The Indian start-up ecosystem is at a cusp stage and is maturing with time. We have almost 16 startups that have achieved unicorn status in last one year, to name a few BrowserStack, Zeta, Moglix and Urban Company.
The Indian start-up ecosystem is at a cusp stage and is maturing with time. We have almost 16 startups that have achieved unicorn status in last one year, to name a few BrowserStack, Zeta, Moglix and Urban Company. These companies have come a long way with giants like Byjus, Oyo Rooms, Zomato, Ola and others.
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Companies like Mumbai-based beauty marketplace Nykaa, food delivery platform Zomato, logistics and delivery company Delhivery, eyewear retail chain Lenskart or edutech unicorn Byju's, one thing all of them have in common is their plan to be a listed company. And to their credit Zomato has already listed itself this month giving stellar returns to investors on the listing day itself. Many more startups in the country are looking forward to going public.
During all this turmoil created by Covid 19, startups looking for listings have to manage with ever so evolving statutory requirements. All these issues have to be dealt with but what startup companies have to deal with in their growing years are some micro-management issues in the company itself. So let’s see what start-ups have to achieve to become a darling for investors on stock exchanges. No doubt the euphoria around start-ups listing is here to stay, but the investors have to be cautious while investing in them.
Firstly cash burning, during these times when the cash well is drying up companies have to make sure that they do not burn through their already limited resources. It is estimated that 29 percent of startups fail because they run out of money. They have to take care of their unit economics. Keeping your sales and marketing costs at bay is very crucial. Brutal competition always drives companies to not care about what they spend on their sales and marketing. But they should concentrate on the target market/audience and work towards growth rather than churning up cash-burning ideas.
Next is customer acquisition cost or CAC. CAC is the ratio between the capital spent on attracting new customers to the number of new customers. The companies should focus on improving the return on investment. A balanced CAC analysis enables a company to determine the most cost-effective way to acquire customers. This would in turn help in increasing the profitability.
Cutting down on wasteful expenses is another micromanagement trick that startups have to incorporate. Shifting from in-office functioning to a more work-from-home approach limits expenses like office costs, convenience allowances, and on the flip side boosts employee productivity. Another practice that companies can adopt is opting to digital marketing. This enables a highly personalized approach to audience targeting and also charges in a more standardized formula i.e pay-per-click.
In these peculiar situations startup companies face many issues, the government scrutiny towards Chinese investors has impacted the huge in-flow of funds and this has pushed start-ups to prioritize profitability over growth to gain the remainder of investors' confidence. Drying up of investment from Chinese investors may hit startups as these investors were extremely active at all stages of the ecosystem. The Government’s announcement of new FDI rules and approval processes have made them re-think about any further investments.
Thus it is important for companies to have realistic financial projections and pitch accordingly to investors.
Finally comes 'standing still and embracing change'. When you change and change fast the chances of being the biggest, boldest and brightest unicorn are high, but if you remain still and don't change and adapt then you are much closer to extinction as an entity.
For instance in the '80s IBM got as close as to extinction. Fun fact, they were featured alongside dinosaurs in the Forbes cover.
So the idea is not to stand still or resist change or be orthodox towards your approach, rather to incorporate the changing patterns into your organisation and management.
The author, Hemant Sood, is Managing Director at Findoc. The views expressed are personal
First Published: IST