A WORD OF CAUTION FOR THE START-UPs

It is great to see hundreds of enthusiastic creative youngsters trying to live their dream and start their own ventures. The start-up culture is picking up in India and has seen a reasonable success. Many like Paytm,Ola, Zomato, Cure-Fit, Bombay Shaving Company, Native Chef, etc have seen a reasonable success. At the same time there is long list of failures. I am not here to discourage the idea of start-up but based on my limited research and hands on experience working with few start-up firms, I wish to express a word of caution and talk about possible pitfalls leading to a failure of a great idea or potentially successful venture going nowhere.

The studies conducted by Forbes across the world and Institute of business value & Oxford Economics in India suggest that 90% of the start-ups fail within 5 years of its inception. They don't grow to make it big. There are many reasons for failures such as lack of unique idea, IPR issues, finance, marketing etc. I wish to talk about entrepreneurial ventures with initial phase of success but have failed to capitalize further and pitfalls leading to the limited success or failure.

I feel there are two major reasons.

1. Failure of success
2. Satisfactory under-performance.

Both these concepts were elaborated by Dr. Sumantra Ghoshal in his best seller, “Managing the Radical Change”.

Failure of success

We are aware of famous phrase, ‘Failure is the first step of success’ at the same time, the critical analysis of certain cases show that the success could also be a main reason for failure. Therefore, success could be a step to failure. Let us examine this phenomenon. 

It is important to note that, it is easy to handle failure. The Firms are aware of the reasons for failure and also know, what the key elements that lead to the failure. It is exactly opposite in case of success and it is difficult to handle.  Things seems to be under control and what I call it as "All is well" syndrome sets in. The firms’ tent enjoy the success and attention that they receive, which is natural at the same time we can't afford to ignore issues which need attention. Even if it is smaller problem, it need to be attended and resolved.

There is hierarchy of success leading to failure. Success may lead to Complacency, which is 1st stage. The firms start believing that that they are doing everything right. There could be a tendency of ignoring suggestions by mentors, critical views of well-wishers and denial of the possible problem area.

This is 2nd stage i.e. Denial. This would lead to escalation of problem and a smaller issue turns out to be major hurdle in the growth of the firms. At this stage there is propensity of finger pointing.

The 3rd stage is Finger Pointing. In this stage, the firms accept that there is a problem but believe that there is nothing wring within the firm and start blaming factors outside the firm for such problems. Which is perfect recipe for failure. Hence, success may lead to complacency that leads to denial, denial leads to finger pointing and ultimately ends up in failure. Let understand this phenomenon with a case. Nokia is a classic case of Failure of Success. Once an undisputed market leader had to sell their mobile hardware business to Microsoft. At the core of this failure was failure of success. The market leader Nokia continued to manufacturer the feature phones when the market was moving to smart phone business. Firms like Samsung, Sony had started adopting android platform whereas Nokia continued to use Symbian OS. For a very long they were in a denial mode which ultimately lead to failure.

I feel all start-ups must remember this pitfall and make sure that they don't fall into this trap. They must be alert about small issues faced by the firm and avoid living in the glory of success. Enjoy the success but don't get blinded by the success.

 

Satisfactory Under-performance

The second issue is Satisfactory Underperformance. Not many start-ups end up becoming as big as that of Paytm or Ola etc. If we analyse the reasons, we realize that most of the start-ups are happy with the small success and don't scale up to make it a big achievement. There could be many reasons but one issue that I wish to highlight is Satisfactory Under-performance. This is linked to the firm’s assessment of the Ecosystem, Peer Group & Competition. You must have heard the ancient phrase, कूपमंडूक - frog in the well, for the frog the well is the world. The same may happen to the start-ups. This happens because the assessment of success is relative.

The Firms’ judge thier success based on comparison with others whom they consider as their peer or competition. When the firm is doing better than peer competition, then the tendency of contentment may creep in and they are happy with limited success. This may results in slow down and firms limit their efforts to scale up and stop aiming at higher orbit. It kills the appetite for growth and ends up dwarfing the success. It is important to be vigilant about what business the firm is in and what is considered as competition. Identifying direct and indirect competition is imperative.

There are many firms which began its operations in late 60s almost at the same time as that of Reliance Industries but very few have seen success that Reliance Industry has achieved. The difference could be satisfactory underperformance. Many had the capacity and possibility of becoming big but they did not. It is matter of investigation and research. This hypothesis needs a testing.

It is important to keep these pit falls in mind so that the start-ups can avoid these traps by being cautious.

I wish all the youngsters and particularly the start-ups, the very best. May India become a start-up hub of the world. We have talent, capabilities and skills. It is the attitude that needs to be shaped.

 

Thank you.

Dr. Sushant Joshi