Entrepreneurship and Specially AgriBusiness

Entrepreneurship and The Indian Scenario Specially Agribusiness (Based on Notes for the Address at MMU, Sadopur Campus, Ambala District)

- Some Inputs, Some thoughts (includes notes fifteen odd years old)

By Dinesh K Kapila

I have always advocated the concept of entrepreneurship. This is one economic activity which is open to entry, on merit, to a large extent. Concerns of access to finance are certainly there, as specially in rural areas, banks are the only source of finance. However of late, NBFCs and NBFC MFIs have made a presence. Plus the projects are mostly basic and do not attract glamour or attention. Yet they are the foundations of small rural areas and as they add up in mass and scale, they evolve as vital cogs of the economy. Facilitative Government Policies over the years have created a huge core of entrepreneurs across all communities and are leading to many young citizens exploring the option of entrepreneurship. I feel during my interactions a tremendous hunger for economic success and ambition across social classes in rural and semi urban India. Many entrepreneurs are also developing their own linkages and understanding of the operating environment.

Commitment, a knowledge of the particular market and ecosystem and an understanding of basic finance can certainly lead to success. In the rural hinterland, rigidities do prevail even now and community rigidities, but the consistent flow of information is certainly diluting barriers.

In his landmark book Innovation and Entrepreneurship, published in 1985, Peter Drucker already anticipated the shift towards a society that is that is characterized by entrepreneurship, innovation and dynamics. Based upon the ideas of another great Austrian thinker, Joseph Schumpeter, the entrepreneur should be, according to his opinion, in the heart of the economic life – as the driving force of a market-based, competitive and wealth-creating economy.

The entrepreneurial society

Peter Drucker turned out to be right. Never before in the history of mankind has change had a bigger impact on business and society than today. Change invariably creates room for innovation, and those unable to adapt will not survive. Innovation is the key to successful competition, growth, progress and prosperity. “But innovation does not happen on its own. It takes people who are passionate about making it happen: Someone needs to identify opportunities for innovation, turn ideas into products, services or business models and help them succeed in the face of adversity. And this is exactly what entrepreneurs do,” explains Prof. Franke while discussing this.

The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of new businesses.   In economics, entrepreneurship combined with land, labor, natural resources and capital can produce profit. Entrepreneurial spirit is characterized by innovation and risk-taking, and is an essential part of a nation's ability to succeed in an ever changing and increasingly competitive global marketplace.

Entrepreneurship has been described as the capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit. Due to the high risks involved in launching a start-up, a significant proportion of start-up businesses have to close due to  A lack of funding, bad business decisions, an economic crisis, lack of market demand, or a combination of all of these. We may remember to draw lessons from failures too.

A broader definition of the term is sometimes used, especially in the field of economics. In this usage, an Entrepreneur is an entity which has the ability to find and act upon opportunities to translate inventions or technologies into products and services: The entrepreneur is able to recognize the commercial potential of the invention and organize the capital, talent, and other resources that turn an invention into a commercially viable innovation.In this sense, the term "Entrepreneurship" also captures innovative activities on the part of established firms, in addition to similar activities on the part of new businesses

Historical Context

Alberuni : About us - 1000 AD, stated about us, that we exhibited a marked preference for theoretical over practical learning.  We have to become tinkerers : combine knowledge with a  manual hands on approach, this produces innovation.  Entrepreneurs in our society have often shied away from manual labour and technology – noted author Gurcharan Das has stated if I remember correctly that this is one reason to have missed the industrial revolution.  Ofcourse the operating scenario has evolved of late and a new entrepreneurial vigour is evident in India as a result of talent, hard work and professional skills.  We have to build on it – bankers and investors must be facilitative in this process.

