Social pullback from Start-up dream

Start-up dream is now-a-days seen by many youngsters but not everyone ends-up with his /her start-up.

I happen to know a youngster, who passed out in 2015 from a prominent southern private engineering college. Let’s call this youngster Pranav. He has been active in college fest, organizing activities for “societies” and getting “tech-app” made from his juniors. Highly connected with students, professors and evangelists from other colleges in the area, he had a dream to commence with his own start-up and even had firmed-up his ideas on technology and domain to venture into. On campus placements, he rejected four such offers, including from the big Indian IT companies and consulting MNCs. He knew, for sure, the challenges he was likely to face in his start-up. Usual ones were finding a team with same zeal and passion as he had, funding it, getting the product ready, competing against competition, sustaining the various ups-and-down of a startup and then making it big to succeed. He graduated and was ready for all of these challenges.

He was ready but his family was not. He has discussed the options with his parents before rejecting his campus placement offers, but parents were under pressure from the “society”. Few relatives were skeptical of his choice in life and were not seeing the vision and life he was seeing for himself. Anyone, Pranav or his parents discussed the idea with, brought the rejection of the start-up idea in favor of more established options of higher studies (post-graduation) or taking up a job.

Pranav isn’t along. There are numerous graduates, hailing from middle-class, who are facing challenges even before starting their own venture. The society in India is yet to reconcile to what’s-the-big-deal-to-failure mentality. Is it a big blow if someone fails in an experiment? What about the learning from such a failure?

I did a simple arithmetic of the options that are available to be engineering graduate, soon after college.

Please allow me to exclude the outliers from IIT and IIM.

Based on latest figures, an engineering graduate gets about Rs 3 – 3.50 lakhs as his starting salary. Assuming everyone, who gets into a job gets an increment of 25% in the year 2 and 3 appraisals, 20% for the next two and 15% subsequently, as the base salary is growing and this percentage reflect the general 60% of the candidates who fit in the middle of the bell-curve. An engineering graduate gets about 11 Lakhs after about year 9, unless he reskills himself or switches jobs too frequently, with a cumulative earnings of Rs 61 Lakhs after 9 years of service.

			25%	25%	20%	20%	15%	15%	10%	10%
	Option	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9
1	Job, Right now	3	4	5	6	7	8	9	10	11
			7	11	17	24	32	41	50	61	Cumulative
2	Higher Edu India - PG (2 Years)	(5)	(5)	7	8	10	12	13	15	16
			(10)	(3)	5	15	27	40	55	71
3	Higher Edu Abroad - PG (2 Years)	(20)	(20)	10	12	14	17	19	21	23
			(40)	(30)	(18)	(4)	13	32	53	76
4	Startup - Failed, Join Job after 2 years	(20)	-	15	18	22	25	29	31	35
			(20)	(5)	13	35	59	88	119	154
5	Startup - Successful	(20)	-	40	48	58	66	76	84	92
			(20)	20	68	126	192	268	352	444

Consider the same graduate going for higher post-graduation studies within India. He invests about 10 Lakhs in the fees and hostel and gets to start at about Rs 7 Lakhs. Assuming the same increment percentages as earlier, his CTC at year 9 is at 16 Lakhs, with cumulative earnings of 71 Lakhs over 9 years of service. If the same graduate had gone for higher studies abroad, he had to invest about Rs 40 Lakhs an would have been much better taking CTC of Rs 23 Lakhs (cumulative 76 L) after the same period.

Consider starting a venture. What does it take for founders to start a venture and take it to a level recognized in the industry? He needs to build product (technology savvy), understand market dynamic including competition (marketing plan with branding), define go-to-market strategy (led sales), arrange funds (CFO role), hire and retain people (CHR role), manage organization growth, address regulatory compliances, etc. If this venture has made its presence, founders have learnt which no other course in the world can teach them! Innovative and modern outlook companies are constantly looking for such people who are not only all-rounder, but also possess fighting spirit and attitude to solve problems as they come. It makes these founders in-valuable, whether they lose out on their venture or make success out of it. Anyone who fails still has a better market value and conservatively valued at 15 Lakhs as starting salary, if he had to resume job after venture failure. Not to mention, he is better off than any of the earlier discussed cases, even if he has burned about Rs 20 Lakhs of his own.

