#03 Strangulation with Compliances
you thought that starting up and winning in India is easy?
If you’re wondering why I named my publication ‘The Sheep Code’, do read this completely. Special Thanks to Srini for proofreading this essay.
Over the past few years, it should be quite obvious that registering a startup has become far easier nowadays in India. But is it actually the truth? We’ve been seeing efforts that are led by the Government in spearheading the formation of startups. Various central government and state startup schemes announce grants up to 10L INR, or even convertible-debt financing up to 50L INR.
Government schemes even do the company registration for free, which is useful, for if you go to an external CS and ask them to register your company as a Private Limited, the costs will go upwards of 20k INR, although some companies like CountryFilings and so on, do it for as low as 4k-6k INR for two directors.
Obviously, help in Company formation makes the government look good as a result of the increase in the number of new companies being started. I think these registered startups count as a showcase metric under DPIIT - Department for Promotion of Industry and Internal Trade.
But the problem is, are all these new companies really startups? What does the government believe about startups? Does it believe that startups are similar to traditional businesses which have fixed business plans and treat their workforce as but rank and file employees? Does the government not realize that startups are fundamentally wealth magnifiers that can transform the lives of their employees, and in fact can elevate the whole ecosystem like a Golden Goose as the startup reaches IPO levels? Such a metaphor is not misplaced for it seems, like in the fable too, that the government would rather kill the goose than let it lay its eggs in peace.
If the Government thinks that early-stage startups should be regulated like the TATAs, the Ambanis, the Adanis, or the Wadias, they’re wrong. They are big-time Burj Khalifa big Wrong!
Even if you manage to deal with government strangleholds in India, you still have to run the gauntlet of pervasive corruption at every level.
Where does the government lack in this whole process? What are we really missing? I’ll try to cover,
Startups vs Businesses
Employee Hiring and the Gender ‘agenda’ (Heavily cancel - controversial)
Other legislative strangulation
Startups vs Businesses
The fundamental reason why most government policies around startups fail is the fact that they don’t understand or get the reason behind why startups are culturally, functionally, and by action - are way different than businesses.
I am not dissing businesses at all. I am actually proud of people who build businesses. Business people are Royalty. Modern-day royalty. But startups and their founders aren’t…
Founders of Startups are literally akin to Pirates. Pirates of the Caribbean? You’ve seen the movie? Think you’re an expert? Sit down, mate. Let me explain.
Let’s set aside the negative image that’s associated with a Pirate. Let’s talk about the characteristics of who and what Pirates are and what they do. Let’s take the Pirate Captain for example. Pirate Captains, those who become one (from a normal pirate) - are excellent, right? Let me tell you why they are excellent.
Because the Pirates who become Pirate Captains, inspire an entire crew of rag-tag Pirates to follow him/her. (For convenience purposes and for not being mistaken as a woke idiot who thinks that ‘only’ pronouns and engages in stupid debates around that can normalize the lives of transgenders, I am going to stick with ‘him’ throughout the pirate narrative)
So the Pirate Captain goes to the pub by the dock and sees a potential pool of pirates for his glorious adventure on the high seas. He inspires them to follow him on the search for riches and promises them a part of the Riches and Glory. And there’s no contract in place for the same. The only thing that’s there between the Pirate Captain and the Pirates initially is the utmost level of trust that they place on him just based on how he rallies the crowd. It brings me to the memory of how Caesar rallied his troops who were mutinying against him. Although Ceasar isn’t a Pirate Captain and the Roman legionnaires under him weren’t pirates (They actually fought against Pirates regularly), I am bringing them into the discussion since they also mutinied. Let’s see what happened there, alright?
Legion X Equites was the best and most respected unit by Julius Caesar. It served under his leadership in numerous campaigns, occupying the honorable right wing. After the subordination of Gaul, in 48 BCE a civil war broke out, in which Caesar could once again count on his faithful troops of the 10th Legion. However, the lack of rewards as promised by Caesar began to cause bitterness among the soldiers.
Legionaries also took part, i.e. in the famous battle of Pharsalus, which allowed Caesar to defeat Great Pompey. After this victory, the soldiers of the X legion returned to Italy, where, after almost 13 years of continuous service, they waited until they finally receive a peaceful life and land for their faithful fight for Caesar.
At this time, Caesar went to Alexandria in pursuit of Pompey who was running away. Unexpectedly, he was dragged into the civil war in Egypt and besieged with his troops. Over the following months, no one in Italy knew what was really going on with Caesar. Disappointed with the lack of fulfillment of promises, soldiers of the legion VII, IX, X, and XII raised a rebellion, in which the main role was played by legionaries from X Equites. Some senior officers were killed, and Mark Antony himself had to escape from the camp.
