When starting one’s business, a set of people will advice you to keep a sharp focus when it comes to offerings or purpose. Another group might suggest offering as many products or services as possible, to minimize risk. And both groups could defend their views till the cows come home.
However, in most cases, it is most prudent for you to start your venture with a relatively sharp focus, ideally with 1 offering. So that means, you can’t start an eCommerce site and try to rival Amazon’s breadth of categories on day 1. But it also doesn’t mean you start with offering only women’s’ jackets on your e-store. It could mean a focus on selling the latest European fashion online, in which case, that, is your focus. It’s what your customers should know you for.
It doesn’t mean the company should not diversify. What it does mean, is it should diversify within the sharp focus. When you need an app built, will you remember the person who builds apps? Or will you remember someone who builds apps, does web development, content development and social media marketing among other things?
Being an automotive company that builds premium sports cars is memorable. Being a auto manufacturer who builds low-cost hatchbacks, premium sedans and rugged SUVs on day 1 will not register in a customer’s mind.
While a lot of startups struggle to sharpen focus, a lot of older companies too, lose focus with each passing year. And it affects growth, whether or not they acknowledge or even realize it.
A scene from one of my favourite movies, Andaz Apna Apna perfectly captures the thoughts an unfocused mind.
Two decades ago, it used to take quite a while before global technology and content was even commonly talked about in India. Much longer before it was accessible or affordable to us.
Today, India is home to numerous foreign manufacturing plants that cater to global demand. It is also home to several global R&D facilities. And we as consumers, are at par with the world, quickly becoming aware of, and easily adopting global technology and content. Especially when it comes to smartphones and mobile apps launched universally in multiple languages.
And yet, we Indians don’t seem to aim too high when it comes to our own entrepreneurial dreams. A bulk of us follow tried-and-tested business ideas. We seem glaringly averse to radical innovation; only a few daring to think beyond what everyone else is. From ‘another’ eCommerce site to ‘another’ aggregator, most business ideas are mediocre at best. What’s worse, there is little focus on the actual and incremental value-add, or the differentiation that these businesses are aimed at creating.
Delightful customer experiences too, remain more a mechanical compulsion and less a natural and genuine concern. It is also probably why Amazon has edged past Flipkart. Because Amazon understood customer needs and experiences in a foreign country better than our own folks could. I believe one of the fatal flaws at Flipkart, was that the founders should have been busy understanding how their customers consumed the service. To figure out areas to improve and delight. Instead, they were taking in too much money and too busy investing in other startups before their startup itself had arrived. It’s easy to see through Binny Bansal’s justification philosophy of “because I look at it as giving back.” To draw a parallel from flight safety instructions, ‘you should always fix your own oxygen mask on before helping children, elders, or others needing assistance.’ Let’s just hope it is still not too late for Flipkart to turn around, as Sandeep Singhal of Nexus Venture Partners stated, a few months ago.
Information and technology in themselves keep us at par with the world. So what stops us from dreaming beyond them at what’s next? And what stops us from setting global benchmarks in genuine and consistent customer delight?
We need to start imagining beyond what is obvious. We need to start understanding more than what data and analytics tells us. We need to be more in touch with customer behaviour and needs. We need to innovate.
That is the only way we can ever come a step closer to being the best in the world.
“What makes America so much more entrepreneurial and innovative than India?” That question has been in my head for many years now.
Obvious recent contributions including Facebook, Tesla, and the immortal giants, Google, Amazon and Apple come first to mind. But the world we live in stands witness to enduring American inventions – the airplane, credit card, transistor, laser, the computer and internet; with hundreds of inventions in-between.
Firstly, contrary to popular belief, the US is not the most innovative country in the world. They ranked 5th in 2015’s Global Innovation Index by World Intellectual Property Organization (WIPO). Results by other bodies too put them in a similar ranking.
