"Pain is my destiny and I can't avoid it," says Amitabh's character, Vijay, in the 1979 classic Kaala Patthar. It's a line that you'll surely relate to if you've ever founded and run a business.
I've navigated this path on multiple occasions myself. And despite facing half a dozen failures, I've journeyed on – finding comfort in Amitabh's utterance.
The truth is that 90 pc of startups fold up – almost always after hovering around the founder's ‘Pain Line’ (a term coined by Dan Martell, Founder and CEO of SaaS Academy).
The typical pain line for an Indian startup founder is when they have about 10 to 15 direct reports with Rs. 3 to 5 cr in revenue. At this point, most entrepreneurs make one of three choices: they try to find a buyer for their business, they sabotage it by veering off in a different direction, or stall because they’re scared to grow.
Increasingly though, founders are taking solace in a new opioid that promises to alleviate their pain – an opioid called venture capital. Much like pill poppers searching for a prescription, we are witnessing founders indulging in all kinds of financial gymnastics to get their hands on more capital.
In a Linkedin post that went viral, Amit Bhasin, Co-founder of GoMechanic, admitted to financial reporting errors. "Our passion got the better of us," said Amit, adding that the founders "got carried away" while trying to grow at all costs and made "grave errors” in judgment. Subsequently, 70 pc of the company's staff was fired.
There were at least two other instances of lapses in corporate governance in 2022 – Trell and BharatPe. Investigations revealed that the founders in these VC-backed startups had siphoned off crores of company funds. Trell racked up losses of Rs. 78.42 cr in FY21 and Rs. 268.34 cr while BharatPe's losses stood at Rs. 1,342 cr in FY21 and Rs. 5,594 cr in FY22.
With the onset of a funding winter, the repercussions of this addict-like behaviour are now in full public display. As per Inc42's layoff tracker, 22,919 employees lost their jobs at 78 prominent startups in the first two months of 2023. These include unicorns such as BYJU’S, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, MPL, Innovaccer, Udaan, Unacademy and Vedantu. With the winter getting worse, this number is poised to cross 1,00,000.
But how did we get here?
Earlier, the health of a business was measured in terms of free cash flow and profits. These acted as fuel for further growth. But profits are passe. The new holy grail in the eyes of the VC is PMF (product-market fit) – an all-encompassing term used to identify future unicorns. Got an audience borrowing forward-worthy jokes and videos on your app? It really doesn't matter if these users can't afford a dime. Got a million people paying their credit card bills and rent (which they anyway would) through your app in exchange for freebies? Bingo. You've got PMF. And with this PMF comes easy access to capital. This resulted in smart and well-educated founders pursuing goals that are divergent from the fundamental pursuit of value creation and profits.
A plea to my fraternity of startup founders
Let's give up the facade afforded by the large Series A and Series B rounds. We must reconcile with our greed, our flawed business models, our discount-fuelled numbers, our imaginary TAMs (Total Addressable Market) and our glamourous work culture. Apna time aayega – but let's get there through courage instead of bravado, grit instead of FOMO, and patience instead of a tearing hurry to jump on to the next shiny thing. Yes, it's painful but we need to stop avoiding it.
Most importantly, let's not sacrifice our young workforce at the altar of startup glory. Because their families are the only ones feeling the pain right now.
(The author is Founder, Housenama & Engrave Awards.)
