The Indian Unicorns: How Disruptions Shape Their Business Models Startups turn into unicorns once the founders get their business models 'right' and successfully build the right execution capabilities to deliver value to their customers

By Dr. Suresh Srinivasan

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Even the "well established' and "cash stabilized' businesses with proven business models are perpetually worried about external shocks and disruptions they could encounter in the macro environment. Startups, aspiring unicorns, and for that matter even matured unicorns are much more vulnerable as their business models are still being established, fine-tuned and perfected. They are left with very little leeway to maneuver as such externalities strike. It is interesting to explore how external disruptions such as the current pandemic shape their business models.

Startups turn into unicorns once the founders get their business models "right' and successfully build the right execution capabilities to deliver value to their customers. At every point in time there are a number of startups active across sectors, attempting to address unmet customer needs, conceiving solutions and assessing multiple business models that will help them deliver unmatched value at an acceptable "price point'. Only those startups where a "fit' emerges between its offering and its target customer needs, turns into a unicorn. The rest perishes.

The journey for startups in an Indian context leading to becoming a unicorn used to be around fifteen years during the early 2000s; consider startups like Naukri and Over the period the time taken to become a unicorn has shrunk. From eight to ten years in the mid-2000s for startups like Ola, Lenskart, Paytm, Snapdeal and Byju's the latest unicorns, post 2015, are joining the billion-dollar valuation club in 2 to 5 years; start-ups like Ola Electric, Glance and Udaan is the case in point. What does such shrinkage in time mean?

External disruptions, like the current pandemic, can be a major driver for accelerating the time taken for the start-ups to turn into a unicorn. Such external disruptions also, in parallel, can potentially make the business models of well-established unicorns redundant. The mega trend emerging as a result of such external disruption and how it impacts the customer, and his pain points, hold the key as to which start-up such externalities will support.

The current pandemic for example set in motion certain "mega trends' that could define future customer needs in many industries. While on one hand the pandemic has deeply impacted employment, purchasing power and the economic growth, it has however thrown open numerous opportunities. Some of these mega trends strengthened by the pandemic include online shopping, doctor consultations overt the internet, education and learning from home, reduced business travel compensated by more virtual meetings, more of work happening from home, lesser office infrastructure and higher migration of data to cloud, driving higher demand for cloud infrastructure, data security and software, platforms and infrastructure "as a service'. Also, the levels of digital payments in the economy to grow exponentially.

The recent start-ups to enter the unicorn club were all solving customer's unmet needs and such problems were magnified during the current pandemic. Unacademy for example has been in business right from 2015 training students for several professional and educational entrance exams. The customer value it provided became much more valuable during the pandemic and so was the investor's perception of Unacademy's value; from half a billion pre pandemic its today valued close to 3 billion increasing more than five folds. Valuation of the other online learning start-up Eruditus has tripled during the pandemic. Byjus being the market leader in education technology space, its valuation steeply increased during the pandemic.

With the pandemic accelerating digital models in financial services and payments sector "fintech' startups' value perception steeply increased. BharatPe, is now close to a billion-dollar valuation.

Payment gateways like Razorpay and Pine Labs have also entered the unicorn club in the financial services segment. Heath care and fitness start-ups again benefited from the pandemic; Practo for example with a valuation of close to a billion dollar is seeing the highest margins during the pandemic. Cure.Fit again is inching close to a billion dollars. Media and content players start-ups like Dailyhunt and Glance are already into the unicorn club given the consumer behavior of moving away from print to digital content.

The pandemic year has seen around 12 entrants to the unicorn club; an all-time high never seen before. All of these were positioned in segments wherethe consumer behavior was deeply impacted by the pandemic. Firstcry catering online to specialized products for the new born, Cars24 an online platform for used car sale, Nykaa an online market place for beauty and wellness products and PharmEasy on the e-pharma space are all part of this elite list new-born unicorns.

While the pandemic has been a boon for some start-ups, it has been a pain for many. Ola was one of India's earliest unicorns; its valuation almost halved due to the pandemic and work from home that followed. Ola was however quick to set up the world's largest electric two-wheeler factory. Oyo Hotels and Homes also dropped from a ten billion valuation as the pandemic hit and travel restrictions kicked in, but is recouping swiftly.

