Indian Startup Story – Why are Most Startups Feeling the Heat? What’s Next for them?

This post is by Asit Sharma, Head of Strategy at Housejoy

I think it is well documented now that the Great Indian Startup journey is going through a bumpy ride at the moment. Is it the end of the ‘Gold Rush’? A lot of people have been talking about the doomsday kind of a scenario. We certainly have seen glimpse of it with the ‘Unicorns’ of Indian startup world taking a hit. – first it was Flipkart investors de-valuing their investments. Now Zomato, another blue-eyed boy of the new world taking a hit with one of the I-Banks – devaluing its valuation by as much as 50%. Other smaller players have either shut shop or pivoted to new models. We all know about the TinyOwl saga or how Pepper Tap fired most of its staff and pivoted to a pure logistics play.

longroadSo why is this happening? What should be done to change the scenario. Over the last year or so – I have had the privilege of  observing startups very closely. Both as an employee and then as someone who is just smitten by the science and art of the startup world. There is something about companies growing at an unprecedented pace, solving problems of their newly acquired customers while simultaneously addressing 1000s of internal operational challenges. In doing so – they burn cash and sometimes that in turn burns the company down.

However, there are several new-age players out there who are trying to do it the right way.  Some of the companies that come to my mind include Big Basket & Satva Kart in the e-grocer space. Then we also have companies like Cardekho – which is not a typical start-up but has established a business model and has used the old business principles to grow sustainably. Another interesting player that has caught my attention is Swiggy – surviving and growing in a segment where a lot of startups have come and gone. Even though  – they have been lucky to an extent that Zomato was late in joining the race. Till now they have managed to stay ahead of them.

So what is that they have done well? And is there any holy grail for success? I think not. However, during this tough time when funding has dried up and everyone is figuring out ways to extend that runway. There are definitely few things that companies can follow to ensure efficiency is achieved.

These are:

  • Unit economics: Finally, start-ups are waking up to the holy grail of any successful business ever.  Your unit economics need to make sense or move increasingly in that direction. Gone are the days when GMV/Customer growth was the key to raising funding. Now you need to show pockets of profitability in your overall business plan. Be it a hub or a product or a service. Use fund capital like you will use your own capital and you will know the answer to most of the questions
  • Marketing ≠ discounting: Most start-ups are guilty of falling for this trap. Instead of marketing the USPs, convenience factor, problem they are solving – most of the communication is directed and focused towards how cheap the offering is. There are multiple issues with this approach:
  • Customer is being trained to expect a discount every time he books a service/buys a product from you.
  • Internally your employees increasingly get convinced that only way to sell is to discount our offering(s). This also leads of lack of trust in your own employees in your product.
  • Rising discounts leads to higher burn which forces companies to cut corners on the fulfilment side. This becomes a vicious cycle.

This behaviour is well imbibed in today in most Indian start-ups. However, given the market conditions and the fact that funding will be difficult to come by. I think it will do a world of good to the companies to stop this exercise. Yes, sales might take a hit in the short run.

This brings me to the next point;

  • Market the right way: If you consistently communicate and deliver on the following – your sales story will get back on track:
  • Deliver value consistently.
  • Trust your product: If what you have made is solving a real problem and you genuinely believe in the product and others are also trusting you as well (investors, co-founders, employees) – then back your instincts by highlighting the value, USP etc rather than using discounts.
  • Identify & focus on your target audience – are you seeking deal seekers? or value seekers?
  • Be Agile: Being Dynamic has to be in every start-up’s DNA. However, the biggest challenge is when is the right time to change? If something is not working out – do you change immediately or should you wait? I am of the school of thought that in most cases you should act first and then change things while you doing them. A start-up cannot afford the luxury of second guessing every decision nor can it waste time in contemplating the pros and cons of every action. Key is to back up your instincts and adapt them to market changes
  • Look at the data with a hawk-eye: This should be done irrespective of the upturn or downturn. Data will always tell a story. Be honest with it and you will know what decisions to make
  • Scale or conserve: Given the sluggish economy and funds taking a hard look at all start-ups. It is extremely important to maintain that critical balance of meeting growth targets along with not going over with your spending. Again, the key is to align your investors on what they want right now? If they still ask you to chase growth without being prudent with your spending – I would question them back in the current scenario and try to ensure that the next round of funds are also coming from them!!. SUSTAINABLE GROWTH IS THE KEY!!
  • Be transparent and over communicate: Most start-ups lag in this aspect. Most employees are left to draw their own conclusions through the unofficial channels and coffee machine discussions. I think this does more damage to any start-up than anything else. I have noticed a common streak among all the unicorn start-ups. The founders keep all forms of communication channel open and clear any confusion asap. A good example here is Zomato. Whenever, any confusion/counter productive news starts doing the round – Deepi is the first person to send out a company wide mail to stop the rumour mill from churning out unproductive grape-wine

I would like to conclude by saying that solving your business/operations problem is equally if not more important to solving customer problem. If you solve the customer problems but your internal problems is making  your business unviable – who should you blame for it? Finally, funding will still be available but folks would have to work a lot harder to get it than they ever did in the past.

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  • Vrush SG

    Great Article! best thing is it nearly covers all aspects of the apocalypse and how to fight it. Made sense!