We are experiencing start-up revolution in India like never before. As per the economic survey, there were more than 19,000 start-ups in India in 2016. While the problem continues to be the fact that “lot of Start-ups never start up”, we are much better than a decade before.
However, increasing number of start-ups also experience tough competition, unreasonable expectations & resource crunch. Lot more companies are bound to shutdown and lot of them would be struggling to survive and grow.
Lack of growth can be a big challenge for Entrepreneurs who are funded, selling high expectations. Entrepreneurs may forcefit their dreams in a market that is just not big enough thereby bringing down the complete business.
Pic1: Number of Companies transiting through funding stages
Pic 1 illustrates companies transiting through various stages of funding. As we can see, through this transition, quite a few companies shutdown and a large number of them would be stuck in the same phase. Companies who are stuck in a given phase can eventually become profitable with a “small % of the larger market” or “large percentage of a smaller market”. While this is perfectly fine for bootstrapped entrepreneurs, for Entrepreneurs with VC/angels backing, this can pose several problems. This article is about such companies who are strangled for growth and need to recalibrate themselves.
Recalibration can happen in 3 steps
a.Calibrating the current position
b.Identify a right strategy
c.Execute realignment strategy
Calibrating current position
Fig 2. below provides a snapshot of the position that companies can be in. In the graph below
· Y axis presents the growth (which normally is a function of market)
· X axis presents the health of the company as Earnings
Pic 2: Calibrating current position & available options.
Following options are generally available
· Realign (turnaround for Improved cost control, processes, team) to increase the earnings and/or growth
· Pivot where entrepreneurs refocus the organization on a new product/market
· Extension/spinoff to focus on new product/ market while existing business would continue to operate.
- New Business can be carried in a completely different entity making it a spinoff.
In most cases, Turnaround needs to be combined with a new business to achieve the objectives.
The table below details the options available for various situations
Color of the quadrant
Companies in this quadrant have an amazing product market fit. Just go ahead and execute the plan in hand.
May be reasonably well placed in good funding environment. Otherwise, it would be good to move towards right of the graph in improving the earnings(even at the cost of slowing down the growth curve)
Start moving towards right before thinking of future. Exception could be to identify a new pivot that can help you raise more funding, but not going to be easy
Explore relevant spinoffs/pivots depending on the size of the business
Company is in the risk of becoming a lifestyle business, a great position to be if there are no VC’s/Angels. But with all the time and resources at hand, it may be a great opportunity for interesting spinoff
Identify the right future strategy
Once available options are identified, it is important to choose that one strategy on which you want to bet your future on. Such strategy should take into account
- Size of the new opportunity
- Passion & belief in new direction
- Confidence in executing the new plan(financial and other resources)
- Amount of risk reduced by leveraging existing assets the business has ( technology, team, distribution, brand etc)
If the current business is doing well and is of a reasonably large size, it could be good to explore spinoff. Spinoff executed well can bring lot more value for all the stakeholders. But spinoff demands entrepreneur to find additional management and team which is normally not very easy in several organizations.
Companies that needs to align cost structure would have challenges of Demoralized organization (and investors), time pressure & difficult personal choices (laying off is never going to be easy). But unlike raw startups, these companies have significant pockets of strength. Most of the operating expenses are already met with and there exists interesting assets like technology, team, distribution, brand etc
While reworking on the cost, it is important to balance between resources and revenue that are extremely relevant for the future and the cost savings that can be achieved. Sometimes it is easier to align with the future when there are much better reserves/ net cash flow than a great revenue figures on the book.
Making investors & team become part of the decision making and communicating with reasoning and detailed plan can help a lot in executing the strategy.
Once you have all the forces, thoughts and interest aligned, go ahead and execute your strategy. You could be the next PayTM (Actually a pivot from One97 ). There is nothing much to lose considering the situations you might be already be in.