How Not To Fail In The Glamourous World of Startups
PART 2: NO STRUGGLE = NO PROGRESS and NO FUNDS = NO SCALE
Here is Part Two of our pervious post. I described, thru my experiences “How I Failed In The Glamourous Startup World”. If you have not checked that out do so by clicking the link below!
I was determined to build the firm with or without my co-founders. Before moving ahead, we had to scale down the sectors we were going to be in. As a small startup like ours could not enable 16 sectors, even for one city, let alone an entire country. We spoke to lots of users, looked at our data and businesses and zeroed in on Fashion and Lifestyle as the segment to be in.
We also decided to change our name from Madzz to Flit based on the advice of a brand consultant. The fashion and lifestyle market was $44 Billion in size. Also the largest player had only 1% of the market share and all our initial hypotheses about uniqueness, vibrancy, discovery, value creation and organization through technology was validated. And since we were not focusing on large brands which were everywhere, although they were only 2-3% of the market, we had a big market to go after. Our challenge though was that there was no enabling infrastructure such as images, product data, APIs etc., available. This was largely true for deals and offers too, as even large brands had no APIs to provide deal data or Point of Sale integration to enable them.
Desi Indian Jugaad!
Until this time, we had overcome this problem in a typical Indian ‘jugaad’ fashion. By putting in place a team of executives that would call thousands of businesses and hundreds of brands every day and manually verify and update the deals and offers. It was manually intensive but it was still manageable. But the data and enabling infrastructure needed for fashion and lifestyle was slightly different and on a much bigger scale. We needed images, product data, pricing, inventory information for hundreds of brands and businesses. This did not faze us as we set out offering to do all of this ourselves and for free.
We created our own operations staff to do all of this. We also wrote POS modules to sync product information, inventory data and pricing information. While merchants were a mixed bag of enthusiasm, indifference and negativity, we went live with 300+ brands and did a decent Diwali sale supported by discounts and offers. Based on our investors’ prodding and the advice of my sales head, we offered deep discounts like the online biggies.
That’s when it reinforced my belief. That unless you have a very rich VC relative, discounts and offers don’t create any stickiness. It will in fact distort the value equation of what you’re building! Moreover you won’t know what the customer is validating.
While all of this was happening, I had run out of my savings and we had just one additional month of funds. Our second tranche of fund-raise from our investors was due. Plus I was expecting that with this raise, we could last another 4-5 months by which time we would be able to raise money from all those VCs that had promised to back our firm if we ventured into neighborhood commerce.
But the best was yet to come. At the end of January 2016, when the second tranche of funding fell due, my friends/investors informed me that I shouldn’t be expecting this tranche. The funding winter had set in. We were short of funds to finance our payroll for that month and had close to forty employees to pay. After pondering on how to handle this situation, I decided to come clean with my staff and shared the news of the investors pulling out. I promised to pay them for that month and asked them to start looking out for jobs immediately.
The End? Not Quite!
Was that the end of Flit? Not quite. I was not going to shut shop when I had barely begun. I was going to see it through. We had our rental advance. So, I decided to keep a small tech and ops staff to build on the learnings and continue building the product from this rental advance money.
We moved to a smaller office which was a block away. Over the next few months, we offered digital marketing and brand-building services to small brands and designers and used that to fund our skeletal staff and build the business. We achieved some of our most critical breakthroughs during this period when we had no funding. We had a small team of four people. Yet managed to achieve more breakthroughs than when we had money (although never a whole lot). We discovered hundreds of unique indie brands and designers that were waiting to be “discovered”. And we discovered the concept of pop-ups to bring traffic and business to these brands and designers through “boutique” locations across the city.
We discovered that we could truly build an alternate distribution network to help these small brands grow and multiply. We found hacks to prevent us from investing in expensive photoshoots and product data inputs by enabling self-service and conversion of social posts into product posts. In short, we gained a lot of insight during this period of 2016-2018 when we barely had any money.
Bitter Sweet Results
We started making as much money in one pop-up as we would in a whole month of providing effort intensive services. These pop-ups created more footfalls than any discount or offer could. We had found a lot of hacks but we had not hacked funding. When we started Flit, there were 65+ companies that were all trying to do something similar but with large brands; unlike the indie and designer brands that we were focusing on. A lot of them had 10 to 500 times the money and funding we had. But none of them came close to doing even 10% of what we did. Thus most of them shut shop way back in 2016 when the funding winter set in.
We had our successes but it was clear that we would continue to operate as a small business unless we had enough money to scale. And I had ambitions beyond that. . So, where is Flit now? My technology director and operations team were also not willing to wait any longer for this to “succeed”. We had all made sacrifices and I decided that we should temporarily close down till we obtain funding. That’s where Flit is now – in the form of a seed..waiting to be watered and nurtured.
So, should you build that Startup you have in mind?
If you believe you have a unique insight, you can build a meaningful startup in India and create value. Due to a nascent and heterogeneous consumer base, that is buttressed by large-scale, ethno-cultural differences and a lack of enabling infrastructure, building a start-up takes time and a deep understanding of the market.
The investing community is also largely driven by global trends. So they often do not value what’s being done in sectors unique to India, such as the mass retail industry. This makes your life a lot more difficult.
But if you focus on your start-up with these caveats in mind, you will build a business and an organization that’s built to last.
Bootstrap, but raise enough at the right time to last in the long run. Make that startup idea a reality!