Startups: The Harmony
Sanjay sethi was watching the e-commerce story unfold in India from the sidelines until 2011 when he decided to take a plunge and launched ShopClues, another online retailer to join the elite unicorn club from India. Sethi recalls that if it wasn’t for smart strategic tie-ups with other startups, ShopClues wouldn’t have been where it is today. He also doesn’t shy away from saying that the company’s growth also contributed to other startups who showed faith in its business model.
Sethi is a realistic believer of the fact that startups have to work with other startups in order to accelerate their growth. He still owes it to his friend who loaned him his conference room and other necessary infrastructure to hit the ground running in 2011. Like ShopClues, there are many startups that swear by their business partnerships and believe that it is definitely the way to grow faster for everyone in the ecosystem.
India is home to more than 4,000 startups, according to CBRE’s latest report on the sector, making it the third largest country after the US and the UK. If we divide this startup universe into three subsets — large, medium and young startups — there is increasingly a trend where startups irrespective of their size are helping each other grow. The help is coming in many forms — business alliances, partnership, sharing information and investing in businesses.
Large companies such as Flipkart, Snapdeal, Quikr, Paytm, InMobi who not too long ago were small startups, are signing business deals with a host of medium-sized startups to strengthen support for their own business. Poster boys of the Indian startup stories have turned angels for new and fast growing startups and are investing in new companies. According to CrunchBase, InMobi founder Naveen Tewari and Vijay Shekhar Sharma, founder and CEO of Paytm have invested in nine startups each in their personal capacity.
Kashyap Deorah, author of The Golden Tap and a serial entrepreneur, says, “Large startup founders turning angels is a trend that has been prevalent even in Silicon Valley but the difference is that the entrepreneurs built their businesses first, gave a profitable exit to their investors and used the money they earned from their venture for investment purposes. In India, we are yet to see so-called unicorns turn profitable.” Deorah is working on launching his fourth startup HyperTrack, a cloud-based tracking delivery items solution for hyper-local players. A business primarily to meet the needs of other startups and their end-users.
Interestingly, this trend of startups helping each other is a phenomenon unique to India. Startups by nature operate under much uncertainty — survival, fund raising, product acceptance, consumer traction — and they don’t like to add to it by working with another startup that is probably battling the same challenges. If we juxtapose this with the international startup scene, some amount of uncertainties have been done away with, courtesy the government and previous startup founders who have been around for a long time and have stabilised the ecosystem over the years. The government too has created a policy environment conducive to startups. All this is gathering momentum in India, but we have a long way to go. Thus, it is even more imperative that we stay hungry and restless to find solutions within the startup ecosystem and grow together rather than die one by one.
Culturally, in India, startups are still not looked upon as a dignified career choice. We still operate with a mindset of landing a stable job. But the attitude is changing, if at a snail’s pace. Thus, there are some people who are a part of the startup ecosystem and understand one another emotionally and otherwise. These bunch of founders are ready to take a leap of faith with each other. Sethi puts it succinctly, “If I want to work with a large MNC, I meet their various department or vertical heads and the discussions go on for days, while if I work with another startup: two founders meet, connect with each other’s challenges and opportunities naturally.”
Tewari of InMobi says, “Startups have very limited resources at launch. Augmenting their core business proposition internally becomes extremely difficult and expensive. When startups team up, they can offer a lot more value to end-customers.” Over the last four years, InMobi has helped 40 startups come to life.
The startup founders are rooting for collaborations and partnerships among them. They feel this camaraderie will bring more stability to the ecosystem, accelerate the growth of startups, encourage newcomers to come into the fold and eventually result in individual growth of companies too. Many such tie-ups seem to back this rationale. When Uber came to India, it faced great difficulty as RBI norms required a two-step verification on all online payments. The tie-up with Paytm saved it from developing a unique online payment system exclusively for India.
Sethi says, “Of the total external payments, at least 60 per cent goes to one startup or the other which is working with us in supporting our business operations.” ShopClues works with well-known startups such as Delhivery, E-com Express, Zettata among many others.