Gunnar Myrdal has stated in the 1960s or 1970s that India’s social attitudes and systems were responsible for low industrialisation : the main factors as stated were  low productivity,  primitive production technology, low levels of living due to - poor work discipline, contempt for manual work, lack of punctuality, alertness and ambition, low aptitude for cooperation, superstition.  This plus ofcourse the debilitating land tenure system, low standards of efficiency and integrity in public administration, low peoples participation and rigid social structures.  This may hurt but we can assess ourselves where we have evolved and reached in this long journey since then. Product Development and innovation is also a concern, this is an Indian manufacturing weakness, it’s quite lacking and applies equally to the rural artisan also.  Japan had an immense curiosity for western science and technology - even in the 17 century and literally reinvented itself from a semi feudal agrarian society to an industrial society. Japan of course moved up technologically tremendously due to a higher literacy levels, I would stress technical literacy rooted in a good mix of the theoretical and practical knowledge.

Wealth Creation

In this context, it is only pertinent to stress that Wealth creation is atleast as important or more important than wealth redistribution. a competitive economy produces high productivity,  efficiency, innovation and higher investments in human resources.  The Japanese industrial or economic miracle – as we know it, is based on brutal domestic competition

The Non Farm Sector or Off Farm Sector or promoting industrialization and even related services from the units with a minimal viable investment to increased investments as it evolves is about fostering entrepreneurship. In the USA for example, in the 1970s  - it was stated to be the De-industrialisation era which had begun. But Peter Drucker  emphasized that it was  actually a shift from the managerial to an entrepreneurial economy.  Demography Data indicates that from 1974 to 1985 : 25 million jobs were added, while workforce grew from 129 million to 180 million.  The impact of the oil shock  in that period led to the closure of many smokestack industries : Western Europe had in 1970,  20 million more jobs than the USA. But in 1984 it had  2 million less. 2.40 million jobs were lost in Europe in 1974-84.

Japan had a 10 % growth rate, during 1970-82 in job creation – The USA had a 40% increase. at the same time in the USA, 1 in 2 women were in jobs in 1984 vis a vis 1 in 5 earlier, this indicates the potential of the benefits of encouraging entrepreneurship. 

This creation of jobs in the USA was in small and medium industries / institutions / businesses - not in Govt./ large Co’s / huge schools and colleges. Of the 40 million new jobs : 5-6 million jobs were in high tech only - high tech gives the excitement but the real growth is in the so called mundane sectors. Pertinently, we should respect the excitement around the hitech sector as it builds an environment for entrepreneurship and creates a vision for innovation and receptivity, for  entry in this sector as also for a shift in the employment market . It spawns a willingness to work in small Co’s – as per data I could assess, the top 20 public Co’s of the USA at that time, in the bracket of 5-15 years old, only 5 were high tech and 15 were restaurants / health care and women's wear manufacturing. Or building contractors, physical exercise manufacturers and chain of hair cutting saloons  etc. Incidentally, as regards venture capital firms, their focus was 1/3^rd on services.

To be clear, entrepreneurship to succeed must be systematic and managed.  Being Innovative and creativity ; are the heart of entrepreneurship : ICEDIP Principles are the key : identification / clarification / distillation / incubation / perspiration / evaluation.  This leads to a belief of win - win, and an understanding of the need to improvise / compare / innovate. 
 

Indian Context.

Agricultural Expansion is not enough to conquer poverty, we know this. We lack capital but have people but also huge disguised unemployment in the countryside; we need to put the people to productive work at the lowest capital cost, be it in leather, textiles, cloth merchandise, selling snacks, manufacturing eats and even shoes etc.  This shall generate surpluses which can feed investments into agriculture, rural infrastructure, agro industry etc.  The terms of trade have often fluctuated and may not be agriculture friendly but we shall ignore that aspect and it’s impact for now.  

We can agree with many that economists that state that cultural traits are not that important to move to an industrial economy, – Example - South East Asia – where success is by an efficient employment of resources, exports by labour intensive industries, vigorous literacy and govt. role in building competitiveness and correcting distortions. Maybe we can learn and attempt to replicate. However I personally feel that cultural traits do matter and need to be addressed.  

My notes indicate that for India – The share of agriculture and allied activities dropped from 45.80 % in 1960-61 to 38.10 % in 1980-81 and 27.90 % in 1995-96.  share of agriculture and allied activities in gross capital formation fluctuated  likewise from 16.90% to 18.8 % to 10.9  %. also the Indian industry’s share of GDP is only 26 % - for China it is 50 % and in Indonesia 45 %.  India’s industrial  sector is the smallest in the region – it needs to grow at 11 %.  The picture is largely the same even now. We cannot sustain or achieve 8 % growth in GDP with a stagnant industrial sector.

