Dirty Startup Secrets

In a nation where the paradigm of ‘good jobs’ starts and stops with MNCs and unemployment starts with the mere thought of working in one, the startup ecosystem emerged as a mighty saviour with over 6,00,000 jobs.

Combine it with facets such as a comforting office culture and the freedom to innovate and explore options, and we have a new favourite in the Indian Economy!

Figuratively, “chaos & losses is what defines a startup.” And if we talk figures, it’s the valuation and funding that truly define it– this, the Indian startups have plenty. You talk clean streets, India’s lagging behind, but you talk startups, uff, koi toh rok lo! I mean, if Teja had pitched this idea in this era, his version of “Bajaj, Hamara, Bajaj” would have been a thriving startup too! 

You can move on from that ex, but the pangs of COVID shall stay branded in our memory like ‘Raju luvs Pinky’ on a tree in the park. Back in 2020, when the economy was hit just as badly as this cringe statement just hit you, the startups started thriving with robust investments like wild mushrooms in the monsoon.

And trust me, you, it’s like one of those stories that you must know and witness to tell the future generations about. The ‘start’-ups would then be ‘middle’ or ‘end’-ups by then. (Sorry, not sorry!)

Indian Startup story

For the sake of borderline sadism, I will first ruin the beautiful, satisfying image of bubbles for you. A financial bubble is something that signifies an economic cycle. This cycle runs its entire course like the lifecycle of a soap bubble. 

• An asset’s price increases rapidly like blowing a bubble.
• There’s a point where the bubble can't get any bigger. Here, the asset reaches an unsustainable stage.
• Consequently, the bubble pops, signifying the contraction in the value of the asset. 

A perfect example to fuel your understanding could be the Dot-com bubble in the late 90s. Remember how people went gaga over doing business on the internet? But sadly, that popped quicker than my feet getting a tan line on a summer afternoon. Another bubble that keeps popping and re-emerging in the economy is the Real-Estate bubble. 

The popping of a bubble isn’t a happy scene, be it a soapy one or an economic one. When an economic bubble pops, it causes investors to lose a lot of money. And now, be prepared, for we’re going to term the startup ecosystem as another bubble that’s gotten so inflated that it might pop like an atom bomb!

The swiftness with which the startup culture in India has become a flagship initiative for the government is almost uncanny. World-class innovation hubs under the Atal Innovation Mission, a country wide incubator network, relaxed public procurement norms, and easier/faster exits are just some of the many benefits provided to startups under the law.

Here’s a friendly tapli to those who still don’t understand how India became the third-largest startup ecosystem globally, with 69,000 startups recognised until May 2022. With a rate of 44 startups turning into unicorns just in 2021, imagine this ecosystem's contribution to the nation’s GDP! No wonder the startup bubble is government’s favourite child. 🤷‍♀️

There’s a saying very relevant for some people. It goes, “paisa kaat-ta hai”. So, with work lives on hold during the lockdown, the investors were itching to spend their money because there weren’t enough avenues to invest in.

So, do you understand what they did, or should we spoonfeed it to you like the government spoonfed the startups? 

But like eating the 4th or 5th slice of pizza, the satisfaction and the “nice bit” of it starts to go south. Likewise, the startup bubble has been tumbling down the slippery slope of funding and favours for the last 1-2 years. Gonna slap you with a quick data point now because analogies ain’t enough.

According to Tracxn’s ‘Geo Quarterly Report: India Tech Q2 2022,’ the Indian startups raised $10.3 Billion in Q4 of FY 21-22. But the numbers came down to just $6.9 Billion in Q1 of FY 22-23! The gloom and despair and the losses beyond repair were even more evident when only 8 companies entered the Unicorn Club by April 2021 and none at all by April 2022.

The major funding raised last month amounted to $805 million, but that’s not good either! 

Done with the data, now take a live example. 

Remember how the online shopping platform Meesho took the digital space by surprise with its super cheap yet quality products? It was a sad day when I bought a shirt from a popular shopping site for ₹1000 and then saw an ad for the same shirt at just ₹400 on Meesho! 

