Why are Indian Startups Failing? What Can You Learn from Failure? Imbookish

Why are Indian Startups Failing? What Can You Learn from Failure? imbookish.in

Why are Indian Startups Failing? What Can You Learn from Failure? imbookish.in

A topic around what you can learn from this failures 

  1. Introduction

A good number of startups are shutting operations with the same speed they were formed leading to job of losses now 2021 was the peak of funding for many startups but from the start of 2022 we've seen over 5000 employees render jobless some of the startup founders say one of the major reasons for these massive layoffs has been the pressure from the investors on profitability and efforts to cut cash burn more than 11 000 employees in the startup universe have been fired in recent weeks some of them are celebrated startups from an Unacademy to a Meesho to Byju's whitehead junior the list goes on and on and on.

CASE STUDY OF : Why are Indian Startups Failing?

Hi Everybody in the past two years the Indian startup ecosystem has seen an extraordinary rise in funding and all kinds of startups including Ed-tech, Fin-tech, Med-tech all of them have received millions of dollars in funding and in just the year of 2021 alone the Indian startup ecosystem saw 41.4 Billion dollars in funding and the rise of 42 new unicorns but as soon as 2022 started suddenly there's bad news coming from all directions the losses of these companies have been piling up mass layoffs have started with over 9000 employees being laid off from reputed companies like Vedantu , Cars 24, Ola and others fundings have slowed down and even highly funded companies are going out of business.

  • So the question is is the gold rush of the Indian startups about to end how will this crazy startup crash affect the business ecosystem of India and most importantly as students of business what are the study materials to help you understand the startup bubble of India.
The answer to this lies in a statement made by A History teacher and she said
  "If you want to understand the future go back and study the past history always repeats itself"
Because we don't pay attention the first time so if you want to understand what is going to happen in India you must study a similar bubble that happened in the past and immediately you will have the superpower to predict the future in this case the classic case studies to understand the starter bubble of India are the electrical revolution and the Dot-Com Bubble that happened in the United States of America
Here's a very very simple explanation of the dot-com bubble the story of the dot com mobile dates way back to the 1990s and during this time computer penetration the united states started reaching extraordinary levels and as you can see from this graph the market was literally growing by hundred percent every two years and just like all of us in India suddenly got access to internet in 2016. back then millions of people in the us started having an internet connection for their computers and just like today we have starters popping up from every corner of the country back then internet companies were flooding the American markets and since most of these companies were website based companies they had a dot-com suffix attached their name like amazon.com ebay.com  etc and just like every other startup in India is raising millions of dollars today back then investors were so bullish on dot com companies that even if you did not have a business plan even if you did not have a product if you only had a website you could get a one million dollar funding as in seven crews of funding right away and amongst these companies were also legendary companies like amazon ebay and even google so when so much money started pouring into the market three crazy things happened number one every other startup started commanding a million and billion dollar valuation number two many of these companies went IPO and saw record-breaking openings so investor sentiments became even more optimistic and last and most importantly barely any of these companies were profitable and if you look at the stock market of the us during that time the spikes were both tempting and scary this bubble kept on ballooning for 10 long years from 1991 to 2000 and from 2001 onwards just like any other bubble suddenly investors started pulling out from these startups one by one and the market started crashing within a few weeks the U.S stock market lost 10 percent of its value and what happened next is even today known as one of the darkest times in the American markets.

All million dollar funding started to dry up thousands of employees were fired to cut cost hundreds of startups which were once said to be million and billion dollar startups went bankrupt and in total the investors lost five trillion dollars of wealth from 2000 to 2002. This was the result of the dot-com bubble but you know what guys the catch over here is that the very same dot-com bubble that actually wiped off so much of investor wealth actually gave rise to incredible startups like amazon ebay priceline and even google and all these companies did not just survive but even excelled into multi-bagger stocks and more importantly turned into a revolutionary set of companies that have changed the world altogether so this begs the question what type of companies went bankrupt and what killed these companies now listen to this very very carefully because a very similar type of companies will go out of business now when the startup crash comes to India the first type of companies that went bankrupt during the dot-com bubble were the ones who actually did not have a product market fit.

Example : 

Classy example of the dot-com bubble was this company called pets.com this company basically got all your pet products from dog food to leash to even dog towels but the problem was that back then unlike amazon that sold 2.5 million books that were impossible for a bookstore to have pets.com barely sold anything that the store next street did not have so they went out of business in spite of raising a ton of funding so you see while amazon had an x factor that no other store could offer pets.com did not have a unique selling point to bank on in our context in India please don't feel bad if I say this but the quick commerce boom in India looks like pets.com to me why because if you look at the types of products that a person would normally order via a quick commerce service it's either groceries general store items medicines and miscellaneous stuff to send and receive items but since the labor cost in India is ultra low all these local stores that is your grocery store your medical store and even your laundry store would easily develop products for free at your doorstep by giving it to a chotoo and as far as sending and receiving items is concerned how many times have you actually wanted to send and receive items with the willingness to pay 200 rupees so you see unless it's used by a company like amazon or reliance for bettering their delivery efficiency it does not make sense to me so please correct me if i'm wrong i would love to know your perspectives in the comments.

