Customer stickiness to solving unit economics early: Lessons in hyperscaling startups, according to BCG-Times Bridge-TiE Delhi-NCR report

• Setting up a startup is just the first in many steps involved in making it successful.
  
• Now, a report by Boston Consulting Group (BCG), Times Bridge and TiE Delhi-NCR has decoded these learnings of startups from diverse sectors.
  
• Of the 58,000 startups set up in India as of 2022, only 40,000 are still active, underscoring that turning a startup into a successful business is not as easy as setting one up.
  
• Here are the lessons from some of India’s most successful startups on how to hyperscale successfully.
  

Setting up a startup is just the first step in a long journey, and late-stage startups which have found their footing need to undertake several measures to make sure they can go from being just good to great. Now, a report by Boston Consulting Group (BCG), Times Bridge and TiE Delhi-NCR has decoded these learnings of startups from diverse sectors.

According to the report titled ‘Road to Hyperscaling in India’, out of the 58,000 startups set up as of 2022, only 40,000 are still active, underscoring that turning a startup into a successful business is not as easy as setting one up.

What comes after setting up a startup is hyperscaling, which is defined as a phase where startups grow fast to capture the market by ensuring an optimal product market fit, beating the competition by gaining sufficient market share, and achieving critical mass organically.

The startup explosion

India is home to nearly 58,000 startups as of 2022, with 11,000 of those startups having been launched in the last five years. Various factors like increasing digital adoption, a young population, an expanding middle class and conducive public policy has led to an explosion in the number of startups.

The report adds that Indian startups have raised over $130 billion between 2014 and 2022, growing at a faster clip than rival China.

It’s not just startups that India is rich in – according to the report, India has the third most in the world unicorns at 106 as of 2022. Nearly 60% of these unicorns are concentrated across three categories, namely enterprise tech, fintech and ecommerce.

“I recall how challenging it was back then to take the road less travelled, to raise funds to build and fuel growth with nascent digital penetration and a deep-rooted fear of online payments,” said Deep Kalra, founder and chairman, MakeMyTrip, and board member, TiE Delhi-NCR.

While it helps that the Indian population is young at an average age of a little over 28 years, the surge in digital adoption, a conducive policy environment and a growing middle class make for a solid business case for setting up a startup.

Unlocking the hyperscaling magic

According to the report, Indian startups have adopted 8 key unlock themes to overcome challenges involved in hyperscaling. This includes focusing on customers, building the right teams and culture, identifying the right technologies, solving unit economics early, outpacing competitors and leveraging capital optimally.

1. Tailoring the business to customers’ nuances

For instance, catering to the local nuances and understanding the deep-rooted behaviour of customers is visible in how Meesho hyperscaled itself – the ecommerce platform designed a unique reseller programme tailored for tier 2 and tier 3 cities. As a result, 70% of Meesho’s business comes from these tier 2/3 cities.

“There's still a huge part of the population uncomfortable to purchase online unless someone helps them with it, and in our case that's our resellers. Micro influence matters,” said Sanjeev Barnwal, founder and CTO, Meesho.

Pepperfry, an online marketplace for furniture, set up localised franchisee stores offline to cater to small town preferences where customers want to check products out in person before making a purchase.

2. Deepening moats for customer stickiness

Given that startups spend a considerable amount in acquiring new users and customers, having good customer stickiness is critical to the long-term sustainability of the business.

This can be achieved by deepening moats. “Indian unicorns have successfully moved from acquisition to retention and monetization through a "full-stack" approach,” the report said.

For instance, jobs portal Naukri leveraged natural network effects and capitalised on its first-mover advantage to hyperscale, while discount broker Zerodha focused on its tech stack to build trust.

3. Solving unit economics early

Growth is usually the focus of startups, which is also underlined by the fact that only 23% of Indian founders ranked profitability higher than growth, according to the report.

However, startups like Delhivery have successfully balanced growth and profitability by ensuring gross margins are positive from Day 1, and maintaining discipline while taking decisions to expand the business. As a result, it took the logistics startup only four years to break-even in its core delivery business.

4. Building the right teams and culture

A startup’s success also depends on its ability to attract good talent and retain it as well, apart from fostering a good team culture. One such instance is that of Zepto, which developed accelerated career pathways to attract and hold talent.

5. Identifying the right tech stack for growth

Technology is at the core of almost everything, and more so, startups. As such, identifying the right technology stack is critical not only for launching startups, but also to hyperscale them.

Using scalable technology also provides the flexibility that startups need in their early days as they try to find the best product market fit before teeing off.

The report states that Indian startups have addressed this by designing a platform right from the start, instead of designing a product, and subsequently innovating and evolving their tech infrastructure to suit their needs.

Uber India is a notable example of building a unified technology stack that provides for scalability. In the Indian context, Uber India built full-tech solutions locally, like Uber Bus and Uber Rentals which can be scaled to other markets as well.

Pitfalls of hyperscaling

Hyperscaling a startup involves several pitfalls, with the most common being the balance between growth and profitability. According to the report, only 18 out of 100 Indian unicorns are profitable, underlining just how difficult it is to turn a profit.

On a related tangent, rapid expansion can also be a highly tempting path to take successful models of one market to another.

Another issue that plagues startups while hyperscaling is retaining customers in a competitive and price-sensitive market. Access to ‘cheap capital’ also encourages poor discipline and governance issues, and leads to misreporting or fraud in some extreme cases, the report added.

Lastly, the organisation's culture is also one of the victims of hyperscaling.

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