You Can Go Far With Your Startup Only If You have the Basics Right

The current spate of events at Ola and Uber are threatening thousands of livelihoods. They clearly focused on scaling up too soon, even before their business model could be validated.

Though launching a startup has almost become a fad now, what most people still fail to understand is that they need to first get the basics right. You can just wake up with an out-of-this-world idea one day and decide to launch a startup. Many recent issues with a number of start-ups, some of them being renowned and respectable brands, have only strengthened this belief.

A lot goes into even deciding whether or not to execute that so called ‘brilliant idea’ after taking into account several factors – gauging the demand for your product/service, doing a thorough market research and testing your hypothesis to validate your idea or product, ensuring you have the capability to deliver on that idea successfully, scalability of the idea and how effectively you can leverage technology to optimise the value you can create through your idea. Essentially, I refer to these basic criteria as TEST (Team, Execution capability, Scalability, Technology) and PoC Proof of concept and constantly reinforce that every startup pass this basic litmus test to gauge how far it can go.

Take for instance, the recent case of Uber and Ola, which, inspite of being market leaders are faced with an uncertain future since they have failed on one or more of these criteria among many others.

As the recent strike has revealed, millions of drivers were lured to join these app based services on the promise of incentives upto Rs 90,000 a month. However, since 2015 the companies have gradually changed their terms of services, to whittle down their earnings to a pittance of Rs. 10,000-15000 a month. Fares were brought down from Rs. 8-10 per km to Rs 6- to 4 per km. To add to their woes, the company commission deducted from the drivers’ daily earnings were raised from 10% to 20%.  

What is apparent in this battle is a very unhealthy business environment, which will be detrimental to the company’s growth.

Here are some important lessons for startups from the strikes by leading taxi aggregators:

1.    Sustainable business model and metrics needed over cost and service

No doubt many drivers earned very well in the initial stages and customers are still enjoying the lowest of fares with great service and convenience at Uber and Ola, but the fact remains that this was an outcome of OPM (other people’s money), i.e., investor’s money.

Now with flow of capital drying up, the focus has shifted to profitability. As a result, the drivers are being squeezed and surge pricing is increasingly being viewed with suspicion by users. Clearly the current business models of Uber and Ola are not sustainable in the long run.

Indian startups need to go slow and steady on building a self sustaining financial cycle of business which can grow over the years without unnecessary dependence on investor’s funds rather than be a flash-in-the-pan through gimmickry and burn only till the cash remains.  

2.    Lack of business values and ethics hinders long term growth 

The Ola-Uber story is a classical case of promises not kept towards its workforce, leading to increasing strikes and agitation. Many drivers gave up alternate professions to buy cars to join these services based on the promised bumper returns, which have dwindled in the face of rising fuel prices and unhealthy bottom lines of discounted fares.

As per a new scheme of  tie-ups with auto majors to lease vehicles to new drivers by these companies, the old set of drivers allege preferences in distributing cab calls to this new set of company cabbies. For sure, Ola and Uber have not looked after the millions who have created their unbeatable network of reach, convenience and efficiency.

Already having run into trouble before with government permits and regulations, Ola and Uber are likely to be bound up in further new sanctions by the government as the strikes are drawing nationwide attention to their exploitative and predatory practices.  Startups need to be very careful about not crossing the line of regulations and work ethics as these always come back to bite.

3.    Investors shy away from uncertain outcomes

Uber and Ola are now trapped in a game of snakes and ladders and will need the moves of chess with big changes to revamp their current predicament, whether through force by the Government or through self correction.  Either way, these companies will need large influx of funds to make the necessary changes.

Investors are sure to suspend their judgement and hold their money on these companies till a clear, honest and logical business model is worked upon by these companies. Startups should be aware that investors now look very closely at whether all the aspects of a business are in alignment with a self sustaining revenue generating model.

Conclusion

The current spate of events at Ola and Uber are threatening thousands of livelihoods. They clearly focused on scaling up too soon, even before their business model could be validated.

Unless these startups do some introspection and course correction, they will continue to face a bumpy ride in the country. Maybe, it’s still not too late to go back to the drawing board and get the basics right, so they can look at a sustainable growth in India and create many more jobs.     

Published on BW DISRUPT