Black Truth of Startups – Cash Burn

The hype of startup seen nowadays discusses only about successful startups, but what about Startups which failed? Is it a question on validity of idea or Is it improper execution of Idea?

Black Truth of Startups – Cash Burn

The hype of startup seen nowadays discusses only about successful startups, but what about Startups which failed? Is it a question on validity of idea or Is it improper execution of Idea?

Initial Years of a startup are driven by energetic ideas exposed to viability and Mismanagement Risks. So Risk it depends upon two things, Firstly The Startup idea should be evaluated for sanity check to be practically viable, secondly newbie entrepreneur lacking much needed experience to manage the business effectively and efficiently. For Example, most of the startups in India tried to imitate foreign concepts with few customization as per our country like OLA was inspired by Uber, but if any of the concepts are not implemented properly, then we face Cash Burn and end up the startup. For Instance, in Western Countries, concept of Co-working space provides free Alcohol to lure Customers but in India, it does not seem attractive on account of our Culture.

Let us understand what is Cash Burn. Every Business needs capital to survive and flourish. In case of Startups, talking about viability if in case of a product, net contribution is negative, there is no chance of achieving break-even point, so forget about earning Profits. Though uncertainties like Covid 19 pandemic cannot be predicted, but what can be predicted for Valuation should be predicted utmost caution.

Startups emerged long before Startup Policy by Government was introduced. Since there was no regulator, Very thin line of difference was observed between Startup Idea and fraudulent intention. There are instances where the product idea is sold impressively, keeping investors in dark behind the curtain of Intellectual property right or business secret or similar bluff. For a while, there is no room for suspicion as the product is in developing stage, but when the truth gets exposed that there is no possibility of such product actually hitting the market, its too late to take any action. Dr Ruja from Bulgaria created a hype of cryptocurrency by organizing events and conferences at various places to promote her crypto-currency called One-Coin. She claimed that One-coin will beat and disrupt Bitcoin in two years, its safe backed by Blockchain Technology, material facts were manipulated like paid promotion done in forbes magazine was shown as if she was featured on Cover page of Forbes Magazine which was quite influential instantly so she solicited investment from people who had the appetite of quick returns. Eventual outburst of the fake currency unearthed fraud of five billion dollar ($ 5 billion) with which she is still absconding.

Out of 10 startups, only 2 are successful in such a way that they cover up the failure of rest startups, here comes the need of Start-up Ecosystem, to nourish and encourage Startups. Established on 27 January 2019, erstwhile Department of Industrial Policy & Promotion now known as Department for Promotion of Industry and Internal Trade (DPIIT) introduced Startup India Scheme after recognizing the need of Start-up Ecosystem and compliment Make-in India Scheme. They kept eligibility criteria, asked in detail how the startup is unique, how will it generate employment and revenue, Pitch-deck or working website is asked to understand the concept in brief before granting Startup Registration of any eligible Company/LLP. This scheme leaves ample space for all kinds of citizens to contribute, experienced leaders can become mentors, freshers can grab opportunity to become entrepreneurs, Government is providing various benefits such waiver in government fees, tax exemption and other lucrative incentives, Venture Capitalists after their due-diligence can be the early investors to pump in funding, Retail investors are the secondary investors in the long run. 

The best thing about Startup is that if you succeed, there is no one to command you, and the worst thing about Startup is that if you fail, there is no one to command you!

So here we have to adhere to principles of Corporate Governance, Inspite of raising huge funds through seed funding, usually this money is not used cautiously as the priorities are not clear. Meetings and presentations without any output, mindless imitation of strategies of Competitor disregarding SWOT Analysis, high payout to skilled staff not proportionate with their worth, for instance, in this IT era, Developers are in high demand, so they are hired accepting claim of their knowledge and experience regardless of output they are going to deliver, this results in procrastination and constant postponement of deadlines in launching the software or website.