5 Tips for Startups to become Unicorns and Go for IPO
The Good, The Bad and The Ugly of Startup Pitfalls
2021, or “The Year of the Indian Unicorns”, as it might be called in the future, was an amazing year for startups and employment in the country. India now has the 3rd largest startup ecosystem in the world; expected to witness YoY growth of consistent annual growth of 12-15%. 50,000 recognised startups as of mid June 21 and 16,000 added in 2020-21. Startups created around 6.5 lakh jobs in the year as per the Department for Promotion of Industry and Internal Trade (DPIIT) Secretary.
There were 81 Unicorns, or startups valued at more than USD 1 Bn each, with USD 82.1 billion in combined valuation. 44 of these joined the elite cohort through 2021, making this the most successful year for India startups by valuation. Not to forget another landmark, cumulatively Indian startups making the IPO splash and raising USD 2.5 bn from the markets. This is a great sign that the quantity and quality of innovations being funded in India are showing profitable exits and sustainable futures. The pace of investments is starting to reflect the potential on the ground.
The future looks bright with this new found confidence of investors in innovative and profitable ideas from India, that will definitely lead to a buzz of hectic activity in the startup, unicorn and IPO space over the next couple of years, at least. “At least”, because things could all go horribly wrong from here. After all, the Unicorn status is only an indicator of value or intangible valuation, based on a small investment and is only a guess of the final value, and not real value or money.
In 1991 the Indian economy took a big step towards its rightful global stature and 3 decades later, in 2021 we are at the cusp of yet another transformative landscape with the coming of age of Indian Startups. What we need to think about, long and deep, is how to ensure that a larger number of startups become unicorns, and the largest number of unicorns to become sustainable and profitable value creators, adding digits to the strong growth story of this phenomenal country, and an emerging superpower – India.
Yes, there can be too many Unicorns, which can lead to a bubble. Most of the Unicorns will fail. That is the law of nature and evolution. This is also applicable to the startup ecosystem in India that is barely standing up and taking its first steps from infancy towards adolescence. This is the ulgy that can happen, and we need to be deliberate in our next steps to avoid the potholes of a failing startup culture that can take us back by many decades in our growth story.
There are many pitfalls in the journey from an idea to a startup to a unicorn to a (un)successful business, but the most critical phase in any startup’s journey is the step from unicorn to exit. Either the business will succeed and the investors will exit the business profitably or the business will fail and will have to exit the market at the loss of money and confidence for its investors. Zomato did it, and your startup can do it too.
Here are a few tips to notice and keep the impact of these ugly possibilities in check.
Tip 1: Make the Funding Last
Being flush with funds after a long time of counting pennies can be a huge relief. Sometimes, too much of a relief, that can lead to a feeling of having achieved the final goal, and splurging on any and every idea. Getting the funding is hard, but not the hardest part of being a startup, especially if the solution is valuable in the market and differentiated from what already exists. It is better to be slow and steady than fast and furious in the startup race circuit. Look at Five Star Finance that achieved Unicorn status with only USD 200 Mn in funding, and took 37 years to reach here.
Tip 2: Prioritise Fund Allocation
So, if you have gotten funding, stop and think about what are the critical elements that need to be funded to stretch the money as far as possible. After all, given enough time all good ideas can reach their full potential. Spending too much, too fast, in too many non-critical elements is a cardinal sin for a startup. Most of the startups get this step wrong because they start believing that their funding proves that they know better than the market. See how Snapdeal floundered without clear focus on the critical elements for success. Also, Hike was erstwhile hailed as the youngest startup to get Unicorn status but it lost its path in a labyrinth of features, which reinforces the need to get the basics right.
Tip 3: Focus on Speed of Scale
If anything is critical at a startup, it is the acquisition of new customers at a pace faster than the market and competition. This is one of the critical elements that funding has to be pumped into. A deep dive into the cost of acquisition is pivotal for consistent progress.Look at how Amazon is still in this mode of growing their audience base at the cost of never having shown a profit till date, but no one is complaining, because they are way ahead of competition and still increasing the gap.
Tip 4: Think and Stay OpEx
Being flush with money is empowering, but funding money is not real money. The funding is a loan from your own future, so be ready to answer to your future self if you don’t think through every expense. Hence, it is a good idea to spend as little as possible on a recurring basis rather than making large one-time capital expenditures that can deplete the funds faster, and shorten the runway that is required for a startup to grow its wings. We are yet to see how the series of acquisitions by BYJU’s scripts their exit story.
Tip 5: Never Lose Flexibility
It is important for a startup to experiment. After all, every startup is an experiment in itself. So, before the startup forms a reasonably resilient structure, it will have to try out different bones and joints to find its core, particularly in terms of recruitment. This flexibility can be in terms of the number of seats required, employment to be provided, to the kind of skill sets needed in every phase of its early life, or even the kind of HR tools and processes. Most startups appreciate the benefits of contract staffing for managing the manpower needs as per employment seasonality in growth cycles.
While this nuclear explosion of startups and unicorns in India seems promising, the future may come with a looming risk of apparent congruence. The startup ecosystem, especially in the e commerce space, is driving the growth engine for job creation and has bolstered over at least 6.5 lakh jobs. What’s more? We are creating new benchmarks for ourselves.
Having been a startup ourselves that went for IPO not so long ago, we have always worked closely with the startup ecosystem and are currently serving over 20 Unicorns from only one of our business units. With this evolving experience of working with multiple startups and unicorns across industries, we have seen and solved their challenges from up close. We have seen the exhilarating feeling when one piece of the puzzle fits into place, and have been party to the pain when a simple overlooked idea causes a disruption down the line.
TeamLease offers end-to-end people supply chain products and solutions that help startups to add & augment flexible staffing to their business at a low cost opex model, making them nimble and responsive to the fast changing market requirements. Our belief is that every startup needs a fighting chance, and in providing it, we want to become their partner of choice for staffing and employment related offerings, and grow with them.
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