SquishyQuokka

Gojek

[Rant] Here's why someone usually ends up f'ed over, for a startup to get successful in India

There are essentially four parties in the startup economy:

The Consumer
The Enabler(read, Startup)
The Service Provider
The Investor

Now let's look at Game Theory motivations:

The Indian Consumer wants to minimise money spent per unit value extracted, the Western Consumer wants to maximise value extracted per unit money spent. (There's a massive difference.)
The Startup depending on the stage wants to maximise User Growth and Free Cash Flows.
The Service provider wants to maximise financial incentives.
The Investor is wants to maximise the XIRR of their fund. For this they need to reach a multibagger liquidity event.

Now let's look at what happens when:

The Consumer gets f'ed over:

The startup attains pricing power through deep competitive moats allowing for monopolisation. They can jack up the prices to ensure nice FCF, greater rewards for Service Providers and great returns to their investors. (Think, Uber can charge anything to you now)

The Startup gets f'ed over:

The users get bang for their buck, the service providers get good incentives, the investors push for higher growth but unfortunately the startup does not have enough capital to service their Cost of Operations through their unit economics, so they will either run out of cash or investor patience. Either ways, they are doomed. (Think every legit startup that failed)

The Service Provider get f'ed over:

This is the likeliest scenario as they have the least power in this dynamic. Rewards will be reduced over time or made harder to achieve. They have no option because they got no option for sustenance. (Think any on-demand service providing app)

The investor gets f'ed over:

Now imagine there is a startup that can balance the act very well. They have a service that users are willing to pay a margin on. They pay their service providers fairly and have decent unit economics. Now, the investor will do halla about destruction of shareholder value from little growth. (Is this the case with BluSmart?)

Maybe that's why building in India is tough.

16mo ago

Talking product sense with Ridhi

9 min AI interview5 questions

FuzzyDonut

Stealth16mo

I don’t understand who the service provider is in this argument

SquishyQuokka

Gojek16mo

@Based1776 The Barber who comes via Urban Company, Swiggy/Zomato restaurants and delivery guys, Uber/Ola drivers.

FuzzyDonut

Stealth16mo

I see, this would only apply to middleman type companies though right

DizzyPotato

Dunzo16mo

This is exactly how it is. Indian consumers lack the purchasing power to pay higher margins on goods and will often resort to petty discount hunting.

SquishyQuokka

Gojek16mo

I have come to realise a similar things as well.

JazzyWalrus

Stealth16mo

Indians are mostly stressed on money. We prefer utility/value over luxury. Most of the times. We wouldn't buy games for 5k Rs online.

Unless it's marriage and then it becomes about status and people end up spending 20L hard earned cash.

Until purchasing power of Indians go up, we would want a 10 min delivery but not the delivery charges.

PrancingCupcake

Meesho16mo

What is the issue in Blusmart? Please throw some light

SquishyQuokka

Gojek16mo

Apparently not enough investor wealth created

PrancingCupcake

Meesho16mo

Ain't it too soon?

SqueakyQuokka

Microsoft16mo

Great points made. Maybe investors will realise that the same revenue multiples for evaluating US startups aren't good for Indian ones and that they've been overvaluing Indian startups.

SquishyQuokka

Gojek16mo

What are your thoughts on the impact something like that will have on the current Indian Startup ecosystem of let’s say valuation multiples are halved?

SqueakyQuokka

Microsoft16mo

Having worked in startups that went bust, I believe founders will be more serious about PMF, unit economics, and unnecessary inorganic growth spends as well as high tech salaries.

CosmicQuokka

Paralleldots16mo

Maximum Indian users will exploit every last bit of discount and then still cry online.

SquishyQuokka

Gojek16mo

Exactly. 😂

JazzyWalrus

Stealth16mo

Good enough reason not to do a B2C without a moat. The only B2C companies with solid moat I can think of are AMD/Nvidia. Deep RnD led products and leveraging their duopoly to charge high prices.

SwirlyWaffle

Stealth16mo

No. We have the TAM of the UK roughly ~50M online transacting customers with discretionary income. However, we raise US levels of Venture dollars resulting in this mess.

We just haven’t grown as fast as China is the issue. If China adds 1M people to the class of customers who have enough income to spend online a year then India adds 1/10th of that. Great businesses can and will be built in India. Look at the amount of profitable mid cap IPOs like EaseMyTrip, Zaggle and IdeaForge. These companies were successful in the public markets despite VCs claiming that you need to be a unicorn to list. We just need to revise the TAM and the valuations. We use PPP to compare salaries but not for valuations (this makes no sense). 500M should be the figure to qualify as an Indian Unicorn.

SquishyQuokka

Gojek16mo

That’s actually a very interesting way to look at it. Rationalising valuations makes sense but it won’t happen because the only way VCs will make money on their investment is through higher valuations.

So, it is just a part of the game. Let easy money come and see what happens.

SwirlyWaffle

Stealth16mo

Yes. Because Indian VCs source capital from Foreign LPs. Foreign capital is like a shot of steroids. It allows you to reach that 50M customer figure in no time (Zepto is a great example) but then stuff starts looking bleak when you realise that customers aren’t getting richer.

PrancingBurrito

Stealth16mo

The problem with Blu Smart is it's not a reliable on-demand cab provider. Almost always cabs are unavailable in area like Whitefield.

However, it's great for pre-booked cabs. And if I have to pre-book only then there are numerous options like Deepam Cabs and those cabs too are mostly clean and punctual.

SquishyQuokka

Gojek16mo

But personally for me, I prefer the reliability of BluSmart because on-demand sometimes sucks when you need it the most

GigglyPickle

Swiggy16mo

Build something people want = people wouldn’t mind paying what you require to keep your shareholders in the game.

SquishyQuokka

Gojek16mo

Correct, now tell me how many VC Funded businesses came close to that?

ZoomyJellybean

Stealth16mo

VCs are impatient money funds.

DancingMuffin

Stealth16mo

I don't think there can be any happy startups.

Money is always made at the expense of parties involved. If somebody is making money, kisi ka to katt rha hai, be it employees or service providers, or consumers or the investors.

I also believe this is a very dark way to look at things, I so hope I start to see things in a more positive light.

SquishyQuokka

Gojek16mo

It’s a dark way indeed but it’s also true. In the truest sense of the word, it is always a game of margin.

TwirlyWalrus

Razorpay16mo

Money making isn't a zero sum game.

JazzyWalrus

Stealth16mo

As long as we have stock based wealth creation, someone would always want pump and dump

SquishyQuokka

Gojek16mo

@No1_BusinessMan That is so ironic because if stock market participation increases then the index will roar crazy.

JazzyWalrus

Stealth16mo

If we note, stock market is manipulated by news and operators. VC game is again the founder chasing valuation(instead of value creation) either to pump it up for next round by selling equity by bigger VCs. VCs proudly talk about "exits" instead of social/environment impact. PE is manipulated by SPAC and IPOs which is again pump and dump.

In short we are living in the age bubbles and scams 🤣🤣

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