Tag - Software

Note from the Author : This post is based on a paper that was presented at the International Research Conference on Management and Finance 2011. I had the privilege of co-authoring this paper with Prof. Gamini de Alwis and Dr. R. Senathirajah from the Faculty of Management and Finance, University of Colombo. The references in this post may seem dated as the research was conducted nearly two years ago. However, the underlying observations and the derived conclusions are still relevant today. 

This article is a continuation from the Part I.

As we showed in Part 1 of this article, the general tendency among Sri Lankan software professionals is to shy away from entrepreneurship. We presented our research findings on how wealth or industry expertise alone, would not influence this mindset. We also discussed how they prefer not risk failure by experimenting in entrepreneurship, and stick to their jobs where they feel comfortable.

A brief note about our data analysis…

In our last post, we explained why wealth, is theoretically considered a positive influence towards entrepreneurship. On the other hand, considering the earning potential, we expected to see a professionals be more reluctant to leave their jobs as they accumulate more and more industry expertise. However, we did not observe either in our research.

Since this was a dead-end, we moved on to scanning our data for interesting patterns. Before, we go in to the details, let’s establish the definitions.

• Wealth is the total value of the person’s property, savings, etc.
• Industry Expertise (or the Professional Human Capital) is a measure of the professional’s skills and competencies. The measure includes academic qualifications and the years of experience.
• Entrepreneurial Intent (EI) is a measure of the desire the professional has in setting up his/her own business within the foreseeable future.

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”-Mark Twain

Depending on whether a person scored high or low on each of the 3 variables, we grouped the sample in to 8 segments. We’ll ignore the segments that scored low on EI and concentrate on those who have at least a slight interest towards entrepreneurship.

We also had to leave out the Low Wealth / Low Expertise group as the size of that segment was too small for analysis. So, we ended up looking at the following segments in depth:

1. Superstars : High wealth, high expertise
2. Hesitants: Low wealth, high expertise
3. Fanatics: High wealth, low expertise

Fanatics group was made up of fresh graduates who came from wealthy backgrounds. We felt that their willingness to get in to business was too premature. We believe that they should remain as professionals until they have the expertise to launch a high tech business with a high growth potential. Premature entrepreneurs are very likely to create unsuccessful ventures. And when those fail, they leave behind a popular belief that Sri Lanka is a hostile environment for tech startups.

Professionals that fell in to the Hesitant category, had both the industry expertise as well as the financial motivation to start a business. Some even felt that there was only a slim potential for further career growth.  Most of them had done some freelance work on the side but, had not taken any concrete steps towards full-time entrepreneurship. From the common patterns emerging from their responses, we believed that these individuals had the most desire to become entrepreneurs. The fear of failure and the lack of financial strength may have been holding them back.

The Superstars, on the other hand, consisted of experienced and top ranking professionals; majority being over 30 years of age. With the high level of industry expertise and the higher tolerance for financial risk, this group had the highest potential to set up high-tech, high growth businesses. Majority of the group, however would consider setting up a business in the next 5 to 10 years. This again, demonstrates that despite being indifferent to the financial risk, they were unwilling face the risk of failure. They would consider entrepreneurship as a retirement plan, not a career choice.

So, what would it take to break this barrier? We’ve established that the possible financial/social consequences of failing are the reasons holding you back from starting a business. So, would you start a business if we give you:

1. The ability to share your risk?
2. Peer recognition and validation at the onset of the business?

The result was a near 30% increase across all segments on the likelihood of starting a business. Surprisingly, this increase was even higher (33%) among the low-EI/high-wealth/high-expertise group. We had initially labeled them as the “Carefree” as they seemed to be looking forward to retirement without any interest in complicating their lives with entrepreneurship activity.

The twist in this is that, we didn’t really ask the above question. What we did ask was, whether they’ll set up a business if they can have a co-founder for their startup. Let’s see how this question translates in to the above.

A partnership is an opportunity to share the financial risk of the business. You are no longer the only person liable for the losses. Maybe, your co-founder can bring the capital while you contribute the expertise to the business. Not only that, it may even be possible for the partners to tag-team in running the business so that initially, both can minimize the career risk by staying employed at lease on a part-time basis.

Either way, the “peer recognition” aspect is the most interesting part of the question.

