Ever tried copy-pasting answers in exam hall? Well, most of us did. Did you score more than the one from whom you copied the answer. Certainly not in most of the cases. Copy paste stuffs do not appeal anyone. Let us shift the focus from an exam hall to this “evolving world of entrepreneurship.”
As per the recent reports by Nasscom, India has become the third fastest growing startup hub in the world. Does every startup gains a significant visibility among the public? Does your idea provide a service out of the ordinary, which has never been done yet? Well if it does, be ready to be in the limelight of this evolving world. If it is not, let luck be the force for you. Or why not work on the idea, think on it again and again and find out ways by which your idea can fill the existing voids in today’s world. Mahesh Murthy says, “Dream big. The earth’s the limit.” Mahesh Murthy, Founder of Pinstorm and co-founder of Seedfund.
Mahesh Murthy laid emphasis on how startups are getting trapped by high valuations. He spoke on “Money Management Lessons for startups” at the Entrepreneurship Summit organized by the E-Cell in IIT Mumbai. Mahesh Murthy shared his views on increasing dominance and decreasing competition, the fault in skyrocketing valuations, colossal marketing budgets, and the danger of falling for the lure of big ticket funding rounds. In simple terms, Mahesh Murthy feels that if a company is successful, it is evident that the company did not fall into the trap of billion dollar-funding rounds.
What we expected? Competition.
What actually happened? Dominance.
Mahesh Murthy clearly explained the current market trend by highlighting examples from the Number 1 or Number 2 companies that are leading the digitized world.
He said, “When I was growing up, I used to believe that competition is going to rise in the world. And proof of that was that market shares are very close to each other in any sector you looked at be it autos, pharma, cement. If we look at the world today, and business that have come up in the last 5-10 years, you see an interesting trend. For instance, in the energy drink business, Red Bull has 47% market share, Coke and Pepsi together has 11% market share. In luxury electric cars, Tesla has 98% market share, BMW has 1% and everyone else is 0.xx%. Similarly, if we take women brands, very few brands are close to each other. Zara’s business stands at $21 Bn in sales, almost 10 times larger than Calvin Klein which is $2 Bn. If you come to the digital world from the analog world, say search engines, then Google has 91% share, Bing has 3% and I don’t know who is number 3 and 4.”
This is harsh reality. You are popular if and only if you top the list. The matter of worry for startups is the dominance from the mega giants, who have strong hold on the market. Companies that cannot make up to that mark are simply not recognized. And this dominance is inevitable if your idea has not got that extra-ordinary glitter on it.
Taking up a lot of money from investors? Beware!
These days entrepreneurs do not leave to chance to obtain funds from investors. However, according to Mahesh Murthy this strategy of raising funds from investors must be avoided.
Mahesh Murthy said, “Startups get funded by foreign investors, don’t focus on building a product with a great word of mouth, but rather spend on advertising and buying the media. Normally investors in these cases have a liquidity preference wherein when the company liquidates; first preference is that of the investor when the company gets sold. Hence in such cases, founders are left with nothing even if they had raised money at crazy valuations.”
Undoubtedly, this is not just applicable to entrepreneurs, but to all the business persons who borrow a huge sum from investors. One must understand the cash flow correctly before taking decisions regarding money because when someone else’s money is at stake, better be careful!
Mahesh Murthy made a funny remark on those entrepreneurs who suddenly become angel investors motivating the budding entrepreneurs. “They are very keen on aiding others instead of looking after the success of their company. Help yourself before extending your arms to the world,” he said.
“CaratLane raised money at a valuation of around $150M, and then sells itself to Titan for about half of that. The investor Tiger gets its cash back, and the promoter gets screwed. It is high time that the startups realize that the greed for over valuation ruins the company”, he remarked.
Spend zero on Advertisement, High on User Experience
The scheme sounds great and cost effective, yet entrepreneurs cannot resist themselves from undertaking heavy promotion via advertisements. They feel that this is the only way to increase their visibility and acceptance via these so-called “convincing strategies.”
