SUMMARY
Investors putting their money into a startup can be seen as a sign of some confidence
60% to 80% of all startups fail, in spite of receiving significant funding
Profit needs to be made for a business to be deemed a success in the end
The world of entrepreneurship is often found abuzz with excitement around startups and the funding that they receive from investors. Usually, there is a lot of fervour in the air when startups discuss their funding rounds signifying it as a tell-tale sign of having arrived in the world of business.
While many people sub-consciously link a startup being funded as a precursor of its success, it is not always the case. Investors putting their money into a startup can be seen as a sign of some confidence that the investors show in the startup but that does not make sufficient grounds for the business’ imminent success.
What funding means, in reality, is that somebody believes that the given business may scale up in the future. At the same time, the venture capitalists who invest in startups are seasoned investors who are very well aware of the fact that there is a swell chance that any startup can turn into a failure, funding or not.
In fact, statistics point that 60% to 80% of all startups fail, in spite of receiving significant funding. That is a staggering number to be left ignored.
What The Snapdeal Story Taught Us?
A recent famous example of a business managing multiple rounds of funding but still falling flat on its face is that of Snapdeal. The ecommerce portal had several new ideas in the beginning and they surely looked promising. They were acquiring numerous promising startups at a breakneck speed and had a rebranding campaign that cost their company close to INR 200 Cr in 2016.
However, towards the end of 2017, Snapdeal finally accepted a defeat. Before things went down for Snapdeal, it raised multiple rounds of funding through the years and launched several attractive deals to lure the customers.
However, they lacked substance when it came down to the core product proposition. Snapdeal never built a USP for itself the way Flipkart did with fashion and electronics. Or Amazon did with Prime and Pantry. They burnt cash on building warehouses and failed to stand out among other online retailers.
Most of their acquisitions made no sense for the business in the long term. For instance, Snapdeal’s acquisition of Freecharge failed to give any edge to the company and Freecharge completely missed out on capitalising on the demonetisation wave unlike its old-time rival Paytm. Their acquisition of luxury fashion portal exclusively.com also flopped in less than a year and it eventually shut down.
When the funding stopped for Snapdeal, without any competitive and sustainable business model, it struggled to grow and as far as the current scenario is, it may shut down anytime soon. Snapdeal is just one of the many examples of businesses losing sight of what is critical to their sustenance and growth. This happens when they let go of their core business agenda and bask in the glory of continued impressive valuations and multiple rounds of funding.
What Matters Then?
The hard fact is that eventually, it’s the business numbers that should make sense. The core business should be able to grow steadily, and the product delivery must find an appeal within its target market. And, finally, a business should meet its ultimate aim of creating wealth for its stakeholders.
Thus, profit needs to be made for a business to be deemed a success in the end. Of course, getting outside funding also limits the decision-making process as far as product strategy, growth rate or any other business impacting decision is concerned.
You need to incorporate the opinions and directions of your investors. And sometimes, investors may want their returns as quickly as possible. This may make them lose sight of the overall well-being of the organization in the long-run.
It may be fun to dream about a billion-dollar valuation, getting a unicorn startup label or receiving multiple rounds of funding for your startup, but the practical thing to focus on is to have a profitable venture. Hence, working on a strong business model, building a strong team and creating a competitive advantage in the market is more crucial than just hitting high figures during funding rounds.