The World Bank in it’s view has stated that for effective Rural Development – the growth of the rural farm and non farm sectors is required and this growth has to be widespread across subsectors and populations, the World Bank has often held the view that a private and competitive agriculture and agri business scenario are the main engine of growth. In addition, family farms and non farm enterprises provide ample remunerative opportunities to men and women.  The Plan Documents of the then Planning Commission are uniform in stating that they seek to ensure the rapid growth of those sectors which are capable of creating high quality employment and deal with policy issues : such as SSI, construction , real estate and housing, retailing, services.  

Some Practical Aspects.

Be hands on, always, and demonstrate and learn from it. There is no embarrassment in being hands on and gaining practical insights. Secondly, even if at home mainly in Hindi or Punjabi languages, but if you have a sound business plan and a passion for the activity, pursue it. Do not be under confident, ever because of language issues.  I have noticed this over the years  and hence have shared this. Plus there is no age for starting out as an entrepreneur, young or old. I often state at interactions that the only thing certain in life is your future, no matter how much philosophers say it’s uncertain, as you have the power and capacity to work on your future.

As an entrepreneur, you start your own business or trade, you are a job creator, you are responsible for your own as well as the well being of your associates and the team, you have to take decisions throughout the day and you have to manage risk, informally and formally. More important, it’s a process which is without a timeline, hence the mental stamina and self confidence has to be there and within. You manage people, you are the boss, you are the first employee, more important – you are the Brand, Always, let there be no mis-step even once. You are the back office, you are the master of everything. And you manage People, Risk, Money, Customers, Suppliers, Building the Business and Complying with Regulations and Laws.  

You could be an entrepreneur for passion, tapping a perceived opportunity, social responsibility, to change the world or because you are a rebel.  It could be a mix. But to me what is important is that You Must Understand that Business is about Money. It’s not about the idea or the technology. It’s about making the idea happen, in the commercial execution. Organise your market research in detail, and know your trade margins and norms. Tweak your model, if planned for, after the research. Such as the Flipkart Entrepreneurs had; The Product with all Varieties on the website, Quick Delivery and Returns Allowed. It worked. Then learn to discount slowdowns and recessions, in the sense, prepare for them, but remember cycles are there in the economy and businesses, you have to manage and survive.

This will be hard, incredibly hard. But the pluses in the autonomy and sense of ownership are there plus in the income generated. A note of caution, failure could be a reality and don’t be afraid about it, just learn honestly from a failure, minor or major, and move on. Never stop trying, that is the key, be mentally robust always. And your customer orientation should be stellar consistently. Build relationships, this is a major and key area.  I will stress that building relationships across a major spectrum is really important, and this need not be the commercial but a genuine all encompassing relationship.

Agribusiness.

Agriculture and rural businesses are the areas of maximum social impact but remain underinvested in India from an equity/start-up investment standpoint. Many investors do not invest in these sectors on account of perceived long gestation period, exit issues etc. Rural areas remain underinvested in terms of healthcare, education, infrastructure etc. and are ripe for entrepreneurship. A shift from agriculture to agribusiness is an essential pathway to revitalize Indian agriculture and to make it more attractive and a profitable venture. Agripreneurship has the potential to generate growth, diversifying income, providing widespread employment and entrepreneurial opportunities in rural areas. Today, we need a focus on basic concepts of agripreneurship, entrepreneurship skills, and the financing options as available and maybe as evolving. There is a viewpoint and it’s also my own personal observation that the youth is not keen to join agriculture, therefore, there is a need to glamorise the farm sector. The ABIC would or should enable in due course a movement of the youth, especially in rural areas, to endeavour to be employment generators instead of employment seekers.  In any case we need to foster agri-business entrepreneurs/ agripreneurs, who can work with farmers. What Agripreneurs need to know and realise is that they must from inception develop a deep expertise in agriculture and consumer domains and specially at the their own level. An inefficient supply chain, a dominant set of suppliers, agents / buyers / middleman etc impacting direct sales and the share of prices, the lack of financing options are a reality. Then the distributor and aggregator doubling up as a financer in addition to banks,  inadequate irrigation and the inverse relationship between farm size and productivity are major challenges.  Secondly, they should align the products and business models with the constraints and aspirations of the farmers and consumers, do not offer a solution based on your perception, work with them. Cnduct extensive pilots across different crop settings, climatic zones and harvesting seasons for building relevance and encourage adoption. Build a partnership with organisations which can manage and know the mode of managing farmers groups and their produce. Try to tap CSR Funds too.

