All that glitters may not be gold yet, but can grow up to yield gold in some time

Nay sayers are busy writing obituaries of Indian startup ecosystem in general and e-commerce startups in particular.  The frenzy shown by the venture capitalists of getting into the gravy train before it gathers momentum seemed to has ended.  The blame game has started.  I don’t want to waste your time recounting what could have been.  Let us look at what is likely to happen.  Unlike the majority, I don’t see this as a bad thing at all.  This will bring about a much needed rethinking and transformation in the ecosystem where only the right ones will thrive.    

It will be interesting to quickly review what is the likely scenario.  Whichever way you look at, there is one silver lining in the horizon.  While people are being blamed for blatant discounts, the garage sale approach to mounting GMVs got the public attention and the way of doing closing a purchase using a mobile without meeting the provider in person is the new norm.  In India, this was not the case a couple of years ago where ecommerce was for geeks and even for booking railway tickets you had around the corner agents.  Once the discounts start to reduce to normal levels, the demands for goods which requires touch and feel might go back to the older way of trade, standard products and services which customer don’t enjoy engaging in, will surely migrate to e-trade route.

• Pecking order of stakeholders will change. Successfully run businesses always stay focused on the customer.  In their pursuit of mammoths and unicorns, startups seemed to have got their focus pecking order wrong.  They forgot profits came from the customers and NOT from investors. While you are building out, cash-flows from financing may be significant, but they cannot be significant forever. At some time soon cash-flows from business operations need to sustain costs and growth. But everybody played out the ponzy scheme of benefiting from the next investor seem to have reached a logical closure.
  Result: The big promotions of e-commerce leaders have already started moving from only low price to the Product and Placement.  There will be significant strategy shifts towards creating new end products and services.  Suddenly all startups are talking in unison about path to profitability.  Most might change strategy post their next successful fundraising, I have heard even smaller and niche players talking about cost of inventory etc.
  Self Check: Are we going to be profitable soon? This is a difficult transition.  GMV multiples are things of the past.  Soon you will be asked about how soon you are going to be profitable.  This is the greatest thing to happen to Indian startup ecosystem.  The right questions are finally being asked.

• Only the meaningful ones will survive. The easy money approach had brought many thoughtless offerings in the market place. The formula of “collect a few techies to configure an open source platform, get inexpensive merchandize from China, get promotion money from VCs, offer best discounts in town and get next round funding from higher GMVs and as promoters laugh your way to the bank” is no more going to work. The startups need to solve a real problem most efficiently and more importantly profitably to survive.
  Result:  More innovative and real solutions than copy of models from other markets are becoming the norm.  If you are able to provide the best price, it will be because you PROFITABLY can and not because you have easy access to capital.
  Self Check:  Am I solving a real problem? You better listen to your most important stake holder, your customer.  Customer was / is and will ever be the king.  Solve their challenges for which they pay you more than your costs.  All else will follow.

• There will be more focus. Rather than being everything from a discount store to a market place to a logistics provider to an innovator to an investment company to …..  You will survive only if you do what you do the best.
  Result: A few focused companies will emerge who can go on to claim world dominance in their line of business.  You are already starting to see that in ancillary functions of e-commerce companies.  Too early to spot a trend though.
  Self Check: Is my solution potentially best in the world and what should I do to reach there.

• Focus will move towards IP and localization: Intellectual capital will once again be at the center stage. Easy access to financial capital during the previous phase meant, startups whose very essence is to have abundant and thriving intellectual capital, were able to overcome the intellectual short comings by paying their way out.  This has resulted in weak intellectual organizations who were more focused on the sizzle and not the meat.
  Result: There were a few players who were creating IP to solve local problems.  They will be more in focus.
  Self Check: Do I have an IP strategy?  If you don’t start thinking in this direction, you are already late.  This is going to be your primary pitch to investors going forward.  Eyeballs, GMVs etc will remain very slippery for quite a while to come till next avalanche of easy money is available for your vertical.

• All eyes on execution. Any startup idea is just an idea till its executed to perfection.  Pursuit of perfection would not possible without hands-on approach by key people.  The “rock star” approach to talent meant that doers were over looked for dancers.  There were many short lived wacky ideas while the need was sustained focus on execution of core offer to the customer.  It is ironic that, when the whole world looks to India for execution, some of the capital excess startups were going to developed markets to design and execute solutions for India by experts who have only seen a homogenous US market.  This is bound to change with more local leaders who have track records of execution replacing imported idea gladiators.
  Result:  More and more doers are in demand.  This is the greatest news in the entire shakeout.  People who can deliver will now get to set sail and skipper the boat.  The change will be for everyone to see.
  Self Check: What percentage of your team are doers? Most importantly, are the doers in decision making roles.  Commercially successful organizations will empower doers and team them with ideators and have co-owned metrics.

• There are and will be mergers some willful, some forced. Some of the startups which have complementary offering for successful traditional businesses will be taken over.  We saw one on in the jewelry vertical.  There will be more.   There will be some mergers where partially successful startups will decide to put the resources together and improve the chances of successes.  This is a welcome sign for the consumers for sure and ecosystem in general.  Consumers get better choices, complete service from single provider and possibly viable alternatives.  For entrepreneurs, their risks are being paid off, though partially.
  Result: The offering will become better for consumer, the startups will become nimble and mature and investors will retain the chances of positive returns.
  Self Check: Do you think you can go it alone?  Answer this not with brawn but with brain.  If the answer is no, there is no harm in being proactive and reach out to possible suiters.

• Applied innovation will be a necessity: In the name of innovation many startups may have had us startled, made us laugh and even intrigued.  Most innovations were aiming for eye balls and news value.  But going forward innovation will not be a function but a core idea and will be more merged with the product. 
  Result: Many firsts in product innovation which really make the difference.  They are rare now, but soon they will be every where.
  Self Check: How can I improvise not incrementally but in large steps?  If you are looking at very limited options, start wearing your thinking hats and break through shackles imposed by westerly / traditional thoughts.  It is not a choice any more.  Innovation is going to be primary task of the leadership team.

References:

1. Slowdown in Funding Takes Bite Out of India’s Startups – Wall Street Journal (7 Feb 2016)
2. Why senior executives are quitting startups to go back – Economic Times (10 May 2016)
3. Startups begin to renege offers – Economic Times (10 March 2016)
4. Titan target e-biz, takes over CaretLane – The Hindu (7 May 2016)
5. Snapdeal takes over Fashiate and FreeCharge – Mint & Business Standard (2015-16)