Yogendra Vasupal is the founder of Stayzilla. It is another start-up in the Indian market which was doomed to fail since its creation and recently it shut down. Most of the start-ups in India including businesses like Flipkart, Swiggy, Myntra etc do not have a sensible business plan.
There are some internal and external factors which result in the failure of these businesses if not now then in a future date. Let’s look at these internal and external factors:
- Overpaid Employees: Swiggy pays Rs. 20,000-Rs.25,000 for the people who deliver food. This is a job that involves no real skill except operate a mobile phone, drive to the restaurant to pick-up food and deliver to the address which they need not search for either and can simply rely on GPS. Why pay them so much? It is a job which is menial in nature and does not deserve so much compensation. I have learnt from experience that you get paid more only if there is more work. This applies to the skilled jobs too. Engineers are paid upwards of Rs. 20 lakh per annum just to code at PayTM.
- No sustainability factor: How often do you see big brands like MegaMart or even Max do events like Big Billion Day? These businesses are very clever to ensure that they don’t give very high discounts which eliminate the profit margin. They are wise enough to avoid expenses which cost 100s of crore. It is okay to spend on marketing expenses. But it is not okay to spend on practices like The Big Billion Day where they always make less than what they spend. I understand VC funds are coming in by the millions or even billions. But that does not mean you spend it on trivial expenses like office renovations, celebrities etc. Any business should invest their capital on production, innovation, and sustainability for the long term. Advertising is something that should happen post establishment of a stable profitable business.
- Marketing Expenditure: A big chunk of the VC money is used for marketing. One of the wasteful expenditures are spending Rs. 35 crore to have Shah Rukh Khan promote Big Basket. There are numerous well established medium and small scale companies that have been thriving for decades without having to spend on marketing. Heard of Alubees Die Casters Pvt Ltd? It is a medium scale company which makes automobile components. They have been very successful in making profit and they have not spent a paisa on marketing. It is entirely word of mouth even though it is a business to business form of transaction.
- Lack of Focus: Before I speak about start-ups, everyone wants to show their glamourous side and take the real issues and slide it under the carpet. Airtel spent Rs. 300 crore in their logo changing phase. This could have been spent in improving their telecom infrastructure which is critical due to the increasing number of customers. Remember the call dropping incident they had to endure recently? One of the biggest challenges faced by these online retailers is that customers do not trust if the product is genuine or not. This is an important matter to address, not making advertisements with children voiced by adults. Only recently did Flipkart start putting dealership certificates on their website. Why weren’t these there for the last few years? I know you kept saying that it is original but what was the proof of it?
- Top Management: One Bansal is the CEO, before he was CFO. Now another Bansal has become group CEO. Big companies like IBM or Google don’t make such changes so often and also don’t have ridiculous top management designations. It is a sign of instability. Snapdeal and Flipkart are rivals. I don’t even understand what they are fighting for because both these guys are in a sinking ship.
To be continued…