We're Talking About Creating the Conditions to Create


We're Talking About Creating the Conditions to Create

HBS’s Tarun Khanna on Innovating in the Developing World

November 14, 2018
by Ken Gordon

For years, Dr. Tarun Khanna, the Jorge Paulo Lemann Professor at Harvard Business School and a successful serial entrepreneur, and I spent an ungodly amount of time, independently, at a now-defunct coffee house in suburban Boston, Massachusetts. Our encounters were extremely limited until one day, I walked in and dropped my laptop and a copy of Jane JacobsThe Death and Life of Great American Cities next to him. He said something like, “Oh, Jane Jacobs…”—and we were off, chatting at caffeinated speed. Over the months, we spoke of innovation (a mutual interest), museums (he’s a Trustee at the Museum of Fine Arts; I’ve written about curation), soccer, writing, parenthood, and much more. When not chatting, Khanna worked diligently on a manuscript. Eventually this became a newly published book called Trust: Creating the Foundation for Entrepreneurship in Developing Countries. After the volume was released, it was only a matter of time before we had a public conversation about it. The following is a series of questions and answers that began orally and evolved into a written dialogue. Khanna has numerous relevant, timely, nuanced things to say about the essential role trust plays in the entrepreneurial dramas of the developing world. Reading and listening to him, one realizes how much businesses in the developed world take for granted. No matter how much time, effort, and funding an entrepreneur invests in the developed world, our high-functioning social networks, support systems, and legal environments make business easy. But to function in the developing world you must, as Khanna says, “create the conditions to create.” His truths are valuable because they aren’t obvious in resource-rich Boston, but were learned by Khanna in his many globe-trotting ventures and decades of research.

One of the things that seems to work best in the developing world is when an entrepreneur brings a sense of democracy to places that lack democratic representation. Consider the following: “Amul and its associated cooperatives are all member-controlled. The farmers elect their own leaders—and those leaders return about 80 percent of the revenues to the famer-member-owners. Compare that fact to the 35 percent share received by farmers in the United States and Europe.” We see something similar with Dr. Devi Shetty’s notion of “task-shifting” (provider democracy) or his ethos of trying to provide care for people at every economic level (patient democracy). Do you prepare idealistic young entrepreneurs by teaching them the classic texts of democracy, or studying the history and successful functioning of democratic systems? Seems like such learning would be essential to anyone seeing to create the conditions to create.

This issue is central to the cultivation of trust, though I tend to refer to the idea as “inclusive commerce” rather than “democracy.” It’s not quite the same thing I recognize, but the terms are cousins, if you will!

The creative part is finding a business model that generates enough total value that chunks of it can be shared with various stakeholders. That’s the part about being inclusive. Of course, the thinking regarding both creating economic surplus and sharing it across all stakeholders is important in any setting, but particularly in the developing world, given the disenfranchisement of several folks in the ecosystem. It requires a particular mindset to engage the less fortunate.

There’s an op-ed I wrote in Forbes (Indian edition) in June 2018 called “The Business of Inclusion,” where I discuss this at greater length.

The labeling of “inclusion” as “democratic” implies having a voice in the proceedings for all concerned. Of course, in some idealized world, the creation of the entrepreneurial ventures that I talk about are co-created by all stakeholders; in practice though, there usually is a small set of drivers of the process. The less fortunate exercise agency to the extent that they can walk away, but for all manner of reasons, getting them to actually co-create is a lot trickier than dealing with so-called ecosystem-partners in a more institutionally developed setting (think Boston), if one were to be completely honest.

We recently spoke about the idea of entrepreneurial failure in the developing world. Can you say how failure is different from failure in, say, Boston or Silicon Valley? Speak, if you will, about the relative nature of entrepreneurial failures.

That’s an excellent question. I wish I had discussed failure more extensively in Trust. It’s been a central and formative part of most ventures I can recall, including those I’ve built myself. There’s a good news/bad news aspect to the story here.

The bad news part is that in most developing countries, there’s still a stigma of failure for those operating in vast swathes of the economy. This is related to there not being mechanisms to smooth you over the consequences of curve balls that fate might hurl at you—for example, a safety net in the form of social security or the ability to rely on some form of relatively easily available basic healthcare—so that, over time, failure has become associated in the collective societal mind with the idea of “no possibility of recovery.” This, of course, is a first-order deterrent to even contemplating a risky career and way-of-life as an entrepreneur.

The good news is that this stigma is diminishing—at least in some parts of some developing countries! In Bangalore for example, or Guangzhou, it’s de riguer to profess fearlessness about failure, a badge of honor. That’s a good sign at least that entrepreneurs, and financiers, have become inured to the idea that one failure in a venture does not indicate that the protagonist is incompetent, lazy, or both; just that the task at hand is tough.

