three management lessons

Flipkart devalued for the seventh time in January 2017. Snapdeal lays off 600 employees. Ola seeks 40% lower funding. E-com startups seem to be losing their shine while Amazon and Uber are flourishing in the same market. What is it that ails Indian E-com players and what are the lessons to be learnt?

1. Value is key not Valuation – Value is what the customer sees in the offering. Price is an estimate of what this value is worth in the mind of the consumer. Valuation is a chimera created by the just completed round of funding.

When a VC buys into a startup, it is like a blind bid in a poker game – more to tantalize the next bidder to raise the original bid. As the game progresses and more cards are revealed, one by one players “pack off”. If the worth of a company is assessed by the opening “valuation” bids, the subsequent players are sure to be disappointed. As in a gambling game, the winner always is the “bank”- in this case the original promoter (or the earlier round VCs) who walk away with the booty, irrespective of how the play unfolds down the line.

2. Customers are those that pay full price, all else are opportunists – gaining customers through deep discounts is never a winning strategy. It fritters away money that is needed to build business fundamentals- a good supply chain, strong systems and a better product.

All loser E-Com companies use VC money to increase the customer base through deep discounts. As a result, the company is never sure of the fair price for a product. When finally, the fair price is offered, the customer doesn’t feel it is right and shifts to the next discount offer.

Eventually the startup faces up to the reality that they have given away good money to attract false customers and not used the same to build their company.

3. Outflank the leader never take straight on. A Snapdeal can never beat an Amazon by hoping to play their (Amazon’s) game better. The leader has perfected the play. For every step that the follower takes, the leader has a tried and tested response play. Remember that the leader has his own arsenal, while the follower is fighting the war with borrowed (sic) weapons. Eventually the lender wants his pound of flesh.

Unequal battles have to be won with guerilla warfare. Change the nature of the game.  Force the leader to fight in an unfamiliar terrain. Patanjali’s fight against the MNCs is a case in point. Patanjali made the “herbal” play which the majors didn’t understand.  Their slick and shining campaigns were no match for a rustic sadhu with an unkempt beard. Having won the small battle on their turf, Patanjali could now take the fight to the enemy’s territory – with money and goodwill gained from their guerilla play.

Alibaba did the same. Instead of focusing on building a customer base, they chose to build a huge supplier base, one that was hitherto untapped.

“Differentiate or Die” was the warning of the marketing guru, Jack Trout, decades ago.

This is still true in the 21st Century. Differentiate, not only the product but also the approach to customer and business. Till our startups learn this lesson, the long road to success will see many Snapdeals and Little Owls of the world, breathing their last, along the way.

-Dr. C. Venugopal

Differentiate Startup Valuation

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