What makes a startup successful? Innovation coach Lakkur explains

The country has registered more than 80,000 startups till date. Over 2,000 startups shut their shop in 2022 itself. The number game has witnessed a roller coaster ride over the period, notably in the previous year. More than 20,000 employees were laid off last year, led by tech startups. India counted the 100th Unicorn, mid of last year, amid very few making profits and with a visible downturn in startups attaining-retaining the status itself. From 2018, startups have garnered $100 billion in venture capital funding. The overall funding declined by 33 per cent to $24 billion in 2022 as compared to the previous year. Private Equity and Venture Capital investment fell 63 per cent year-on-year from $5.2 billion to $1.9 billion in January 2023. Will the startup ecosystem this year move at a slow-paced growth or gather momentum depends upon several external influences. However, an important question that needs to be addressed right now is about the founder’s quitting their position and entrepreneur’s taking the back seat. To redirect an entrepreneurs focus towards their aim of establishing the startup in the first place, innovation coaches’ guidance and pep talk, come in handy.

In an exclusive conversation with Bizz Buzz, Naveen Lakkur, a serial entrepreneur turned Innovation Coach speaks about the fundamental philosophies of the startup ecosystem. Lakkur has been a catalyst in transforming over 250 ideas into commercial reality. Through training programmes and workshops, he has inspired more than one lakh professionals and students on the entrepreneurial path. Through his coaching, human capital of Dell R&D, Mercedes Benz Research and Development, Standard Chartered Bank, TCS Health Care, FujiFilm Sericol, Crimson Logic among others have set on the path of innovation. Founder of Institute of Inspiring Innovation, Lakkur is also the author of bestsellers ‘a Little Extra,’ ‘Inseparable Twins’ and ‘Found.’

Your take on the current Indian startups…

Earlier, India wanted to play the safe game, hence the country built itself into a service market. The IP’s are the game changers that will bring in more wealth and value. The product development market is lately strengthening in the country and yet, has a long way ahead. Developing what the market wants has always been the philosophy of the business. The entrepreneurs are mentored to take the approach of ‘Quick and Dirty,’ wherein startups take their product/service to the market at the earliest, learn from the market and validate with the customer. As, fail cheaply and quickly are smart failures for entrepreneurs. But if they cannot attempt again then what is the use of that failure. Unfortunately, Indian education system teaches at stretch about success leaving behind lessons about coping with failure. Strategic decisions should not turn out as a costly lesson; lately the trend in the ecosystem is speaking volumes about the result of an entrepreneur’s decision.

The market trend says Unicorns are bleeding. If not a strategic decision, is the absence of profit a matter of concern…

Drawing the gist from my book, Inseparable Twins, I would like to say that ‘Unicorn and Profit Making’ are whole and complete by themselves, they are like two sides of the same coin, but when they come together they unleash new power. Unicorn game is driven from an investors perspective where value is created for investor in making notable exits, otherwise it is not possible for them to exit if the startup is making 20 odd per cent in profits. Unicorn by itself is an achievement and celebration. But ultimately business has to make profits, unless it is a strategic decision wherein the end is merger and acquisition. Investors go after valuation as they want to capture the market. Sustainability comes with profit making. Profit is not an option if startup has to sustain. ‘Valuation Vs value’ - unicorn and profit making are the two sides of the same coin for startups. If there is no value what will you do with the valuation and if you have value, valuation multiplies the business. If startup has to be a sustainable business the entrepreneur cannot run behind valuation taking his eye off profits or value. The combination of both would be the best to happen. If startups are surviving on the back of pure valuation then that is because of the investors backup which will dry up one day. In the recent case of Zoho, it is a best example of being a unicorn and a $1 billion revenue making company. Earlier, such role models were not present to show the path for startups to achieve both valuation and value. In certain cases, being a unicorn is a strategic call for capturing the market and later place the startup up for acquisition or merger, but a revenue model, in any given case, has to be thought through. Investor gets value, the business sustains and customers are happy if, ‘Unicorn and Profits’ are achieved in tandem.

What is the best choice, replicating an idea or being innovative?

In India, there will be three models prevalent in the startup ecosystem – Indianising a global idea, innovation after understanding the local market, and the third one is make it locally serve globally, such as the SaaS platforms, or handmade products. In the global perspective, 91 per cent of startup ideas fail and only nine per cent succeed. In the Silicon Valley, investors prefer to bet on an entrepreneur who has failed and learnt their lesson but in India even now failure is not acceptable. Coming up with a new idea or replicating an idea and in the process modifying it is common, which means risks are at the same level for any business. What matters here is even if it leads to failure the entrepreneur should learn to fail fast and cheap.

Who should have control on the business, an entrepreneur or investor?

It depends on the factor - which stage the startup is raising investments. If it is seed/early stage then investors need to be mentors but if its private equity and larger investors in unicorns or full-scale businesses then they have to bring their enterprise experience which otherwise first time entrepreneurs would lack.

In general terms, do revenue earnings follow expenses spent on marketing and expansion?

Aligning expense on marketing and expansion spree with earning revenues makes a sustainable business. If an entrepreneur expects these two to meet like the railway tracks that run parallel then it will take infinity for that to happen. In reality, if expansion needs to meet better revenue earnings, one should fuel the other. The revenue should be spent on the right marketing and expansion, going forward this marketing should lead to revenue generation, so one supports the other. Founders should not lose sight and imagine that one fine day they will meet but its only the feeling and later the startup will meet its logical end but, ending does not have to be closure every time, it could be merger and acquisition too. Tangible and Intangible assets get created in the process; tangible being revenue and profits, while intangible being the product and customer base created.

Raising funds makes a lot of noise…

Funding is getting dried up where the business model is not scalable or profitable. Funding leads many entrepreneurial ideas to be generated. Technology usage has made easy to start a business. But other resources need funding requirements. Small tickets can retain a business with a good business model, but bigger funding is needed to scale the business. Both seem to be important, either through external or internal, funding is needed to get a business running. You can have a business model which needs minimum funding; the profit gestation will take longer. But if a good business model is dependent on own revenue then he will get beaten by a competitor. Funding does not mean success, but receiving funding is a milestone with more responsibilities. End goal is not gaining funds but growing the business and customers.

Which holds more importance, customer acquisition Vs retention?

In general business scenarios, both are important, however customer acquisition is lot more expensive than retention, so it is smart to retain existing customers. At the same time, it also depends upon the business model, wherein if it is only about finding new people and selling the product to new people, here retention is not counted. Customer acquisition is not an option and retention is more profitable. If a particular business model makes sense to retain then retention is not an option. Retention should happen not at the cost of acquiring new customers. If acquiring new customers takes back seat then there is no growth, only retaining brings saturation and acquiring is incremental.