No this article is not about popular TV series with all gory action. But I could not find a better title to suit the current startup environment in India. With cut throat competition, mergers and acquisitions, exorbitant valuations, endless spending in marketing to get the market share, poaching of high profile executives, exits of top executives, layoffs, startups shutting down while new ones keep coming, the action is nothing less than what is there in “The Game of Thrones”.
But before I talk about India’s startup scenario, let me talk about a marketing game which I played during my MBA.
It was a simulation game and the objective of game was to teach some basic marketing concepts. The whole class was divided into 6-7 teams, each acting as a company. The goal of the company was to improve its overall financials, operating, and market performance. The game was supposed to be played over 8 quarters and in the beginning of each quarter each team needs to decide on certain parameters. Based on the value you choose for these parameters and value chosen by other teams, the algorithm of game gives you the financial result of that quarter. Apart from operations decisions, teams were to take some marketing decisions like product price, marketing spend, marketing mix, positioning, and product introduction/drop etc.
After playing the game for couple of quarters, one team dropped the prices of all its products. As expected they captured maximum market share in that quarter. Other companies started bleeding because their market share was going down but operations cost was same. The team which reduced price and got more market share was happy since they were still profitable because they were able to recover operations cost from the increased revenue. They argued that this is the right strategy since they were winning market share. Seeing this other teams didn’t have any option but to reduce their product prices as well. This started a price war and after 8 quarters as anyone can guess all companies were running on huge losses. Anyways without going much into the technicality of the game, one thing was very clear that lowering price to gain market share was not the best strategy in longer term. But since there was no real money involved, our teams didn’t hesitate in making such decisions.
I feel, this pretty much is the current scenario with startups in India. I could easily draw three parallels between the marketing game and our current startup environment.
Each team wants to WIN but forgets the basic objective:
Probably when the game starts everyone keeps right objectives in mind but as time progresses objective becomes WINNING and in the process everyone loses focus on the real objective. I guess it is basic human mindset that as soon as we form teams we start thinking about WINNING and to an extent the definition of winning becomes synonymous with “other team loosing”. This probably is a very strong argument but unfortunately it’s largely true. The very entrepreneur who starts a company with an aim to make society a better place would be ready to do anything to gain market share as soon as another entrepreneur enters the market (probably with same passion).
It’s not players’ money which is at stake:
In the marketing game the players were not investing any money so they were not too serious about profit and loss, they just wanted to win by gaining more market share. I am very sure they would not have taken the same decisions if the game was played with real money. It exactly may not be true with startups, entrepreneurs do invest their money but after some time its all investors’ money and investors’ risk. So the founders are more worried about growth to justify investor’s investment than about making business sustainable.
Everyone have very short time horizon in mind:
The marketing game was played only for limited number of quarters. So nobody was thinking beyond that. Other teams who were playing the game correctly could have come out well after 10-12 quarters but since the game was only for 8 quarters nobody bothered to keep the fundamentals correct. Current startup scenario is pretty similar. Everyone has vision for very short time. The industry is so dynamic that no one wants to think for a longer term. Success and failure both happen very fast unlike traditional businesses which used to take years to become successful or fail.
The questions remain, why investors are still investing on these companies, why there is a deluge of entrepreneurs, what will be the future of these startups, is everything wrong about current startups, if not what are right fundamentals?
Source:
https://www.linkedin.com/pulse/game-thrones-part-1-story-indian-startups-himanshu-bhangre
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