Wisdom for startups from grown-ups
Startups add value only if they build a sustainable business model. When will Indian startups understand this?
In an earlier Innocolumn, I wrote about the case of an unknown but highly successful startup called Galaxy Surfactants — a startup nurtured by ex-hindustan Unilever Limited (HUL) stalwarts. This firm practised four principles of long-life startups and went on to a successful IP O. The principles of building long-lasting startups are: First, practise the principle of “society-first”; second, be a perpetual learner; t hird, execute, learn, and again execute; fourth, move beyond founder-leadership to scalable leadership. Sounds simple and self- evident? Then why do so many startups not follow these principles?
Along with my co-author, R Narayanan, I am engrossed in writing a book, titled Wisdom for startups from grown-ups: Discovering corporate ayurveda. Often startup executives behave as though the experience of grown-up companies like HUL and Tata is not relevant. They think they must devise “new ways of working” because:
Speed and agility are key, implying those are the weak points of grown-ups
Ethics and integrity can come later, because startups don’t have the reputational equity of grown-ups,
Creativity is a priority rather than processes, implying that processes will make them bureaucratic.
Of course, they are right — but only partially. They know that, and so do we.
Apart from Galaxy Surfactants, I have come across Conzerv (earlier called Enercon), which has been successful by heeding advice from grown- ups. Lift Off: Transforming Conzerv by Hema Hattangady and Ashish Sen was excerpted i n Business Standard on March 22.
Conzerv was set up in 1988 by H Vasanth Rao. The firm began with the lofty purpose of improving the consumption efficiency of electricity. Electricity customers measure voltage and current as a surrogate for power consumption. Conzerv set out t o manufacture digital instruments that would measure energy, which is what the customer pays for. Within five years of starting, principally due to a faulty sales arrangement, the company became cash negative. The founder ’s dreams were in tatters, a frequent condition among startups.
The founder ’s son, Ashok, had qualified as a Us-trained technocrat and joined the firm in 1992. At a time when venture funds were unknown in India, Indus Ventures was promoted by former HUL chair
nnnman, T Thomas, my former boss at HUL . Deeply impressed with the honesty of the founders and their creative ideas, his fund invested. He felt that he could remedy what the firm lacked: a business mindset.
Thomas and retired HUL leaders like P K Chadha, K K Nayar and R R Nair guided the firm — first, to recruit a new CEO, Hema, an IIMC alumnus (incidentally also Ashok’s wife); second, to introduce people processes; third, to adopt measures for quality enhancement, branding, customer intimacy and capital usage.
Between 1998 and 2003, the CEO and CTO duo returned the company to profits (15 per cent of revenue), revenues increased from $1 million to $6 million with a path to quadrupling , and the company started paying dividends. In these days of lavish venture funding , these accomplishments may appear trivial. However, these results were achieved with a six-word, sagacious mandate arising from Thomas’ “grown-up company ” wisdom, “make t he company profitable and professional”.
Conzerv learnt other valuable lessons from HUL: (i) never compromise on ethics (ii) listen to good advice from board directors (iii) balance impatience with a demanding style (iv) sponsor the MD to the expensive Harvard AMP to develop top leadership and (v) connect with people emotionally. This last item was exemplified when a company leader, called AKP, died in the tsunami at Indonesia; the company fashioned a death benefit in the same way that HUL did in similar cases.
In 2009, French multinational, Schneider Electric, acquired Conzerv at a handsome multiple. The new owner loved the values and culture of the startup to the point that Schneider Electric retained the brand, Conzerv, for a global product category. Start-ups should achieve three goals concurrently. First, become valuable, second, be financially independent and third, be profitable. Since 1980, the global economy has got intoxicated with the bonanza of low interest rate and plentiful liquidity. This cannot last forever as t he events of 2008 and the corona episode of 2020 remind us.
A recent Edelweiss analysis of ROC data shows that the top 35 Indian start-ups have revenue of ~21,500 crore and a loss of ~15,500 crore. Startups add value only if they build a sustainable business model. When will Indian start-ups understand this?
William Hesketh Lever said of Unilever over a century ago: “The company employees are like masons who set out to build a highway on which pilgrims will travel for many years without ever giving a thought as to who built the highway in the first place.”