Confessions of a Digital Startup Founder
Zubin Ray, founder of Chacar, writes about the digital startup environment
Struggles of a Startup
Startups have been the cool thing to do for a while now. The success of a few companies, first abroad, then in India, has encouraged a spirit of adventurism and a greater appetite for risk in people of all ages and backgrounds. There are a lot of positives – new ideas are being tested, new skills developed, realms explored that might have remained unknown. Making millions of bucks, though attractive, is far from the only charm of running a startup.
Yet in the current environment there is a lot of scepticism and uncertainty about what is going to happen to all of these new companies. How many of them have a sustainable future? Does that future take a shape we recognise – like generating profits, having big offices or many people working there? Do the people really understand what they’re doing? Without claiming definitive answers, we can still try to better understand the situation.
Is this the Great Indian Startup Depression?
We can be mostly confident that mass unemployment, the collapse of real estate and social upheaval are unlikely to result from startup shutdowns. What is going to happen is a big drop in the funding opportunities available. This is very important since all startups depend on private money paid by people willing to take risks.
Like public money, which is traded on stock markets and bond markets and others, private money also has a market. The basis is simply that some other, usually bigger and richer, private investor exists to whom you can sell to. The possibility to sell, liquidity, is the most important part of having a market – if you can never sell your house, a paper value of crores is of no use to you.
The inflow of foreign money into startups has been the driver of this market. If you have a big potential buyer, it immediately spurs many smaller buyers to speculate, in the hope that theirs will be the one picked. This trickle-down effect, often absent where market evangelists have proposed it to be, has definitely been present in the market for startup capital. The driver is on sabbatical, and the trickles are drying up.
The Importance of being Funded
As many writers have pointed out, several Indian (and foreign) startups have grown based on cheap capital rather than just being amazing. And so, now that startups face the equivalent of liquor prohibition in Bihar, only the equivalent of the home toddy-brewer will survive. No more competitors short on output and long on cash.
However, there is a problem with this – and it’s that it buys into the myth of revolutionary disruption due to creative genius. This is cooler than saying prudent business practices married with the slow, incremental evolution of technology, but difficult when tried as an approach in the real world. To create a new business usually depends on having some advantage that other people cannot access but the USP of modern tech startups has been that they are easy for anyone with some skills (that are themselves easily learnable or accessible) to enter.
So a large number of startups depend on intangible, abstract advantages like being cool or fun. The only concrete advantage available is having more cash. The cash however, versatile as it is, is the game changer of current times. Not such a great product? Hire better developers or just acquire your better competitor. Branding isn’t cool enough? Spend a ton of money so people see your name everywhere.
Where the general argument fails is that it asserts that the problem of money-powered competition is solved now that people don’t have access to easy money. In fact, in a weaker funding environment, those with access to capital will be a in a stronger position than before. For each of those with money to experiment now, there are dozens of clever people who are closing their own startups and are job hunting. Some things money can’t buy, but skilled people, market share and products are not among them.
Further, scarcity hands power back to the people guarding the gates. For everyone who makes a living by investing in some innovative small firm, your bargaining position starts going up the more they have to struggle to get people to put money on them. Two birds with one stone – more of the company for less money, fewer competitors to spoil the party.
Running a Startup in 2016
It was the best of times, it was the worst of times. It was an age when global capital was desperate for returns, it was an age when risk and uncertainty dried up investment. Phrased optimistically—we are in a period of disruptive global innovation of business, institutions and culture! If you feel like an old-fashioned taxi driver facing ride hailing apps, well, that’s innovation for you.
But if you are planning on trying something new, the best thing is that most things are the same, and some important things are different. Here’s the same bit – it’s still really hard. For example, less about trying to raise enough money as your neighbour, and more about how to get people to use your stuff when you have no money to pay other people to tell them about it. More than quantity, the diversity of work goes up if you can’t afford people to do one thing all of the time.
The biggest and best difference is the shift in culture and perceptions. Like all things, startups will stop being cool someday. But the increased readiness to shift, experiment and try new stuff is likely the most persistent good to come out of it. With each passing year, the stigma of trying and failing reduces, and the appreciation of being on an adventure increases.
Starting up in India
Thanks to the common platform provided by technology, startup ideas, methods and cultures are more global than national. Unfortunately this is not always a good thing, since different places can be quite different from each other. Indian startups liberally use cheap employees to substitute for technology, and we can’t say if this is a tech shortcoming or merely using the local advantage.
Apart from theory, India is one of the toughest places in the world to do business no matter who you are. Because of this, it’s important to approach starting up with a view to making the most of whatever support you can have. This doesn’t mean only networking or taking advantageous schemes and subsidies, but personal things like living with your (hopefully supportive) family or having help so you’re not distracted by daily necessities. Plus, you should always clear the basics. So for example, if you’re working with local businesses, remember to start in a place where you can at least converse in the local language, or learn it. Always have a working product, no matter how ugly or simple it is. Put up a sign saying “Don’t Panic” in large, friendly letters above your work space.
(Chacar is a startup aiming to disrupt the logistics industry)