By | Ramesh Ranjan | Chief Editor
Flipkart defers joining date for IIM-A by six months, Road Runner & Car Dekho follows suit. Groffers, Tiny Owl, Housing.com all scale down operations, lay off people and the trend continues.
Once the blued eyed & poster boys in the industry, everyone clamouring to jump onto the Startup bandwagon. When TCS, WIPRO, Infosys offers 2.5-3lakhs Per Annum at the Campus (Engineering Grads), Schneider Electric offers 5.25lakhs and FlipKart offers 13 lakhs Per Annum.
Every IIM Grad dreamt of being part of this StartUp Dream till last year. But this was too good to be true.
Supply chain & logistics personnel are the biggest gainers. Overnight in a span of 1-2 years the Salaries of these people has doubled and even tribled. Uber, Ola jacked up the Drivers salaries equally. An average Driver in Bangalore used to be paid around 12-15K per month but with the advent of Uber & Ola the salaries of Drivers has gone up to 25-30k per month. And Uber & Ola are in losses and are resorting to Peak Hours Surge Pricing (2x-4x). Suddenly the blued eyed Uber & Ola are seen as villains in the public, the Government Officials, competitors and even the Drivers. Recently the Uber & Ola drivers went on a strike and dharna.
The Honey moon is over
Flipkart is estimated to be carrying a loss of around 2000 INR Crores. Housing.com incurred loss of Rs 48 Cr on revenue of Rs 1.48 Cr in FY 2014. Zomato raised its revenue to 14 Crores but losses of 42 Crores. Most of the big StartUps are running up losses and hardly a handful must be breaking even, leave alone profits.
With such meagre revenues and huge losses how can they afford such high salaries offered in the Campus and later hires. No doubt there has been large flight of Talents from the StartUps – Flipkart, InMobi, Housing, Zomato etc.
One must be wondering “Pagal eh! Kya”. It sounds to be foolish in reality. Despite the billions of dollars invested in recent years, most of India’s online startups are yet to turn profits and investments are largely based on speculative future earnings and with an eye of future VALUATIONS. You ask them and they will tell you that, Profitability is not in the picture. As of now, we are only eyeing growth and only in terms of customer acquisition. But how long can they ignore profits?
So are we leading to a StartUp Bubble or is it round the corner ?
One of the primary reasons is incessant burning of cash on borrowed money or others money. The elementary motive of frenzied spending, is gaining market share over competition. The startups have been burning the investors’ money as if there is no tomorrow.
One fundamental question the startups need to ask themselves is: Would they have burnt the cash the same way, had this money been their own? “Baap ka maal eh kya”
Most of the Startups are acquiring customers by offering huge discounts, which is questionable in the garb of acquiring customers and gaining market share. However, if a company has to pay users to keep using the product, there is a serious problem. When the users talk about the cash backs and discounts associated with a product instead of its utility or experience of using it, there is something seriously wrong with the business strategy of the company.
But once these discounts are gone (which have to go, sooner or later), who will the customers stick to? They will stick to the one who offers the best service. Hence, to build a sustainable business, superior service, not discounts will help startups create value in longterm.
Many of them are also acquiring Talent at astronomical proportions. 2x the Market Salary and from premier Institutions – There is a competition of how may IIM-Grads, IIT Engineers they have hired, to showcase a fancy Talent Pool to the Venture Capitalists to boost their Valuation.
At the grassroots of this Bubble is GREED. The greed is fuelled by Promoters, Investors, Venture Capitalists, Angel Investors, Private Equity players for making Quick money. The international investors are investing cheap money from overseas into Indian startups. The Indian startups and the VC and Investors are using someone else’s money. At the end of this chain there is a taxpayer who will ultimately have to bear the brunt of this or subsidize these losses.
Now coming to Valuation of the startups, it is not asset based. There is no tangible asset behind each startup such as Plant & Machinery, Real Estate or Real IP. Valuation is all about perception and how well the Sales pitch the Promoter can do. Its all about Sales.
Everyone wants to GET RICH OVERNIGHT. Talk to any of them and ask for a 5 year Business Plan, forget it even 3 year Business Plan. None of them have one. One famous startup opened with a Bang and literally scaled down in 6 months. Groffers at one time planned PAN India Operations in 26 locations and within 6 months scaled down to 14 locations. They last as long as the Funding lasts. Every one of them is working towards increasing their valuation and therefore are relying on a hope that they can exit and someone else will acquire them. Rumors are that even Flipkart is eying being acquired. They must realise that for an ‘exit’ to happen, someone else has to believe in their idea and be willing to “buy” them.
Experts are warning of echoes of the dot-com boom which crashed spectacularly in 2000. So is there a StartUp Bubble round the corner ?
Ramesh Ranjan is the Founder & Chief Editor of Human Engineers an organization being formed to help Organization’s to “make the most of its People” and co-creating value thro’ People”. He is also the Founder & Head of URNEXTBREAK, a Staffing solutions organization aimed at helping employees plan their NEXTBREAK.
He is a certified CEO / Leadership Coach, Mentor for Startups, Blogger & a Speaker. In a career spanning nearly 3 decades, he has been Head of HR and held leadership positions in India & globally in organisations like Schneider Electric India, American Power Conversion (APC), Chevron Texaco/Caltex India, Praxair India, Co Systems India, Indian Herbs & ITI.
He was the Honorary Secretary of the National HRD Network, Bangalore Chapter – 2000-2002, Cluster Lead – NHRD Bangalore Chapter (Whitefield & ORR) in 2014 and currently the Vice President – NHRD Bangalore Chapter. He was the member of the India HR Council of the AMCHAM, New Delhi, Panelist on the Roundtable of HR Directors of Petroleum Companies, ISP Mumbai and Member of the India HR Council of Conference Board.
He strongly believes that HR is not for faint hearted professionals. He believes that “when the going gets tough, the tough gets going” and can be reached at email@example.com