Source | LinkedIn : By Sanjeeva Shivesh
Snapdeal, the smallest of the Big 3 of Indian e-commerce players, is in news for proposed lay-off of about 600 employees.
For a keen follower of this space, the writing was on the wall.
The company performance for the year end March 2016 was hardly encouraging. For the fiscal year 2015-16, it achieved a revenue of Rs. 1457 Cr (up 56% from Rs. 933 Cr in FY15). However, for the same period its expenditure doubled to Rs. 4773 Cr. from Rs. 2261 Cr in FY15. This caused a sharp jump in Snapdeal’s losses which increased to Rs. 3316 crore in March 2016 from Rs. 1328 crore in March 2015. My previous article on Indian e-commerce making Rs. 5000 Cr. loss in FY14 is here.
Add the net cash burn rate Rs. 300 Cr per month (ceteris paribus), for the 3 quarters until December 2016, Snapdeal would have lost at least Rs. 3000 Cr. No wonder, there are reports that suggest that Snapdeal had just about Rs. 1300 Cr balance at the end of Dec-2016.
This could be a serious situation for a company that has raised close to $2 billion since inception. Drying up of additional funding from partners like SoftBank and others, has deepened the crisis. Hence, lay-offs was written large on the wall.
Here are my 6 lessons for founders plus 1 for funders.
Lesson 1: Excess funding can lead to mistakes
Entrepreneurship is a journey full of potholes. But the startup vehicles also derail when the road is very smooth. It is common to hit the accelerator, add passengers and take detour to every destination that comes en-route. Further, the vehicle is very difficult to slowdown, navigate or stop.
Kunal Bahl writes, “Over the last 2-3 years, with all the capital coming into this market, our entire industry, including ourselves, started making mistakes”.
He adds, “a large amount of capital with ambition can be a potent mix that drives a company to defocus from its core. We feel that happened to us. We started doing too many things.”
Lesson 2: Getting the right economic model
Startups are all about conducting business experiments as scientifically you can. This means running experiments on Product – Market fit and Business Model – Market fit. All E-commerce models are not just about marketplaces or hyper-local. Sustainable Business Models evolve. It requires designing the business and observing the signals and conducting newer tests once the signals of previous tests have stabilised or vanished.
Kunal’s writes, “We started growing our business much before the right economic model and market fit was figured out. We also started diversifying and starting new projects while we still hadn’t perfected the first.”
Lesson 3: Acknowledge the Crisis
In business, crises are bound to happen. More so in startups. Startup Founders are first Chief Trouble Shooters, only then a CEO. Kunal Bahl makes a very subtle point on this issue. He writes, “we probably hold the record for the company that got written off the most number of times by Internet pundits.”
In fact, Snapdeal was founded in 2010 as a deals site, which has now pivoted to top 3 e-commerce marketplace. It delivers goods to over 5,000 cities and towns in India. This has been possible due to some very quick pivoting by the founders, in their entrepreneurial journey.
Lesson 4: When crisis strikes, focus on the Core
VVS Laxman scored his 281 at Kolkata, when Indian team was in crisis. The only way for Laxman to come out of crisis was to do what he does the best. Play attacking cricket on a slowing pitch and cut down all risky shots. Same is true for startups (and grown-ups). Kunal’s email says, “The formula to revive the company is uncannily similar for almost all of them – focus on only your core, stop all non-core activities“.
With easy money, it is easier to loose focus. Fearless founders have the great folly of imaging that they could do it all. They reason, “If Musk can do with Elon, why can’t I do with a melon”?
That’s why most founders pick up several non-core activities that consume their time, energy and scarce resources, even while the business model has not been built.