Caesar, after defeating forces loyal to Ptolemy XIII, and then the Pontic army, in 47 BCE returned to Italy. He went to Rome, from where he sent his praetor Salustius (who became famous as a historian) to try to control the rebellion. Salustius miraculously survived and returned to the city. Caesar was getting ready for the worst and even commissioned preparations to defend the capital, in the vicinity of which the rebel soldiers had camped.
Caesar finally decided to personally go to the rebel camp. He entered the camp, stood on a platform, and asked soldiers about what was bothering them. The soldiers did not dare to demand prizes from him, so they demanded release, hoping that Caesar needed the army for a campaign in Africa. To everyone’s surprise, Caesar agreed and said that all gathered would be released from service. Caesar addressed them with the words Quirites instead of Romani, treating them as ordinary citizens. Then he turned towards the gates of the camp, wanting to leave his soldiers.
Caesar’s behavior caused a great shock among the rebellious legionaries. The dishonored people begged him to take them on to another campaign. Caesar refused, saying he was disappointed that the soldiers did not trust his promises after so many years of fighting together. Legionaries began to ask Caesar for forgiveness. Finally, Caesar agreed to re-admit all legions except the “Tenth”. Then soldiers of the 10th legion began to beg for forgiveness, even agreeing to decimation, as a form of punishment. Finally, Caesar also forgave the X legion.
This was how - Caesar was as a leader, he inspired his men. Or did we forget what he did when he inspired his troops to cross the Rubicon? The bottom line is, that he did what he had to do to instill confidence.
Now, let’s get back to the Pirates. The Pirate Captain does the same to the pirates under his command or he risks a mutiny. The Captain leads the pirates to the promised land. The place where the treasure is. Makes all his pirates rich. He stashes some of his treasure somewhere and embarks on the journey again.
Meanwhile, his ship will get broken. He would have to fight with other ships in the area.
Pirate Captains need to command their ships to not just fight other pirate ships as they come across on the high seas. They also need to fight against government naval ships sent to deter them. Sometimes, the Pirates need to trust their captain, dump their ship and take aboard a new ship to set sail. Or they’d have to salvage their broken ship and repair it to set sail. The result can be anything.
But what matters is, throughout all of this commotion, the ships can change hands. The ships can be destroyed. But the Pirate Captain and his Pirates always stick together. The Pirate Captain protects his crew, feeds them, and ensures they are safe. The Pirates trust their dear captain and entrust their lives to his guidance and wisdom on their path toward glory.
Now, remove and replace the following.
Pirate captain = Founder (or founders - mentioned collectively)
Pirates = Early employees of a startup
Ship = Idea or startup that they are working on
Naval ships = Government legislation and compliance
The Life of a Startup Founder is very akin to the Life of a Pirate Captain. Remember, that even though the Startup Founder has money enough to pay people to work with him (it’s very ugly to say in a startup world that someone works ‘for’ you. In a startup, everyone works ‘with’ you), people wouldn’t work with the Startup Founder for money because they know that money is temporary and it’ll burn soon. It has a deadline. The job is too risky with no guarantee of grand rewards or glory. At times it’s like the grunt work of taking out sewage with someone else taking away the credits. It’s a dark and dirty workplace only beautified by colorful cabins, workspaces, and the word startup culture.
The buck doesn’t stop there. The Startup Founder literally starts from Zero and he shows the Promised Land to his team. The IPO. One event where all the core team members who toiled will become millionaires and multi-millionaires.
The only founders who ever fail, are the ones who fail to acknowledge themselves as Pirate Captains and their crew as Pirates. The main problem with most startup founders who are enamored with the richness of the tech life and the startup world is that they think they are Royalty. Hell NO!! They aren’t. They are Pirate Barons. They are Pirate Captains. Acknowledge who you are.
A startup STRICTLY needs to be a wealth multiplier for everyone who’s involved. It’s not a slow painstakingly steady process, but a hard-hitting steady-paced ship that knows when to anchor, when to move left and right, when to accelerate and when to fire, and when to ram.
I am often unhappy with Founders who stick to their failing idea like how a virgin holds on to a teddy bear from their childhood to post-puberty. You can’t keep hugging teddy bears for a long time. After a while, you need to hug humans. You need to evolve. If the ship that you’re in is sinking, you can’t sink with your ship. You are not royalty with a running business that has millions in outstanding debt and predictable cash flows to service the debt and a corporate lifestyle, but a startup that struggles to make ends meet for your employees, and as founder takes a meager 10% or whatever remains at the bottom of the till or even need to borrow credit at the end of the month.
You are building a startup that is solving a problem that is affecting a huge TAM. Thus, a lot of people are getting benefitted, you are making a great impact and thus you are creating wealth at various different levels (which I’ll explain in a different post on how VC models work).
