Start-ups are going through a rough phase as falling valuations and tightening funds lead many to shut shop or look for consolidation.
The e-commerce sector, which has seen many startups springing up, seems to be worst hit. Growth is spiralling downward and many of them are trimming down their workforce.
A report in The Times of India said the total gross merchandise value (GMV) of the top e-commerce firms in India was at $10.2 billion at the end of May 2016, registering a 13.3 percent growth from the GMV recorded for the same period last year. A large chunk of it came from Amazon India which grew to $2.7 billion from $1 billion in a year. In comparison, Flipkart’s GMV was at a constant $4 billion for the last one year while Snapdeal witnessed a sharp 50 percent fall to $1.2 billion as of June, the report said.
Firstpost spoke with a few investors and bootstrapped firms that had not sought external funding for their firms to find out what they think is the way out for the Indian startups.
Directi, a conglomerate of tech companies operating across India, the US, China, Dubai and Europe, boasts of having turned out a 'successful mass market businesses one after the other without any external funding'. Founded by Bhavin Turakhia, the company is valued at $300 million and has over 1,000 employees. “I feel the slow-down in the start-up sector is because there is serious lack of innovation,” says 36-year-old Turakhia. “The question to be asked when the sector got easily funded should have been: How do you intend to monetise? This is being asked now by investors and the result is lowered valuations in some firms,” he says.
One of the popular ways that e-commerce companies have gone about to entice consumers is by offering discounts and freebies. Though they may bring in the initial customers, they may not be loyal and shift to the next e-commerce player with heavier discounts.
Harshil Mathur, CEO and Co-Founder, Razorpay - a payments platform for small medium businesses and larger e-commerce companies who want to run their business online - says that customer delight goes beyond good customer experience. "It means that a firm exceeds customer expectations and gives them a pleasant surprise with an unexpected product/service quality.”
One of the common issues that customers complain about is delay in product delivery. Other issues include pricing tricks, selling used goods as new and problems with return policies. These issues diminish brand loyalty among customers. “The hunger for revenue growth should be balanced with good customer experience,” says Mathur.
Discounts and incentives attract customers to purchase online and change their buying behaviour. But there is a limit to how much of it can be done in a sustainable way. “It does not speak much about a firm when it pays a customer by way of discounts to buy the start-up's product/ services,” says Turakhia.
Almost all e-commerce companies have low prices, quick delivery, and unquestioned returns. Trying to compete in such a market with even lower prices and unsustainable costs would be a recipe for disaster. Mathur suggests that e-commerce companies should try to develop a USP. For example, there are certain e-commerce companies that sell products that are not available in mainstream e-commerce stores. Some players have come up with products and solutions which are tailor-made to a unique set of customers. “You have to become a leader in a specific category and dominate that niche in a sustainable way. It’s only a myth that price points are more important than quality service,” says Mathur.
Be a differentiator
Innovation is the key, and innovative adaptation of Business Intelligence could go a long way in making the start-up a differentiator in the crowded world of start-ups. “There is so much data, so much intelligence to gather from all around the world. Strategic identification of pain points and presenting them attractively can solve many market demands,” says Anoop Sahoo, Founder, Ideapoke, a B2B platform that enables technology scouting.
The present times of lower valuation and funds crunch is a good time for the industry, says Alok Agarwal, Co-Founder & CEO, Teesort, a bootstrapped online menswear start-up. He reasons that this time can be used by the industry players to focus on their operations and root out inefficiencies that creep up with fast growth. He suggests that on-line start-ups focus on shipment returns and logistics around it in this slow period.
“The government recognises e-commerce as a key player in the economy as is evident from the e-commerce marketplace rules notified earlier this year. We have barely scratched the surface in the online retail story and I am confident that the best days are still ahead of us," says Agarwal, who is upbeat about the sector.
Large players in e-commerce industry are on an acquisition spree. Many large players like Flipkart and Snapdeal are acquiring the smaller fishes. Eg: Flipkart's acquisition of wehive acquisition, Mahindra took over Babyoye and Snapdeal's acquisition of martmobi.
"I strongly feel these giants will come to the rescue of disruptive start-ups to increase their market dominance," says Dr Apoorv Ranjan Sharma, Co-Founder and President, Venture Catalysts. He says that what he looks for as an investor is for start-ups that leverage state-of-the-art technology, innovation, data driven services, plans to increase productivity and create value for customers, a good team, and 'a good investor-start-up match'.
Some investors are still buoyant about the sector, irrespective of the bleak developments in the sector that has provided it a much-needed churn. Though investors and entrepreneurs may hesitate to pump in more liquidity and entrepreneurs may be less aggressive in the market than before, Sahoo of Ideapoke believes that after the correction, most of the e-commerce companies will be back on track and would continue to grow in a sustainable way.
Updated Date: Jun 28, 2016 17:11 PM