Can my Startup sail safely this recession?

Green Road Sign - Recession Ahead

Are we bloating small things to a larger magnitude or our startup situation is this real bad?

I remember 2007 recession and this was exactly the scenario on all tech news sites that time. Social media was not this prominent then. But since I was in the US that time I read a lot of shutting down news like these.

America was matured enough to handle 2007 recession because they learnt from 2001 recession already.

Recession 2001

2001 was dot com bubble burst and though it was recorded for 8 months only, the effect lasts for three years and unfortunately, Sep 11 happened at the tail end. The total unemployment was just above 6.3% then. It was after 10 years from the earlier recession which gave a big room for the companies to play safe (earlier recession was during 1990-91)

Recession 2007
But 2007 recession was housing bubble burst with banks going into the huge financial crisis. The recession lasted for one and a half years with the unbelievable unemployment rate of 10.3% with a GDP dip of -4.3%. It was called as great recession of US after 1929-33 recession.

Since all the above was epicentre in America, they had the courage and experience to overcome those.

Asia’s Great Recession 

The current Indian IT recession is of Startup and Marketplace together. The profitability of this predicted 2016 recession would be as bad as 10%, predicted by Morgan Stanley.

Even though the economy of India seems to be at a steady growth rate, the Government will not be in a position to bail out anyone here since it is from the Startup and Marketplace sector and not from large players.

Even if Indian Reserve Bank wishes to lend hands to these Startups and Marketplace players by lowering the lending rate to banks, they don’t have much elbow room this time like earlier to jump to the rescue.

Recessions are compared to Flu. It will surely affect even if you are in the vicinity. This recession was earlier mentioned as “around the corner”. But the signs what we are getting across the globe, particularly the hopping of Chinese bubble has now made to say “India has already started walking into the recession”

Recessions are very much part of macroeconomics that happens time to time in the entire world. Since this time it is going to be Great Recession of Asia, everyone is keeping their fingers crossed and making all arrangement to cross the chasm peacefully.

 

Is there a real slow down in Startup Funding?

The answer could be a yes when compared to 2014 and 2015. Where it was about 7.1 Billion USD and now we are not even sure of reaching half of it.

According to Traxcn data, Indian tech startups have raised nearly 959 million dollars in the last quarter of 2015 which is less than a third of the 3.2 billion raised in the earlier quarter. But it is again just half of what they have raised during the Q4 of 2014 which is 1.9 billion.

WSJ

Does that mean the Funding has dried totally?

No, the amount of startups aroused in the last two years is huge and most of these startups got really well funded in 2014 and 2015.

But the real problem started here. Apart from the very well known Startups many of them are not able to get the next level of funding. Especially sectors like Food and Real Estate which got the real hit. The companies which are failed to get the next level of funding are predominantly from these segments.

There are huge competitions in these segments and so the factor that determines the uniqueness of these companies are missing.

Real Scenario

The real scenario is that the investors are becoming more concern on large funding and if they really see some traction on any such startups then their expectation of stakes are really high when compared to 2014 and 2015. This is clearly showing that the investors are aiming for quicker profitability.

On the other hand, the Startups are on the other path. Since they have understood the market very well, their main aim is to get funded as much as possible at the quickest  and exit as quick as possible too.

To be frank, you can very well see that there is not much long term aim or goal for most of these small startups.

Cleanup

This is nothing but a real froth which would not continue forever. There needs to be a cleansing  required and which has already started. There will be a vanishing stage of most of the “one another startup” following which the funding will once again come to the normal track.

Did the froth affect the genuine Investors? No, funding for the deserved startup is still going on as normal.

Need of investors

Investing is the prime of any investor. But the investing firm also needs to get sailed in this slowdown. End of the day, the balance sheet of these investment firms are going to impact their existence too. They want to show a good balance sheet than their rivals for their existence too.

Plan B – Course Correction

As I always say, the best practise of any firm or industry is to have a Plan B. That is the course correction. This is exactly what is happening in Indian Tech Start-Up Funding Industry.