As a person from this region, I must add that the current socio cultural milieu, specially of many members of the land owning community, is not of marketing. It’s quite feudalistic. We now need to move to a business orientation in terms of thought, action and social norms. In Punjab and Farmers I have heard farmers say, they have gone to drop the Sugarcane  or paddy at the market. This betrays a non commercial mindset and a false bravado. Think business, think sales, cash realised, think margins and profits.

There are barriers or concerns too such for someone evolving a major agribusiness model as urban centric investors are reluctant to invest in a service they don’t understand, payments from farmers do carry a certain unpredictability, farmers may be ready to use the technology but somewhat reluctant to invest. Moreover, the level of technology is on a lower scale in agribusinesses and the mode of selling is also different.  We have to adapt to this mode.      

The Areas to Invest in

Natural Resources Management.

Better and Efficiently Driven Supply Chain

Marketing Arrangements for outputs.

Informatics and Big Data Analytics

Genetic Improvement of Genetic Species

Resilience to weather / climatic variability

Suitable business models for increasing the profitability of farmers

Suitable models for farmers aggregation

Organic farming, farmer friendly IPM IMM

Value addition and processing

Tapping the export market.

Some Examples

Drone Technology – Agri Input Applications and Crop data for insurance

Agri IOT – Farming automation and digitisation

Weather Tracking – Weather advisory services

Pervasive Automation – Plug and play farm equipment

Vertical farming – Hydroponics and Aeroponics

INM and IPM – Bio Control of Pests.

Food Processing – Logistics, markets, production systems, storage.  

Financing and Compliance.  

An entrepreneur must be very aware about financing options, the mode and manner of reaching out to the financing institutions, and if attempting an innovation in processes or technology, then knowledge about venture capital and investors. It’s very that entrepreneurs be very focused on project finance and its intricacies, the potential balance sheets, margins and profitability. Understand the importance of knowing the terms and conditions of banks. Maybe think small and scale up, if that is possible in the business you seek.

Secondly, the marketing aspects, channels to trade partners are equally important. These must be absorbed by the entrepreneurs. Read up on the GOI and State Government facilities (PMEGP, KVIB, MSMEs, CGTSME etc) and follow up on them, and sites like GeM, Start up India and Stand up India, these are result oriented sites. Do not ignore them. And keep plugging away, the subsidy will come, if eligible, even if takes time. Network and remain in the loop. Have patience as regards Governmental Facilitation but do not preferably build your business model on a frame of being totally dependent on subsidy.

In addition, focus on adhering to the complete set of regulatory compliances and laws. If necessary take advise or hire consultants even. But this is most crucial. An entrepreneur must be aware about the relevant laws, their intricacies and implications. Be fully aware of patents too, if evolving as an entrepreneur in such a sector. Patents, both in India and abroad, particularly the USA. Alongside, be aware about Insurance and it’s modes and applicability and benefits, the need and comfort for financiers and customers or suppliers.  Then if it’s a manufacturing unit, be aware about Health and Safety Aspects, the relevant provisions of the Industrial Regulations, Factories Act, Shops and Establishment Act etc.  I would suggest availing the services of competent consultants, depending upon the type, size and nature of investment.

Try The Agri Business Incubation Centre at the HAU, Hisar or the Incubation Centre at ISB, Mohali. They are certainly supportive and would counsel on the approach and business potential, as also the testing modes.  

These are the broad thoughts and ideas I have sought to share. Each entrepreneur has to work on his individual business plan and scale. Think Big, Think Success and Think Commercially. ==================================================================