Upstart Technology

The derailment of disruption


In my first year at IIM-B, a dozen years ago, Prof Rajeev Gowda, now a Rajya Sabha member, taught an interesting course called ‘Business, Government, Society’, or BGS as everyone called it. The biggest takeaway from that course, and something that has become even more relevant these days, was this: It does not matter how good your business idea is; it does not matter if there is a perfect product and market fit either. If you do not understand how the government rules and regulations impact your business, and if you do not understand how societal norms impact it, then your business will be in all sorts of trouble. If I had to distil this further into a pithy maxim, “a business succeeds when both the government and the society let it.”

The best startups though, are often those that ignore this maxim. Most term it disruption. What it often is, is just a bullish belief in an idea, a belief that’s strong enough to ignore the pressures that government and society can create on the business. But here’s the thing about governments. They are so well endowed with powers, that they can actually kill disruption. And more often than not, they do.

This past month, we have had two of India’s most popular “wallets that can be used for small and repeated payments” move away from this business. If I am not naming them, it is only because I do not want them in any more trouble than they already are. A long telephonic conversation that I had with a founder of one of these startups was very illuminating. Neither of them got out of the wallet business because it suddenly stopped being useful for the end user or because it stopped being profitable. They got out of this business for one simple reason — an unreasonable expectation of ‘KYC’ (Know Your Customer), a bureaucratic blunt weapon, for even the tiniest of transactions, was untenable for these startups. Their entire raison d’être was to take away the pain of larger transactions from smaller transactions. These startups had great product and market fit. They already were successful, at least in terms of users who were repeatedly using their services as intended. Just because a government got an idea into its head, they had to shut shop and move on.

If you talk to anyone in the government about this, they will come across as being very well-meaning. They will tell you that they are doing this only because they want to protect their constituents. By which, they probably mean more well-entrenched companies. For if you take the case of these tiny convenient wallets, the only ones who benefit from them being regulated are those who have already been through the KYC process, either because of some other business that they are already in, or because they are big enough that it is not untenable for them. And then I hear from a startup that was adversely affected by this regulation, that they were persistently hounded by the RBI, despite their transactions being little more than the tiniest drop in India’s economy; I can understand that there is more at play than just economic logic.

A government may insist that they are regulating risk, but all I can see here is a government regulating opportunities. And a government that regulates opportunities can never be one that also encourages entrepreneurship.

In this weekly column, we discuss the startup workplace. The writer heads product and technology for an online building materials marketplace

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Printable version | Jan 20, 2020 11:39:49 PM |

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