Indian Tech startups got heavily funded in the last 2 to 2.5 years and many of them are not able to cross the Series A funding. This is the major reason for the funding industry to have a slow down and take the course correction.

So there is no need to worry as the funding industry is completely dried. It didn’t and it will not too. This is just a cleansing happening. Moreover, the so-called funding industry has nothing to do other than to fund again rather than keeping their money parked at one place. They are not meant to park money. They are there for the purpose of rotating the money and growing it as much as possible.

Conclusion

The amount of money got funded and the number of startups got funded in the last 2 or 3 years are phenomenally high and either they should get funded to the next level or shut down. This has already started and that is what is seen as slow down. The sooner this cleansing happens the earlier the funding will get to its original speed.

 

Healthy Attrition

two 3d humans look at human with megaphone

In the current situation in India, the most unwanted word is “attrition”. Being the appraisal time every management and HR would think more about attrition and burn their midnight oil.

Out of my experience, I would say, attrition is a healthy scenario than people sticking to their job without any innovative contribution. We need the core team who can transform our vision into the mission. But if we are not ready to bring in new blood either by replacing or expanding our core team we are not actually growing.

Attrition also gives room for the next level people to take the steering and start driving.

Some of the advantages of managed or Healthy attrition are:

  1. New Blood
  2. Best Ideas from their experience
  3. Monotonous
  4. Cost

Let us see one by one.

New Blood

Think where we were a couple of years back and what was the contribution by those people that time. They would have contributed many best practices and ideas into our vision which would have taken our company to this level.

Don’t we need the same type of new blood again now to take our company to the next level?

Best Ideas from their Experience

The new guys will surely bring in their best ideas and best practices out of their experience which will enable us to take our company to next level.

Monotonous

The main reason for anyone to become less productivity is their monotonous work routine. It could be the need of the company or project. But these guys also require a change in their work routine.

Since monotonous leads to productivity loss, it is always better to leave that scenario.

Cost

Though I bring cost as the last element here, it is also a very important factor to be considered. If a person becomes less productivity because of any known or unknown reason, is it not better to bring someone with relevant years of experience to that position with less cost?

Last one which is most important

If the people who leave us and shines at another place, is it not a pride to us too? If you are a leader you will surely feel so. If you are just a manager you will have grudges on them. The option leaves to your level of maturity.

Conclusion:

All attrition are not “bad”. There should be managed attrition which is good for the company and so they are called as Healthy Attrition. The growth of any company should be of process and people oriented and not just people oriented alone.

So there is no need to burn the midnight oil thinking of Annual Appraisal.

Following the pattern – Déjà vu

1For the last 12 years out of the 20 years, I am engaging in International Sales and so have come across many Product Development from our Services Division.

Startups / Entrepreneurs / Funding are the best-used terms I have come across in the last 10 years or more.

Following are what I have learned from the mistakes, which will take any startup to failure.

  1. Unsearched Concept
  2. Wrong Partnering
  3. Poor Quality MVP
  4. Unrealistic Spending
  5. Unwanted Quick Hiring
  6. Not Having Plan-B

Unsearched Concept

I will start a product company once I have a great idea and enough fund either my own or from my circle. But is that all we require to start a company? The answer is NO.

How much market research have we done about the concept or idea which we are considering to develop as a product, carries more weight-age than our idea or concept.

But how many of us are spending our valuable time and initial money on this research?

Out of many products, we have built, very few had made our eyebrows raise on the concept. Remaining always gave us the feeling that “is it not that we have seen more similar product already like this?”

The answer will be always “no we have a unique concept in this than that product”

Everyone cannot come out of a Product Development Company and start a new company with enhanced features of the same product and succeed in the industry.

Our concept is just the very first step of miles of a journey to make to succeed. As soon as we finalize our concept then we need to spend more time to research about the concept. Not just days. Maybe even weeks and months to shape up our concept.

When we start to do that we can see an invisible pattern from the history of many startups, which “failed” to take off.

The biggest push for our success should be from the history of successful people. But our path to follow or pattern to follow should be from the history of people or concept, which are failed.