Reading Trust, one wonders if “entrepreneurship” is even the proper word. You say that “A change of mindset is needed to move away from the idea that entrepreneurs should be laser-focused on the problems they want to solve—as they do in locales like Boston and San Francisco—to a mindset that emphasizes that they don’t have that luxury in the developing world. They must do that, and more—they must create the conditions to create.” Such creation seems much more like nation-building than entrepreneurship and would likely be surprising—and perhaps off-putting—to untested entrepreneurs who are seeking to operate in the developing world. Did you ever consider using terms such as “social innovation” to describe what’s required? Or is there a certain valance that “entrepreneurship” has that’s necessary to draw a particular kind of person into your classroom and readership?

I have no quarrel with the term “social entrepreneurship” at all. But for me, entrepreneurship is a big tent concept. It embraces all manner of creative attempts to address problems (in my case, in the countries of the developing world). Of course, it unabashedly includes hotshots trying to build something quickly, take their companies public, and amass Croesus-like wealth, and as long as it’s not to the detriment of other sections of society, I’m all in favor! But it also includes people building non-profits that are socially laudable and also financially viable, and everything in-between, such as so-called social ventures, where there is an attempt to make a buck and leave money on the table for some less fortunate portions of society. Trust deals with all of these.

There’s also a big space between what I call “creating the conditions to create” and “nation building.” In other writings, I’ve referred to this as the “partial private provision of public goods. In theory, as the name suggests, no private actor can fully reap the benefits of certain classes of investments—think roads and basic education and primary health—so the idea is that private actors will always invest at levels that are too low, compared to the government. That’s true. But I argue and demonstrate repeatedly that, nonetheless, a private actor might benefit sufficiently from initiating public good creation, at least to the point that that particular lacuna stops being a barrier to her own venture’s growth. It’s true that others will benefit—that’s the “public” part—but why let that get in the way, why let the perfect be the enemy of the good?

Of course, nation building can itself be seen as an exercise in creative entrepreneurship. Look at the case of Aadhaar, India’s leapfrogging biometric ID program that I describe in one of the chapters, contrasting it with a more conventionally designed public policy program in Brazil, Bolsa Familia (a conditional cash transfer program to assist the poor). Aadhaar means “foundation” in Hindi and the team led by a redoubtable pair of entrepreneurs—one from the private sector and the other a bureaucrat—created the world’s most sophisticated biometric identity program that today reaches 1.2 billion residents of India. This was done in short order, with minimal expense and technological prowess. That requires entrepreneurship, but it’s also nation-building. Which nation can succeed, as India was realizing, if it cannot reach three-fourths of its residents? Information cannot be gathered, social programs cannot be targeted, the vulnerable cannot be helped, and so on.

Women play an outsized role in entrepreneurship in the developing world. I’m thinking particularly of their role as participants in microfinance programs. “In this gathering of Marias [many women named Maria] who were clients of Banco Compartamos [the Mexican microfinance bank], the meeting was orchestrated to build on the social fabric already in place in their country. While loan officers are present and help direct the meetings, much of the experience is based on how the women interact with and support one another. Indeed, these women are themselves entrepreneurs similar to the founders of Compartamos. Just as with those founders, the women are building on their understanding of their surrounding society to weave a web of trust with which to pursue their endeavors.” Any thoughts about gender and the projects you cover?

We are seeing more and more social consciousness about gender equality. But there’s a lot of work to be done here to encourage women to more fully consider entrepreneurship as a way of life. In some sense the conditions for them to create—typically taking the form of social pressures—are even less present than they are for men. To my mind, there has been correct and continuing focus on this issue from policymakers, multilateral institutions and so on, but what we need is much more policy entrepreneurship if you want to find creative solutions to address these issues in my lifetime!

You talk about how, in Chennai, India, you needed an ice pack for a traveling companion’s medicine. You were in a luxury hotel and were able to get some help form the concierge. “A lot of running around ensued, and some hours later a basic ice pack emerged. I calculated that, assuming normal wage rates, about 800 rupees were spent in lost time, for something that ultimately costs Rs 20. I’d probably spend $5 worth of time to walk over to the local pharmacy in an urban setting or drive to a semi-urban Walmart to pick it up for under $5. That is, the ration of effort to value is 40:1 in India, compared to 1:1, in the U.S. in this prosaic example. That’s what I mean when I say that it’s really hard to find things out and get basic things done.” This is a fascinating calculation—and I’m sure it’ll soothe many of your MBA student readers—but I wondered, as I read Trust: Where are the numbers that prove that being an entrepreneur in the developing world eventually pays off? So much of the book is a warning to would-be entrepreneurs about the difficulties of operating in the developing world… but there isn’t much about the ultimate profitability of such enterprises. Do your students ask about this? And if not, what kind of metrics of success do you propose they employ when the go out into the field?

