Tag Archives: Venture Capital Momentum

What’s Around the Bend?

I have been fateful to be in the midst of an unnerving pattern. A pattern which is not only an eye-opener, but highly intriguing as well.

There are these aspects to this pattern:

  • Perceived Disruption
  • Disruption Momentum
  • Reality Check
  • Regression
  • Coexistence

Perceived Disruption: These are the startups who make waves in the market by scoring giant funding rounds. They essentially start positioning themselves as major disruptors, before even they have fared a decent revenue and profitability bull run.

Disruption Momentum: The startups are now funded. I mean, they are now fat with funds. They plough their money into getting expensive offices, lead acquisition, over-blown marketing campaigns. All in the name of staying ahead of everyone else. Gaining the oh-so elusive market share, overnight.

Reality Check: The funders realize that they have burnt too much money in too many bets. They plan to curtail the outflow. They stop participating in follow-on rounds. This not only happens in one, but across most venture capital funds. Thereby, creating a domino effect. The fund crunch gives rise to mark-downs, office space consolidation/contraction, job losses and finally shutting down failed startup enterprises.

Regression: The so-called traditional, archaic companies that were fearing disruption with the advent of startups and their burgeoning funding cycle, now breathe relief. With the fund crunch and tepid investor confidence, these companies start taking advantage of the situation, by better preparing themselves for the future onslaught. With no option left but to perform, they start innovating as well. They become more proactive.

Coexistence: The startups which survive the reality check will slowly become large enterprises in the near future. Essentially, they will coexist with the traditional enterprises. They will become leaner, smarter, and be experienced enough to ascertain the ebb and flow of the market to better prepare themselves. Similarly, the traditional companies rapidly innovates to not get caught like last time, when the startups made serious dent in their businesses.

The ultimate winners are the customers who get to view this epic battle between the startups and traditional companies from their box seats, while the market provides a level-playing field where no one controls monopoly, and is driven by competition. Poor service, complacency becomes feedbacks of the past. Due to the fight for the customer’s wallet-share, the customers end up getting superior products and services.

Feeding the Cattle

 

Feeding_cattle_cotton_seeds

Way back in time when there were no farming machinery and automobiles, there was Arnold, who was a crop and cattle farmer. He just survived through the worst drought imaginable. It was tough going for him.  But, then the gods finally answered his prayers and showered with rain.

During the period of drought, Arnold had stored enough fodder to feed his cattle, which kept them in shape. The water for irrigation was managed from a nearby canal. The cattle’s job entailed – ploughing the fields, carrying heavy loads and water, and sowing seeds.

When drought was over and rain had dawned, Arnold started flourishing in farming, with record produce. He fed excessive fodder to his cattle, as an incentive. His cattle gained weight, due to the excessive fodder intake, and they became lazy. This negatively impacted Arnold. He meted out harsh treatments to them, and even took them to the nearby hills to get them out of their slumber. But, all his efforts went in vain, as they slouched even more, making it impossible for him to sustain the steady run of profitability.

He finally arrived at the conclusion that if he had fed the same quantity of fodder to his cattle, like in the drought, then he wouldn’t have had to face this day. So, he sold off his cattle to butchers, and with the money bought a new fleet. This time, he didn’t make the same mistake. He fed them enough fodder that kept them going, while utilizing every possible opportunity of profiting from the flourishing season, before drought stared upon them.

Now, put the above in context with the present day Startup ecosystem. Think about Arnold being the Startup, fodder being the Funding, the flourishing season being the VC Funding Momentum, the cattle being the Operations, and finally, the cattle’s laziness being the Cash Burn.

The bottom line is, spend enough, which would increase sustainability, safeguarding your startup’s operations during the rainy days (‘Drought’ in the case of Arnold). The market, talent, and customers are always going to be there, but it is you, who should be there to service and profit from them.

The race to market-share cannot be won by discounts, and pumping money into nonsensical marketing campaigns. Capturing market-share is a time-consuming affair. It has been only achieved, when models make way for revenues, and not your funding milestones. It’s the unit economics, the CLTV (Customer LifeTime Value) that should be the primary goals. Rest will follow automatically. As a startup entrepreneur myself, I have taken my oath to support my business expansion through internal accruals. Yes, Internal Accruals – funds generated from the business.

For the next few years, coffee shops would be my stand-in offices, cloud would be the go-to infrastructure, and growth hacks through informative insights and social media connect, would be my marketing apparatus. I will launch products and platforms, way before I gain critical mass. I will look forward to building an ecosystem by collaborating with partners for growth. I will plough back 65% of my profits into business expansion (‘Internal Accruals’ as I referred above) and also free up liquidity for my colleagues through stock option plans. I am sure, if I do this right, the media would find me, and I wouldn’t have to find them.