Boom or bubble?


After short-term explosive growths, an overwhelming number of Indian startups are now tasting failures and grappling with fund woes. Their valuations have been slashed repeatedly. Revenues are plummeting and many companies are on major lay-off sprees to reduce costs.

startups

“Successful people don’t do different things; they do the same things differently.” But, it is not the maxim that several Indian startups live by. Many businesses with international footprint took a decade or two to setup firm grounding and attain sustainable and steady growth. However, some Indian startups shamelessly copied ideas from the West, or took the easy route, and frantically burned too much cash to catch up with the global leaders. The plan worked well during financial might, but not anymore. Missteps, shortcuts, and misplaced focus have now started making them feel the pinch of cash crunch.

Copy-paste ideas, illogical hurry to set foothold as soon as possible, poor strategies and execution, aggressive expansion in minimal time, no clear understanding of ‘target’ market, failure to leverage capabilities and core competence, bad financial management that includes hefty and never-heard-of salary packages, and weak technological setup – most of the cynosures in Indian startup space are sadly standing on such shaky fundamentals.

What’s hurting their growth? What’s stopping them from succeeding? The reasons are many – they relying on half-baked business plans, fail to manage expenses, offer massive discounts, pay exorbitant salaries, and thus create a huge hole in their balance sheets. One among the top e-tailers is gearing up to cut its workforce to conserve money and turn profitable. They are not the first, and they will not be the last to announce job cuts as part of retrenchment. Other companies that are saddling with huge losses might soon hand out pink slips to many employees.

Taxi booking, e-commerce, or online rental business, replicating an international model is not innovation. However, many Indian companies are setup on cloned business models. They have amassed significant VC funding and live in their mirage-like world with the illogical hope that the original businesses will acquire them soon.

That said, not every startup is guilty of having weak fundamentals. Some of them are growing leaps and bounds with well-thought-out business models, while some others are falling by the wayside. The downturn is slowly engulfing some high-profile companies. Want to know why? They focused on the unicorn model and overlooked the cockroach model. They kept building unsteady businesses with fragile market presence. They never curbed their spending, and quickly moved from one unviable business model to another, only to soon ramp them down for lack of profit and sustainability. In other words, the reasons include myopic business decisions, careless spending, and major defocus from the core business models and long term goals. They just simply ran out of runway, and even failed to save money in reserve to avoid complete derailment.

In their frenzy to grab more market share, many companies expanded exponentially without focusing much on making sizeable profits from their increasing market presence. All that they needed was the easy money from VCs who mistook vast market presence for sustainability and profitability.

Dreaming big is not a sin, but entrepreneurs should not overlook the basics. Here are a few timeless tips – “What do you need to start a business? Three simple things: know your product better than anyone, know your customer, and have a burning desire to succeed.” “No growth hack, brilliant marketing idea, or sales team can save you long-term if you don’t have a sufficiently good product” or service. ““Make something people want” includes making a company that people want to work for.” Let’s add two more golden rules – “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”

There is a clear uncertainty in Indian startup ecosystem and this might tempt many investors to step back. Funding will soon dry up, but many companies still haven’t figured out what went wrong and how they can adopt corrective measures to start running their business feasibly. They must soon cut back on their costs, move towards profitable business models, provide better customer service, build brand loyalty, innovate incessantly, and exploit market opportunities faster.

P.S. – The implications of founder’s syndrome too can jeopardize the very existence of a business. Founder’s Syndrome or founderitis kills opportunities and lets ego overpower the potential and entrepreneurship skills of a founder. When founderitis strikes, founders feel the strong urge to micromanage everyone, take complete control, ignore inputs from experts, and turn into an autocratic I-know-it-all mode.

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