Is the ‘Anything Works’ StartUp Story Truly Over?

Let me admit – it’s kind of grapes turning sour.

5 years back I had approached IAN (Indian Angel Network) for a measly Rs.18 lakhs for seed-funding my proposal of creating bite-sized video lessons for school students in India, which could later be expanded to cover other fields.

In their immense sagacity they turned down my proposal on these 2 grounds –

1. Need to strengthen the differentiator/ Entry barrier
2. Concerns regarding scalability of the venture.

Jargons. Jargons.

The fact is, many companies in India took in gigantic funding from angel investors to start crowdsourced e-learning ventures, and have failed miserably.

Same is the story in some other countries.

Except for few companies like Udemy with 10 million+ students, or Skillshare with far fewer students, the model of crowdsourcing e-learning courses hasn’t done well for others.

The reason isn’t difficult to guess.

Getting courses is one thing. Selling them is quite another.

And selling them consistently over a long time is an altogether different game.

With that in perspective, expecting course teachers to bear the burden of bringing in students is simply amusing and unreasonable.

Udemy’s model works because instead of charging course creators for anything, it makes every effort to sell their courses first, and then share the revenues with them. This creates a goodwill effect, prompting the course creators to try bring in more students on their own.

Most e-learning ventures failed to decipher the writings on the wall. And they faced another problem.

The contents they acquired from the creators were not unique – meaning the same course was offered by the course author to multiple websites. And also in his/her website.

Imagine the plight of these fund-supported companies facing competition and uncertainties they didn’t know existed!!

Yet the venture funds and investors competed with each other chasing them, and they chased a host of other ‘bright-looking’ ideas with bagful of money…unmindful of the differentiators and scalabilities (Ouch, it hurts to even write those high-sounding words!)

For them it was like the good times would never end. Well, the good times now seem to be ending.

For me the consolation is, not a single company of the type I proposed to IAN has come up yet to the best of my knowledge.

And so in hindsight I feel the guys who decided that my proposal needed to strengthen entry barrier, didn’t understand the business model at all.

Has the game changed? Are the startups failing?

This is a tricky question, but an honest answer will be like this:

If a startup is dependent solely on the doles from outsiders for survival, then certainly its days are numbered.

This is not something to rejoice, but if you look around you’ll see some churning is surely taking place.

In India for example, close on the heels of government’s recent startup initiative, news has emerged that the valuations of biggies like Flipkart and Zomato have been substantially reduced, and that the premier b-schools are getting less and less e-commerce placements.

The likes of Flipkart and Zomato are big companies with huge valuations and high stakes, and therefore I guess there must be some ways out for them.

For weaker companies there are tell-tale signs of chickens coming home to roost.

The picture is hardly different in the US. Business Insider reports that the steroid era of startups is over.

Sequoia’s Alfred Lin says –

The venture community has realized that a number of companies were funded at valuations that were far ahead of their fundamental progress as businesses, and that some of those companies are not actually that great fundamental businesses.

And Keith Rabois of Khosla Ventures puts it eloquently –

I wouldn’t say the easy money’s gone, but the price of oxygen has increased.

So how good is a business if it can’t survive without a prop?

This is a million-dollar question.

In their eagerness to dole out money to the (un)fittest, the venture funds have cultivated a genre of startups who can hardly survive without generous props from outsiders.

I can’t help but recall Gary Vaynerchuk’s advice for first-time entrepreneurs –

They are so well funded that they don’t build up the necessary muscle to generate revenue. They are so used to the idea that losing $150,000 in burn rate is “fine” because they have a funded company. Most of their attention and behavior is focused on raising their next round instead of building an actual, profitable business.

The bottomline

No matter what your business is – building supercool apps or selling street food in kiosks – if it doesn’t have a viable, rooted-to-the-ground model of surviving the rough, you’d better abandon it.

On the other hand, if your objective is to enjoy a decent monthly salary from someone else no matter what, just prepare a nice chummy project report and dangle it in front of the venture funds.

Someone will take the bait, though the going is now considerably tough than before.

Then, once the money is in, damn the report, damn the promise.

Make merry as long as it lasts.

And take solace from no less a person than Einstein who said –

A person who never made a mistake never tried anything new.