Tough times will make startups go for ‘hero teams’, slash ad budgets and focus on profits

• India Inc is now preparing for a long funding winter that can last anywhere between 12 months to 24 months.
• The companies are now looking to extend their runway by the means of layoffs, freezing hiring and cutting down on marketing expenses.
• About 10,000 employees from startups like Ola, Unacademy, Vedantu, Meesho, Cars24 and others have lost their jobs so far.

The anticipation of a rough funding winter may make Indian startups more conscious about their spending habits, according to several analysts and industry experts Business Insider India spoke with. While the newer players will be forced to do it, it may come off as a choice for heavily backed players, We Founder Circle’s cofounder Gaurav Singhvi said.

Madhur Singhal, managing partner and CEO of Praxis Global Alliance, specified that some companies operating in the healthtech, ecommerce, and direct-to-consumer (D2C) would be able to use their cashflow much more efficiently, leadin to lower cash burn rate.

“It will be difficult for edtech and social commerce to reduce cash burn because the pace of new customer acquisition must be maintained to support growth,” Singhal told Business Insider.

But again, it’s not the same for all.

Singhvi added that this funding winter would have the biggest impact on the young startups that are yet to establish their market. There will be less liquidity in the market — not ‘no liquidity’ — so the investors will choose to invest in well-established, heavily-backed startups. However, it would create a new age of investors and entrepreneurs who are more conscious about their spending. The change will be because of will and not force, he noted.

There may not be any change coming from the publicly listed companies like Zomato, Paytm, PolicyBazaar, Delhivery and others as the value consciousness is always there once the company is listed on the stock exchange, Singhvi added.

Slimmer teams, marketing budget may now be a popular choice

India Inc — which was basking in the glory of an undisrupted flow of funding and expensive valuations last year — is now preparing for a long funding winter that can last anywhere between 12-24 months. The first signs of this can be seen in the extensive layoffs and reduction in hiring activities amongst startups.

About 10,000 employees from startups like Ola, Unacademy, Vedantu, Mobile Premier League (MPL), Meesho, Cars24 and others have lost their jobs so far. In total, 60,000 are expected to be out of work this year. This is only one way for these companies to reduce their cash burn rate.

The other would be cutting down on marketing expenses. “Funded companies looking at inorganic growth may also slow down their pace of acquisitions to conserve cash,” Neha Khanna, director at management consultancy firm ValPro, said
Source: Media reports

Startups contributed around 11 percent to the overall AdEx in 2021, which stood at around ₹74,000 crore as per industry estimates. The companies have now been slashing their budgets to increase their runway. Reports also suggest that companies are spending on performance marketing that can bring them instant results, instead of focusing on brand building.

What can startups do?

Shahan Sud, an investment banker-turned-VC, elaborated that the companies should focus on reducing their customer acquisition costs and surround themselves with an honest team that can help the entrepreneurs sail past this situation and get a reality check on their position in the market.

The companies can “use capital frugality to ensure creative low-cost marketing campaigns, focus on their core business, and selectively hire a hero team (rather than hiring for non-core business verticals) to help them scale their core business,” he said, adding that a healthy mix of this can help shareholders navigate startups for the next 18 months.

Singhvi of We Founder Circle explained that several startups have ignored their bottom line for a long time and the investors are now putting pressure on these companies to focus on their finances and numbers. “Revenue is all good but now they are looking at profitability and long term sustenance,” he added.

“Bear markets call for prudent measures for running any startup. While these are challenging times, not only owing to a funding crunch but also inflation and a squeeze on the supply chain, it would help startups build lean operations to achieve better unit economics for products they’re building,” ValPro’s Khanna elaborated.

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