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Good ideas combined with experienced and skilled executors are finding a large number of backers who are willing to take their bets on start-ups.<br>Indeed, these are the best of times for start-ups in India. <br>However, there are early indicators of slight reduction in early stage funding in the last six months. While this might not be a permanent phase, as the ecosystem matures and funding institutions turn cautious, funds might get tight going ahead.<br>In such cautious times it makes a lot of sense for start-ups to self-evaluate their business<br>How should they do so?<br>A survey was done to many start-up founders and these are the results:
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INTRODUCTION • Good ideas combined with experienced and skilled executors are finding a large number of backers who are willing to take their bets on start-ups. • Indeed, these are the best of times for start-ups in India. • However, there are early indicators of slight reduction in early stage funding in the last six months. While this might not be a permanent phase, as the ecosystem matures and funding institutions turn cautious, funds might get tight going ahead. • In such cautious times it makes a lot of sense for start-ups to self-evaluate their business • How should they do so? • A survey was done to many start-up founders and these are the results:
1. Does the per unit sale price cover costs? • If the answer is yes, then the business as well as the company has a strong chance of survival till the next round of funding. • If per unit sales price is negative after factoring in all costs and forecasts indicate that they will remain so for a long time, then the company is in trouble and has a chance of failing. • “If unit sale price is positive only at a large scale, then funding becomes extremely necessary,” says Shikhar Khanna, co-founder of Blinge. Bilnge is a rental platform for high-value clothing and accessories.
2. Is the business model sustainable? • The business model and the idea behind a company should be able to carry on till the funding environment changes. • Start-ups can just adjust the scale of their growth and survive for about six months to a year if they can pass through rough times.
3. Is the product idea viable at this point of time? • A bad funding environment is an acid test for a company. • If an idea can remain viable during low funding stages, then it might not just survive but also has the chance to become a big company in the long run. • The right fundamentals will prevail even if the funding is a little cautious. While it does not take many funds to build a product, it takes funds to build an entire ecosystem and acquire customers. • Start-ups should see if there are enough takers for the product on offer, experts say.
4. Are start-up founders investing their personal funds? • If the founders and the backers of a start-up strongly believe in an idea, a constrained funding environment might not be a serious problem. • In many cases, entrepreneurs invest personal funds to keep a company growing until it receives a serious backer bringing in sizeable funds.
5. Are Start-ups bringing innovation to the table? • Almost all of the survey respondents vouched for an innovative product as a reason. • Only if there is genuine innovation behind a company, most start-up founders believe that it will be not be tough to either find funds or successfully build a business, going forward.
6. What is the problem the start-up product is solving for the customer? • The idea for a start-up should solve an existing problem for which there are few or no solutions available. • “The question to ask is, is it a real problem? Or is the start-up creating something that already exists in the market?” • There are a large number of start-ups that base their ability to survive on building scale and not on uniqueness of their ideas. • In times of less or no funding, the business model with the best ability to survive should have a product which is able to solve a “real problem” for the customer.
7. What is the product that the start-up is creating? • The product that is created by a company should be of top quality in addition to solving a problem and being a bankable idea. • In case of application based start-ups that are currently in vogue, the technology and ergonomics (or ease-of-use) of the app should be appealing enough to bring in a large number of users.
8. How much and what does it take to break even? • A start-up should always have a vision for the future. Even if it takes a large amount of funds to survive currently, it should be able to predict at what point it will break even. • In case of customer-centric start-ups, they should be able to analyse the quantity and quality of repeat customers and users it takes to break even.
9. How good is the team? • In addition to an inspired team of founders, a start-up should have the right kind of experts for each task, be it the technology side or for marketing. • It takes extremely good quality employees to drive growth in troubled times. • Only the team members with the right combination of subject knowledge, passion and perception survive and grow.
10. Where stage is the start-up at and what is the value that customers are adding? • The stage of a start-up determines its ability to succeed in lieu to funds available. • Early stage start-ups do not require great volumes of funds while acquiring customers. • If a start-up is burning money with no value in sight, it is also the right time to ask what value is every customer that is added providing. • For instance, in the case of an e-commerce business, the questions to ask would be: how much are we spending to acquire a customer? Will this customer provide repeat orders? Is the customer a discount shopper only or will he buy products of value? • Once these questions are answered, the business will survive the test of time and the start-up would have done an effective self-evaluation.