Two factors seem to distinguish them from the rest. They are perennially innovative across all fields of work. And, creativity and entrepreneurial spirit runs deep in the veins of its masses. For nearly two centuries, it has been one of the most fertile environments for creativity and innovation. This has resulted in the most brilliant minds from the world over to steadily gravitate to it. To Innovate. To Create.
YouTube (albeit American), is filled with the ingenious creations of their average people. Remote-controlled cars, planes, and numerous vehicles and even other unimaginable contraptions built by average individuals like you and me. What makes them impressive is that they aren’t built out of a kit, but using even scrap or materials found around the house. And their customer experience practices have delighted and inspired the world, and set global benchmarks.
So while we can brush-off some inventions as exceptions; what explains the creative and entrepreneurial spirit of the common American?
In my quest to find something that the average American might knowingly or otherwise be doing differently to induce this trait, I quickly concluded it had nothing to do with their super-sugar coated cereals or microwave dinners. 😀
Heredity too didn’t seem like the answer, given the large mix of world population that goes in and out of the US. So how do they maintain a consistent level of creativity even with the influx of foreigners? Is something happening in the background, that nurtures creativity levels?
‘What else are they doing, that subtly but consistently fuels creativity?’
I felt the answer might lie in the power of the right brain. We know the right brain is the seat of creativity. And which in turn controls, and is stimulated by, the left side of our body. So are Americans doing something differently, that might be stimulating innovation?
But they comprise only about 10% of the world population.
So, assuming a normal distribution of left and right handed people across the world, 10% Americans aren’t conclusive proof of their general creativity. Even if that 10% included the left-handed John D. Rockefeller, Henry Ford, Bob Dylan, Walt Disney, Bill Gates, Mark Zuckerberg, and Tina Fey. Because, for each of them, there have been other innovators, creative people and entrepreneurs who are right-handed. So while left-handedness might give one an edge, what explains its considerable prevalence in the other 90% too?
Still stuck on the right brain and the left side of the body, there seemed to be sufficient studies concluding that when right-handed people use their left-hand more, it tended to improve general creativity. To what degree, is a great topic for a debate at another time. But if using the left side more fuels creativity, is there something Americans do differently than Indians, that might help?
Then a possibility struck. Can their driving give them some edge in being more creative? As absurd as it might sound, read me out.
Right-hand traffic countries tend to have left-hand-drive cars, and in turn, use their left hands more, especially for continuous adjustments of the steering wheel. Opportunity to rest the elbow on the side of the door makes that a preferred hand from comfort and proximity perspectives.
But that would mean that 65% of the world should on average, be at least slightly more creative than the others.
So then the only remaining variable would be –how many people in each of those countries drive regularly? That brought me to the vehicular density of countries. Here too, the US seems to have the edge (whether for the good or not). It has the 3rd highest motor vehicle density in the world; that’s 797 vehicles per 1000 people! The first two spots are taken by San Marino and Monaco. Both of whom seem irrelevant to our discussion, given that these city-states have populations under 40,000 people. This makes the US the largest nation with the highest vehicular density. Contributors are the lack of a developed public transport systems outside of major cities, and cheap fuel. This results in Americans driving cars for everything from buying groceries from nearby, to traveling to other cities and states.
So is it possible, that frequent use of the left-hand while driving, in a country with the highest motor vehicle density, contributes to their innovation and creativity in general?
Honestly, I don’t know the answer. I don’t know if driving of left-hand-drive cars is ‘the’, or even ‘a’ contributing factor at all, to explain their creativity, innovation or entrepreneurial spirit.
However, in the absence of other conclusive factors, doesn’t it beg another look? Perhaps autonomous cars will help observe change if any?
I’ll look forward to your views on this. Also, hit the ‘Follow’ button if you’d like to receive more such posts from time to time. You can also connect with me on Twitter.
Is there a bubble forming in the Indian startup scene?
The Hubble Space Telescope
Is the Indian startup space fast becoming a bubble? Let’s take a closer look and find out.
