How Indian entrepreneurs should strategies their business in order to avoid crisis or fund crunch.
By Nandini Mansinghka
In India, the startup ecosystem has developed into a significant contributor and is now being touted to be a key driver toward our national ambition of hitting the $5 trillion mark as an economy. The government’s support, expansion of our talent pool, and a culture that encourages entrepreneurship are some of the fundamental foundations on which the Indian startup ecosystem is constructed. Another key pillar of support is the availability of funds through various investment sources. However, based on CB Insights data, 47% of startup failures under study in 2022, were attributed to the lack of financing, and 44% of failures were accounted for running out of cash. Considering that the availability of the right amount of funds at the right time is at the core of sustaining startups’ lifeline, here are a few essential ways to effectively plan and manage funds for safeguarding ventures from funding crunch pitfalls.
Bootstrap, if you can, to kickstart your ventures
The most common mean of initial investments in almost 92% of the startups has been bootstrapping, says an unofficial report. Bootstrapping means saying no to external money in the initial stages of venture building, where the founder uses personal savings or financial support from family & friends or plows back company revenues to fund cash requirements. The option of external funding is mostly sought later through the growth stages of the venture through Angels or VC route.
Some of the Indian startups that have made it big through a deliberate bootstrapping stance through the early stages are GrabOn, Zoho, HappyFox, QuackQuack, Thinkpot, Zerodha, etc. The culture of sheer grit, simplicity, and frugal spending defines these bootstrapped ventures that have clung to adopting creative & cost-effective strategies that bypass expensive means of running operations from hiring to marketing. By passing on the benefits of cost savings to their customers, such as competitive pricing, exceptional product features, etc., these startups have delighted their users and have garnered a competitive edge for themselves in an overly competitive market.
Choose profitability over growth
Although the startup’s exponential growth trajectory reflects its underlying true potential in making predictable and consistent money, a careful pursuit of growth is critical as the funders habitually dive in to evaluate the scope of profit in these growth projections. Thomas R. Eisenmann who is the Howard H. Stevenson Professor of Business Administration at the Harvard Business School, points out that it is possible for a startup to grow too fast in a direction that can be chronically unprofitable.
Growth projections come with a huge commitment of proportional resources. Investments in resources like personnel, marketing, advertising, customer acquisition costs, etc. can be a huge cash burn, and may not be worth pursuing unless the startup is 100% confident about its market scope, unit economics, and the core metrics that they should be improving upon in order to survive the intense competitive pressures. The survival of startups through the initial years could be a daunting task considering only 2 out of 10 survive the first year of operations, but there are success stories that have made it big with the execution of wiser tradeoffs and realistic scalable business models.
Raise funds keeping in mind the long waiting times
In times of increased investor scrutiny where investors get more cautious about valuations and ask more incisive questions aboutthe business model, and the path to profitability, the process of acquiring funds can take longer. The time lost in acquiring the critical funds can trigger a spate of disasters narrowing down the growth prospects of budding ventures.
The preemptive approach of foreseeing the fund requirement and raising funds in a timely manner over the ‘Wait-and-Raise’ approach will certainly safeguard ventures from short cash runways. Additionally, a well-prepared business plan detailing business contingencies showcases an entrepreneur’s foresight, a must-have parameter sought by investors, among others, while taking a bet on the choice of ventures.
The cyclical investment scenarios are inevitable in the startup ecosystem landscape and require founders to brace with unique strategies that are suitable for times of superabundance or receding funds. While revisiting long-term goals on the basis of changing market scenarios is absolutely critical in every funding scenario, a vigilant outlook for controlled expenses, and doubling down on profitable streams has successfully built resilient businesses amidst uncertain times.
(The author is Nandini Mansinghka, CEO of Mumbai Angels, and the view expressed in this article are her own)
