STARTUPS : A SOCIAL TALE

At a primal level, we have adapted to whatever hierarchies we’ve been put into, dissected ourselves in various tribes, people belonging to multiple tribes come together to form unions.We share collective knowledge and base our identities on individuality, in simple terms we’ve come a long way from building a tribe having its own culture, values, ambition and stories to having unicorn startups leveraging on strong financials, mission, ethics and employees.

From an evolutionary point of view startups are essential as a social group that make it work together but what is uncommon is that startups stand for something much more valuable. In reality we start debates of building value earlier than expected, startups recently have focused more on social paradigms rather than having an organic revenue. A slight differentiation between being a social group and a startup is the expectation of people that startups may bring something productive on the table. Revenue is a prior item on the list because it forms a base for profitability if we rule out income tax regulations and ease of doing business.

As classified by Startup India initiative, there are certain stages for a startup and before registration you have to classify your business into any of these categories;

1. Ideation-Every business starts with a critical thought loop which kick starts over a period of time, an idea.Ideation of setting, procedure,networking and marketability are initial steps for starting a business.A movie’s story is an idea but for writing a screenplay you need put in a lot of work plus execution, same goes for a startup. Like it or not, most of the bestselling magazines’ quoted new businesses have failed to deliver an ironclad idea for solving any real world problem but still they are pumping on leverage.Why? Later on this.  
   
   

2. Validation-Market segments in some industries are extremely distorted or tightly organized.These polarities can be avoided by pilot experimentation that can help you locate your product.After positioning, you can observe if your idea is getting validation in the real world or not.Big money by investors pressurises the promoters to generate revenue much earlier, afterwards when operations are ongoing, it pressurises them to raise another rounds to keep the show going and that’s why proper validation for an idea takes exit most of the times today.

3. Early Traction-Key performance indicators become crucial at this stage as your offering to the world starts to take off. Arrangements regarding mobility of product/services, feedback loop, app development etc. takes place in this stage as you keep redefining your objective and catering to the market captured.
   

Feedback is extremely necessary, more than validation, as now you are getting absolute measure not relative or ‘before the market review’ of your product/service.

4. Scaling-Now you realise that time has come to make your next big move, often concerned with growth of the entity.You delve deeper, use quality measures and invest in resources by ploughing back profits.This stage is often known as the master stage because it will put you into test zone. If your product was not worth it, still you managed to capture the market, be fortunate but when we talk about scaling saturation point comes before expectation.
   

Don’t hope that people will demand your product at scale but do expect that they will need your product at scale and be ready for that.

Finding out the nature of leverage in a company is an essential aspect to dive deeper into the modern arrangements for a successful or failed entity. We rarely see an organisation surviving purely based on organic revenue out of the angel investment capital. Most of the companies rationalise further rounds of funding as growth oriented. Most investors, despite investing in loss making businesses keep justifying their investment based on finance arithmetic but what part of such investment does work? Cash burning organisations are multi-faceted i.e. they have multiple operations going on, some of them have positive net present value while other operations have negative net present value but in the end they are making losses i.e. negative net present value overpowers.

But while we have to scrutinise why these companies attract investors, we have to understand that losses are related to the capital. Capital and valuation of a company are separate.Investors concerned with long-term operations of the business are also concerned with capital whereas investors concerned with short-term market share of the business are also concerned with valuation.Investment decisions are based on investors’ risk-appetite of course but they have to choose on a very fundamental decision that is to take risk in the long-run or to ride the short-run risk wave.The assessments of capital based on losses are obvious and no one will invest in a startup making losses in long-run unless convinced through potential profitability.

But we definitely have one parameter to make decisions which have uncertain externalities.We started off seeing startups from the perspective of a social group and that’s what they really are primitively.The optimal position in the social hierarchy is that of a founder.

A founder has the power to lead,disrupt the market with aggressive strategies and infuse innovation at every turn.So, it is better to bet on a founder than to lose money finding leverage. A founder is an ultimate leverage for investors because all decisions are borne by the critical thinking of that one person. He may waver and fail or consistently pave his way to a substantial and contentful startup justifying the need for raising every round and even turning it into a unicorn.