Till about a year ago, they looked invincible and unstoppable. Flipkart, Ola, Snapdeal, Quikr, Zomato... and a few others, had become the fabled Indian unicorns - start-ups boasting of valuation of over $1 billion. They were expanding like mad, starting new business lines, hiring engineers and business management graduates in hundreds from the premier institutes and generally proving a huge threat to their old-style rivals who had not embraced the digital marketplace as quickly.
None of them was making any money. But, backed by seemingly unlimited capital, they were giving discounts galore to woo customers, burning cash hand over fist, and driving brick and mortar players into losses while they chased market share and gross revenues.
Each time they ran short of cash, they would see a line of venture capitalists queuing up to hand over money at ever higher valuations. There were signs of excess all around. But initially, the unicorns were confident that nothing could touch them. Lesser funded rivals were shutting down or getting acquired, but the unicorns simply kept rolling.
Sometime in the middle of last year, the party started winding up. The unicorns faced heat from equally well funded rivals - Flipkart and Snapdeal had to deal with Amazon and its inexhaustible resources, Ola suddenly found a super aggressive Uber nipping at its heels, while Quikr saw stiff fight from Olx. Investors started getting nervous and some of them either turned off the tap of easy funds, or wrote down their investment values or even asked for greater say in management. Today, many of the unicorns are doing what all loss-making companies are supposed to do - rationalise expenses, shut the most unprofitable businesses, look at improving profit margins, and reduce the perks of senior management.
Of course, not all unicorns are in trouble. One of them, Mu Sigma, actually makes profits. And a couple of loss-making ones - Hike and Paytm - are still darlings of their investors. But in general, the refrain now is path to profitability as much as it is doubling and tripling revenues.
In a sense, it is a repeat of the events of a decade and a half ago, when the first dotcom boom took place in 1999 - early 2000. Easy cash and the giddy promise of the Internet caused frothy valuations and a number of entrepreneurs with poor business models cropped up. A lot of them went bust after burning a lot of capital. In the first dotcom era, few of the start-ups had properly thought out business models or even the operational expertise. The ecosystem of robust digital payments or logistical support for delivery also did not exist.
Today's unicorns are, in that sense, running real businesses. But too many of them made the mistake of thinking that as long as they kept expanding, they would not have to worry about cash flows or profits. Now, almost all of them have come to realise that revenue models, profit margins, expense management and cash flows are equally important. I suspect that while a few of the unicorns may fall by the wayside, the survivors will emerge stronger.