From employee to entrepreneur

A message to young graduates: Don’t ignore regular salaried employment. It can gain you valuable business experience and serve as a springboard to an entrepreneurial career

S. Ramakrishna (Rama) Velamuri

[From Unsplash]

As an entrepreneurship educator, I was concerned that at the turn of the century, entrepreneurship in India was not considered an attractive occupation in terms of social recognition and prestige, except in a few sections of our society. Today, I am worried that the pendulum may have swung too far in the opposite direction. Entrepreneurship is being taught in schools and colleges; there are private and public funded incubators and accelerators cropping up everywhere; TV programmes such as Shark Tank India are taking entrepreneurship lingo to the remotest corners of our country, and, much to my dismay, the messaging to educated youngsters is that it is decidedly uncool to seek regular employment with a monthly salary. In this essay, I will make a case for why it is important for educated youngsters to go into regular salaried employment and how it can serve as a springboard to an entrepreneurial career.

There is abundant research that shows that most entrepreneurs are organisational products, i.e., they take up a salaried job when they join the labour force for the first time. Most first-time entrepreneurs then set up ventures in the industries where they had been working. Research is also consistent in showing that entrepreneurs who set up ventures in industries where they have previously worked have a higher likelihood of survival and success. Their work experience as employees gives them a deep understanding of customer needs and alerts them to needs that are unmet or poorly met, which can be the basis for entrepreneurial opportunities.

Experienced entrepreneurs and investors will tell you that ideas are a dime a dozen; good execution is what matters. Working in established and well-run organisations provides excellent training in execution. Would a few years at Unilever or ITC not provide deep insights on how to serve rural markets? Is there a better training ground for marketing than a stint in P&G or Asian Paints? Would work experience in business development at TCS, Infosys or Tech Mahindra not provide valuable knowledge about serving the technology needs of business customers?

A stint in paid employment also helps an individual save money, which can be used to bootstrap the startup until the first significant milestones are reached. This makes it easier for the entrepreneur to raise funding from angel investors and early-stage venture capitalists. A university graduate who works for 5-10 years in paid employment is also likely to find a life partner during this period of employment. If the partner is in paid employment, the couple can have one steady income, which reduces the risk for the entrepreneur.

Employment is also a fertile context to get to know future co-founders and key employees. We know that ventures started by teams have higher likelihood of survival and success than those by lone founders. But as the old English saying goes, “Partnership is the worst ship that ever sailed”, meaning that wherever there is a team there is also potential for conflict. Prof. Noam Wasserman has studied entrepreneurial teams and has concluded that those with the highest longevity are not founded by family members or close friends, but by former colleagues and associates, whom one has gotten to know in professional settings.

However, not all aspects of salaried employment are advantageous. Many executives with long years of employment, especially in large organisations, have struggled to make the transition to startups in spite of possessing deep knowledge of the industry and customers. Often, this is because they have been accustomed to structured organisational contexts, with clear division of roles and responsibilities. Further, large organisations have high levels of formalisation, reflected in well-established systems and processes. These characteristics contrast sharply with startup environments, which are typically unstructured, lacking clarity of roles and responsibilities, and where decision making is ad hoc and often highly centralised. This lack of structure, systems and processes is beneficial for startups, insofar as it facilitates speed of decision making and the frequent changes in direction (called pivoting) based on market feedback that are necessary until product-market fit is achieved. This loose organisational context enhances the survivability of the startup. Large company executives need to curtail the instinct to put in structures too early and be prepared to roll up their sleeves and get their hands dirty.

One counter-argument that is frequently offered is that in startups leveraging the latest technologies prior experience is less valuable and might even be counter-productive. A word of caution—most tech startups actually operate in traditional industries in which experience of the relevant industry is a must. For example, an entrepreneur I know set up an ecommerce platform in China to sell last-minute hotel rooms at highly discounted prices. The initial team was heavy on tech but did not have anyone with prior experience in hospitality. This led to a number of mis-steps, which were eventually corrected with the induction of talent from the hotel industry. Unfortunately, valuable time had been lost and the entrepreneur ended up selling the business to a much larger organisation.  

There are plenty of entrepreneurial opportunities in established companies for employees who show initiative. Research suggests that employees need to perform well for some years in jobs to which they have been assigned in order to gain credibility, deep knowledge of the organisation and industry, and the support of their superiors before they can be entrusted with new venture initiatives. In large organisations, it is also helpful to develop internal networks to gain access to resources. Dr. Verghese Kurien and Deepak Parekh are quintessential examples of corporate entrepreneurs who blazed successful trails for NDDB and HDFC without owning significant ownership stakes in the organisations. Corporate entrepreneurship, which is the creation of new growth engines for the employer, is usually rewarded with leadership positions and generous compensation, which in turn can help managers build significant personal wealth to lead comfortable lifestyles and retire without financial worries.

Finally, and contrary to the mantra of today, entrepreneurship is not for everyone; it is suited for a small minority of the population. Entrepreneurs face higher levels of stress and anxiety. It is a myth that entrepreneurs do not have bosses. They are ultimately answerable to customers and, if they have raised funding, to investors. They need to worry about timely payments to employees, suppliers and tax authorities. The buck stops with them, which puts tremendous pressure on their shoulders. The failure rate in entrepreneurship is high (depending on how failure is defined, more than 50% of new ventures do not survive beyond the first two years), and unfortunately, we do not get to hear about entrepreneurial failures as often as we do about successes. If you are passionate about setting up a venture and have an idea that you want to act on immediately, by all means do so, but remember that there is no hurry to set up a venture. Bide your time and look for the right opportunity. Working for a well-managed company after you finish your studies can be a good training ground for setting up your own venture. Contrary to the widely held belief, regular employment can unlock the path to entrepreneurship in many different ways.

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About the author

S. Ramakrishna (Rama) Velamuri
S. Ramakrishna (Rama) Velamuri

Professor and Dean

School of Management, Mahindra University, Hyderabad

S. Ramakrishna (Rama) Velamuri is Professor and Dean of the newly founded School of Management, Mahindra University. He was previously Chengwei Capital Professor of Entrepreneurship at the China Europe International Business School (CEIBS), on whose faculty he served for nearly 14 years (2007-2021). He has also been on the faculty of IESE Business School in Spain for four years (2003-2007) and has been a Visiting Professor at the Indian School of Business, the Frankfurt School of Finance and Management, Bocconi University, and the International Anti-Corruption Academy Austria.

Dr. Velamuri’s research has been published in leading academic and practitioner journals. He served on the 2019 and 2020 Advisory Councils of the CNBC Disruptor 50, to select the 50 most disruptive private companies in the world. He has been a facilitator in executive educations programmes for senior managers of multinational companies as well as for high-growth Chinese and European entrepreneurs.

Dr. Velamuri has experience as an investor, board member and advisor to entrepreneurial companies. He worked for six years (1985-1991) as a manager in a Spanish multinational and eight years (1991-1999) as a full-time consultant based in Madrid, serving US, Indian and Spanish clients.

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