So, when you have an idea that’s no longer working, you pivot. It’s not working out again? Pivot. Pivot. Pivot. Find the NEXT DAMN SHIP and ship your product. You are a Pirate Captain. Your crew who are the pirates trust you. Those are the only thing that matter in any early-stage startup journey. That’s why great VCs and Investors invest in the Founders and the early-stage team rather than the idea/product itself.
If we take YC - Y Combinator, for example, approximately 50% of the Y Combinator startups pivot at least once during the cohort duration. There are legendary examples of startups pivoting multiple times and then emerging successfully. And during all of these, an average amount of them spend approx only $100k to find their Product Market Fit and achieve early GTM, post which they get heavy investments in their Demo Day to start their journey.
So, startup founders shouldn't be ashamed to dump ships, take another ship, take over another ship, and set sailing. Stop worrying about pivoting. It’s good for you and for your crew.
I don’t even have to explain what businesses do to explain why Startups differ from Businesses. I have already painted the picture clearly here of how Startups are way different. It requires great maturity and time for Startups to settle down and think of proper businesses. With time, they’ll also become royalty as soon as the next generations forget the dark past and only remember the fancy name and wealth. Governments need to understand this prime difference and need to figure out who exactly and what are they supporting.
The governments in the US are literally supporting the startups. The Miami mayor is supporting the startups in Miami. This is the kind of Legislative action that’s expected, not white-washed campaigns.
The severity of such Legislative actions extends to how these Pirate Captains hire the Crews.
» It’s rumored that the Mafia, more accurately - the Sicilian mafia is known for using the Sheep Code for communication.
Police said many of the messages were used to alert fellow criminals that a new "Pizzini" was ready referred to as sheep. Among the lines used were: "The sheep need shearing ... the shears need sharpening" or "The hay is ready." The Italian police said they did not believe the mafia members were discussing agricultural matters.
Another phrase used was "I've put the ricotta cheese aside for you, will you come by later?"
Likewise, we are communicating with you - about matters usually kept behind closed veils. We talk about Tech, Design, Science & Life. Our random thoughts written will forever remain ‘The Sheep Code’.
- Jason Samuel
Employee Hiring and the Gender ‘agenda’
This is a very interesting part that we are going to discuss. Some people might even want to cancel me for saying this, but let’s look at facts and stats. The easiest stuff to help you back an argument.
The Maternity Benefits (Amendment) Act was introduced in the year 2017. While the act is intended to improve female workforce participation certain deep-rooted societal realities inhibit women from joining the workforce. The section tries to cover patriarchal attitudes and gender-role stereotypes that continue to play a key role in suppressing LFPR (Labor force participation rates), while also rendering the act ineffective.
The labor force participation rate is an estimate of an economy's active workforce. The formula is the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population.
The more women we encourage to join the workforce, the greater our economy becomes. But the very legislations that are enforced to protect women in the workforce also stop them from working there. We need to see the industry’s perspective on this. Unpaid domestic labor is a bane for Indian women. From cooking to cleaning, from child and elderly care to emotional labor, women’s unpaid domestic labor goes largely unrecognized and uncompensated. Women in India spend six times more hours than men on unpaid domestic labor. These stats. often are hidden right in plain sight, within the many homes here in India.
The report by TeamLease on this subject brings the following facts.
Women likely faced a net job opportunity loss between 9.1 lakhs and 13.6 lakhs over FY 2019-20, as compared to 13 lakhs –18 lakhs job loss in FY 2018-19
Job Opportunity Gain: BPO/ITes, BFSI (Banking, Financial Services, and Insurance), Ecommerce and IT displayed moderate to significant job opportunity gain for women during FY 2019-20 – in line with the forecast made in the previous edition of the report. BFSI continues to employ the highest proportion of women in the workforce, compared with other sectors
Job Opportunity Loss: Aviation, Retail, and Tourism continued to cause net job opportunity loss for women during FY 2019-20, belying expectations of net gain. Education, Real estate, and Manufacturing also caused job opportunity loss, in place of the expected mixed outlook
Industry behavior towards hiring of women: Large (private and public), and Small and Medium (public) companies have stayed in the “Benevolent” zone, Start-ups have remained split between the “Calculative” and “Manipulative” zones, whereas the SMEs are not just “Manipulative” but also “Restrictive” in their hiring behavior.
» Well, I am not even surprised at point no 4 at all. The maternity benefit law in India is welfare legislation. The law provides 26 weeks of paid leave. I do understand why it’s 26 weeks. It’s needed considering breastfeeding and other factors, but the applicability of the law and who is funding it is a problem. In India, only employers (those who keep companies) bear the entire burden of maternity leaves.
If we take any other country, the cost of maternity leaves that the employer gives to the employee is often shared between employers of both the parents, insurance agencies, social security programs, and the government.
