The TeNeT conundrum

It can't boast of having incubated a Google or, for that matter, a MindTree Consulting closer home. But that has not diminished its popularity among wannabe entrepreneurs. Instead, it finds itself in ever greater demand thanks to the success of its 2006 business incubation initiative, RTBi, or Rural Technology Business Incubation, which focuses on connecting rural India to buyers.

It is TeNeT, short for Telecommunications and Net-working Group, that we are talking about, a loosely-structured body that three professors of the Indian Institute of Technology, Madras - Ashok Jhunjhunwala, Bhaskar Ramamurthi and Timothy Gonsalves - set up in 1994 to help entrepreneurs stand on their feet. It has so far incubated 27 outfits, including 15 under RTBi - the most by a business incubator of its kind.

N.N. Sreejith, 33, is a typical TeNeT beneficiary. He was engaged in a microfinance initiative near Madurai when the entrepreneurial bug bit him. "I could see that the rural sector had specialised skill sets which could be marketed to the urban areas, but I did not know how to go about it," he says. A meeting with Jhunjhunwala set out the path. In 2007, Jhunjhunwala and his TeNeT colleagues helped evolve a rural manufacturing business model.

The result was ROPE, or Rural Outsourced Production Enterprise, which posted a turnover of Rs 1.5 crore in 2009-10 and is close to breaking even. "I would have eventually become an entrepreneur, but it would have taken years without TeNeT's help," Sreejith says. Sajina Rajesh, 29, began as an employee of RTBi, but decided to become an entrepreneur herself in December 2008. She created a tailoring model in which bulk orders are taken from cities and sent to small towns for execution.

Today, with a turnover of Rs 2 lakh a month, she is able to earn a neat profit of 20 per cent after paying for all expenses. Along with the likes of Sreejith and Rajesh, RTBi has also grown. "In the last three years we have incubated 15 companies," says Jhunjhunwala, adding that TeNeT has set up a technology park for the purpose. Others in the RTBi portfolio include DesiCrew Solutions, a rural business process outsourcing outfit, AAUM, a provider of research and analytics on rural markets, Arogyam Organics, which markets organic rural foods, and eJeevika, a rural placement agency.

While TeNeT has managed to impress entrepreneurs with its initial support and guidance, its record in helping scale up their businesses has been rather poor. TeNeT has been around for more than 16 years, but none of the dozen businesses it incubated earlier - outside the RTBi - has scaled up in a sizeable manner.

The first company that TeNeT helped get off the ground, wireless and broadband telecom equipment maker Midas Communications, managed to grow sales to Rs 500 crore in 2005. But bad business decisions led to a revenue decline. Midas is unwilling to share its latest turnover figures, but people in the know put it at well below Rs 100 crore.

Also, even though no one wants to talk of the cumulative revenues of businesses incubated by TeNeT earlier, most entrepreneurs in the network agree to a figure of just Rs 100-110 crore. In effect, other than Midas, most companies in the TeNeT portfolio have not delivered.

Where did TeNeT go wrong? "Technocrat entrepreneurs sometimes have to be shoved into the pool to think business-like. Quite often, they focus too much on technology, which is their true passion," points out Midas CEO Shirish Purohit, adding that TeNeT's professors never learnt to give that push. The go-to market approach of TeNeT companies, too, was longwinded. And even those that did get the first customers got stuck somewhere.

For instance, Midas took more than 11 years to scale. Some of the others that look very promising today, such as Vortex, which makes rural ATMs, took two years to even arrive at the pre-incubation advisory stage, and business models changed midway, pushing the product development further behind.

Then, some of the products were far ahead of their time. Midas produced the nearest equivalent of broadband Wi-Max in 1996. Novatium was ready with an inexpensive computing solution in 2006, which had a remote server managing office and home computers - today's retail-oriented cloud solution.

Equally critical is the capital back-up. It is estimated that TeNeT through funding agencies has put around Rs 3 crore as seed capital for the initial crop of 10 companies. "If the entrepreneur is continually worried about funds, he won't be able to build an enterprise, despite having good products," says Sudhir Sethi, Chairman and Managing Director of IDG Ventures.

The funding, ideally, should be large enough to pay for the initial mistakes and getting the right team in place, he says. For example, Aujas Networks and ConnectM, two product design companies incubated by IDG Ventures, got funding of $3 million and $10 million, respectively, which helped both in the marketplace.

Amit Agarwala, CEO of Amdale Software, a successful product of TeNeT, feels that TeNeT's failing is that it does not have a structure for entrepreneurs to tap into. While the expertise is there for the asking, sometimes the entrepreneur doesn't even know what to ask. "There are no templated answers or frequently asked questions (or FAQs). This is important for a start-up, so that the wheel does not have to be reinvented each time," he says.

The lessons have not been lost on TeNeT's founders. Jhunjhunwala learnt that passion alone does not get you business success. And learnt this the hard way, when his pet project, n-Logue Communications, aimed at improving rural communications and enterprises, went to pieces. "We started it without looking at market conditions and hoping that everything would work out. When the environment did not improve, we refused to pause, and instead over-expanded our rural kiosks network," he recalls.

The other learning was that products should provide value through innovation and not just lower costs. "Multinationals simply bring down costs (after we launch) while our own costs go up with additional features," says Ramamurthi, who had witnessed the death of an excellent pulse oxymeter developed by a colleague because the MNC in the field lowered costs.

R. Ramaraj, President of the Chennai chapter of The Indus Entrepreneurs, and Senior Advisor, Sequoia Capital, says: "Incubators should never...micromanage matters for entrepreneurs." This is something Jhunjhunwala admits to learning, when he says: "We don't interfere as much as we did in the past."

Fortunately, many of the factors that had hampered entrepreneurial growth are starting to get addressed at RTBi, the rural incubation initiative at TeNeT. Even there, much more needs to be done. ROPE's Sreejith, for example, would like the bond between him and RTBi to be more formal - and thus more committed - which would only happen if RTBi raises its own funds and backs him when he needs further resources.

Alok Singh, CEO of Novatium, is a die-hard TeNeT loyalist. "TeNeT has certain limitations, but I would still rate it among the best incubators in the country and recommend others to it," he says. Every entrepreneur, he says, has to understand that after the incubation he is entirely responsible for his company - it is his baby and not TeNeT's.

The eco-system of TeNeT today is definitely in place through sheer toil and trial and error. What could see it through is the passion of Jhunjhunwala and his team. "(He) truly inspires youngsters, particularly in RTBi. They get motivated when they realise that their entrepreneurship will also benefit a larger fabric of society," says Vijay Babu, CEO of Vortex.

Babu had set up the successful iSoftTech with TeNeT's help but opted to sell out in 2006. In the years ahead, that advantage and its lessons from past mistakes could help TeNeT in its stated mission of creating a couple of billion-dollar companies from ground up. India's most storied incubator would have delivered then.

The Seven Habits of a highly effective incubator

1. Aim for the best combination of entrepreneur plus idea

2. Incubate new entrepreneurs along with mature ones

3. Have a focus, but don't be too narrow

4. Selection by entrepreneurs, investors and academics

5. Help entrepreneur get the right team, product, pricing

6. Incubator should arange enough initial capital

7. Prepare the company to get the next round of capital