Lessons Startups Can Draw From 'Business Institutions'
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The year is 2009, a year after the Global Financial Crisis, even as people are looking for alternative sources of income. A young star entrepreneur, age 22, comes up with a brilliant startup idea: create a platform where‘inventors’ submit their ‘quirky’ ideas, which are then voted for funding and bringing to the market. The company then patents, manufactures, markets and sells the product to online stores such as Walmart and Amazon and returns 10 per cent of the profits to the ‘inventor’ as also to the community that helped ‘workshop’ this invention. The entrepreneur Ben Kaufman, in 2015 filed for bankruptcy of Quirky, after having burned more than $185 million of venture capital, in addition to laying off more than 400 staff.
Although Quirky came back in a new avatar with new owners in 2017, the story of Quirky could be that of any of the more than 1300 startups that India seems to witness annually, which have one dream goal- to join the hallowed ‘unicorn club’- a term used to describe start-ups valued at $1 billion. Lasting prosperity should be the dream goal of these startups, especially in an era where even the S&P companies are expected to be replaced every decade or so.This is where startups can draw lessons from ‘business institutions’ such as TCS, which have created enduring value for multiple stakeholders. We highlight three of these lessons:
Think of the short-term but keep an eye on the long-term
While short-term growth is important, it is the long-term that one must keep an eye on. Startups today, with their obsession for a J-shaped growth curve, err in equating short-term revenues with long-term profits. Organisations like TCS grew, but not at the scorching pace which startups today are synonymous with. TCS, for instance, reached the $1billion revenue mark only in 2002, almost 35 years since it had been established. And it was only in 2004 that TCS went for an IPO.
Build corporate governance
An important buzz word entrepreneurs value is ‘transparency’. In June 2015, Kaufman used the word thrice in five minutes as he admitted to being out of money. Startups often dismiss corporate governance as being for the large corporates. However, such governance merely ensures process orientation and ensures that the key business decisions are not left to the whims of the one blue-eyed boy, the founder. Such governance would avoid much heart burn later on, as also cash burns.
Have a solid business model
A magic mantra (and verb) for all entrepreneurs is ‘network’.With an eye on raising quick capital funds for further growth and top-line revenues, most such start-ups are only as good as their next pitch to the investors and venture capitalists. Also, such start-ups have their emphasis set on valuations rather than value, burning up capital to create the buzz. Companies like TCS, and their shapers have gone on to give a new industry to India, with none of the flashiness and ostentation that is the hall mark of many of the founders today.
While it lasted, Quirky was the toast of the media. There were appearances on reality shows, talk shows, magazine covers etc. The ‘inventors’ were making money; so was the company, albeit on fewer products. However, while online voting may be fine, would all the inventions which were commercialized, be voted for through the customers’ wallets in the long run was the moot question! Evidently not, as time would reveal a sloppy business model.
Aspiring entrepreneurs need to shun the mistakes of many a well-intentioned startup like Quirky and learn from the successful ones which have experienced transformational growth.
*Tulsi Jayakumar has recently co-authored a book ‘How TCS built an industry of India’. Views are personal.
(This article was first published in the March 2020 issue of Entrepreneur Magazine. To subscribe, click here)