Here’s how to know if your startup is stuck, explains Shripati Acharya of Prime Venture Partners
India has the third-largest startup ecosystem in the world, with 24 unicorns or startups that are valued over $1 billion, and 54 soonicorns, or startups that will soon enter the unicorn club.
In fact, according to the Department for Promotion of Industry and Internal Trade (DPIIT), the country has 27,916 recognised startups as of February 1, 2020.
But, are they all successful? What happens once you scale to a certain point and the needle stops moving? Do you get complacent? What happens if you don’t realise that the needle has stopped moving?
In this week’s Prime Knowledge Series, Shripati Acharya, Managing Partner at Prime Venture Partners, explains how entrepreneurs can recognise if their startup is ‘stuck.’
Running out of oil
Shripati says that there is a huge crunch between startups that manage to raise a seed round of funding, but not Series A. Similarly, those who manage to raise Series A, may struggle to raise a Series B round of investment. At every stage, the funnel keeps getting narrower.
Thus, the startup ecosystem keeps getting more and more rarefied as one goes higher. So, what happens to startups that fail to raise funds?
“Most startups end up not going to zero, but entering a limbo land, where they breakeven or are 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,” Shripati explains.
The future is very different from what startup founders set out to build. Business metrics may show periodic sparks but might not break out.
“Quick failure, it turns out, is not as easy to come by,” Shripati says.
So what are the indications that a startup might be stuck or is heading to being stuck? He lists:
- When the revenue is less than Rs 50 crore and the growth is stuck between 10 to 15 percent, or less. Shripati adds that growing or even sustaining revenues is a massive challenge.
- When sales continue to grow modestly or struggle, customers view the company’s product or service as a good-to-have rather than as an essential.
- When the product is compelling but the go-to-market is unclear and customer adoption is limited.
- No headway in fund-raising.
- When founding team fatigue sets in, and the founders lose their passion and zeal of the initial days.
At this point, Shripati suggests entrepreneurs to take a step back and ask a couple of questions of their venture and of themselves.
- Founders should do an impartial and dispassionate evaluation of the state of the business and ask themselves if this is something that they wish to continue for the following five years.
- If unsure, founders should give themselves a well-defined timeline and specific business goals that are either three, or six, or nine months out. “If you find the company missing its goals, you need to plan for a graceful exit,” Shripati suggests.
- Founders should 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 to be small.
- They should simultaneously pursue partnerships and strategic fit with other companies, and provide a soft-landing for employees. Shripati suggests founders to assign three to six months for this, as well.
- If there is no visible progress, founders should begin with the wind-down process.
Shripati believes that shutting down could turn out to be one of the best decisions an entrepreneur can make. The biggest benefit of shutting down is that the founder can make a fresh start and try their hand in something new. And this time, with more expertise and experience about what not to do.
Taking the example of Travis Kalanick, Shripati adds that second or third-time entrepreneurs can make it big.
“Strategy trajectories can lead to wild success or failures but for the vast majority, the future lies in the uninteresting middle,” he says.
While the media focusses on unicorn valuations and massive fundraises, a large number of companies struggle to raise funds and miss the spotlight.
“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,” adds Shripati.