“Startups that miss rapid market evolution, risk disruption themselves,” say Sanjay Swamy, Managing Director and Co-founder at Prime Venture Partners.
He says that one of the greatest learnings of being an entrepreneur-turned-VC in the past seven years has been that startup founders must learn to adapt and deal with the ‘circa problem’.
“I believe this is one of the biggest challenges hidden in plain sight from founders, and one of the biggest value-adds a VC or independent board member or advisors can bring to the founders – by virtue of being close enough but far enough!” Sanjay says.
But what is the Circa Problem? In the latest episode of Prime Venture Partners’ Prime Knowledge Series, Sanjay explains.
The Circa Problem
Most startup founders, during the initial days of starting up, have a vision of the world. Yet, over the course of time, as they aim to build the right product and distribute it to customers, they have to deal with a variety of problems. Some of these could be market-related challenges, others might be related to the product and customer readiness “at that point of time”.
During the first three to four years, a startup’s success is defined by hitting milestones that are not just aggressive, but also achievable. While predictability of business expansion is seen as a good thing, one also runs the risk of trying to be too methodical in one’s approach, and trying too hard to achieve the proverbial rinse and repeat mindset.
Founders often take conclusions from the initial success of their business, and more importantly, from the initial false-starts, to arrive at an equilibrium that gives them predictable adoption.
Sanjay says, “In a dynamic market like India, which is experiencing smartphone and internet penetration for the first time, and evolving at breakneck speed, many of these step-function changes may be missed by startups that may be as little as two to three years old.”
For a company that started in 2015, it may have initially attempted a certain Go-to-Market (GTM) strategy (such as online or channel sales), but later realised that it did not work, and assumed that it was going to work. The company would have heavily invested in direct, feet on the street sales, distribution, onboarding, and support muscle — one that must have given it predictable adoption, growth, and perhaps even revenue.
However, a younger startup might have found that the market had started adopting an online-only, self-service-based go-to-market approach – perhaps with a freemium business model, focusing on referrals and virality, perhaps a highly scalable model of training videos, and many more of the digital distribution techniques.
Sanjay says, that if Ola or Uber drivers are creating Telegram groups because of the limitations of WhatsApp, they are also capable of downloading the consumer app and trying it out. “Yet, we quickly forget that as recent as 2015, most of them barely knew how to read maps,” he adds.
Thus, successful companies often run the risk of a new player coming in with a new and highly scalable distribution strategy that may have failed as recently as in 2017, but may be right in 2020. “Timing, after all, is critical,” Sanjay says.
While this is true for companies of all ages, the larger ones can survive a couple of hits, and perhaps make a few clever mergers and acquisitions. However, in digital businesses, this happens so swiftly that the incumbent may not realise what is happening, and before they do, it is too late.
What can teenage-startups do to not be blindsided by younger and more agile competitors?
“The most important thing is to ensure that you don’t mock younger startups, especially competitors, as most of them are started by smart people,” Sanjay says.
He advises that entrepreneurs must have tremendous respect for anyone trying something new, especially if it’s solving a major pain point that one perhaps tried unsuccessfully, and have secretly hoped would go away. He says, it is easy and comforting to say ‘We tried that, and it didn’t work.’ However, concluding that it won’t work for a new player is exactly the ‘arrogance’ the new player is counting on.
Sanjay further said that often, companies use disruption events such as hackathons as ways to question the status quo, and try and rapidly experiment with step-function changes instead of incremental changes. While most of these companies will not succeed immediately, often a gem or two of a company surfaces during these events.
“Even in our role as VC’s, one question we constantly ask ourselves is, ‘What has changed now compared to when we last saw something and passed on it, especially if it was a few years ago?’” Sanjay says.
Markets evolve and customers are always hungry for things that solve their problems and are often willing to learn new ways to solve the problem. He advises founders to frequently reflect on their business and the macro-conditions. Additionally, he asks founders to keep experimenting with ways to disrupt oneself.
“Always ask yourself the question, if we were starting off today, what would we do differently. Has anyone else tried doing so – are there reasons to believe what didn’t work then will work now?” says Sanjay.