By agreeing to come onboard, a fellow professional is taking an equally risky career choice. In order to accept he/she must evaluate and recognize the validity of your business case. This validation and the sense of social acceptance, is a great motivator for the entrepreneur and adds momentum to the startup effort.

“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”- Steve Jobs

How do we translate this in to action?

So, sparking entrepreneurship among software professionals isn’t really an expensive problem. It’s not a problem of building infrastructure, setting up seed funds or affecting policy reform. It’s a matter of bringing likeminded people together and nurturing collaboration towards setting up businesses. The obvious challenge is creating an environment of trust, in which they feel confident about sharing ideas and strategies. Existing startup incubators can take the lead on such an initiative as they have the means to support the partnership from the immediate next steps in the process.

Alternatively, a great initiative would be to rally up high wealth / high expertise segments in to Angel Networks. As Angel Investors, these professionals will have the opportunity to gain the benefits of business-ownership, while being able to distribute the risk of failing across several companies and co-owners. Such Angels will motivate Hesitants to take up more responsibility in the operational side of running the business; all of which would speed up the cycle of new businesses getting off the ground.

Crippling emotions

As we’ve found out in this research, we have only ourselves to blame for the lack of entrepreneurship among our software professionals. Yes, ourselves; not the lack of infrastructure, lack of funding, or messy political landscape. The problem and the solution aren’t financial; they are emotional. It’s unreasonable for us to demand that people change and get over their fear of failure and the fear of being criticized for failure. Therefore, we’ve conceptualized a strategy to build emotional support to take this first step, by identifying the critical role a co-founder could play. We hope that what’s presented here, lead to a healthy discussion on enhancing collaboration among workforce segments and eventually lead to a vibrant startup culture.

References and Recommended Reading

[1] Iyigun, M.F. & Owen, A.L., 1999. Entrepreneurs, Professionals, and Growth. Journal of Economic Growth, 4, pp.213-32.

[2] Hurst, E. & Lusardi, A., 2004. Liquidity Constraints, Household Wealth, and Entrepreneurship. Journal of Political Economy, 112(2), pp.319-47.

Image credits:

http://www.imasocialentrepreneur.com/

http://georgeessien.com

Note from the Author : This post is based on a paper presented at the International Research Conference on Management and Finance 2011. I had the privilege of co-authoring this paper with Prof. Gamini de Alwis and Dr. R. Senathirajah from the Faculty of Management and Finance, University of Colombo.  This post was written exclusively in the hope that this would be useful to the TechWire.lk readers.

The global Tech Industry has it’s share of success stories of wealthy and powerful companies that grew out of garage-office start-ups. You’ve no doubt heard of the early days of Apple and Microsoft, Facebook’s humble beginnings from Zukerberg’s dorm room, and of the billion dollar cash-ins of Instagram and Tumblr. At a glance, Tech Industry seem to be the best place to be if you are a startup. But, if that’s the case, why does the Sri Lankan tech-startup landscape look so depressingly flat?

Entrepreneurship has always been a hot research topic in Sri Lanka. But, the focus has always been on assisting the unemployed and underprivileged to be self-employed. So, there’s a wealth of research data on low-tech/low-income industries and almost none on high-tech industries. This lack of insight and the burning question highlighted above, lead us to the research that’s presented here.

Why do we need to care about entrepreneurship in the Software Industry?

Entrepreneurs and professionals carry out two distinct and vital functions in an economy. Entrepreneurs push the technology boundaries of a nation through product or process innovation. Professionals turn these innovations in to implementations that deliver actual economic benefit. Therefore, the ratio of entrepreneurs to professionals, is a key factor for the growth rate of an economy. When there’s a high percentage of entrepreneurs, the rate of innovation is expected to be high. This generates high demand for professionals which leads to higher salaries that attract more and more people to these professions. The excess supply of professionals causes the salaries to drop, encouraging some professionals to switch to entrepreneurship in search of better income. As the economy would now be consolidating, these new entrepreneurs will be forced to innovate even more aggressively. This cycle will eventually stabilize once the optimum ratio of entrepreneurs to professionals is reached [1].

This is where the IT Outsourcing Industry hurt us the most. We did not innovate locally and allow the cycle to run its course. Instead, we “rented” out our professionals’ to foreign entrepreneurs. Much like the Garment Industry and the Rubber Industry before that, the Software Industry exported professional skills and competencies on a Time and Materials basis. As the supply of professionals kept growing, the industry worked tirelessly to bring more outsourcing jobs. Until the day a cheaper outsourcing destination pops up and steal our jobs, this model is likely to continue.