Rightly so, the e-commerce sector alone has given birth to many business ideas. There are several e-commerce companies that have tied up with hyperlocal delivery startups to meet their last-mile delivery challenge. Tewari says, “E-commerce startups face a number of constraints, including cost-constraints, when it comes to last-mile logistics in a country as vast as India.” Hyperlocal delivery players such as Runnr, Delhivery, E-Com Express have well established last-mile logistics networks that e-commerce players can tap into. Thereby maximising e-commerce companies’ business reach.
Sheroes, an exclusive jobs and career portal for women, also works with startups as clients. Sairee Chahal, founder of Sheroes, says, “We have built Sheroes on significant partnerships from day one. A business to succeed needs collaboration from within the company and the ecosystem.” Sheroes has raised Rs 5 crore from angels such as Paytm’s Sharma and Binny Bansal of Flipkart. She says that the camaraderie among startups sometimes extends beyond business deals and investing. They use each other’s market presence to build their business and in times of crisis also offer to absorb talented people from each other’s companies.
Deorah of HyperTrack says, “If two startups are involved in a genuine deal which is economically viable for both the companies, it will not only benfit the ecosystem but also improve one’s chances of survival.” It is clear from both Chahal and Deorah’s statements that startups are a force to reckon with; they build an asset light model and have the ability to act fast and execute their clients’ vision quickly. So, this camaraderie can only mean happy days for everyone.
Tewari resonates the same sentiment. “Startups need to scale fast! Tie-ups are a great way to scale by augmenting business models, automating functions and reducing the impact of supply-demand mismatch. The dynamic and flexible structure of startups helps them to reshape quickly and adjust to changing environments. The tie-ups take little to no time in this ecosystem to show positive results,” he says. The top three areas where startups are collaborating with one another are logistics, payments and customer support followed by angel investment and sharing manpower and workspace. VCs traditionally have encouraged such tie-ups especially within their portfolio companies if there are synergies among them.
Startups working together is not really about innocent bonhomie. Some tie-ups are formed with the intention of taking thecompany to the next round of funding. Many experts agreed off the record that a number of entrepreneurs have assumed that raising one round of funding after the next was the Holy Grail.
It is good news that startups are working together to grow together but at what cost? Most startups refused to share details and names but people aware of certain partnerships said that the startups-helping-startups syndrome was a game to jack up one another’s valuations, specially in these tough times when investors are tightening their purse strings and insisting on profitability roadmaps.
Some entrepreneurs enter into unviable alliances to give their investors’ the impression that they were signing up new clients or that fast growing businesses were eager to work with them and hence build a case for investors to park more funds into the business.
A case in point being Runnr, formerly known as RoadRunnr, which in a short span of time emerged as the go-to delivery partner for a host of food tech and e-commerce startups like Faasos, LookUp, Bhukkad, Brekkie, GrabEat and Snapdeal. The food tech startups got into a deal in which the other partner (Runnr) was losing cash on every delivery. An unviable model to begin with, but it continued as long as the ‘The Golden Tap’ of funding kept providing it with money. According to CrunchBase, the companyhas raised more than $21 million in funding since its inception last year. The food tech startups probably didn’t factor in that if Runnr goes down so does their delivery mechanism. One of their clients – PepperTap – has already shut down. Runnr has been trying to raise funds to the tune of $20-25 million over the last four months and has been in talks with DST Global among other big names from the investors’ community but no deal has been signed yet according to media reports. Its business is down from 30,000 deliveries per day to less than 10,000 deliveries, as per an industry source. Runnr refused to participate in the story. This is just one of many such deals that have been signed among startups on the pretext of growing faster.
Industry watchers say that currently such tie ups are few in number but if it goes on a little bit longer, the domino effect can completely destroy global confidence that is still at a nascent stage for Indian startups.
It is true that such things happen but it can’t take away from the fact that startups working together have a better chance of surviving.
The article was first published here.
