Published in Silicon India
I am reminded of a Tenali Rama’s tale in which one infant was claimed by two mothers as their own. When they could not resolve, the matter reaches King Krishna Deva Raya. He asked his courtier to suggest a solution and his wise courtier Tenali Ram was entrusted with this task to find out the truth. He feigns after intense discussion with the two women, that he could not arrive at the truth and now solution lies only in dividing the infant among the two mothers. Division could be by cutting the infant into two and giving a piece to each so called mother. One woman agreed to this idea, while other wailed in pain at the thought of her child’s death. This was enough for Tenali Rama to pounce back on the conclusion that only real mother would have pain.
Out of nearly average ten founders each week that I meet since the past 6 months, nearly 85 percent of the people are roaming around, meeting people and talking only for investment, as if they seem to have everything else needed in the business in place! About five years or prior ago, you would come across people in business at events coming for networking and learning leadership skills, making contacts, generating business ideas, setting up their own channel, securing bank finance (debt), hiring or identifying key people, among other things. All these were very natural and aimed at enhancing the value of business. When the money was available as Debt, founders (who had the intention to return the money) were not mad about acquiring customers at any cost, not at supersonic pace, and not definitely for short term gain. Business was developed for lasting and sustainable value proposition. Debt was at high cost, but that was also the reason for relative cautious approach in spending it. These days, I woefully miss this vocabulary from the venture founder, most of the times.
What has changed?
In 2016 and H1 2017, over 200 visible startups in India failed. It is not that all of them failed due to non-availability of funds, but in-fact otherwise.
On analyzing the invested startups, we can draw conclusion that many startups failed either because they got more money they could chew or they were starved off the funds. Many Hyperlocal companies like PepperTap, LocalBanya, GrocShop shut their shop in 2016 and 2017, due to their splurging big money in customer acquisition, to the extent customer acquisition costs were higher than lifetime value of the customer! In case of PepperTap, they offered a discount of 20 percent on grocery to first time users and got volume of orders from each new user id, but mostly at repetitively same address, which missed the analysis at management level. Local baniya pocketed the deep discount, while PepperTap bled. This problem occurs when money is available in plenty and our desire is to scale fast, even fulfilling artificial KPIs and focus is only on one KPI–growth in new customers.
I do not see the focus on mentoring, business value creation, profit margin, profitable lifetime value of the customer or revenue sustainability. Atal incubation center (Niti Aayog) as well as DST gives most weight and asks from their funded incubators the most prominent parameter of success as funds secured by their incubated startups. Accelerators also rate the performance in terms of ratio of funded startups versus incubated startups. This myopic dedication to judge the performance of the eco-system partners to arranging funds, has everyone working overtime to arrange just that – funds. Other ‘doing business’ parameters are just being given a step motherly treatment. Why don’t we generate statistics for number of jobs created, revenue growth (value and percentage), profit earned, market share gained, ROI etc.
This behavior is giving impetus to the venture founders behaving successful as soon as they secure the funds, irrespective of their struggle thereafter. Many founders believe the journey was up till here and loose interest soon after. Other fly-by-night operators by hook or the crook also join this race and get the funds (which are relatively easy to get these days in the absence of proper due diligence by fund managers, as they have to show the numbers in disbursements) and close the shop. All this is giving a bad name to the sustainability of the startup India movement itself. Promoter’s share keeps reducing at every successive tranche of investment. Hiving off shares of one’s company is not frowned upon, and promoters are ready to settle for a minority share, dividing their company, without pain, just the same way as deceptive mother in the Tenali Rama’s story, as not many are interested in saving the baby.
Let’s re-think our focus and approach.