Start-up bubble?

In the last few days, the book ‘Disrupted: My Misadventure in the start-up bubble’ by Dan Lyons, an experienced tech journalist, has created a lot of discussions across the globe. Back at home in India, we see e-commerce players facing heat from their investors for the value that they create. Many companies have been acclaimed successful though they are yet to make profits. Some have been disrupting the market by providing their products and services below the input cost. They do this because they want audience or customers who are going to lead opinions and hence, consumption. Is this all for real? Are we on the cusp of another melt-down?

Any business needs a business plan which is an idea that delivers value to its customers and generates cash for its owners. In the dotcom age, many businesses had great ideas that created value for their customers but they did not have the ability to generate cash for its owners. So, beyond a point, the owners could not keep it as a one-way traffic. Even now, we could have situations where the cash flows are not sustainable. Sustainability of cash flow is dependent on how you do your mathematics well, how prolific the foresight is and how well the economics is executed. It calls for experience in running a business and a powerful vision. Every start-up might not have this!

Secondly, it is the execution which makes one firm different from another, even if the idea is the same. Business has a number of repetitive and tedious tasks which need to be performed every day with finesse. The leaders need to be operationally strong while they need to have a burning vision that inspires the employees and the investors. It is not often that you find a person who is a great visionary and at the same time, great in operations. So, getting the right rhythms in place is critical. In the amorphous, fun-loving, youthful environments that most start-ups pride themselves about, it is not easy to run work processes in a rigorous manner. While the start-ups attract a lot of youth and the norm is energy and fun, it is important that the leadership channelises these energies towards the deliverables of the organization. Do all the start-ups consciously drive this?

Last but not the least, most start-ups aspire to grow fast and do everything that is possible to drive growth.When growth is the only constant in the organization, several motions tend to go out of control. Inefficiencies develop, customer focus drops down, employee productivity see-saws and many such undesirable phenomena spring up. The leaders stay busy in pumping more energy and fuel to the organization ignoring some of these vital statistics of the firm. The danger in pushing the pedal harder is lack of stability and compromise in long-term strength. Many start-ups suffer from these as their growth rates remain high over a few of years in succession!

If you know a start-up, evaluate its health along these 3 aspects!