As Indian unicorn investment slows, brands must shift their priorities
Customers expect brands to link
commerce with social conscience
Associate Vice President, Strategy Planning
In most parts of the world, chief executives strive to be steady, straightforward, and as uncontroversial as possible. Not in Silicon Valley. Titans of the technology business tend to be outspoken optimists whose quests to challenge entrenched industries and change the world make them seem larger than life.
Whether it’s the late Steve Jobs, co-founder of Apple; venture capitalist Peter Thiel; Jeff Bezos of Amazon; Uber’s Travis Kalanick; or Elon Musk, the inventor of the Tesla electric car, their vision is about global dominance coupled with a sense of relentlessness. Their quests for disruption have been marked by both unrivalled success and spectacular failure. And they’ve been rewarded with sky-high valuations.
Indian tech entrepreneurs have idolized these men, vowing to recreate their success here in India. However, the souring of India’s consumer internet start-ups tells a different story. After pumping billions of dollars into Indian internet start-ups between 2014 and 2015, global investors have tightened their purse strings and begun the crackdown on cash-burn.
In Silicon Valley, tech companies continue to get funding, despite reporting losses for years on end, because investors are willing to give them rope in the hope that one of their moon shots pays off. Not so in India, where investors demand to see a return-on-capital sooner rather than later.
Their ambitions aside, the reason why Indian unicorns like Flipkart, Snapdeal, and Paytm, for example, have had their valuations lowered is because they were spoiled by super abundant capital. These companies raised money at crazy valuations, over estimating growth prospects. They raised money too quickly without having proved their business model. Basic unit economics and need for healthy cash flows were disregarded. They chased growth at the expense of profitability; chased customer acquisition at the cost of customer satisfaction.
These companies have always positioned themselves in a league of their own as hungry, aggressive, and hugely ambitious. However, they need to learn to survive in an era where capital—that was previously on tap—dries up. They have important lessons to learn from companies that have been in business longer. Because businesses that thrive in the long run are those that are self-sustaining. Here are some of those lessons:
1. Don’t over-estimate the market size Simplistic assumptions of the size of the market can be dangerous. Just as Kellogg’s assumed it could change Indian breakfast habits when it launched here in 1995, consumer internet companies today point to the huge opportunity of 200 million Indian currently online with a debit or credit card and those from rural India that will come online as connectivity improves.
Rather than identifying a “huge” market, these companies need to identify viable markets, a process that requires gaining the right insights, counting the right people, and envisioning the right innovations to serve those people.
2. Don’t be a follower, be a disruptor For all the innovation in the consumer internet space in India, we are still a follower market. We have copycat versions of Paypal, Amazon, and Uber. If our entrepreneurs spent half their time trying to find a niche for themselves, or re-framing existing problems to find better solutions rather than simply replicating Western business models, they’d be better able to attract capital, employees, and customers.
3. Stand for something People want business leaders—and all leaders—to be authentic and stand for things. It’s ironic that in India it is Prime Minister Modi who has challenged corporates to think big and tackle serious social problems. Whether it’s ambitious goals, such as shifting to e-vehicles by 2030, or programs like Swachh Bharat (to improve sanitation) or Digital India (to expand access)—the prime minister has thrown down the gauntlet to business leaders to help India reach its ambitions.
Unlike the US, India is a country where it’s often the basics that hold us back—unreliable and widely fluctuating electric power, unreliable service networks, limited access to clean water, and excessive air pollution. These are tough problems to crack. That’s why it’s crucial for us to innovate products and services around these conditions. They may not need fundamental technology breakthroughs, but they all require product and business innovation.
Risk taking comes from both a stomach for failure and an enthusiasm for reinvention. Great leaders don’t just communicate their vision, they acknowledge failures when things go wrong and communicate their efforts to fix it. Yet what’s becoming increasingly clear is that corporate missions need to have commerce and conscience at their core. Not because it’s a marketing objective but because consumers and employees increasingly demand it. Businesses have a higher responsibility to address social values. And it’s possible that embracing values can actually help profits and share prices in the long run.