MAR­KET WATCH:

Google and Ama­zon were born out of the first In­ter­net wave in the US dur­ing the 90s. A decade or so later, China built its own Google named Baidu and prac­ti­cally drove the Google out which oth­er­wise has a global search en­gine mar­ket share of over 80%. Fur

Bureaucracy Today - - Inside Information - By Richesh M Sing­hal

The cu­ri­ous case of In­dian startup ecosys­tem.

Circa 2015, if In­dia has in­deed be­come the third largest startup ecosys­tem, then where is its Face­book, LinkedIn or Twit­ter or such meta-level star­tups?

What’s wrong then? With due re­spect to In­dian in­no­va­tors, most In­dian star­tups aim to be rent-seek­ers and not wealth cre­ators in the true sense. They are not in­ter­ested in the big­ger pic­ture, in solv­ing gen­uine prob­lems, cre­at­ing new cat­e­gories or try­ing to be­come lead­ers in the ex­ist­ing ones.

Most In­dian star­tups by and large look to copy an ex­ist­ing model, and fine­tune it to serve the lo­cal need. There’s Ola for Uber, Gaana for Spo­tify, the N-num­ber of food de­liv­ery star­tups, and their ex­tended ver­sions de­liv­er­ing just about any­thing un­der the sun.

ZUCKER­BERG SYN­DROME

Ever since Mark Zucker­berg cre­ated the be­he­moth Face­book, ev­ery 22-year-old grad­u­at­ing kid wants to be­come a CEO. The lit­tle things called ex­pe­ri­ence and ex­per­tise be damned. And those sugar-coated, half-told suc­cess sto­ries float­ing on the In­ter­net haven’t helped ei­ther.

What these young grad­u­ates of­ten for­get is that peo­ple like Steve Jobs, Jeff Be­zos or the lat­est poster boy, Elon Musk, slogged for years, worked in anonymity, sharp­en­ing their skills to the point of per­fec­tion be­fore jump­ing onto their grand idea. To put things in per­spec­tive, Elon Musk took many years to self-learn the nuts and bolts of rocket science and elec­tric au­to­mo­biles, lit­er­ally. But all we want to see is the end prod­uct—SpaceX and Tesla.

This is where the lat­est breed of In­dian founders fal­ter. They do not want to wait. They have been overfed the idea that an ‘IDEA’ is all you need and you need to move fast, un­less some­one else beats you.

Mis­in­ter­pret­ing the overnight suc­cess of new age star­tups like Pin­ter­est and In­sta­gram, they do not

want to in­vest in hon­ing their skills or gain­ing per­spec­tive about the sec­tors they wish to dive in.

The im­me­di­ate tag of a CEO, CTO, COO (CXO) is in a way too en­tic­ing to let them go through the grind.

They should ask them­selves—where is in­no­va­tion in sell­ing baby di­a­pers on­line? Or loan­ing bean bags on rent for par­ties? Or de­liv­er­ing food from the lo­cal chick­en­shawarma joint? Cre­at­ing the most at­trac­tive and seam­less web­site/app and hook­ing up with a lo­cal de­liv­ery ser­vice, while piggy-bank­ing on in­vestor money is NOT in­no­va­tion. It is not sus­tain­able and def­i­nitely not long term. It might be bet­ter to call it a nor­mal busi­ness in­stead.

THE DICHOTOMY OF VC AND AN­GEL FUNDS

It is in­ter­est­ing to note that most of the first gen­er­a­tion star­tups in the US and also in China were boot­strapped. That played a huge role in their suc­cesses. Why? Be­cause it is hu­man na­ture which drives us that ex­tra bit when our own money is in­volved.

On the con­trary, the In­dian startup scene right from the be­gin­ning is heav­ily mar­i­nated with huge VC and An­gel funds. How­ever ironic it may sound, this is what is rot­ting the en­tire sys­tem. Young, cre­ative, en­thu­si­as­tic pro­fes­sion­als leav­ing their jobs, higher ed­u­ca­tion, drawn by the charm of easy in­vestor money and an imag­i­nary mil­lion dol­lar idea. Well, any idea would seem like a mil­lion dol­lar shot when fund­ing is a non-is­sue.

This gen­er­a­tion of In­dian in­no­va­tors do not want to wait. The grand vi­sion gets re­stricted to build­ing a work­able model of any ex­ist­ing idea, gets funded and then hopes for a mil­lion dol­lar exit. This is the pur­ported life-cy­cle of most In­dian star­tups.

