#60- Starting ≠ Succeeding

Starting is easy, succeeding is not

No sooner did we start treating successful founders like demigods did we start seeing rookies lining up to get showered by the same love and affection. But they missed a key point - it’s all about success baby! Industry rates two types of founders-

1. Successful

2. Unsuccessful

The reality is that we have not treated the second set of founders well. But what is the reason for that?

Today it is easier than ever before to start up. You can whip up code or set up a supply chain on your laptop, sitting in your pajamas, before your first cup of Earl Grey, just like Q.

And there is no dearth of venture capital (VC) thanks to subdued interest rates, and risk-hungry investors. Today, every type of investor, be it individual, growth, private equity, corporate, or sovereign, is chasing returns. At the same time, folks with excess discretionary income and wealth have started becoming the first investors as angels. No doubt, founders have no dearth of capital.

So why is it harder than ever for founders to become successful? Why is startup mortality rate so high?

It’s simple.

More money = more startups = more competition = fight to the finish

This leads to skewed economics. How?

The allure of business model making sense at scale. Take the example of food delivery. The cost of delivering food is higher than the income derived from delivering food. Wait, does that make sense? Oh no, you still have not factored in customer acquisition cost, technology cost, company overheads. Your grandfather would disown you if you pitched this business model to him.

However, all is not lost. The key idea is ‘at scale’ which means you hope to service more customers, retain loyal ones, spread your fixed costs across more deliveries, and eventually raise prices as well.

But the folly is - everyone thinks the same way. Hence, everyone is still stuck at acquiring customers. The thing about free food is that there is no free food! Incentivizing customers by way of offers and discounts may mean they’re only here till they can have free food off you. Once the free food disappears, so will they. And if you’ve burned your stash, how are you going to put food on the table?

Innovation is also habit-forming. Take food delivery or grocery delivery which has become so habit forming that consumers do not think twice before ordering. Internet penetration, rise of disposable incomes, increasing middle class, migration of single people and DINKs from tier 2-3 towns to metros are all going to lead to a habit forming generation - most startups are focusing here.

But a lot of money has been spent on this hypothesis. Numerous startups have come, bled, and died or been acquired. What does this tell you? Competition is a potent killer. If everyone acts like they have an infinite amount of money to burn, you will have to burn your stash as well. There is no running away from it.

Burning to acquire is not just one of the issues. As competition increases, hiring does too, which means good talent is scarce. One slip up at your startup may mean folks are ready with freshly printed CVs, and curated LinkedIn profiles to jump ship.

Starting a startup is easier than ever. Succeeding is a different cookie.