At the Goldman Sachs technology conference earlier this year, leading venture capitalist of Benchmark, Bill Gurley expressed concerns to attendees, of a possible bubble, caused by some over-valued startups in the US. His concerns were directed at the young companies that had almost magically reached over a billion dollars in valuation, which according to him, was largely fueled by investor fear of missing out (or FOMO, as the VC community knows it). He said that investors were making investments of sizes previously reserved for listed companies. Aptly, he said “a founder pursuing a $40 million IPO offering takes the process more seriously today than a founder raising $400 million in private capital.”
Another reason for his concern, was the presence of public market investors like hedge funds, etc., investing in the space earlier catered to only by venture capitalists. Bill isn’t wrong in saying that hedge funds, mutual funds, etc., have traditionally had a different investment appetite and strategy. FOMO, clubbed with this new blend of different investor classes and styles of investing, is perhaps what is fueling his growing anxiety of a possible bubble. Benchmark has funded numerous industry-altering young companies since 1995, including Twitter, Instagram, Snapchat, and Uber, and around 250 other startups.
The Wall Street Journal’s Billion Dollar Startup Club saw at least 73 young private companies valued over USD $1 billion this year, compared to only 41 last year. Nearly half the investors in some of the most invested startups too, were institutional and strategic investors, with Tiger Global (TG is an international firm that manages hedge and private equity funds) leading the pack with 12 investments in private billion-dollar companies. TG also raised the most money last year, $4 billion to be more specific, amounting to nearly 12% of all venture capital raised in 2014. (source)
Coming back to India, should this over-investing and over-valuing in US startups be of any concern to our booming Indian startup scene that is currently fueled by online travel, e-commerce retail and logistics, classifieds, online food ordering, radio taxis, etc.? Let’s find out.
Firstly, one of those aggressive investors that Bill Gurley mentioned, Tiger Global to be specific, is also the most aggressive investor in Indian startups. In 2015 alone, TG disclosed investments in over 17 companies, investing in rounds totaling to about $1 billion. Some of its investments include a $150 million round (series H round!) with other investors in Quikr, India’s largest online and mobile classifieds portal. Then there was a series D round of $ 100 million in Shopclues, an e-commerce portal. We could argue that the exact investment exposure by Tiger Global is not known, and could be somewhat small. Or that perhaps these startups are actually worth the millions or billions they are said to be worth.
Tiger Global, among others, may have helped inflate a startup bubble in the US. But that is a significantly different market than India, with a more mature and aggressive investor community. Therefore, a race to get a piece of what is hopefully the next Google or Uber in the US might have led investors to try and outbid each other with sweeter deals to promising startups. But is TG’s strategy or tendency to overvalue being carried to India too?
In February, a reasonably well funded ‘mom and baby’ products portal, BabyOye, also a Tiger Global funded company, was acquired by Mahindra Retail for an undisclosed sum; in the hope of boosting their own brands Mom & Me, and Beanstalk, that have not been too strong online. BabyOye raised $12 million in 2013 from investors, partly used to acquire another company (Hoopos.com). After an earlier round of funding in 2011, BabyOye spent extravagantly on TV advertising using a former movie star in the ads.
Mahindra’s acquisition to gain online strength seemed concerning, given that such a large group felt the need to acquire a small company with only 1500 followers on Twitter (now up at 2003 followers), to bring in the capability of selling online, even if the acquisition didn’t cost them much. And at a time when a lot, if not most of those products were already available on Amazon and Flipkart. Did that make good business sense, or is e-commerce happening so fast that even the heavyweights of Indian industry are feeling the pressure to jump on this bullet train?
US’s popular classifieds service, Craigslist, only had one known investor ever; eBay. And that too not for too long. And was Craigslist popular enough? More than it perhaps ever expected. In comparison, a similar service in India, Quikr, has raised upwards of $350 million so far, and we can only wonder why. To buy and sell other companies, maybe?
