Sensible Humility From a Unicorn
Snapdeal is right to attempt a course correction
Snapdeal has done itself and the entire startup ecosystem a big favour by admitting overreach and taking decisive action to downsize. Companies that are given oodles of capital and a variable burn rate rather than a target rate of return within a reasonable time horizon run the risk of not knowing when to take the foot off the pedal, slow down and change course. It is welcome that Snapdeal has extricated itself from a spending spree that was not taking it anywhere in particular.
It is to be hoped that other Indian startups, too, would learn similar lessons and emerge from the delusion that subsidising customers in the name of customer acquisition will take them to business nirvana. It is a lesson, too, for investors who take the ‘spray and pray’ approach to investing in startups. Should we commend the founders for their decision to take a100% pay cut? Well, it is a token of empathy for the staff losing their jobs or in line for a serious drop in their salary. It is a welcome show of decency. What about the 600 or so employees who would reportedly have to go? Joining a startup is always a risk, for which you expect to receive a premium in cash and/or kind: you get high salaries and/or experience of a kind that you would not in an established company. Presumably, those who joined the startup came in with their eyes wide open. They would leave richer for their experience, if not for high salaries. Even if a particular e-commerce company is not expanding fast, the industry in general would, particularly if the government goes ahead with the reported relaxation of investment conditionality, and should be able to absorb experienced hands.
It is important that investors and customers do not draw the extreme conclusions about either Snapdeal or Indian startups in general. India has enormous potential in wide-ranging commercial possibilities waiting to be explored and developed. That would call for large doses of risk capital. How much is needed in any particular line of activity and how much would lead to excess is something that investors need to have a sense about.