These are great times to be doing any kind of business. As public and private sector continue to problem solve, each year provides a better opportunity to solve newer ...
These are great times to be doing any kind of business. As public and private sector continue to problem solve, each year provides a better opportunity to solve newer problems, opens up newer ways of solving older problems. Particularly, the biggest leverage in the present era is that of technology and internet. With more and more technologies and ever-evolving and adapting user base, what we would have struggled to solve a decade back has become a no-brainer. We are surrounded by digital touch points living in our pockets, our wrists, our cars – where the solutions can bring disruption on an unimaginable scale, by harnessing so much more from the mobile device and the other things-of-the-internet.
Given the high tide, starting up a business has become easier perhaps, however, the journey to prove and sustain is hard. From my own experience of starting and scaling up Urban Company, here are a few challenges that we have constantly faced and a few must-remembers which we have learnt.
1) Business Model & Unit Economics
For a lot, this might seem like the no. 1 thing needed to be figured out before starting a business. However, a lot of start-ups, especially in the tech realm fall short here. Monetization strategies and business models depend so much more on hypothesis around certain assumptions on product and consumer behavior. These need to be proven first. The challenge faced here is a certain sense of urgency to scale up by start-ups, almost feeling that more users and more dollars in the bank solve the rest. But in fact, what is important is to prove that basic unit economics – cost of acquisition, the cost of operations, revenue from transactions – all need to add up to the positive. A company can run losses because it is spending money to scale up, but that needs to be backed by a proven hypothesis at the unit scale, only then in steady state it will work out.
2) Product Market Fit
While the start-up environment is on the positive side, the big bets that are laid in the market still need to prove their mettle. This will certainly cause the cycle of correction. That should not dishearten anyone. It’s all the more important for us as start-ups to be careful with what we are spending. It’s easy to get blinded by fast customer growth, but if you haven’t solved for unit economics, if you haven’t plugged the leaky bucket for user retention and repeat, then there is no point spending on a scale. A lot of start-ups are still figuring out the best product that fits the demand and gets the revenue equation working. Most of our hypothesis don’t work the way we thought they would, but then we build a culture of experimentation and first principles thinking. It is absolutely fine to be in this stage for as long as it takes to figure it out. If you end up growing too fast without a stable product or without a real value proposition to the user, if you rely too heavily on discounting to acquire customers, then you are in for a failure. It’s like filling in more water (users), sometimes by a firehose (utilising the rocket-fuel of extra funds), in a bucket that has a hole. The water levels might appear to raise, but it’s a leaky bucket, and you will eventually run out of all that you have created.
3) Hiring & Team building
This is something which we at Urban Company have been really careful of, and are really proud of. All start-ups require great teams to be perfectly aligned to the goals and execute flawlessly. In a frothy market, where you have new money, a lot is being done to hire exceptional talent. So much so that the value-proposition of the company is less important and the perks are more important. This is a problem for which all are responsible for. I think start-ups have to be really careful of the kind of talent they bring in, and the tone and culture they set. To scale as a company, everyone needs to rapidly scale on their own, which requires a lot of effort to build the right core values, the right communication channels, the right messaging and the right company culture. If not done right, the company could be stuck in solving only for talent retention and execution alignment all the time. You’d rather want to be in a phase where pivots get communicated and acted upon like the neural networks in our brains. To get this, you have to challenge the status quo and try out alternate ways of team building, communication and execution.
