Not starting to make sense
Are India's tech startups serious businesses? Or will they just fade away when funding stops?
By Dhirendra Kumar | Jul 11, 2016
The other day, I came across a TV interview of Rahul Yadav, who was CEO of a startup named housing.com till he was sacked by the board. The interview is old, having being conducted in September 2015. However, there is one part of it which offers a most interesting insight into what is wrong with Indian startups. At one point in the conversation, Yadav confesses that he doesn't like 'Excel sheets'. He says that when they (he and his co-founders, presumably) were meeting potential investors, if the investor asked for Excel sheets, they would just drop that investor.
It's clear from the conversation that the loathing is not for a particular software sold by Microsoft. Instead, 'Excel sheets' are a synonym for calculations and projections about the business. These spreadsheets would have calculations about how much the business would spend, how fast it would expand, how much could it possibly earn and from what kind of activities it could possibly make money. However, if any investors turned out to be the sort who were interested in discussing such things, these entrepreneurs just stopped talking to them and moved on to someone else. As Yadav says says with a sly smile at one point in the interview that when an investor wanted too much detail, he knew it wouldn't work out.
Now there's nothing unusual about this attitude. This has actually been a time-honoured tradition of Indian promoters since long before these digital days--avoid investors who are interested in too much detail, just look for a greater fool instead. However, I do feel that in the domain of technology startups, this attitude arises from a fundamentally different premise. Earlier, promoters had complete self-awareness that they were doing something shady by fooling the investors about the true nature of the business. Nowadays, the entrepreneurs seem to be fooling themselves too.
They seem to firmly believe that as long as they have enough scale, that's great, even if they are losing money on each transaction. There's a joke about this, 'We know we are losing money on each customer, but we'll make it up on volumes.' It's not a great joke, till you google it and find that a lot of people don't know it's a joke. There's a widespread belief among startups that this really is true. The opposite view, that a business is a business and cannot defy the basic logic of sales, expenses, profit and loss for too long, is seen as something that doesn't apply to new, technology-based businesses. The fundamentals of business cannot be ignored for too long.
One of the problems in India is that there seems to be a widespread belief that the marquee startups are justified in going through a long period of heavy losses because Google, Facebook and Amazon went through this. The problem with this idea is our somewhat skewed idea of what 'tech' is. During the time that they were making massive losses, the big American internet giants were building their infrastructure and developing genuinely groundbreaking technology. Even Amazon, which was supposed to be just a retailer, invented the infrastructure-as-a-service concept and is now is ahead of Google, Microsoft, IBM et al in cloud computing with its fabulously profitable AWS business unit. Nothing remotely resembling this is going on with Indian tech businesses, who seem wedded to the idea of almost literally giving away money to customers in every transaction.
In a way, it shouldn't really matter to anyone if a lot of businesses lose money belonging to greater-fool investors and eventually shut down. However, the negative impact on employees, suppliers, the brick-and-mortar competitors put out of business and on the business environment generally will be huge. It would actually be good for everyone concerned if India's zombie startups reach their logical end sooner rather than later.