It is interesting to look at start-ups that failed to become part of the unicorn club. Ofo the bike sharing Indian start-up failed even after being backed by the powerful Alibaba group and close to a billion dollars having been invested. Competition from other micro mobility solutions and start-ups like Yulu, bounce and Mobycy clubbed with uncertainties in the value proposition offered by Ofo and the lack of customers' willingness to pay wrecked this start-up. A similar fate hit the bike rental start-up Tazzo as well which additionally had funding challenges. Shotang failed as it did not have a unique business model that could differentiate itself from the likes of Flipkart and Amazon in the B2B online marketplace that connected retailers, distributors, and manufacturers.

All these start-ups closed down well ahead of making it to the unicorn status. Some failed in either their understanding of the customer pain points, or in decoding the mega trends and or in their ability to provide a value adding product or service to their targeted customer at price the customer could be willing to pay. All of these underpin the vitality of the choice of the business model.

Although it is impossible for the start-ups to precisely forecast the type of disruption and its timing, founders with deep understanding of the consumer behavior can anticipate and envision a business model that can viably meet the changing consumer needs; it is just that the external disruptions accelerate the fit between the start-up offering and the changed customer needs.

Once having reached the unicorn status, the path ahead cannot always be construed to be stable. Established Indian unicorns with stable cashflows and market share have been challenged and disrupted due to increasing competition, poor execution, complacence and deteriorating management abilities. These require business models to be reinvented.

In the e-commerce space for example Snapdeal was one of the earliest unicorns. With the onslaught of Amazon and Flipkart backed by Walmart, and their financial might, the industry was shaken in spite of its high growth outlook. Even after achieving unicorn status Snapdeal was close to bankruptcy in more than one occasion and had to differentiate its offerings from the other two and reinvent its business model. Its valuation plummeted from $6.5 billion at its peak to a $1 billion marred by losses and cash-burn. SoftBank the shareholder in both Flipkart and Snapdeal was pushing for a merger between the two companies to challenge Amazon's dominance. Snapdeal's promoters were however adamant not to allow this merger to go through. The promoters spent enormous time and energy to re-vison the company's business model and more specifically what it should not do. The company cut down its diversified spread and focused to do only few things, but do those "few thinks' really well. It learnt the hard way on its twelve sub-optimal acquisitions that did not create value to the company; it divested business like Freecharge a wallet platform and its logistics business Vulcan Express, which were diluting its core business capability. It redefined its target customer segment to low and middle-income groups in smaller towns looking for lesser-known brands, but who consider them as high value and are ready to pay a premium, within a narrow price band. Building on this focus and positioning, Snapdeal diversified its seller base to include smaller regional manufacturers and traders on the platform. They stuck to the 'platform' or a "market-maker' model deliberately keeping out owning a seller arm like Cloudtail and WS Retail which Amazon and Flipkart excessively focused. Such asset light "market place' model helped Snapdeal become lean, agile and recover faster with lower operating cost and with highest revenue per employee in the industry. While it is fair to say that the pandemic did help and accelerate Snapdeal's growth, it was however its business model rejig that produced the winner!

While Snapdeal was reorchestrating its business model competitors like Flipkart were also fine tuning theirs; Flipkart strengthened its logistics capabilities through Ekart primarily supporting its captive business but with third party logistics steadily increasing. It has also moved extensively into on-line advertisements where it aspires to compete with the likes of Google and Facebook in the online advertisement space. These go to demonstrate that when the external environment is dynamic, business models need to keep pace with such change and dynamism.

Zomato again is a similar story where dynamism in its business model over time is clearly evident. What started in 2008 as a simple restaurant listing portal entered the food delivery and subscription business and is now foraying into the supply chain business of providing fresh produce including grocery, vegetables fruits and poultry to restaurants working closely with the farmers, under the brand "hyperpure'. It also collects the waste from restaurants, converts the same to compost fertilizers and gives them back to farmers; sustainability thus becoming a key component in its business model.

Agile organizations are those which respond to changes in market place at lightning speed; business models are re-orchestrated dynamically, staying closely aligned with the customers. Leadership in such organizations have ingrained in the DNA of its employees that change is inevitable and is the only certainty. Such organizations secure "employee ownership' to embrace such changes through high levels of employee engagement, motivation and incentivization. Business models are hence extremely vital for both start-ups aspiring to join the unicorn club as well as for those well-established unicorns, even if they have turned into decacorns. Once they lose sight of the customer's changing needs and fail to reorient their business models, their decline becomes inevitable!!

Dr. Suresh Srinivasan

Professor of Strategy, Great Lakes Institute of Management, Chennai

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