Is entrepreneurship really about the art of managing risk?

In a span of nine years, Rana Kapoor, founder and CEO of YES Bank, has built up a network of 350 branches and 600 ATMs across India and in the process, his bank has raked in a net interest income of Rs. 1,616 crore and a net profit of Rs. 977 crore for the financial year ending March 2012. In the interview for our cover story this edition, he says, “The art of banking is the management of risk.” He says this because the banking sector is highly exposed to several macroeconomic factors. But thinking about it a little more, is it correct to say that the art of building any startup is also about managing risk?

In the early stages of any entrepreneurial venture, especially those funded by risk capital, there are several critical factors that come into play. If all these are dealt with as risks, then maybe, it is possible to work out a strategy to manage these critical factors. Vinod Khosla, founder of Silicon Valley-based Khosla Ventures, agrees. In a presentation to his portfolio companies, he talks about how founders should do their recruiting around managing risk. He calls this approach ‘gene pool engineering’. He tells entrepreneurs to identify the five greatest risks for your product, environment or innovation. Then, he says, one should recruit from a pool of people who have the skill sets or the experience to tackle these risks. Khosla is convinced that this approach is much better than recruiting by function (which is recruiting for marketing, sales, technology). He doesn’t stop there. Once the top five risks are dealt with, he says, identify the five greatest opportunities in your space and recruit people who have the skills to take advantage of these opportunities. I’d highly recommend entrepreneurs to read Khosla’s white paper on this, which is titled ‘gene pool engineering’.

In Startup School this edition, we deal with the topic of sales with Sreenivasan Ramakrishnan (Ramki), founder of Marketics. There’s one point that stood out in my conversation with Ramki. He says, “Most problems that creep up in business relationships aren’t rational – and leaders have to handle this at an emotional level.” This was a fascinating point and one that entrepreneurs will have to carefully master.

Also in this edition, I’d recommend readers to spend some time on the story of Amrapali Jewels. Rajiv Arora and Rajesh Ajmera have built a Rs. 100 crore company out of Jaipur and the company has played a crucial role in reviving the jewellery sector in the region. Amrapali is also the first Indian jewellery brand to be sold at Harrods in London. This story signifies the role of entrepreneurship in India across sectors. The story of Tirumala Milk, a Rs. 1200-crore dairy product company, is another that deserves the attention of our readers. For upcoming entrepreneurs, we believe, these stories from the jewellery and dairy sectors will open their eyes to the myriad opportunities in our country. Indian entrepreneurship is not just about mimicking Silicon Valley; it is about building companies that can make a real difference to India.

Have fun reading this edition of The Smart CEO.