However, now, even with a good valuation of $8 Billion, investors aren’t willing to invest in it. After all, the core objective of investing is profitability and sustainability. 🤌

Well, this was a broad picture of how this bubble has been floating in the economic air. But now, let’s get an internal view of the bitter truths about the wonky state of the Indian startup bubble so that this article lives up to the name ‘Insider’. 

The startup Insider

See that? We used the movie name in the movie! Jokes aside though, we need to stand by our namesake and give you some spicy info on the situation, don’t we? So here’s the tea!

Hire & Fire

The employment scenario in most startups screams, “mah startup, mah rules, fire employees, investors are fools.” So, under the mask of fresh spirits and innovative ideas, the startups hired and fired employees like it’s love and war. 

According to the US Bureau of Labor, startups fire nearly 25% of staff in the first year of the company's existence. #TrendSetters. 

Companies such as Vedantu, Ola, Cars24 and Unacademy have laid off over 3600 employees this year! The irony is that the company associated with satisfying people’s hunger pangs is leaving people with empty plates! That’s right! Sabki pasand Nirma Zomato announced a lay-off of 300 employees. 

And how dare I talk about people getting fired without mentioning Better.com! Remember how its CEO literally kicked off 900 employees over a zoom call? 

People laid off over the past few months = 6000+
Reasons provided = 4 😑

The Stereotypical Sacking Startups Starter Pack dialogues are:

🤷‍♀️ Over-hiring- “There’s just too many of you, man! You gotta go. Here’s a shining recommendation to compensate for your loss.”

🤷‍♀️ Cost-cutting- “Oops! We overspent on projects and can’t break even. Now, we can’t feed you guys anymore. Shut the door on your way out and send Raju in.”

🤷‍♀️ Change in plans- “Just scrapped off the project you were hired to work on. Don’t make it awkward at Jagdish’s promotion lunch, though. Ok, byee!”

🤷‍♀️ Shortage of funds- “Shit, man! The last round of funding didn’t meet the mark. Sooo, yeaahh…” 

90% of Start-Ups End-Up Ending

Composition of a soap bubble = 1 layer of soap molecules + 1 layer of water molecules + 1 layer of soap molecules and air. 

Composition of the startup bubble =  10% pop show + 90% flop shows. 

Yep! According to an IBM study, 90% of Indian startups fail in the first five years of formation. 

That sounds like a “blow up”!  😜 Some of the major reasons why startups fail in India are poor planning, premature scaling, poorly executed ideas and non-strategic business models. All of this because of (say it with me) ‘Lousy Leaders!’

So, it's not hard to believe that most Venture capitalists (VCs) feel that Indian startups lack strong business models and experienced entrepreneurs. 

“No startup is a born loser;” some outshine others in the beginning and then tumble down the success graph like Jack and Jill down the hill. A fine example is the American startup story of MoviePass, founded in 2011.

With a seemingly smart business model, the company offered people huge discounts on movie tickets on a monthly subscription of just $9.95. It made up for the cost by negotiating with theatres over bulk pricing discounts. To absolutely no surprise, it became a huge hit and gained much popularity by 2017. 

But the business model wasn’t that smart after all. 🤷‍♀️ The company went to great lengths to cover its costs, from limiting customer services to taking massive loans; all in vain. All because of (say it out loud) ‘Lousy Business Model!’

Taking the “Fun” out of Funding

Two categories of people fund a startup: 

1. Rich friends and family 
2. Investors who find it worthy

The first kind is easy to convince. But to find the second, trust me, finding a soulmate is easier. The objective is to find a Venture Capitalist, a Private Equity (PEs), or literally anybody with a lot of money. And they don’t just happen to hang out in a tea shack by your moholla.

You must present your idea to as many investors as there are guests at an Indian wedding. Above all, just like the wedding guests, these investors are also perpetually dissatisfied with everything. All this to get decent funding! Why’s nobody ‘introvert-sensitive’ these days? 

