In the next ten years, India will witness a rapid expansion of the base and a vertical expansion in the growth trajectory of MEs.
By Samir Sathe
Globally, Mass entrepreneurs (MEs) are usually the entities that employ between 5-20 employees. MEs are segmented into three categories, those engaged in traditional businesses which are largely local, employing up to 25 people, those which are dependent on the startup ecosystem and more tech-savvy, and those engaged in disguised unemployment, e.g. migrants who do small urban services or home-based businesses which are partially documented and accounted for.
A huge segment amongst the above (not distinctly separate) is home-based employed MEs who earn revenue sitting at home. There are many traditional and new tech-driven opportunities that would employ the masses aged 15 to 55 in being MEs.
Among the 63 million MSMEs, 98% are micro in scale of the operations in India. A little over 100,000 enterprises are > $ 1 million revenue threshold. Only 5% of these enterprises are > US$ 3 million revenue threshold. About 11% of all MSMEs are estimated to be MEs, whereas globally, the average is about 35%.
The good news is that we have an untapped opportunity in MEs playing a critical role to catapult India’s GDP and help it realize its $5 trillion dream. Much of its potential lies in the thought based on what China did in the early ‘80s, expectations of the other developing countries such as Mexico, India, Egypt and other markets between $500 billion and $2.5 trillion GDP economies and finally, the almost automatic choice since they employ a large workforce. We are yet to realize the potential, as yet.
We believe that there are clear signals that MEs will start making the contribution they ought to. It is the idea whose time has arrived. In the next ten years, India will witness a rapid expansion of the base and a vertical expansion in the growth trajectory of MEs. There are three kinds of changes, structural, capability and environmental. There are structural changes in the pyramid of Indian enterprises, capability changes impacting the business performance of MEs and environmental changes that MEs find themselves in by accident.
Take an example of an urban low-income family whose male member is a drunkard, whose wife is a homemaker, has 3-4 kids, most of them small. Both of them speak their mother tongue and a few words of English that they understand as images rather than alphabets. The husband, who has migrated from the village, leaving back, his small land holding of about less than half an acre, has worked in a city doing odd jobs, earning just enough money to rent a space of 200 feet just enough to accommodate a chair a small bed, and make-shift kitchen of fewer than five utensils. Their wife is barely educated. Due to daily frustrations of uncertain earnings and yet carrying a hope to make a living in an urban setting better than the village he comes from, the husband takes to drinking alcohol and starts borrowing from others either to drink or to bridge the gap between family expenses and his earnings. The wife decides to support the husband and starts either as a maidservant or a small local business of doing a kitchen food service in nearby locations without being too far from their house. Now, this business picks up a little, and she can qualify as an ME.
Take another example of a middle-class woman who has done decently in academics, is a graduate and is home-based while her husband earns enough money to support their family. She feels the need to start a business, decides to buy an internet connection, and engages herself in building a home-based flexi-time business. This business can qualify as an ME over 5-10 years.
Take the third example of a few friends who start a local fast-moving food cart, and they can become an ME, as they start earning revenues north of $10,000.
The uniqueness of Indian MEs is that 3/4th of them are born out of necessity, not out of ambition or the opportunity that an entrepreneur has spotted. Most of the remaining 1/4ths are driven by an entrepreneurial spirit and drive, but they land up being too content early in their lifecycle. In India, unlike in a Silicon Valley or even other industrial belts in developed countries, MEs are not ambitious enough to think of 10x growth in 5x lifespan. Thirdly, most of these millions of enterprises are MEs, and they remain so for decades.
Most of the surviving MEs need to be fitter to become medium-large enterprises. We need the following three-pronged approaches to reviving, resurrecting, and rapid-scaling of MEs.
1. Focus on community problem statements to drive scale
Skilling is needed for the individual workers in an SME and youth and MEs. We find three critical skills relevant to Indian MEs needed to scale up. Spotting local problems that need to be solved for local community problems. Christian Sarkar has delved into the subject of Regenerative marketing which puts social community needs at the centre of the purpose of an enterprise ahead of and as a driver of scale and profits. MEs in India need to identify such opportunities. MEs could pursue SDGs relevant to the community and achieve economic profits as a related area. This would help MEs do businesses based on opportunity, not on necessity. This would also lend to cluster-based programmatic interventions in most parts of India.
2. Upskilling to scaling up MEs
Unlearning, learning, reskilling, upskilling are critical for MEs to scale their businesses. We find that learning by MEs is less of a challenge than unlearning. Due to the necessity of survival, the family and the businesses learn fast. Edgar Schein, known for his phenomenal work on the Organizational culture model and 10 Dimensions of a Learning Organization, states how survival and learning anxiety are related and MEs demonstrate this concept in action.
As I wrote in my other article in Nextbillion, India could lose out on nearly $1 Trillion in GDP if it fails to upskill its SMEs. I estimate that nearly 10% of the same is at risk if we do not upskill MEs, as rough estimates suggest they contribute to 10% of India’s GDP if we do a simplistic linear relationship between the two.
3. Funding ecosystems in addition to enterprises
MEs would thrive if taken as a whole in a community. In India, there is untapped potential in every district. MEs could play a pivotal role in district economic progress. The funding models, even today, are based on individual risk assessments, other than supply chain or factoring, where risk is shared based on the books for the customers/ clients and the suppliers/ service providers. Instead, lenders and investors could innovate on the models to finance an ecosystem. This would allow MEs to interact, engage and scale up with other players in the ecosystem better.
The role of the MEs is critical. While India may need 25,000 large enterprises > $ 50 million revenue, to be globally competitive, it also needs 3-4 times MEs at the lower end of the pyramid to make the growth inclusive and balanced. What remains to be seen is how players take centre stage to make the change happen.
Source: Economic Times