Is the startup world just for technology-enabled ventures?
Why is the startup scene hugely populated by technology-enabled startups? Why do angel and venture funds prefer them over others? Why are no stories heard about non-tech startups?
These questions and many more pop up at regular intervals in any discussion pertaining to the Indian startup ecosystem. I have tried to put things in perspective through this post.
India as a country has a lot of broken systems and inherent inefficiencies. There are plenty of low hanging fruits available for anyone and everyone who can build a solution around it.
Technology has played a major role in disrupting the traditional way of doing things and focussed on adding value to all the stakeholders involved. It has also opened up avenues for small businesses to reach out to a broader customer base.
Look at our local grocery store or a lady baking cakes as a hobby or someone who is an excellent chef; all of them now have access to multiple technology-enabled platforms. This has provided them an opportunity to have better connect with their existing customers and has also opened up newer customer acquisition channels.
There are other aspects as well which tilt the scale in favour of technology enabled startups. Let’s look at a few of them:
- Technology businesses are highly scalable. They are as simple as flipping a switch and you are able to launch a new product, service or enter a new territory.
- In technology business, the most important assets are its people who are involved in developing its product/service. These businesses typically operate on an asset-light model.
- R&D investments are low and it doesn’t cost much to produce a prototype in a technology company. On the contrary, the cost of producing a prototype for a manufacturing or a pharma unit requires a lot of R&D investment.
- For a business which produces a tangible product, you need a strong sales and distribution network to reach a broader customer base, and this adds pressure on the profitability.
- Pricing a product at an attractive level is difficult, as the cost of production for a tangible product is high. This can only be done when you achieve economies of scale.
- It’s difficult to bootstrap a non-tech business as the gestation period is too long.
We need to remember that angel and venture funds are attracted towards businesses which are highly scalable and generate insane returns in the shortest time possible. Technology enabled startups fit the bill to a T.
Another thing to note is that right now in India, there is a mad rush to replicate what has been successful in the West. Many of the investors have lost an opportunity to participate in the growth stories of the famed startups of the West. They want to make good of the lost opportunity by investing in their Indian counterparts and ride the wave this time.
To sum up, using technology you can create a WhatsApp, Facebook and Uber, which have generated insane returns for its investors. Whereas, a McDonald's, Tata and General Motors took decades to become what they are today.
Would love to hear your thoughts on this.
About the Author:
Sajid is a management consultant who advises SMEs and startups in their journey to be leaders of tomorrow. He is the Founder & Managing Partner at Le Monturé Consulting. You can follow him on Twitter @sajidkhetani.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)