The Two Main Problems Start-ups Face

The Two Main Problems Start-ups Face

Having been directly associated with start-ups since 2006, when I started my career as a member of a venture capital investment team, to my recent years consulting them and young businesses, I have heard of a multitude of problems that start-ups face. A bulk of the individual startup problem stories can, however, be categorized under two main causes.

The first one of course, being investments (or the lack of it).

The second, being the lack of traction, or sustained growth in business.

With regard the problem of funds, you could further break it up in to funds you must have (the bare necessities), and funds that are good to have (the blank cheque with no questions asked kind).

Literally all of us are, often influenced by the awe-inspiring stories we keep hearing about. About those select start-ups from across the world that seem to be on a blistering growth path, with people and funds literally queuing up for an opportunity to invest in them.

Watched the movie ‘The Incredible Hulk’? The Hulk and the Abomination in that are like those few start-ups that receive disproportionately high amounts of funding.

Everyone is not like them. And even in their case, of the two, only Hulk was relatively stable with the superpower. The Abomination, as the name goes, became that way because of his lust for super-strength to beat the Hulk.

Similarly, even if all start-ups could be funded like that, or like Uber and Paytm and Zomato and others have been, there is no guarantee they will succeed. Because making a business stable takes managing a lot more variables than merely the investment one.

Which brings us back to the other alternative – funds you must have.

This is the basic minimum investment that you would need to get your startup rolling. It isn’t too tough to calculate it (make sure to have a good amount of buffer and keep checking those levels so you don’t realize only once you’re broke). The advantage of this model is that even if external investments never come, your startup will be built on a solid foundation and a sound business model, rather than one of hyper-experimenting, as is sometimes the case with super-funded start-ups. Take the case of TinyOwl hiring and almost immediately firing hundreds of enthusiastic freshers back in the day. Or Ola paying USD 31.7Mn for FoodPanda a year and a half ago, only to fire a lot of the staff and suspend its operations recently.

While such news pieces might be good to hear, they aren’t something to be proud of.

A bootstrapped startup will have its share of proud moments too. And they will be far more grounded and not the kind that could be easily taken away, unlike the case with some over-funded ventures.

Now let’s look at the other main problem area of start-ups. The lack of traction or growth. Growth is not just about something quick or short-term. For you to want to grow your business in a sustained manner, you need to look far into the horizon of possibilities, while simultaneously matching those possibilities with reality – your depth of understanding of actual customer (or user) needs.

In my book, Design the Future, I mention what is to me, a wonderful example from both an investment angle and a strategic one that depended solely on the understanding of customer needs.

One of the portfolio companies whose growth my boss and I used to oversee, was a company in the car rental space. Around 2009, it was on its way to be the largest player in India, right on the heels of Meru, which was then leading the pack in terms of size of fleet.

However, what was interesting, was that Meru’s business had been built largely on debt, while ours was on equity. Which meant we were profitable sooner, and could scale much faster, while Meru had just turned profitable around 2009-10, if I remember correctly.

And back then, our portfolio company was already onto the model of partnered fleet, where they were collaborating with small tourist vehicle operators to add their fleet and drivers to their own, in a revenue-sharing model.

Now think about this. A company founded in 2006, which was already employing a model that we in recent times popularly known of as Uber, what as of today, has a market capitalization of USD 69 Billion! And Uber was founded only in March of 2009.

So, what prevented our portfolio company from being that company valued at USD 69 Billion or more today?

In hindsight, a lack of better understanding of the stakeholders in the ecosystem, is my guess.

Our portfolio company and other players back then were perhaps used to a certain customer price level and profitability that they enjoyed in a tried-and-tested pan-India market.

However, perhaps we failed to see that we could considerably reduce the margins and incentivize the partner ecosystem, to gain massive scale.

And with customers, it is only in very select areas that if we offer something at a lower price, they won’t take it. But certainly not with transport.

So, Uber carpeted several countries with the initial attractive pricing, and more than encouraging partner revenue-sharing and incentives.

And companies like ours, that didn’t think huge enough, shrunk into insignificance in that space at least, which they had ruled for some years till then.

Uber’s model too is far from perfect. From excessive pricing to steadily disillusioned driver partners. It is perhaps just a matter of time before either Uber itself takes the effort to, or someone else identifies a better way to match stakeholder (customer, driver-partner, etc.) expectations with solutions their company has to offer.

Putting investments and a better understanding of the stakeholder ecosystem together, it is not necessary that every business and every idea must be Uber-sized!

You can as well remain small, exclusive and yet thriving in a small or select few areas or geographies, if that is your business vision. Or, as is the case with Uber, you can be the most recognized brand in ground transport. But in case you decide on remaining small, your focus will always be on trying to identify what drives your customers’ buying behaviour. What else can you give them to simplify or enhance that experience.

But Uber-big or Uber-exclusive, it is more than important to first decide where on that spectrum you want to be. And then find out (not in meeting rooms, but by physically spending time with stakeholders of that ecosystem), what their likes and dislikes are. What drives them, what their profit expectations are, how flexible are they on pricing, and is there a better way you can offer them what you do? Even if it seems poles apart from how you have been used to offering your product or service.

And on that quest, you must put your ego aside. Literally dive into the field. In addition to direct customer and user interactions, I have found communities like those on the NODD platform beneficial, especially in getting better clarity on broad directions in which one could head. Members come from diverse backgrounds and walks of life, and have oceans of experience and perspectives to share. And unlike corporate or friends groups, they aren’t biased enough to only tell you what you want to hear. So that really helps in gaining a quick understanding of a problem, of possible causes or directions to work on, and who knows, with the thousands of members worldwide on board, you might even find people to collaborate with, while you solve a complex problem, or build on the next global innovation.

Scenarios in the startup ecosystem are limitless. And so are the possibilities. Do you know where you want to be?

 

By: Shrutin N Shetty

Shrutin is a Design Strategist who works with young companies in India and abroad, helping them innovate or tackle complex business problems using a blend of design thinking, strategy and behaviour.

You can follow his blog here, and connect with him on Nodd, LinkedIn and Twitter.

Click here to read his previous AMA transcript on Nodd App.

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