 

Wrong Partnering

Not all friendship can make a successful partnering in any Startup. We need to analyze our core strength and should find a partner who is having something else than what we are having.

Example: If we are good in sales then we should have a partner who is good with technology. Even though money plays a vital role we need to have a good combination of Techno-Sales partnership to make a good product company.

Even if we hire a Product Head, that will not substitute for having a Technical partner or Sales Partner or vice versa.

 

Poor Quality MVP

Our MVP should be a real miniature of our product. When I say miniature it doesn’t mean that we need to have the miniature of all features that we are going to have in our product.

Build an MVP in such a manner that whatever we are going to showcase to our funders will make them immediately understands the next phase of features what we are going to build over this.

 

Unrealistic Spending

Listen to the story of people who have already walked the path and draw a pattern. Depending upon the product, certain spending would carry more priority than other. This differs from Product to product and we should take an appropriate call on each spending.

 

Unwanted Quick Hiring

The main problem of quick cash drain or derailing of our plans mostly happens because of our unplanned unwanted quick technical hires.

At the very initial stage, we don’t need a sales team or a marketing team at all. We need only a product development team and that team doesn’t need to be big enough to develop the entire product.

Our product until we get funded in ONLY our MVP. So even one developer more than our requirement is a big mistake. For any ad-hoc needs, we always should have a service company of our known circle to step in and help us on resources or development.

 

Not having Plan-B

Having Plan-B is not always that we are prepared for failure. Having Plan B could be the course of next planned action to correct the path. We can say as “course correction”.

Well start is half done. So if we are preparing well then we can take off well too. To prepare well we need to follow the pattern formed by our seniors on this line and it should echo the “Déjà vu” whenever we are at a right path or at a wrong path.

Success is determined. Plan it and achieve it.

Funded V/s Non Funded Companies

bubble-burst

Funded

On a day to day basis every layman will hear about the word “Funded”.

I am writing this article as a layman who is seeing the activities of funded and non funded companies around everyday.

The illusion being created by the so called Funded companies will surely try to crush the non funded companys’ growth. If a company is totally depending on one revenue stream alone then they will be the most to get affected soon.

Brain drain on onshore is now Brain Theft.

The funded companies are hiring people at a very unrealistic salary. The non funded companies hire normal guys, train them in live projects and make them up and running to handle the load of the projects. The non funded companies will easily target and hire those employees with higher salary and indirectly crush those non funded companies.

The main reason for the predominant funded companies being lavish on salary is they don’t pay from their earnings. They start this lavish salary culture only after they get funded. Until then they are ready to operate out of two bedroom apartment and can operate effectively with limited human power with market realistic salary. They provide the vision and get the fund and  spend it. There is a huge difference between the way funded companies and non funded companies operate.

To get acquired

The non funded companies carry their vision and mission for long term whereas funded companies carry they vision and mission for short term on one goal “to get acquired”

So the moral responsibility of any funded company is to make quick money and sell. If they were not able to take off properly they can shut down and wind the show. Their loss is less here.

But this is not possible for non funded companies because their loss is huge here.

Bubble burst

The record shows the number of successful took off funded companies are less when compared to successful non funded companies. Even if I start funding, my goal would be first to secure my money rather than profit.

Once I cross the chasm of securing my money then my next goal will be as how much I can make as quick money rather than profit at a long term. This will eventually end up in the concept of bubble burst, where, as a funder, I would also wish to see the bubble burst to happen so that I can close this venture and start my next round of speculation soon.

Revenue Stream

The non funded companies normally cannot shut their company very soon. They will have to fight up to the last moment with the hope that there will be some light at the end of the tunnel.

This is because of two reasons. First, this is their money and second they cannot put this loss on someone else’s shoulder and run away.

For companies whose revenue is of two streams and if they are non funded they are the best who can withstand any turmoil.

2016 will see lot of closure of funded companies and non funded companies will see lot of brain theft by the funded companies.

Prepare yourself to handle the situation!!!