What if he succeeds? There is no looking back. What one earns is un-comparable to job that could have given. Pranav has been able to convince his parents to travel on this path.

If one argues higher education in India or abroad provides connect with fellow batch-mates and this can be leveraged for better opportunities in life. This is no-doubt a take away. However, this is much more explicit had one started his venture.

It is also pertinent to mention that business is not for everyone. Only some have the aptitude and attitude to take the risk and have the endurance to undergo the hard work physically and emotionally. So, for all those we are appropriate for it, startup venture is the right way to go.

It is time that as parents we support our wards to take the path less traveled and enable them to be the torch bearer for the generation to come, without compromising self-interest.

Ashish Jain

www.thestartupboard.com

About Author - Ashish mentors founders of start-ups on strategy

Should a start-up undertake paid branding?

A shaving cream company, say Newbee, commenced its premier product. Soon it started facing hardships in already overcrowded market. Market leaders were MNC with deep pockets and distribution penetration, backed by inducing advertisement on TV and print. MNCs have comfortably built an impregnable brand in the mind of individual males. Newbee analyzed to its happiness that MNCs have not made huge impact in saloons and therefore started focus only there. Soon it had its distribution chain. Volume increased and variable cost started decreasing. With cost leadership, Newbee found new lease of life and invested in production enhancement. Soon it could reduce its cost further down, enticing even the MNCs to get contract manufacturing from it. Newbee had the scale, quality products, and knowledge of variable quality for its customers. It was world’s largest producer of shaving cream. However, it still had one problem. Its margins were low.

Now, with high revenue and disposable profits, it thought of undertaking brand building and started advertising. It also increased the prices of its product to offset marketing costs. Did it succeed?

Yes, it did and the balance lies in the balance in pricing of its own product versus the competitor, even when both are resorting to brand building. It is, in fact, advantageous to NewBee that they are able to keep prices low, with same level of margins as competitor, due to lower costs. Here in this illustrative story, Newbee has been able to wipe off its competitor from manufacturing.

Branding is a costly preposition. Still, many start-ups these days undertake brand building very early, as they get hot money very soon in the cycle and investors are in great hurry to create that hype to increase the valuation, enabling them to exit with huge positive returns. Ideal period of this cycle of investment-hype-customer acquisition-growth-exit is 3 to 5 years. In this case, should a startup undertake paid branding? If yes, what stage should it undertake it?

Consider the cases of amazon, makemytrip, flipkart, yatra, via, redbus amongst many others, who built their product, refined it well over time and then undertook paid branding. While housing.com, ola, quickr, olx are some examples which jumped to market with huge marketing budgets from an early stage. All the former have painstakingly built their product, distribution, logistics and focused on self-sustainability to create revenue first. They approached the investors for growth-stage funding and therefore pressure was diluted for big bang marketing. While later companies got the seed /early stage funding and had the compulsion to generate market valuations quickly.

It is no brainer that market valuation is more hype than reality, now or in dot-com era. Profit is not the leading criterion like in case of amazon or flipkart. It is potential to generate business in the future that leads all the way. It reminds stories of the era, when most companies going for IPO, would build a healthy order book, possibly from friendly companies, and go bust soon after the subscription, swindling many small time investors who would have no means to know what happened. When branding is to target increased valuation and not sustenance, one must be wary.

In the case of Newbee, it resorted to paid branding once it attained substantial competitive advantage, else the chances of return over investment reduces exponentially.

Share your comments, criticism, counter-views to me (Ashish Jain), at india.ashishjain@gmail.com.