Result Orientation and Perseverance are the behavioral competencies that one expects to find in the Entrepreneur as the leader. These four competencies enable the Entrepreneur to learn constantly from his/her experience. Behind these competencies lies the attitude of Reality orientation, which consists of a respect for reality, a tendency to check one’s views constantly against reality and the ability to perceive things dispassionately as they are.

Returning to the case of Mr Kunver Sachdev, we find in him this great ability to learn from mistakes.