Mahesh Murthy highlighted, “All these super dominant companies like Zara, Whatsapp, Facebook, Twitter, Red Bull, Google and Gmail have become huge brands by spending zero on advertising. When did you see a Whatsapp ad? When did you see a Zara ad or a Twitter ad? You will notice that none of the number 1 and number 2 companies advertise.”
He also mocked at startups saying, “Every day when I open the paper and see another full page ad of a startup, I say Vineet Jain (MD, BCCI) god bless you, keep on making more money. Dear startup, you are dead!”
Internet connects about 4-5 billion people over this world, and the startup entrepreneur could have a brilliant word of mouth if he had a story worth telling. This is the case with everyone. Will anyone like reading about something which has already been introduced. If I present a replica of Flipkart before you, will it amaze you? Of course not. Internet has provided the platform, however, to reach out to the millions, you must have a story worth telling and re-telling.
Mahesh Murthy added that all these brands like Twitter, Whatsapp, and Zara relied on the word of mouth. Why? Because they had a story that matched the people’s needs. While Gmail figured that there is a need for storage, Zara figured out that changing styles across all stores in a matter of weeks and creating artificial scarcity that got customers hooked on to make a purchase the moment they liked a product. They managed to figure out simple customer insight and behavior and cracked the market.
Difficulty for the investors
One must aim to reach the zenith and not to be merely get funded by investors. Mahesh Murthy very aptly stated the problem for investors in today’s era of dominance. He said, “10 years ago as an investor, one would be very happy to invest in the number four pharma firm, but now one can’t even invest in the number two search engine because they are not number one. This means that we have come from a point where the world was very forgiving and an entrepreneur could launch a copycat firm to a point where if he is not number 1 or number 2, he doesn’t count.”
He remarked that due to the license raj post 1947, India has seen a plethora of copy pastes. It is no more possible to succeed with that model in today’s digitized world.
He added, “Only that company will succeed in India which will not be a copy paste and has found an Indian problem to solve. For instance, the company we (Seedfund) invested in, Redbus – doesn’t have an equivalent in the world. Similarly, Mydentist doesn’t have a copy in the world. Similarly, Voonik has no equivalent in the world. So, I am clear that if a company comes to me which has a US equivalent, I won’t invest in it because it will fail.”
Here’s what his status says – “Hey copy-paste entrepreneurs and VCs of copy-paste startups – here are 17 ready-made businesses for you!”
Agreed. Why will investors invest on a company knowing that it will not run for long. They better invest their hard-earned money into a long term fixed deposit which will fetch them profits certainly. So, the startup entrepreneur must make a plan that not only sounds unique, but provides unique service. They are not looking for extremely unrealistic and bloated models, but a concrete plan of turning ideality to reality.
TinyOwl, a restaurant delivery service that had raised more than $27 million from investors like Sequoia Capital and Matrix Partners has ceased its service in all the cities except Mumbai. A year ago Jabong sought a valuation of $1 billion+ and it’s selling for 1/20th of that. Analysts at HSBC valued the Indian food-delivery and discovery app, Zomato at $500 million, about 50% lower than what it was valued in its latest funding round in Sept. 2015.
Just one simple lesson they teach: Do not get trapped by high valuations.
Mahesh Murthy reiterated, “One has a choice and one can build a great company without raising external money. Take only as much money as you want with a small buffer. Don’t get trapped by high valuations. There is no point in saying I once used to own a unicorn. The lure of easy money will always will be there. There will be guys who will throw money at you. The word unicorn represents that you are extinct-unicorns don’t exist in real life.”
So, all the budding entrepreneurs instead of looking for monetary investment, invest more time thinking about some story really great and worth-telling. Success is bound to come. If the plan does not work out well in your head, think of another one.
“You always have a choice”- Mahesh Murthy
Yes we do!
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