Startup Trends and Jargon in India 2016
For Indian startups – amongst the most high-profile sectors in the country’s business landscape—the money crunch began much before demonetisation, reports Economic Times. After two consecutive years of breakneck growth, the online retail market hit a pause and discounts on hyperlocal deliveries disappeared, both a result of easy funding disappearing. ET takes a look at four major trends that defined the digital economy in 2016, and what the takeaways are for the New Year.
Money Crunch: The funding slowdown of 2016 has taught fundamental lessons to the Indian startup space. 2016 was the year of cost cuts, even when it meant sacrificing growth in the search of a faint vision of profits. For many startups this meant not just cutting variable costs like marketing, but also trimming fixed costs by firing employees. Not all were able to survive, as over 212 startups shut down in 2016, a 50% increase as compared to the previous year, according to data from Tracxn. The year also saw several big overseas conglomerates, like Germany’s Rocket Internet and Malaysia’s Astro Group, shut or exit business in India losing millions of dollars. Takeaway: 2016 has taught entrepreneurs that running a lean startup is the way to go, and building a fundamental business is the only way to survive. Also there is growing understanding that to fail is OK, the stigma of failure is fading out. Rising cases of poor corporate governance, however, indicate that all is not perfect in startup land.
Rise of Nationalism: 2016 was the year digital entrepreneurs embraced the need for acuity in dealing with policy makers. If the year began with the central government wooing startups it drew to a close with startups wooing the government. Founders of the country’s two most-valued internet companies— Flipkart and Ola—have spoken out on the need for policy that helps homegrown companies compete on even terms with overseas rivals, which they claim seek to dominate local markets with the power of money alone. Digital entrepreneurs also gained from policy interventions, most of all digital payment companies that have posted spectacular growth in the push towards a cashless economy. Mobile wallet Paytm has added over 20 million registered users since November 8, when old currency notes of Rs 500 and Rs 1,000 ceased to be legal tender. On the other hand, changes to foreign investment policy in online marketplaces, like limiting a seller to only 25% of the total sales, worsened the situation for online retailers grappling with a slowing market. Ride-hailing apps like Uber and Ola continue to fight legal battles in several major states, as they await clarity on regulation. And as startups dive deeper into regulated markets like financial services and pharmaceuticals, their ability to deal with government will be further tested. Takeaway: While India’s top entrepreneurs have cited China’s example of protectionism, they could have done well to learn from their Chinese peers on how to engage with government early on. The internet industry needs to collaborate on common issues, rather than bickering on Twitter.
The Offline Push: Online retailers also strove to sell more to customers who buy from physical stores. The offline push is being led by single product companies like babycare products retailer FirstCry, which has a network of about 300 physical stores and closed a successful buyout of BabyOye, the retail chain of auto conglomerate Mahindra. Eyewear brand Lenskart, furniture etailer Pepperfry, online jewellery players BlueStone and CaratLane are also setting up offline stores. Each of these companies (except CaratLane, which was acquired) have been able to raise fresh capital at a higher valuation, indicating that investors see merit in this strategy. Those adopting a similar model include Myntra, India’s largest fashion retailer and furniture brand Urban Ladder. Amazon, which has started offline book stores and grocery stores in US, has been experimenting with offline in India. Takeaway: The move shows that despite online retail outpacing offline retail in growth, touch and feel will be crucial. Indian ecommerce will need to build its own model to grow, with an omni-channel approach.
Hyperlocal Meltdown: The worst hit by the funding slowdown were hyperlocal delivery companies, be it food and grocery delivery, services like plumbing or even third-party logistics players. Hyperlocal was set to disrupt ecommerce in 2015, after all why wait for a day when you can get items delivered in a few hours? Just like they do in China and the US. Hordes of startups, which raised investor money, have since shutdown or changed their business models. For example, grocery delivery startup Peppertap exited the market earlier this year while Grofers is now making a majority of its deliveries the next day. Takeaway: Global models don’t always work in India, entrepreneurs and investors must think about offering solutions to local problems.
Jargon Which Defined 2016: Hing and Churan: The ethnic spices were the symbols of the fight for market share between online marketplaces—Flipkart and Amazon— during the festive season. The Indian company was dismissive of such low-cost sales while its American rival claimed selling daily essentials online marked a new trend. Net Promoter Score: For ecommerce companies struggling for growth, this term came as a saviour. Gross sales, they argued was not the real metric, while NPS—a measure of customer loyalty and service quality— is what they were now after. Capital Dumping: A catch-all phrase adopted by internet entrepreneurs to describe their travails while competing with a better funded rival. Chatbot: From tech giants to upstart ventures, chatbot–computer programs that can conduct a ‘chat’ (both through text or voice)—is now the must-have application. India Stack: Denoting local solutions to local problems, this refers to technology that powers financial transactions related to Aadhaar, eKYC, unified payment interface (UPI), eSign, and DigiLocker. India Two/Bharat Economy: With India’s internet penetration reaching over 300 million monthly active users, investors, founders and policy wonks are increasingly talking about building solutions for the market beyond mostly urban internet users. Startups building products for this market will be high on the investors’ radar in 2017. Startup India: ‘Startup India’ was the common coinage to refer to the government’s policy push for startups launched in January. 502 companies have been recognised as ‘startups’ this year as per the policy definition. Cockroach Startup: With profitability becoming the new mantra, startups were encouraged to be like cockroaches which can survive the worst ‘funding’ nuclear winter. Downround/Markdown: A term born out of the drop in value of internet companies. While India’s most-valued internet company Flipkart saw multiple mutual fund investors reduce the value of its shares, Ola is said to be raising a downround or money at a lower valuation than in its previous round.