Decoding the Sordid Saga behind the Hype, Gloss, and Glamour.
“No growth hack, brilliant marketing idea, or sales team can save you long-term if you don’t have a sufficiently good product.” – Sam Altman
We all aspire to be rich, successful, and famous, who doesn’t? Being ambitious, having an innate desire to accomplish something notable and chasing worthwhile goals is everyone’s ultimate dream. Why follow the traditional route when you can be different? But what happens when ambition transforms into insatiable hunger and leads to “bigger-is-better” attitude? How dire could be the consequences? Certainly, one is that greed of a few had led to dreams of many being shattered. This, to some extent, holds good in the context of the current state of hitherto thriving indigenous start-ups severely hit by flawed business models, funding winter, mounting losses and depressing investor sentiment resulting in mass layoffs and shutdowns. There is a recent view that the tall tales of Indian startups is over and the biggies like Amazon and Uber can proclaim victory. Call for protection from so-called ‘capital dumping’ with risk capital drying up hints that the party is now over and one should be prepared for hell of a topsy-turvy experience.
The large-scale firing at Snapdeal, downsizing by firms like Craftsvilla, YepMe, and Tolexo, the ongoing Stayzilla fiasco, poster boys such as Ola and Flipkart raising funds at lower valuations, and consolidation buzz in the e-commerce space gives enough evidence that the long overdue reality check of the ecosystem is finally happening. Of late, Investors are finally asking the right questions as regards profitability, revenues, and unit economics as the focus shifts away from vanity metrics and blind expansion. While this transit from being “stupid to sensible” is a welcome news, one must be aware that it is also going to be painful. A Bangalore-based research firm has compiled India’s first ‘Deadpool’ list, a chilling catalog of dead or dying startups which identifies nearly 800 firms in almost every segment of technology, including e-commerce, online education, and mobile software.
Why are the Startups Failing – Key Reasons
One harsh reality of the startup world is that almost 90% of them collapse in the first five years of operations or are back to square one. A post-mortem analysis of the major shutdowns reveals a number of reasons pushing startups towards doom. Let’s explore the few significant ones.
- Flawed Product with No USP – One sure shot way of failing a business is to build a flawed or a copycat product which has already reached saturation point or has enough alternatives abundantly available. What could be more disastrous is to go live without doing a pilot validating whether the idea could be monetized. No business can survive without having its own set of loyal and paying customers.
- Not Having the Right Talent – It is critically important to onboard people who share the same passion, able to align themselves with the organizational strategies and are in the game for a long run. The inability of founders to build an optimal team with a right mix of skillset is often cited as the most prominent reason of startups failing to establish themselves into sustainable businesses.
- Excessive focus on vanity metrics – Startups have a tendency to get caught up playing the endless and fruitless game of tracking vanity metrics such as GMV, page views, the number of registered users, app downloads and followers. While they may make one feel good, the truth is that don’t actually add anything to the bottom line. The whole business of doing business is to make money. Everything else is plain bullshit.
- Failure to Pivot when needed – Entrepreneurs, often, find themselves stuck in a catch 22 situation unable to decide whether to stay the course or change direction. This could be primarily due to the founders emotionally attached to the initial idea/ product. Pivoting is a calculated affair when a firm ditches its original product offering yet chooses to remain rooted in the same business. While many treat pivoting as a face-saver strategy of fading startups, it can also be a beginning of something great. The transformation of Odeo into Twitter is a classic example of a pivot paying off big time.
“To improve is to change; to be perfect is to change often.” – Winston Churchill
- Lacking passion and commitment – Although starting up seems to be a cool thing to do, the fact is that establishing a business and running it successfully through testing times is not everybody’s cup of tea. Entrepreneurship is like riding a roller coaster and unless the entrepreneurs are fully committed and passionate towards their product, they won’t be able to persist through the inherent ups and downs of the business cycle.
- Running Out of Cash – This is probably one of the most brutal things that can happen to an entrepreneur. While most VCs follow milestone-based funding, inability to raise bridge capital from angels to extend the financial runway in cash crunch situations usually leads to forced shutdowns which could be devastating for both founders and employees.
- Market Timing – Another major reason of why startups flop is that they fail to capture market at the right time. An idea or product which is ahead of its time or lacks enough value proposition will be unable to attract a committed buyer and hence cannot generate revenues.
- Outcompeted – It is quite common that once an idea or product starts gaining traction or market validation, there could be many “me-too” entrants in the same space in a short span of time. A thorough competitor analysis in the light of ever-changing market dynamics vis a vis firm’s own competencies and strategies is essentially important. While getting over obsessed with the competition is not rewarding, ignoring them completely is a proven recipe for failure.
Critical Lessons to learn from Failed Startups.
Fail fast, fail early, and fail often is the guiding principle for startups and most entrepreneurship gurus do swear by it. To me, this is the most absurd business mantra ever told. Rather, it should always be “learn fast, learn early, and learn often.”
- Proper Due Diligence – Launching a product without conducting a fair due diligence in terms of market research, trial runs, and customer feedback could be disastrous. Entrepreneurs must get their ideas validated by end users before taking the plunge. There is no bigger stupidity than building something which nobody wants and would pay for.
- Build the right team – Let’s accept this. Although we all are awesome in doing a few things, we do suck at many. Founders should understand that they too have limitations and can’t do it all. Onboarding folks with proven skill sets who understand the risk and reward of working in a startup environment as well as setting clear expectations is the sine qua non for those starting up.
- Manage money wisely – Irrespective of whether a startup is bootstrapping or funded, it is imperative to avoid frivolous expenditure and preserve cash especially when things start going downhill. Shiny and flamboyant workspaces, tempting freebies, and oh-so-fancy Googlesque perks can always wait.
- Find your why – One common trait of exceptionally successful entrepreneurs is that they are always driven by a deeper purpose for what they are doing. Avoid starting up simply because it is in vogue and just another career alternative. Entrepreneurs must have a long-term vision with clearly defined milestones.
“If one does not know to which port one is sailing, no wind is favorable.” – Seneca
- Flexible and open to change – Entrepreneurs should stay well informed of the rapidly evolving business environment, changing customer preferences and revisit plans as and when needed. The probability of getting the very first iteration right is equivalent to hitting a jackpot.
- Find the right investors and mentors – It is extremely beneficial to have investors and mentors who not only understand the startup landscape and believe in the firm’s philosophy but can also add value by sharing experiences and providing crucial support as regards networking and reaching out to potential customers.
- Nail it and then scale it – Most startups usually tend to expand hastily without getting the fundamentals right in their bid to grab first-mover advantage and forced by FOMO (Fear of Missing Out) syndrome. This could, however, be detrimental in situations when the business goes through a turbulent phase and unable to control cash burn due to increased fixed costs.
Failure is no longer a shy word in the startup arena and remains a part and parcel of the entrepreneurial journey. Gone are the days when media remained flooded with awe-inspiring stories of “A college dropout raising USD 500 Mn in funding”. The fact of the matter is that the number of failures stories have suddenly gone up significantly with many downing shutters or curtailing operations for the sake of survival. Having said that, one cannot stress enough the importance of quickly learning lessons from unsuccessful gigs, move on without losing enthusiasm and avoid repeating the same mistakes.
“It doesn’t matter how many times you fail, you only have to be right once.” – Mark Cuban