Above all, if you think investors invest only in ideas, ahem-ahem-you’re-mistaken-ahem-ahem! 

They invest in logical scalable businesses. And for that, your startup should have a scalable business model. Because in most cases, funding is provided to businesses that are ready for scaling or that have already scaled. After all, the investors have the money for it but not the time and patience. 🤷‍♀️ Now here’s a simple reason why most startups suffer the wrath of popat-ness.  

What a startup must do in the initial stages: Reduce costs and work towards profits. 

What they really do: Get decent funding and burn out most of it to no significant results. 

Work Culture & Race for Growth

Song lyrics dedication to employees in the beginning of a startup- “It's the eye of the tiger

It's the thrill of the fight!”

A few moments later- “Never mind I’ll find someone like you…”

Sure, there’s the leverage of being apne mann ka maalik in terms of working freedom, but your mann better be an archipelago of productivity because layyyyyy-offffs! Another aspect that hampers the work culture in a startup is that most of them are a toxic mess (just like the person whose face popped into your mind right now).

Not only do they lack clear KPIs and KRAs (fancy way of saying business/employee goals), but they have also made it to the ‘bad management’ radar with cases of micromanagement, harassment, discrimination, lack of clear goals from top management, etc. You can be the mann ka maalik all you want, but remember, the mann’s not yours. 😉

Jaha soch, waha shauchalaya Startup. Now there are so many that the competition seems no less volatile than an eternal game of Road Rash. Not many of us even knew what an IPO meant a few years ago. But then the yearly clock struck 2021 and put in motion IPOs ka nanga naach. 8 companies went public back to back, and launching IPOs and going public became the new black making investors go 👇

Is the Startup Bubble about to burst?

Unhappy investors, frustrated employees, incompetent managers, soaring losses and whatnot. Now you tell me, will the startup bubble sustain?

After all, “Turnover is vanity, profit is sanity, but cash is reality.”

And the current scenario for most startups is 👇

All of this discussion comes down to one conclusion. Is the startup bubble busting? 

Some startups are called gazelles (potential unicorns in the next 2 years), some cheetahs (potential unicorns in the next 4 years), but in the current situation, they are all being raised in captivity.

According to Fintrackr, out of 100 unicorns in India, only 18, such as Zoho, Zerodha, Dream11, and a few others, were profit-making. The rest were either in deep losses or had not disclosed their financial status due to being registered outside India. Even during the pandemic, most startups were out of funds or had meagre cash reserves. 

As if the dal badlu VCs and PEs were not bad enough, Covid changed teams really quick too. The same pandemic that was beneficial for the start of startups, was now curbing its growth and sustenance. Also, the elite startup listings such as Nykaa, Zomato, and Policy Bazaar together generated tremendous amounts of wealth for investors but now have eroded at least ₹1.30 lakh crore.. (From ‘udi udi jaaye’ to ‘urii baba!’)

And you know what’s worst? PWC report states that the startup funding is also declining. (40% of funding already dropped in the April-June quarter!) That’s not all! It’s expected to drown even more! 

The fintech and retail tech startups have been the most funded ones so far, accounting for nearly 24% & 23% of the total deal value in the 3rd quarter of last year. Moreover, 6 out of 14 unicorns in the 3rd quarter belonged to these categories! Alas! The achche din are turning into andheri raatein, and there’s nothing we can do about it. 

NEVERTHELESS, We can’t miss out on the curious case of bootstrapped tech startups! With no external funding, chaotic valuation games, or lay-offs and cost cutting, these startups seem to be winning the game of survival like real underdogs. (Haters will say I’m biased.)

Anyway, I hope I made this article nice and fun. I’m all 👂👂to any feedback, suggestions or questions that you may have. Okay, ta-taa!
 

Also Read:

• Google vs Indian Startups: A War Against Google's Billing Policy
• Byju's Business Explained: Is the Start-up Going Bankrupt?
• Startup Funding Statistics