Moving on the second type of companies that went out of business doing the dot-com bubble were the companies that spent way too much on unnecessary places as in companies that took all the money from the investors and spent it on unviable channels a classic example of the same was this website called ourbeginnings.com and this company sold wedding invitations to brides and grooms and as you can imagine in spite of operating in a niche market with a razor thin margin these guys spent 4 million dollars into putting up a super bowl ad and the fun fact is that during that time they did not even have revenues of 4 million dollars so in our context it's like an unviable business with very less revenue spending money on ipl ads whose cost is more than its entire company's revenue so not so surprisingly even these companies went out of business the third type of companies are the ones who fell prey to regulations and adverse market conditions and the best example of the same is napster napster was a revolutionary website that popularized music streaming so in short what they did was while you had to buy cds and dvds from stores to listen to music with napster you could directly download an mp3 file from the internet and listen to thousands of labels effortlessly for free if you remember nap student u.s was like songs. but you know what guys suddenly they were slapped with lawsuits related to piracy and were eventually shut down so you see although the product was insanely awesome since it was into a completely new market which had no regulations when these regulations popped up in the market napster fell prey to it and went out of business but after these regulations were established spotify emerged in the same space doing the exact same thing but today it is a billion dollar company this is how regulations bring a company down when it enters a completely new unregulated market this is what i am afraid could be the case with zomato and swiggy and  you would know that swiggy and zomato both have gold mines of customer data and if they use it to open cloud kitchens it could bring out a profitable food tech revolution in the market but the government is very aggressively and perhaps unknowingly cutting down all possibilities of their profit and with ondc even their delivery profits could actually be cut on so if this goes on for long even giant food tech companies like zomato and swiggy might get into trouble the four type of companies are the ones that are just too ahead of the time the best example of the same is this company called z.com this was nothing but the youtube of the 1990s that was made for video streaming but unfortunately the broadband speeds were too slow you had to install codex in your browser which was too complex and eventually z.com did not pick up at all but you know what guys after z.com shutdown in 2003 just two years later youtube came up and this is when broadband penetration had reached a healthy 60 and adobe flash had solved the codec problem and again in spite of operating in the same space doing the exact same thing while z.com failed youtube today is riding on 28 billion dollars in profits now in the present case you tell me  which company do you think is way ahead of its time these are the types of companies that have failed and will fail in this and every other startup revolution to come so the question is these kind of startups are going to fail that is fine but as an investor how do you actually decide what kind of startup will succeed and more importantly if you are starting a company today what are the factors that the investors will consider before they invest into your startups well according to me there are three important pointers to look for other than profitability to understand the worthiness of a startup both as an investor and as founders number one is barrier to entry in simple words what is it that your company is doing that is making it more and more difficult for the competitors to catch up a classy example of the same is the comparison of edtech companies and youtube creators and if you remember from our tech episode these creators like Aman Dhattarwal and physics wallah and all these creators are actually creating a barrier to entry by creating a humongous subscriber base and by adding a ton of value to the subscribers by which there is cultivation of trust so tomorrow there cannot be a million dollar startup that just says that here's a million dollars please give me the trust of 1 million subscribers so this trust factor and this humongous subscriber base that these youtube creators are building that itself is an asset that is a barrier to entry which is very difficult for a rival to actually imitate similarly asian pains and bajaj finance both have a tremendous amount of data and with each passing day they are collecting and processing more data because of which they are making it very very difficult for the rivals to actually catch up the second thing to look for is the overlapping with the national agenda classy cases being hydrogen fuel electric vehicles and solar related companies you see guys no matter how futuristic green hydrogen fuel rated companies look like today if the government wants these companies to be the future they will survive similarly if the government wants evs to survive even if it's not market viable yet the subsidies will make them viable and lastly the most important factor that i look for is customer lifetime value versus customer acquisition cost so in simple words if you're spending 10 lakh rupees into marketing and you get 100 customers your cac or customer acquisition cost is 10 lakh rupees divided by 100 which is 10 000 rupees per customer so you typically spend 10000 rupees to get a single customer and the customer lifetime value is the total revenue that a customer will generate during your engagement so after downloading skillshare if the analytics say that people keep the subscription active for one year then the average customer lifetime value is 180 rupees into 12 months of subscription which is 2160 rupees so if a company like skillshare has a customer acquisition cost of less than 500 rupees and a customer lifetime value of 2160 rupees it's an amazing number because they're spending 500 rupees and they're getting 2000 160 rupees in return for every single customer but if their customer acquisition cost is 10 000 rupees for a lifetime value of two thousand one sixty rupees that would be very very dangerous why because they are losing seven thousand eight forty rupees with each passing customer whereas if it's a brand like byjus even if they spend twenty thousand rupees to acquire a single customer it's absolutely worth it provided they're selling a course worth twenty thousand rupees or more because if they retain the user for the next year's course of twenty thousand rupees buyers would be extremely profitable because the next year they don't have to bear the customer acquisition cost and at the same time like we saw in our edtech episode if this cost of customer acquisition shoots up to 50 60 000 rupees then that would be a disaster so this ratio of average customer lifetime value versus customer acquisition cost is very very important the more this ratio is the more is the scope of profit the lesser this ratio is the more risky the business gets and this brings me to the most important part of the episode and that are the study materials and a small assignment to help you understand the startup revolution in india so if you want to be a wiser entrepreneur or an investor please do this assignment sincerely. Moving on the first study material that i have for you is this wonderful thought provoking and insightful speech by jeff bezos at ted watch this and you will learn a lot about bubbles human grade innovation and even storytelling secondly i am attaching a list of bubbles that have occurred in the past this includes the electricity bubble the automobile bubble and the dot-com bubble and what i want you to do is find one company in each of these four categories for each bubble so find useless inventions of the electric bubble the automobile bubble and one in the startup bubble in today's world by the way don't make your own assumptions about which products are useless please talk to the customers and check the viability of the idea similarly for all other categories do find both good and bad startups and lastly watch this video that we made six months back and tell me which are the value chain companies that will survive today even if the startup bubble boosts that's all from myself today guys please do this assignment and do let me in the comment section if you love these kind of assignments if you learned something.

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