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Tracking Start-ups

From the Editor Prosenjit Datta
By Prosenjit Datta   Delhi     Print Edition: July 31, 2016
Prosenjit Datta, Editor, Business Today

Anybody following business news would not have failed to note the giddy rise of Indian start-ups in the past couple of years, or the fact that some cold water has been poured on them this year by venture capitalists (VCs). While India has always had a start-up culture - think Dhirubhai Ambani and Reliance or, later, Infosys, to name just two famous examples - the advent of VC-funded start-ups, especially in the area of e-commerce and digital economy, really started in 1998/99. However, the first dotcom crash of 2000/01 saw a lot of entrepreneurs scurrying for cover, and VC funds suddenly dried up.

It was over a decade before the next wave of digital/e-commerce start-ups came up, and VCs again started putting big money behind the ideas of untested, 20-something entrepreneurs. Many of today's big e-commerce companies started out between 2007 and 2010. VC funding was still relatively scarce then, as were the number of competitors. But by 2012 or so, Flipkart, Snapdeal and InMobi started gaining traction, and new entrepreneurs were jumping into the fray, trying to create the next Internet or e-commerce giant.

By 2014, hundreds of them were starting out each month, and VCs were knocking down doors to give them money. Valuations of new companies with huge losses and low revenues went through the roof. The madness peaked in 2015, before realism crept back. In 2016, companies are still getting funded, but at far more conservative valuations. More important, the path to profitability has become as important as revenue growth.

BT has been tracking start-ups and entrepreneurs for many years before it started its Coolest Start-ups survey in 2007. In our issues, we have chronicled the rise, fall and rise of the start-up culture. Every year, we look at identifying India's best start-ups, and a jury of VCs, senior entrepreneurs and consultants pick out the most promising ideas and the most effective teams.

Why do some entrepreneurs succeed while others fail? In his 1965 book Innovation and Entrepreneurship, management guru Peter Drucker pointed out that all successful entrepreneurs seemed to follow one of four strategies. These strategies are not mutually exclusive and many start-ups follow a combination of two or more. But almost all winning strategies could be boiled down to one of these four approaches, he said.

The first strategy saw an entrepreneur getting into a new market with the goal of being the dominant player as soon as possible. This is a no-holds-barred approach where considerable resources are devoted right up front. You can understand how it works when you see how Jeff Bezos relentlessly pursued the goal of making Amazon the world's biggest retailer. Or what Jack Ma did with Alibaba. The second strategy was when an entrepreneur identified an area that the big players were ignoring, and moved to quickly stake claim. The third one - a variation of the second - involved identifying a small niche and becoming the dominant player in it. The fourth strategy would see an entrepreneur or start-up find a way of packaging and providing a service without actually coming up with a brand new idea. In essence, the entrepreneur would add a twist to the service to make it more relevant to consumers.

When you look at the winners of this year's Coolest Start-ups survey, you will see how all of them fall into one of these four categories. Some of them are brand new ideas, while others are simply executing an old idea better. Some are discovering new niches in markets that already existed, while others are changing the dynamics of a market through innovations.

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