Investor's take: Is your startup stuck? What should an entrepreneur do?
Often, business metrics show periodic sparks but don’t quite break out. At this point, the founders should take a step back and ask a few critical questions.Shripati Acharya
Doldrums (maritime usage): Area around the equator in the Atlantic and Pacific oceans with little winds where sailing ships would get trapped for weeks from lack of wind.
The state of the Indian startup ecosystem couldn’t be healthier. The number of startups continues to balloon; per Nasscom’s 2018 report India had 7,000-plus startups. Many of these go on to raise initial rounds of funding as well. We are also beginning to get a fair share of Unicorns, Decacorns, and more.
So far, so good. What happens after that?
There is a huge crunch between startups that manage to raise seed but not Series A, or those that manage Series A but not B and so on. At each stage, the funnel becomes narrower. The startup ecosystem becomes more and more rarefied as one goes higher.
What happens to the startups that do not make it through one of the funding gates?
Most startups end up not going to zero, but entering a limbo land where they are break-even or slightly profitable, growing slowly and continuing as small to mid-sized businesses. With little chance of either growing big or getting acquired, these startups are in the doldrums.
This is a very different future than what entrepreneurs set out to build. The business metrics might show periodic sparks but don’t quite break out.
Quick failure, it turns out, is not as easy to come by.
What are the indications that your startup might be headed or already is in this state?
● Revenues less than Rs 50 crore ($5-7 million) and growth stuck at 10-15 percent or less. Business barely breaks even. Growing or even sustaining revenues is a massive challenge.
● Sales continue to grow modestly or struggle; customers view the product or service as a good-to-have rather than essential.
● Even if the product is compelling, perhaps the go-to-market is unclear and customer adoption is limited.
● No headway in fund-raising.
● Founding team fatigue may set in, with founders losing the passion and zeal of the early days.
At this point, the founders should take a step back and ask a few questions of their venture and of themselves:
● Do an impartial and dispassionate evaluation of the state of the business. Ask yourself “is this something I wish to continue to do for the next 5 years”?
● If unsure, give yourself a well-defined timeline and specific business goals that are three/six/nine months out. If you find the company missing its goals, you need to plan for a graceful exit.
● Consider taking a radical bet on an emerging product or a distribution channel that can get the business back in a high growth area, even if the initial revenue appears small.
● In parallel, pursue partnerships and strategic fit with other companies that might be a good fit and provide a soft landing for the employees. Assign three-six months for this as well.
● If there isn’t very visible progress, begin the wind down process.
Shutting down can turn out to be one of the best decisions an entrepreneur could take. The biggest benefit is that the founders get to make a fresh start and try their hand at another roll of the dice on the startup table. This time with deep experience about what not-to-do. The stories of second or third-time entrepreneurs big abound - Travis Kalanick had two unsuccessful startups before Uber.
Startup trajectories can lead to wild success or failures, but for the vast majority, the future lies in the uninteresting middle.
The media spotlight is on unicorn valuations and massive fundraises. Away from the rounds that hog the limelight are a large number of companies that struggle to raise funds.
The crews of sailing ships dreaded getting trapped in the doldrums, for that meant weeks of aimless floating. If you find yourself in such a predicament, first internalise the situation and then act decisively. Either build a high-speed boat or abandon ship. Hoping for the winds to change can be a frustrating wait.
The article was previously published here
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)