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5 Proven Ways Businesses Can Achieve Growth While Staying Frugal In this article, experts share with us some effective ways companies can manage growth while ensuring reduced burn

By S Shanthi

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Over the last two decades, the Indian startup ecosystem has grown tremendously. Entrepreneurs have been getting support from many corners. And, almost every day, we hear a startup success story. However, what is not talked about much is the number of startups that shut down every year. For every startup that has achieved growth, there would be another that couldn't get it right. For, running a business is no child's play. Many factors need to come together for a startup to achieve growth.

In this article, experts share with us some effective ways companies can manage growth while ensuring reduced burn. They were talking at Entrepreneur India's annual event Entrepreneur 2023 on August 7th and 8th in Delhi.

Focus on disruption and long-term profitability

Since 1994, when the Internet came into existence, it became clear that if a business can use Internet technologies to disrupt a category, it can grow 8-10 times faster than the overall growth of the GDP or the industry. Sandeep Aggarwal, founder and CEO, Droom said that when you create such disruption, you will actually be creating shareholder wealth. He also added that unit economics every day should be better than the previous day, but you need not be profitable in the short term.

He explained further sharing the example of Amazon. "It was not profitable for the first 88 quarters as a public company. But, if you can grow through your disruption, you can create value, but your marginal revenue has to be better than the marginal cost. This is the true testament, that is, whether you have been able to disrupt a category which always existed."

Solve for customer retention

Rajesh Sawhney, founder and CEO, GSF Accelerator believes that successful companies are the ones that manage growth by retaining a lot of customers. They solve for retention before they press the accelerator button. He explained it further by sharing his experience as an investor. "I invested in 65 startups in the first 10 years of my life, out of which 40 died. And it happens. Startups die all the time for many reasons. Of the remaining 25, 12-13 gave me 1x to 4x returns. But the top 12 gave me between 30x to 500x returns. When I analysed this portfolio, those 12 companies were growth-oriented category-creating companies. The 12 companies that gave me 1-4 x returns were doing some innovative IP work, or they had talent that got acquired by another person for talent. But they were never growth companies. They were good companies that could never grow fast."

So the lesson for Sawhney was when he invests in his next 65 companies, which he has already done, was that he would invest in growth companies that can survive. He also found that these companies were not leaky buckets. "Leaky companies were mostly in my first 40 bucket that got shut. They got a million dollars, they pushed the button, and some even got $10-$20 million. However, they did not solve the retention problem. And I think that was the biggest reason for the 40 companies that failed," he said.

Run a tight ship no matter what stage the company is in

When a company gives tremendous returns to investors, they would have mostly survived for around 10 years. During this period, they face cycles, cycles of capital, cycles of investor love or hate, and many other things. When one has to go through these cycles, experts feel that CEOs should be smart capital allocators. "They pace the company right and in my view, such companies run a tight ship. So whether you're going to fail, whether you're going to raise a lot of money, whether you're going to become a unicorn or list in the stock market, the smartest founders always run a very tight ship," Sawhney added.

Growth is also an indicator of product market fit. According to Saahil Goel, CEO and co-founder, Shiprocket, there is no other metric than growth that will tell you that this is what people want. "So, for anything to be a category creation material, you have to have growth. But then again, you have to manage leaky buckets. You have to make sure that you don't raise a huge amount of money and put it behind a leaky bucket because it just makes a leak bigger," he said.

Sharp focus on unit economics

Building value is key, the number reflected in valuation. Though it may not be the perfect way to measure value but it is a decently precise method, which goes all the way to public companies as well, say experts. "It could be based on leadership in a large market, very high gross margins or a combination of many of these things. So when you start a venture-backed company, the purpose of building the company from day one is to build that position, which is not to do with building a small profitable business. That's not the reason we had raised the cap. If you can't aspire to build something, which is the category creator or a market leader, there is no point in trying to break even at that. We should find ways to grow something that would just start to run off and then build the unit economics within that business. So focus should be on having an eye on what the economics is, and then over a period, get to the next phase," said Anshoo Sharma, CEO and co-founder, Magicpin.

An eye on sustainability

Another important point to discuss is what happens when the capital is less. "Because we didn't have access to so much capital, we always kept an eye on sustained growth, so that you can show growth over a period of time We always had that fear that what if we grow too fast and everything falls down. So, you need to assess your capabilities, your team's capability, to essentially deliver that growth and we kept on doing that day after day," said Ruchir Arora, co-founder and CEO, CollegeDekho.

Mukul Rustagi, co-founder and CEO, Classplus believes there are two kinds of capital that a company has in the first few years. One is dollars and the other is time. "We didn't have dollars. So we said that even if we grow slowly for the next two years till the time we get dollars, we are totally fine with it. So we ran a very small team. Retention or growth never showed an inflection curve, because we realized that we did not have money. And, if anyone has to like the business to put money in it, they will have to put it on the retention metrics, there's nothing else. I think that was phase one of the company. During phase two of the company, we got a good tailwind because of COVID. So we are lucky in that aspect. And that is where we got access to a lot of capital," he said. But the biggest lesson Rustagi learned was one needs to be clear about whether one needs to chase growth or chase unit economics or other things and make it very clear to the entire team.

S Shanthi

Former Senior Assistant Editor

Shanthi specializes in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. 

 

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