Professionals vs. Entrepreneurs

Researchers Hurst and Lusardi [2], found that for the general public, a person’s wealth had almost no impact on whether that person desired to become an entrepreneur. However, they found that this was not the case for professionals whose entrepreneurial aspirations increased with wealth. The researchers believed that as professionals became more affluent, they saw “business ownership” as a way to gain flexible work schedules and freedom in decision making. To them business ownership was also a “luxury good” that symbolizes success and power.

This is a very interesting argument. Would the same hold true for Sri Lankan software professionals? If so, we can identify the ideal period in their careers where they’ll be open to setting up their own business. We approached our research from this angle and built a conceptual model based on motivation theories, with a focus on variables such as personal wealth and industry expertise.

Entrepreneurship is an unattractive  career choice

A professional has to face two types of risks when to investing full-time in a business: One is the obvious financial risk; the other is the risk of disrupting his/her professional career growth.

The financial risk is easy to understand and quantify. If the business was to fail, he risks losing the invested capital and the earnings that he/she could have made as a professional. The impact of the career disruption is somewhat indirect. It’s caused by the fact that entrepreneurial skills and professional skills have to be accumulated at the expense of each other. By focusing on business operations as an entrepreneur,  the individual has to give up the opportunity to enhance his/her professional skills and keep abreast with new technology. In a fast evolving high-tech industry, being disconnected for an extended period, could lead to a significant competency gap.

So, imagine that you as a Software Professional, is interested in starting your own business. You are willing to invest some money in to it and dedicate the next five years to make the business a success. You are reasonably wealthy and the possible financial losses are not a major concern for you. Since this is your first venture, you make a backup plan to go back and get a job as a Software Professional, say in five years, if the business keeps losing money and you no longer feel it can succeed.

Here’s where the above competency gap comes in to effect.

The competencies you hold now will be obsolete in five years. When you return to the industry as a professional, you’d have fallen far behind your current peers. This means lower pay and lower status than those who may have worked with you or under you if, you were to take a job under this circumstances. In our analysis, we found that this possible loss of “esteem” was so overbearing in our Software Industry that even when combined with other positive influences towards entrepreneurship, the net effect was still negative.

In a culture that has a low tolerance for failure, it is not difficult see why professionals prefer to stick to the “safety” of their jobs than to venture out and fend for themselves as business owners. Given the earning potential of a software professional, the choice is perhaps a no-brainer.

When we planned our research, we made an effort to confine ourselves to objectively measurable variables. We especially wanted to steer clear of the “cultural effect” which is often the scapegoat for  anything. Sadly, even after a methodical research we found ourselves staring back at this elephant in the room. But then again, we cannot dwell on this aspect; culture is not something we can take upon ourselves to change.

Where do we go from here?

Unsurprisingly, our data showed a genuine disinterest towards entrepreneurship among Sri Lankan software professionals. There was no upward trending curve between entrepreneurship intent and wealth or expertise. Consequently, there’s no threshold on either variable to earmark possible entrepreneurship candidates. And we’ve found evidence that this is not due to lack of skill or financial or political factors, that we could have addressed.

As  the goal of the research was an implementable strategy, we kept looking at other variables we captured during our data gathering. Cross tabulation of this data led us to uncover an interesting trend that could be used to mobilize more professionals in to setting up their own software businesses.

Please stay tuned for the Part 2 of this article for the details.

References and Recommended Reading

[1] Iyigun, M.F. & Owen, A.L., 1999. Entrepreneurs, Professionals, and Growth. Journal of Economic Growth, 4, pp.213-32.

[2] Hurst, E. & Lusardi, A., 2004. Liquidity Constraints, Household Wealth, and Entrepreneurship. Journal of Political Economy, 112(2), pp.319-47.

Photo credits:

http://img.bhs4.com/a9/d/a9d3eaf892944ce4c774df34ff87a9461620510e_large.jpg

http://kennysilva.net/wp-content/uploads/2011/01/doubt.jpg

http://nanyate.com/internet-memes/bill-gates-mad-respect-steve-jobs-is-sexy

http://wall.alphacoders.com