THE GLAMOUROUS WORLD OF STARTUPS
“Start-up” is a popular buzzword today. And the words “entrepreneur”, “founder” have become so commonplace that every other person you know is dropping these around. It is considered to be cool and glamorous; I guess “Distance lends enchantment to the view” as Mark Twain once said. Though start-ups can be a lot of fun and excitement, they can be downright depressing at times. A startup, therefore, is far from glamorous.
It was the year 2014. After spending over a decade in the US, my wife and I decided that we would move back to India. I had, a few months ago, exited a successful startup that I co-founded – Mango Mobile TV, a streaming platform for Indians in North America and Western Europe, which had grown to several thousand subscribers. After the start-up exit, I held a leadership position in a major “Technology Company”. But I was terribly tired of the intense politics. And thus wanted to strike out on my own but this time, in India.
Exploring the start-up space! – The road to our first MVP
I initially decided to do a Fintech venture enabling repetitive payments for subscription services. But, it looked like a lot of the financial infrastructure – APIs from merchants, payment gateways, and others were still evolving. I continued to explore more ideas.
The goal that my two co-founders and I had set for ourselves was to make it easier for customers/users and small, medium businesses to manage their cash flows with ease. However, given the poor state of enabling infrastructure at that time, it was not to be. We, therefore, turned our focus to another SMB problem – generating footfalls or traffic to their stores. While the entire country was raving about online and eCommerce firms, it struck me that long-standing physical stores were disappearing without a trace. Unlike developed nations such as the US, India is home to a vast majority of retail businesses and establishments. There is a huge variety, vibrancy, and lots of genres and subgenres of products that are largely unorganized as they are not technology-enabled.
I was luckily able to look beyond the fads and understand that these retail stores. They occupied a unique place and catered to the local needs. Though this view seemed contrarian to popular thinking at the time, I decided to follow my inner voice and chose to focus on this problem for my startup. As I dug further, I found that JustDial and Tally had done some technology interventions for these firms. Yet, their impact was grossly overestimated. They had perhaps evangelized this space but no other startup or company had yet completely changed this space.
How An Idea Grew Into A Start-up!
Our team physically toured Bangalore, Hyderabad, and Chennai over a period of three weeks visiting all the malls and lots of physical stores. We met with over 2600+ store managers and staff to understand their pain points. Their concerns were near-unanimous – they were hurting for traffic and badly needed a way to organize and compete in a market where the rules had changed. A few retailers were overcome with the feeling that the complete collapse of offline retail had begun. Equipped with firsthand information about the market, we set about building a neighborhood deals app – Madzz – an acronym for Malls and Deals around you, to drive traffic to offline and physical establishments and businesses.
We built our first consumer-facing app in 93 days and went live with 3400 offline establishments in Bangalore alone. There were other one-city deal platforms at that time but nobody had the spread and depth that we had. Our app had deals and offers across 16 categories like clothes, food, apartments, cars, furniture, spa, and fitness. Our motto was – You shop and we shop the best local deals for you. Businesses loved the concept. And so we signed up almost every major mall in the city and several food and clothing brands.
We got featured in the Times of India and in another 90 days, we went live in 8 more cities, with deals and offers from 37000+ offline establishments across India.
So far so good.
Sounds like a great story, right? Read on
Turns out, all this incredible work we did was going to be undone by mediocre competitors, bad advisors and a few bad decisions. And the fact that I had done two startups prior and had a successful exit was not going to be such a big help. After the launch of Madzz, new offer-based platforms seemed to be mushrooming every week. Anyone who could hire a techie launched a deal app. Most of them had partnered with only a handful of establishments and were hardly prepared to scale, but they all launched nonetheless. That’s when we learned our first lesson in the Indian Start-up world.
Startup Lesson- 1: Clones will come out of every rabbit hole diluting your value proposition if you can’t achieve escape velocity rapidly.
We were bang in the middle of a huge hyperlocal trend. Also, we were driving some decent initial traffic and signing up exclusive deals and offers. We began to receive calls from funds and VCs. And we were advised that if we do a soft pivot into enabling local commerce, we could be funded by these VCs. We had a similar ask from the malls/stores we were working with.
Although, this wasn’t being pushed strongly, we were being nudged in this direction. That’s when we made our first mistake – pivoting into neighborhood commerce without an understanding of the size of funding required. We had achieved scale with Madzz on a shoestring budget with deal-enablement but commerce was a different ball game altogether. And we erred by following the advice of VCs who were happy to dispense “trend of the day” wisdom. All the while being disconnected from the market!
Startup Lesson- 2: In this pivot, I made one of the most cardinal sins a startup entrepreneur can make: pivoting from a good business that is yet to take firm roots and scaling early into an untested business.
When we built the first version of the Madzz App, we had done it with a team of just 5 people. When we ventured into neighborhood commerce, we had grown close to 20+ people. All this was funded by my 10+ year hard-earned savings.
We had certainly built a strong foundation and network in the deals space which gave us a lead over all others in this space. The one-city, shallow, deal-based platforms were either winding up or becoming irrelevant. A couple of these deal-based platforms got millions in funding and started throwing around money to acquire customers and merchants. We began experiencing user and merchant attrition. However, we were confident that this wouldn’t work in the long term as we were privy to the information. And these platforms were not really driving traffic and were indulging in data manipulations to show growth. In this context, we were still torn by the dilemma of whether to continue in the deals space waiting for the tide to turn or move into neighborhood commerce.
Accepting Failures Is A Part Of The Process!
After a series of discussions with merchants and consumers, we were convinced that the neighborhood commerce business would be the next big thing. We set about diligently building it and were seeking funds to scale up when two terrible things happened. 1) Our investors questioned the equity split of my co-founders and wanted it diluted. The argument was that since I was the only one who was investing money and all my time, it was only fair to bring down the stake of the co-founders because they had not made any investments and were actually drawing a salary. Unfortunately, this had the effect of breaking up the co-founding team and now I was left all alone building this. 2) We got only a very small sum as opposed to what we were seeking to raise, to fund our neighborhood commerce foray.
Startup Lesson- 3: No matter how many start-ups you have run, not everything will go right every time. That is why very few entrepreneurs have more than one successful startup.
Startup Lesson- 4: Do not have co-founders who don’t have skin in the game.
Startup Lesson- 5: Never take less money than what you truly think is the reasonable amount needed to build what you’ve set out to build.
So now that I have shared various reasons so as to why those ventures of mine failed, you must be wondering, “Ok, now, how not to fail?”. Wait on for Part 2 where I will spill the beans on how not to fail! Thanks for reading until that stay safe, stay happy, and keep scaling!