Impact of startups and the importance of their socio-economic contributions

Technology, in both its evolutionary form and in its revolutionary form, has changed our lives drastically. In recent times, some of the products and services that have transformed the way we live, such as Tablets, smart phones, the Internet, social media etc., have been a result of revolutionary innovation. Great innovation led by visionary leaders have made this possible. The changes have been adopted rapidly, and most of us cannot really remember what it was like before we had these products and services even though they have seeped into our lives only recently. There are some products, or we can say by-products, of these revolutionary organizations that impact lives in a more non-obvious evolutionary way.

We all well understand that a startup is always about an idea of how to impact a customer. But, this is just where it all begins. What we don’t always give credit to is how startups have a far-reaching ripple effect on the socio-economic fabric of the demography in which they operate. I got interested in exploring this ripple effect, and all the changes that some startups have brought in the cities, in their industries, in the global markets they operate in. And the changes have they brought in the socio-economic fabric of the societies in which they operate - the impact that they have created beyond their customers. The questions to ponder around policy and progressive government to encourage startups is not discussed enough. India should have this on its agenda and perhaps Venture capitalists who fund startups should measure their success also by the greater impact metrics beyond returns.

Apart from delivering value to their customers, startups have a direct impact on the cities they make their homes. Infosys has impacted Bangalore and Alibaba has changed Hangzhou. What Google has done to Mountain View and how Microsoft transformed Redmond are case studies in themselves.

When these startups grew, they directly impacted growth of their cities as well. Employment opportunities for youth increased and new employment patterns came into picture. Demand and employment opportunities for engineers saw a steep rise. Local youth had new opportunities to pursue, and experienced talent started moving to these cities in pursuit of a challenging and high-growth career.

Employees (in year X and today)

As demand for highly talented youth increased in these cities, they saw a surge in inflow of recent graduates. As more and more college graduates started settling down in these cities, lifestyle patterns and culture also saw a wave of change.

These startups not only created new industries and came up with more revolutionary technology over time, but also created a stream of millionaires in the city. When these startups went public, they became engines of creation not just for themselves, but for their employees and their shareholders.

Market cap at IPO and today (approx) 

Apple created 300 millionaires instantly as it went public. In 2007, 1000 Google employees were worth more than $5 million. While the exact number is not known, it can be reasonably assumed that Microsoft had created approximately 10,000 Microsoft millionaires by the year 2000. Narayan Murthy, who co-founded Infosys, ushered in a new era of wealth creation among its middle-class employees in India. Infosys was one of the first companies in India to offer its employees ESOPs (employee stock ownership plans) and made millionaires of them. In 2000, Infosys had almost 2,000 rupee-millionaires on its staff and over 200 dollar-millionaires. According to securities filings, current and former Alibaba employees (non-founders) hold 26.7 per cent of the company, xxxBillion in value.

Alibaba has single-handedly changed the trade scenario for small and medium businesses in China, a country with innumerable internal barriers to trade. The ease and confidence with which these SMBs can buy and sell goods has increased many folds in the last decade.

Microsoft had created a new computing and industry revolution itself when it started scaling up. For most of the technologists and people in their 20s and early 30s today, the first operating system was Windows. Regardless of the fact that many hackers and technologist may gravitate towards other technologies later in their life, Windows as an operating system proved to be the alphabet using which people fed their inane curiosity of learning computers and got their first exposure to technology. It was the tool for beginners that helped shape the minds who are, today, a part of the technology revolution we see in the Silicon Valley and the world around us. Had it been a different world, it would have been next to impossible to see people use technology and not be intimidated by it.

It was not only about creating the next generation of technologists & future engineers by putting a computer in every house, but was also creating a new industry – the software industry. Due to its widespread use, a good amount of software built around the world is built keeping Windows OS in mind, thus making sure maximum number of people can benefit by it.

In very early days of Microsoft, more emphasis was paid to the hardware, and software was just something bundled with it. It started selling software licenses as individual entities, which further propagated this practice. This showed a new ray of hope to developers who could now sell their software individually without lining up to big corporations for support and begging them to bundle it with their devices. This led to creation of a different economy where software became the champion of technology delivery model for newer companies. Microsoft not only impacted the whole computing industry, but also created a new software industry that would go on to rule the world of technology.

After gifting the world a new industry, which would thrive in the coming years, Bill Gates wanted to give back to society as well. He started the Bill and Melinda Gates Foundation in 2000. Today, it is the largest private foundations in the world. It had an endowment of ~38 billion by last year. The foundation is extremely active and works for improving global health, policy & advocacy, runs multiple development programs and also has a concentrated US Program.

Shortly before Google went for an IPO in 2004, Larry Page and Sergey Brin, made giving back a company priority and proclaimed in their letter to potential investors a commitment to “make the world a better place” by dedicating 1 percent of Google's profits, 1 percent of its equity and significant employee time toward philanthropic aims. Though Google faced criticism in its early days of giving back to the society on multiple grounds, it gave away $105 million in grants during 2012, plus $1 billion more in product donations to non-profits.

Google was the Bay Area's top corporate philanthropist in 2010 and 2011, giving more than $20 million to local charities both years. According to the Chronicle of Philanthropy, it was the 12th-largest U.S. corporate cash donor in 2011 and 2012. Approximately $50 million of these funds were directed toward disaster relief, university research and community organisations in Silicon Valley, with $23 million dedicated to Google's Global Impact Awards.

The Infosys Foundation was started in 1996 by Infosys. The foundation works in partnership with NGOs to help underprivileged rural communities in India in the areas of healthcare, education, culture, care for the destitute and rural development. Later in 2009, the Infosys Science Foundation, a not-for-profit trust, was started by Infosys and some members of its Board.

The Foundation instituted the Infosys Prize, an annual award, to honour outstanding achievements of researchers and scientists across six categories: Engineering and Computer Science, Humanities, Life Sciences, Mathematical Sciences, Physical Sciences and Social Sciences, each carrying a prize of INR 55 lakh. The award intends to celebrate success and stand as a marker of excellence in scientific research. Narayan Murthy was named a Global Humanitarian for his efforts in transforming the world through ideas, technology and charitable endeavours. Apart form the foundation’s efforts, Narayan Murthy and his wife, Sudha Murthy, are known to be big philanthropist in their personal capacity, but usually tight-lipped about their personal giving.

As India’s vibrant entrepreneurial ecosystem is emerging, it would do well to understand the role of startups and create support for them to succeed. As we see some of the Indian startup founders turning angel investors to support and encourage new innovation in India, we will surely see the ripple effect of their efforts in the long run. Governments should be well prepared to create a culture of startups to impact their cities, countries and citizens.

How can we and our governments help support the startup growth? I believe efforts should be made in helping startups with tax clarity, incubation, affordability and licensing. It could also be by providing start up capital, resources to broaden awareness, inspiration and more and more meeting space for the newest innovators & tomorrow’s business leaders.

I welcome the chance to have all of us collectively open source ideas and dialog on how we can make India a vibrant startup incubator and a global impact maker.