Indian Startup Founders Need to Have a Revenue-First Mindset Most of them have a higher burn rate but less revenue

By Sanchita Dash

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Shutterstock.com

The start-up ecosystem in India is constantly evolving, or should we say, innovating? With the government too pushing for entrepreneurship with not just policies but also bringing international events like Global Entrepreneurship Summit to the country that brings along with it entrepreneurs and investors from across the world, it's creating the right environment for start-ups.

However, with the growing start-up enthusiasm, every day a new start-up idea is pursued by an entrepreneur thus, also increasing the failure rate. A recent report released by NASSCOM even stated that 55 per cent of failed start-ups had even received funding.

A major reason why start-ups often fail is that they refuse to build revenue first. They are so caught up in expanding the operation side of things or building more avenues for growth, they often don't mind the cash burn that comes along with it.

Don't Just Back on Funding

For most start-ups, as soon as the idea and team is in place, the next worry is about funding. Moving from friends and family, entrepreneurs turn to investors, whipping up valuation reports and projections that will ensure a funding for future growth. And once they do secure the funding, they swiftly look at acquiring customers and building partnerships or marketing.

So, most start-ups have less revenue yet a higher burn rate. And experts say that they can afford to be in this situation because they are funded by external investors who pump in money during an early stage. "These start-ups are funding driven organizations instead of being revenue positive. Their valuation is governed by metrics where it's accepted even if they are not profitable in the first few years as long as the customer acquisition is encouraging enough," said Vikrant Varshney, Managing Partner, SucSEED Angel Network.

Varshney also added that start-ups draw their benchmark against large companies which continue to have increasing revenues along with increasing capital and operational expenditure. This leads to the same or reduced operating margin. With bigger rounds of funding, there are bigger equity stakes involved which often leads to non-core activities.

Focus on the Business; the Rest Will Follow

The core point for a start-up should be to build revenue and increase profitability. While investments are an important part of their growth, their sole objective for growth cannot rely on the same. Revenue cannot be a part of the things a start-up does to garner more investments or impress investors, believes Rama Iyer, Sr VP, Strategic alliances and partnership, T-Hub.

"Dealing with investors and going through various rounds of due diligence is both painful and time consuming without giving a guarantee that you'll be able to raise the round," he said and added, "It's best to spend all your time and energy on building revenue."

Break Even Point Cannot be a Far-fetched Dream

For most Indian start-ups the break-even point, where their revenue matches up to the money pumped in if not surpassing it, is a distant thought. They all want to accomplish the difficult task but it takes them years. Experts believe that the focus should be on that now. Varshney believes that in the start-up world, the break-even point has had very limited significance so far. "In conventional businesses, companies focus on defining their break-even point withing two-three years and that's part of the project plan at an early stage," he said. Many investors are now preferring start-ups which have plans of breaking even soon and are okay with having lower returns on their investment instead of investing in riskier companies.

Agreeing with him, Sanjay Enishetty, founder and CEO of 50K ventures, said that the effect was seen most in B2C start-ups. Most of their time and energy is spent on customer acquisition, building traction and that's the reason why many start-ups died. There are also start-ups that have emerged successful but those are the exceptions, believes Enishetty.

Marketing Can't Have it All

A lot of the cash burn that an entrepreneur faces is also tagged along with the rising costs of customer acquisition and plans to expand operations too soon. While customer acquisition too needs a well thought out marketing strategy, one cannot put all of their money on just getting new customers on board. "Exorbitant marketing costs in conventional methods have moved to digital now, but even then the cost for advertisements is increasing," said Varshney.

Being an investor, Enishetty often advises start-ups that they cannot take a chance with revenue and if they see none in the first two quarters, a pivot should be considered. "There's a huge difference between having 1,000 users with no revenue and having 100 users paying to use your product. Entrepreneurs need to recognise this difference," he said.

Sanchita Dash

Entrepreneur Staff

Former Senior Correspondent, Entrepreneur India

In the business of news for 5 years now. Making my way across India thanks to my career. A media graduate from Symbiosis, Pune, I have earlier worked with Deccan Chronicle (South India's leading English daily), T-Hub (India's largest incubator) and Anthill Ventures (a speed-scaling platform). 

Stories, movies and PJs are my thing. 

If you hear 'The Office' opening score randomly, don't worry it's just my phone ringing. 

 

Business Ideas

70 Small Business Ideas to Start in 2025

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2025.

News and Trends

India's Cloud Boom Hides a Growing Security Crisis

"If you want to beat the Hacker who is looking at all of your assets all the time, you got to do your testing much more frequently and that too covering all your digital footprint including the cloud," says Somshubhro Pal Choudhury, Co-Founder and Partner at Bharat Innovation Fund

News and Trends

Diageo India Acquires Majority Stake in Craft Spirits Maker NAO Spirits at INR 130 Cr Valuation

This strategic move will see NAO Spirits become a subsidiary of Diageo India, further solidifying the company's commitment to India's growing premium craft spirits segment.

Science & Technology

We Spent a Decade Building Virtual Worlds — What We Discovered Could Reshape the Future of Business

What we learned about scale, AI and ownership when we tried to connect thousands of people in real time.

Growing a Business

I've Helped Over 1,000 Brands With Their Marketing — Here Are 11 Social Media Secrets Every Business Should Be Using in 2025

I've spent years working with thousands of brands across industries. If you're a business owner looking to get more out of your social efforts without wasting time or money, you're in the right place.

News and Trends

Techfino Raises INR 65 Cr from Stellaris Venture Partners and Saison Capital

The fresh funds will be used to expand its secured lending business focused on micro, small and medium enterprises (MSMEs), particularly in tier II and tier III cities across India.