For example, I took the following from an article by the-ken
If we take the International Labour Organization (ILO), their regulations indicate that the employer shouldn’t be made liable solely for the cost of maternity benefits payable to women employed by them and recommend actions that social insurance/public funds of the government should do that.
There’s a reason for their guidelines.
Employers will grow to be reluctant to hire, retain or promote pregnant employees or women who they might think are getting married. They’ll also find reasons to fire pregnant employees or employees whom they might think are going to get married in order to avoid paying,
a. 26 weeks (approx 6 months salary) for an employee who isn’t working
b. cost of replacement with another employee
c. direct and indirect costs associated with replacement, training, etc.,
Frankly, in many circumstances, this means simply not hiring any women who might get pregnant in a short duration or if they are about to get married, etc.,
This should explain why Startups and SMEs are like - how they’re explained so in Point no 4. Unless they’re heavily funded (in which case, the startups literally start throwing perks for social brownie points), this is rather because Startups and Small Businesses simply cannot afford to - at all. (Just look at the costs a,b and c and think whether someone can afford that. They can’t!)
Estimates of Post-maternity retention costs: Between 84% and 102% (an increase of 4% –12% from FY 2018-19) of the annual salary in case of white-collar employees, and up to 118% (reduction of 17% from FY 2018-19) of annual salary in case of blue-collar employees.
The above stat is real DISGUSTINGLY BAD
Since we have always talked about how increasing women in the workforce in India is highly important to our country’s economy at large, now let’s look at some stats - from the same report.
The gore truth is that the Impact of the Maternity Benefits Act is higher for urban women since 55% of them are salaried employees whereas only 11% of rural working women are regular wage earners. So, the actual fact is - the majority of urban women find it really hard to raise up the career ladder.
We all know about the fact that we take pride in women enrolling heavily in higher education. But it’s utterly useless unless we take stringent measures and relax compliances that restrict businesses from employing women.
among the 10% of women who reach senior level, only 1% of women reach CEO or top C-Executive level.
I have seen many employers asking very directly asking women candidates if they are planning to have a child or how soon are they planning to have a family (sneak peek questions), etc., The main intent is to ensure they don’t come to those enormous costs which they can’t afford but would be forced to pay if they really want to employ.
These are what I call white-washed policies that don’t mean any shit anywhere.
Bigger IT companies and large corporations, Funded startups, and Big companies have a higher ability to absorb such costs. But you should remember that it’s the MSMEs and not these big companies that make up 40% of India’s workforce.
source: MSME - Indian Chamber of Commerce
How will organizations like these MSMEs and Startups who are losing money or struggling to pay salaries, be able to give a salary to an expecting woman for 6 months while simultaneously providing another resource during her absence? What will they do? They’ll do exactly what’s explained in point no.4
As long as the Maternity Law compliance is forced to be funded only by employers, women in the workforce aren’t going to happen at all. If the government thinks that it’s serious about that, it’ll amend it to ensure that it’s designed to lighten the burden on those MSMEs and Startups.
The amendment can be in the form of
Incentives provided for employers for maintaining gender diversity
Tax rebates, Reductions, or Waivers of Fees of various compliances that need to register with MCA and the state government.
Priority in various government schemes, grants, Loans, Credits, etc.,
Simplification of compliances,
Ease in interest or loan repayment etc.,
Other Legislative Strangulation
MSMEs not just make up 40% of India’s workforce but MSMEs also contribute approximately 37.54% to India’s GDP as well. Often such businesses are unorganized in nature and lack adequate resources thus easily falling prey to costly demands that may pop up during their operations..
The biggest problem is the failure to comply with the cost of regulations as this can result in huge fines that get added interest day by day.
One such stupid legislative compliance is the maintenance of statutory registers. They won’t accept a digital record of the register. In an age, where remote-first companies operate with remote employees, that’s where the trouble comes in maintaining a physical book with daily attendance signs and everything.
In fact, some of the compliances would be so heavily taxed that it doesn’t fit the modern definition of startups at all. Most of them would require keeping physical copies in the office, like displaying calendars of National holidays, etc., in the office in a prominent place, etc.,
All of this basically means you’d have to own a large place and run a business and not a startup to do all of this. All of such irritating factors are what makes someone think, would it be better if we can just register a Delaware Corp. in the US?
I honestly believe and would recommend startups to stick to that, which simplifies the whole process. Our Government if it sincerely believes that it needs world-class truly Indian startups to grow wealth and wants foreign VCs to invest here, it will simply make the compliances easy, completely digital, and easily verifiable completely online.
Will someone in the government listen?
let’s wait and see.
Before reading this article I use to think that startup is just a branding for new business however now I am much more educated but I still think both require gigantic amount guts and ambition and yes they definitely diverge. Thanks Jason for writting this, loved it.
One question - launching a honey making farm and bottled honey brand will be a startup or a business?
My guess is business, what do you think?