And just then, in comes news of a possible acquisition of the nearing-a-billion-in-valuation Housing.com, by none other than Quikr. If the acquisition does happen, it might be a progressive step for Quikr. But it also leaves me wondering about the vision of these startup promoters. With growth strategies and business direction that seems to be going all over the place. In many ways, this startup mania is turning out to be more of an exit ground for investors, rather than an effort to give the world the next great company that’s made in India.
Looking at the magnitude of investments themselves, a layman could argue that ‘the more the funding, the better’; after all, is there anything like too much money? Or for that matter, even a sky- higher valuation. Imagine the pride and respect in your social circles when they read in bold, the value of your young company. But venture capital and investing isn’t as simple. If one funding round happens at a significantly high valuation, the next round becomes that much tougher to raise, as does getting a suitable exit for your existing investors. Of the $51 billion worth of private equity deals in India from 2000 to 2008, there have been only around 30% exits, according to a McKinsey and Co. report.
Over-investing in companies brings with it, the tendency to spend it, whether it makes perfect business sense or not. As the world, and more importantly India, is getting increasingly interconnected online and socially, it is worrying to see the amount of money young online businesses are investing into expensive traditional media, with the likes of Amazon’s catchy ad, or Flipkart’s loud and confusing one, everyone’s on TV and on billboards, trying to push their way into the heads of prospective customers.
About 5-8 years ago, it was comparatively tougher for companies to scale. Building capacities, adding servers, fleet, manufacturing capacity, manpower, etc., took a lot more time and more money.
So, while salaries are much higher today, many services and business functions can also be outsourced efficiently. This allows companies to focus on core activities and scale faster. There is the evolution of analytics, contractual manpower, hired CXO’s and everything in-between available. Basically, the seemingly impossible tasks that earlier needed a small army, can now be pulled off with a small team.
All this brings us back to “how do we make sense of the heavy investments into these, still nascent startups?” And more importantly, will such heavy spends only on marketing guarantee a successful future for these young ventures? And, is any funding being spent on better listening and understanding of customer needs? Or on empathizing with problems customers are currently facing?
The notorious, multi-billion dollar Uber for instance, has an extremely light operating model, asset-light, limited overheads, and is highly scalable. But has it done anything to address woman passenger safety in countries where it operates? Not so far. Even Indian taxi aggregator Meru (2 years older than Uber) had a panic button on the app long before Uber decided to put one there. Uber waited till after unfortunate incidents occurred, before putting a feature that was so logical and obvious. All that funding seemed to be spent on technology and marketing. Then why do customers still shower so much love on services that don’t feel the same way about them?
Between aggressive promoters and aggressive investors, focus has gradually shifted from the customers’ best interest. It now seems to be more about startup and investor’s best interest. Online food ordering businesses too, for example, have built strong websites and apps. And they have been advertising like there’s no tomorrow. But their internal processes remain shockingly primitive. Back in 2008, I had toyed with the idea of starting an online food ordering service, and had listed some concern areas that needed figuring out, in an effort to shape the idea better. While I eventually didn’t pursue it, online food ordering startups today, surprisingly still live with those same problems, despite the advancements that have happened in the interim.
The possible risks of overvalued and over-invested startups are many. From VC firms going bust, to startups not being able to raise the next round of funding. Or for that matter, those being made redundant by other startups. And with every startup that shuts shop, it also affects a large number of other individuals and businesses. Everyone from logistics businesses to small suppliers to even home businesses and employees. Anyone who has come to serve these super-valued startups.
And finally, in an effort to boost entrepreneurship, India has considerably relaxed rules for listing startups in the recent past. But this bold step will take its time to see benefits, especially since there is poor liquidity in this space. And the experience in valuing new age businesses isn’t anywhere near accurate.
The sky-high valuations of startups would make for interesting conversations with friends and a few rounds of beer. However, lack of clarity in funding and growth strategy in these heavyweight startups could be a matter of concern. For young stars of a new and emerging India. And India’s big startup contributions to the world would hopefully be those that are highly profitable and scalable. And most importantly, solely focused on delighting its customers.
Originally posted here: http://yourstory.com/2015/07/startup-bubble/
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