The In­dian startup ecosys­tem re­sem­bles a large casino where McDaddy VCs come to play their bets.

FORC­ING WEST­ERN MOD­ELS ONTO IN­DIAN MAR­KETS

Let me ex­plain by quot­ing an ex­am­ple—on­line gro­cery de­liv­ery makes sense in the US where the near­est Wal­mart or Kroger might be miles away. Se­condly, most food items there are frozen with a longer shelf life. Thirdly, a US fam­ily has a more or less fixed weekly or bi-weekly gro­cery list with strong brand loy­al­ties.

The In­dian sys­tem is as op­po­site as it can get. There’s a ki­rana store at ev­ery nook and cor­ner com­ple­mented by the rapidly ex­pand­ing su­per­mar­ket chains like Food Bazaar, Big Ap­ple, to name a few. But even more im­por­tant is that we In­di­ans largely con­sume fresh food—veg­eta­bles, milk, fruits, etc. In­dian moth­ers won’t cook in peace un­til and un­less they’ve hand­picked their veg­eta­bles.

Thus, the In­dian mar­ket for on­line gro­cery shop­ping gets re­stricted to the young and work­ing pop­u­la­tion in ur­ban cen­tres, who are any­how in­creas­ingly eat­ing in of­fice or out­side. My point is that there are many such star­tups in In­dia, try­ing to fit a West­ern model into In­dian mar­kets with­out fully work­ing out the ground level move­ments. That’s why they hit a road­block when it comes to scal­ing, and end up be­ing the prover­bial frog in their re­spec­tive wells.

MIND NUMBING VAL­U­A­TIONS

Profit is the main driv­ing force be­hind any ven­ture. And that any ven­ture should be val­ued ac­cord­ing to how prof­itable it is presently, or might be in the def­i­nite fu­ture. But when a startup with no profit to show in the near fu­ture, and a mul­ti­mil­lion cash burn rate, gets val­ued in bil­lions, a lay­man like me fails to un­der­stand the equa­tion be­ing worked out, even af­ter fac­tor­ing the much-talked-about cost of cus­tomer ac­qui­si­tion. To be fair, this is more of a global phe­nom­e­non and not just spe­cific to In­dian star­tups.

It al­most sounds ob­scene when the Uber is val­ued at USD 60 bil­lion. That might be more than the GDP of some coun­tries.

The prob­lem is ex­ac­er­bated in the case of In­dia be­cause nascent star­tups lose the plot in the glitz of in­flated val­u­a­tions, even be­fore they get a hang of their ba­sic modal­i­ties. VC firms of­ten end up suck­ing out a ma­jor por­tion of to­tal eq­uity in the bar­gain, leav­ing very lit­tle for the orig­i­nal founders to play around with. Ex­cept for the pa­per tag of be­ing freshly made millionaires, if not more.

THE TAL­ENT OR THE LACK OF IT

The po­ten­tial of In­dian grad­u­ates is be­ing over­sold. We are still re­ly­ing on the past lau­rels of our ed­u­ca­tional sys­tem, when it used to be rel­e­vant. With the mush­room­ing of sub­stan­dard en­gi­neer­ing col­leges, a ma­jor chunk of the tal­ent pool of freshly grad­u­at­ing stu­dents is barely em­ploy­able, let alone equipped with the pow­ers to cre­ate a truly dis­rup­tive startup. It is no se­cret that the In­dian ed­u­ca­tion sys­tem lays lit­tle em­pha­sis on prac­ti­cal train­ing. Thus, what we end up do­ing is build­ing poor prod­ucts by copy­ing ex­ist­ing codes/tools avail­able on the Google. In de­fence of early stage star­tups, they just don’t have the re­sources and time to train an em­ployee whose sole aim might be to make a quick stopover, while on his way to greener shores.

It is eas­ier to rant and pick up faults. The likes of the Google or Ama­zon had the first mover’s ad­van­tage, backed by strong and de­vel­oped na­tional economies. In com­par­i­son, the task is cut out for any­one start­ing now. The world or­der is far from just, and the big­ger play­ers do ev­ery bit by arm-twist­ing devel­op­ing coun­tries to their ad­van­tage.

This gen­er­a­tion of In­dian in­no­va­tors do not want to wait. The grand vi­sion gets re­stricted to build­ing a work­able model of any ex­ist­ing idea, gets funded and then hopes for a mil­lion dol­lar exit. This is the pur­ported life-cy­cle of most In­dian star­tups.

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