Capitalising on humans Start-ups must focus on human capital, as most innovations are a product of collective thought

Indian start-ups have been the centre of attention, especially since the beginning of 2016. Their survival and success will improve as the economy takes a turn for the better. They should manage certain critical factors—conceptualisation of a business idea, taking the idea into the markets, mobilising funds, use of advanced technologies and, most important, human capital—constantly to achieve success. The other macro level factors, some of which are out of their control, are inflation, growth rate, employment, education and regulations.

The success of some start-ups also depends on dynamic factors, such as oil prices. For example, cab aggregators Ola and Uber are successful not only because of their innovative business ideas, but also because of muted oil prices, especially since 2015. Indian consumers are availing taxi rides on Ola and Uber because of low, competitive fares, and they will keep utilising these services as long as companies continue to offer competitive fares.

Many a start-up has ventured in the delivery business as well, whether it is food delivery (Foodpanda, Swiggy), groceries (BigBasket, Grofers) or last-mile logistics to aid e-commerce enterprises. The success of start-ups operating in the delivery space is also dependent on low oil prices—they can easily and profitably manage their businesses as long as oil prices are under control. But such start-ups must be prepared for a disruption when oil prices start to soar. In that event, startups can use optimisation models to cut down their fuel costs and maintain delivery services on time, without raising costs for consumers, as is being done by a few e-commerce companies.

However, the bigger challenge for a start-up’s survival is managing its human capital. As business or optimisation models can only help manage the knowledge capital to a certain extent, the best a company can do is to recruit and retain human capital at different levels. For established companies, attracting and managing human capital is relatively easy. So, start-ups should focus more on the human capital component as most innovations are a product of collective thoughts and brainstorming.

The peer group must consist of committed individuals, as such groups can take the business to new heights. For example, Infosys saw tremendous growth in the last two decades as individuals acted as a team by working at different levels. In fact, they owed their business success to better coordination, knowledge sharing and teamwork. But then the company underwent severe problems during the two-year period from 2011 when the chairman, founders and senior executives from the board left the company. These events adversely affected Infosys’ valuations.

Some new-age start-ups are struggling with similar problems. Companies like Flipkart, Housing.com and Snapdeal are finding it difficult due to key people exiting the companies. As it happened in the case of Flipkart, 4-5 senior management employees resigned within a period of less than six months, thereby impacting their business growth and, hence, their valuations. These companies are losing their strength to fight the war with global competitors such as Amazon, Alibaba, etc. A similar kind of ‘exit’ took place at Housing.com over the last two years.

Indian start-ups are going to face challenging times in the near future. It is better they start to equip themselves with one resource—human capital— that is capable of handling most internal and external challenges. But the real challenge for start-ups would be to coordinate with their workforce, as human capital comes with hefty salaries and big egos. It is this identity consciousness that will prove to be a hurdle for the growth of any start-up. In the contemporary era, there are myriad software packages that can take care of any technical problem, but there is no software to handle attitudes and egos. M Chandra Shekar is ICSSR fellow and assistant professor, RK Mishra is director, Institute of Public Enterprise, Hyderabad