If you’re asking me to show data that make entrepreneurship look as rosy as it might be in more developed settings, I’m not sure those data exist. At least I haven’t seen any credible analyses on performance of efforts, comparing them apples-to-apples with those in the West, say.

In fact, the admonition to “create the conditions to create” is one that explicitly signals greater challenges. It’s true. For those who say that “You’re putting too much of a burden on the entrepreneur,’ I say, “Guilty as charged,” and ask: “What’s the alternative?” As I detail in the book’s opening chapter, we’ve tried the global aid model, and we’ve tried the “Let’s wait for government to address things” model. Neither is adequate to the task at hand, while they each have their ongoing usefulness in part. If a would-be entrepreneur finds himself hamstrung by lack of institutional support, what choice will he have but to creatively trigger a solution to the constraint? That inevitably will pave the way for others and will take more time than it would in a developed setting.

By the way, thinking as an economist, it’s not pre-ordained that a venture will be less profitable in a developing country. It’s more costly to pull off, for sure, but the barriers to entry are also higher—the same institutional constraints—so someone who invests in circumventing these limitations probably has a greater head start than he might in New York or London. The resolution must await empirical analyses from my colleagues or me in the fullness of time, though that’s not the remit of the narrative exercise that is Trust.

You’re a co-founder of Jana Care, which happens to be one of EPAM Continuum’s clients. Can you talk about how you got involved in this organization and how trust has played a role in its evolution?

For background, I cofounded Jana Care with Sidhant Jena, a medical device engineer who was doing his MBA at HBS, and Michal Depa, then a graduate student in the computer science department at MIT. Sidhant is the CEO, Michael is the CTO and leads a crack team of engineers in Bangalore, by design I retain a purely advisory role, and Dr. A.J. Kumar joined us recently from Stanford and Harvard to lead our team of research scientists in Boston. We create novel science and devices to fight chronic disease with “a piece of paper, a smartphone, and a drop of blood.” Blood contains biomarkers that indicate disease progression. We enable bio-marker-assisted chronic disease management by leveraging insights from sophisticated bodies of science (paper chemistry, microfluidics, image-recognition algorithms, device engineering).

Trust is central to Jana Care, at pretty much every level. First, the angel investors—mostly medical and medtech professionals in Boston and Bangalore—invested in the idea, as angels do, because they trusted the core team. We’ve had, like any risky venture, many ups and downs, and the trust has kept together a team—investors and key talent—that would otherwise have disbanded long ago! Trust is central to the scientific enterprise in which we’re engaged—we partner with leading research and teaching hospitals in Boston, Beijing, New Delhi and Bangalore, among others, to write the papers and do the trials that would validate our products. Trust is central to the regulators who have approved our approach in Europe and Asia currently and, soon we hope, in the US. And trust is of course central to the medical practitioners who use our devices to diagnose—cheaply, efficiently, and often in remote locations where a smartphone is available, but a physical clinic isn’t—and in the future to the patients when we begin to sell directly to them.

Without trust, Jana Care would simply cease to exist!

One of the great themes of Trust is that weaving a web of trust takes time. Lots of it. Regarding Charles Shao’s open-source dairy innovations, for instance, you write: “Call it ‘going the extra mile,’ call it ‘enlightened self-interest’—whatever else it may be it’s a longer-term, patient play. Shao is planting the seeds of a harvest he hopes to reap when, as he believes, the Chinese dairy industry will bloom due to newfound trust and he will be one of its major players.” As an investor, do you need to perform a kind of marshmallow test on startups to see who has the capacity to hang in there over a long period of time? Seems like it’s a rare person, let alone a rare startup founder, today who says, with Hesse’s Siddhartha: “I can think, I can wait, I can fast.” How do you do this?

Any investor, in any geography, will tell you that, as important as the idea and space in which the investment is being contemplated in, it is the quality of the founder or the founding team. Personally, I think, for the reasons you mention, that it’s crucial to look for evidence in the entrepreneurs’ past of resilience, and to develop an intuitive feel for this. The highs are higher and the lows are lower in the developing world, so being able to roll with the punches is a sine qua non for the aspiring entrepreneur.

By the way, my intent with the book is less to persuade people to be entrepreneurs and more to educate folks on what it takes in the developing world. It’s an appropriate and thrilling avocation for some—admittedly not for all—but developing an appreciation for the mindset is a generic attribute that is surely robustly of use to all.

filed in: healthcare, financial services, social innovation

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