Albeit forced by the situation, the landmark budget presented by the then
finance minister Manmohan Singh in 1991 ushered a new dawn in Indian economy. ‘Liberalization
and globalization’ was the magic mantra of the reforms! One particular industry
which was in nascent stage at that time got benefitted most and it was
Information Technology industry! It won’t be an exaggeration to say Narayan
Murthy, Shiv Nadar, Azim Premji, FC Kohli and Narendra Patni were the founding
fathers of Indian IT Industry!
IT got one more boost thanks to the Y2K bug and then it never looked
back! The subsequent years provided employment to millions of youngsters; lakhs
of them made a leap to upper middle-class, stock options saw thousands of them
becoming crorepatis. More importantly, it spawned a new wave of entrepreneurs!
India's IT-BPM industry (excluding e-commerce) was expected to reach at
USD 254 billion, including exports of around 200 USD Billion in FY2023-24.
DPIIT has recognized over 77,000 start-ups across 656 districts in India. In
terms of headcount, the Indian tech SME sector is estimated to have closed FY23
with 740,000 employees.
Everyone loves an Indian startup success story. Not too many know that
2,404 failed in 2023.
While India boasts 115 unicorn startups, only 17% of them are profitable
– that’s hardly 15%. (The rest are just sucking up resources, drawing in
billions of dollars in funding from venture capitalists and investment firms
around the world)
91% of startups fail within first 5 years and the most common reason
being lack of innovation.
While almost all of the entrepreneurs might be aspiring to be unicorns,
hardly 2-3% of them could be realizing that dream. A bulk of the startups (may
be, almost 80%) would be having the employee count between 10 to 50 and
turnover could be between one to eight crore Rs.
Even after surviving for 7-8
years, a typical startup (small enterprise) doesn’t grow to be a medium-sized
enterprise. There could be many reasons why it stagnates over the years or
rather fails to leap to the next orbit.
A salient few reasons are described below:
1.
One-customer
dependence – Most of such companies
rely heavily on handful customers with one or two constituting almost 80% of
the revenue. Knowing this fact,
customers start arm-twisting in the billing rates in every contract renewal. So
while the start-ups need to provide increased salary to their employees year on
year, billing rates don’t increase in that proportion. In fact, they come down
in many cases impacting the bottom line adversely
2.
Absence of second-level
management – Right from the
inception, the founder director is well aware of the fact that s/he needs to
wear multiple hats, at least four of them at one point! (Sales Head, Delivery Head,
Practice/Competency Head & HR Head). Acquiring new customer happens mostly
thru’ founder’s contacts. While this is ok in the initial days (or even a year
or two), the founder needs to consciously develop the second-tier management,
to start with BDMs (Business Development Manager) and project managers who should
also be hands-on in the designated skills. Absence of this second layer puts
heavy pressure, time constraints on the founder/s. If you cannot hire second
tier leadership (mainly due to your financial constraints), you need to groom
the youngsters for the positions of project manager, business development
manager, HR lead etc. More importantly, you need to instil the sense of
responsibility, accountability over months of hand holding. Caution – Don’t
give them phony/big titles.
3.
Dead-parrot
syndrome – While it could be a universal
tricky situation of ‘who will bell the cat’ (read – take the risk of becoming a
bad messenger and share the unpleasant truth with the top boss), this
phenomenon is more pronounced in SME segment compared to large organizations
run by professional management. So the team refrains from noticing the elephant
in the room; communicates everything which owner/founder likes to hear but the
obvious (like, say, the product is no more relevant in the market; the parrot
is dead and not meditating!) And the
founder, with his own set of worries, and fights almost on 24*7 basis (cash
flow being on top of it), has no time (rather peace of mind) to reflect, to
introspect, to brainstorm, to set feedback mechanism etc.
To
avoid this kind of unpleasant scenario, following measures could be adapted –
o Drop-box feedback / suggestions by team (It could be
anonymous to ensure wider participation by the team)
o Hire seasoned management professionals as a freelancer
for a week or two and get their feedback about the company/operations/team etc.
o Do some relevant/credible course in management or some
specific IT topic. More than anything else, it frees up your mind for fresh
thinking.
o Get feedback from close friends/fellow-entrepreneurs who
are not afraid of calling a spade a spade.
4.
Loving
product/technology more than the customer - Many startups come up with products/solutions targeted at
micro-niche, ultra-thin market segments.
Many a times the founder/directors are so much sold on their own novel
concept/product/technology that they overlook the important parameter of market
size or of customer’s actual requirements/expectations. When you’re targeting such
a micro-niche, what would be your growth prospects? And what if that
micro-niche somehow vanishes thanks to some other technology, you didn’t
imagine would surface some day? And when you have invested so much resources
over the years in it, you kind of get trapped in that daily grind and fail to
notice the cues or the writing on the wall. So go back to basics; re-validate
your Go-to-Market plan, re-assess your service offerings/solution/product in
terms of 5 P’s of marketing.
5.
Lack of
innovation culture – While the very
reason your startup would be in the existence could be due to some innovative
solution you would have thought of, but subsequently, have you consciously
fostered the innovation culture in your team? Due to the highly dynamic nature
of IT industry, innovative products/tools get launched almost on a daily basis.
You and your team need to be agile enough to explore the relevant tools/trends (e.g.
Generative AI) and take proactive steps for your business operations ensuring
you are ahead of the curve. If this is not happening, it could be hampering
your growth prospects over the years.
6.
Complacency – In many cases, only after toiling for years (at
least 3-4 years), startups reach the break-even point, cash-flow becomes more
predictable, the business gets some stability but soon that becomes the comfort
zone and the risk appetite of founders reduces drastically. (“Don’t-rock-the-boat!”)
7.
BCP (Business
Continuity Planning) – Very few
founders enjoy the luxury of week-long annual vacation! This fact itself
demonstrates the one-man-show of the company.
Keep aside vacation, but founders can’t afford to fall sick even for a
couple of days.. So while BCP expects
you to take care of how the business should go uninterrupted in the wake of a
disaster (natural or man-made), founder needs to at least ensure that the
business operations would continue seamlessly in case s/he is not reachable for
a day or two due to personal/health reasons. The existence of a sound
second-tier management is of paramount importance in such cases.
8.
Dilution of
equity / on-boarding of new partner/s
– This is a tricky trade-off but a necessary one if you want to expand your
business operations in lesser time and so need lot of funds. Here the key thing
would be the chemistry between the current directors and the new ones.
9.
Succession
planning – Founders need to plan very
much for succession planning. If you
have toiled for years, rather decades and only now you’re reaping the results,
you need to plan for the legacy; induct family member (or even a professional
manager in rare cases) early enough and groom him/her for the top role under
your tutelage.
While I’m fully aware that
there is no ‘one-size-fits-for-all’ and there have to be ‘horses-for-courses’,
above mentioned points should nevertheless make entrepreneurs realize of the
management conundrum they might be facing (and could be blissfully unaware of)
hampering the growth prospects. It should encourage them to reflect on the
points relevant for their own startup, facilitate questioning of the status
quo, prioritize actions and thereby enable leaping to the next orbit!
Good luck!!
(Published in ‘Corporate Citizen’ magazine -April’25 issue)
