In the 21st century, so far, no country comes close to China for the economic miracle it has undertaken. While this miracle can be attributed to the policies of that era and being on the right side of the US, there is still a lot to be learnt from how they approached things. Deng Xiaoping, the leader of China from 1978 to 1989 who brought the country out of poverty was known to be very practical. When asked about the best approach between capitalism or socialism, he replied – “It doesn’t matter whether a cat is white or black, as long as it catches mice.” This practical approach to life is worth emulating, even if we may not like the other aspects of China’s rise.
This article is not about China but rather about business, especially in the Indian context. Today, Indian entrepreneurs are a successful lot. Despite the community at large (government, bureaucracy, citizens) not supporting their efforts, they continue to push for change and try to make the most of the situation.
We have multiple examples of sectors where India has achieved reasonable global success. IT, SaaS, and offshore centers have been globally accepted by now. It rides on the back of decades of investment the Indian middle-class household has made on education, with English as the medium of instruction. Outside of this, even in manufacturing we have islands of success. Reliance operates the largest oil refinery in the world in Jamnagar. L&T builds some of the largest hydrocracking reactors in the world in Surat. We have the fourth largest automobile market with players like Bajaj Auto selling bikes & scooters across the world. India has a large pharmaceutical industry that exports medicines across the world.
However, not all startups seem to be enjoying the same level of success. They frequently make errors that can cripple their growth. Here, I intend to offer practical advice on how to make success a reality for startups.
Recently, I came across an interesting startup that promised a cool product that can be used when you sleep. Young entrepreneurs, as they were, decided to name the company after the first product and started dreaming big on how they can enhance the product even more.
Their first mistake was not planning for longevity from day 1. Betting the entire company’s brand identity on just 1 product? But this wasn’t their only undoing. Their second mistake was assuming only they were the ones who could come up with this in the whole wide world. Did they assume that their approach was innovative enough to charge high margins? Turns out, an entire army of small companies in China and elsewhere knew how to do this as well. While they had patents to protect themselves, it was highly difficult to do that when competitors were great at reverse engineering and designing around it. So then, was their moat really that strong?
Also, they didn’t consider the difficulty in convincing Indian customers to buy a product in a category they haven’t even heard of. Indian customers, by their very nature, largely are followers. We, as Indians, may dislike it but one cannot ignore the fact that even shirt companies in India have largely colonial names. Van Heusen, Peter England, really?
A practical approach would have been to set the brand identity as a health tech company with the first product in the sleep range but then moving to BP monitors, glucose measurement, if things didn’t pan out. This might seem blasphemous to young engineers who want to invent everything themselves what they wish to sell. Not invented here syndrome, as it is called. But sometimes, it is better to make only incremental improvement in existing products, accept the market reality, and focus on cash flows to survive. With patience, the time to invent will also arrive.
Another kind of Indian startup is the quintessential e-commerce or consumer startup that seems like a bottomless pit of zero interest rate money from investors world over. Their only promise is the hope to build a moat in the Indian consumer market that may payoff in the long term. But when you look at the numbers, they only achieve thin positive cash flows when compared to the funds raised. Also, positive cash flows may only happen when they achieve a sizable scale. This is extremely difficult in the tough Indian operational environment while paying cloud costs and software engineering salaries benchmarked by US tech companies.
I also feel that the sleep-tech startup’s failure to achieve their big dream may not even be their fault at all. Indian companies cannot scale their revenues by selling outside of the country easily. In comparison, US companies have it easy because of decades of soft power investment via Hollywood, McDonalds, US dollar, that has seeped into the minds of people across the world. Also, not to mention, the centuries of investment in world class R&D institutions. The success of US companies as global brands is on the backs of this soft power investment.
With this, I hope to convince you that Indian entrepreneurs need to be more practical early on, focus on becoming cash flow positive, build strength from that point onwards, and eventually achieve their big dreams. We cannot afford to reverse this order. In Deng Xiaoping’s words – “Hide your strength, bide your time, never take the lead, but aim to do something big”.
Key lessons
- A startup is about building an organization not just your first product.
- First focus on surviving. This means maintaining control, achieving product-market fit, and becoming cash flow positive.
- To follow point 2, as an Indian startup, try not to invent a new category if you don’t have deep pockets. Instead, incrementally improve an existing one.
- A startup doesn’t have too much control over how much funds it must raise. Once it decides the battleground it wants to operate in, this decision is made for them.
- Revenue in INR and costs in USD almost never work out for the better. The margins, cashflow, and entrepreneur ownership will always be thin.
- Accept the reality of the market. Don’t try to fight it or change it, if you don’t have the resources. Every company that has become successful rides on waves. Learn to position yourself well so that you can ride on it when the time comes.
Yash Tambawala 