Startups have recently become the darling of the country, making rapid innovations and changes in some very conventional markets. Their success has encouraged many people to take the plunge. However, their success also often obscures the fact that more than 90% bite the dust and the millions invested by the investors goes to waste. Innovation demands funds, and the sunk money is the cost the whole system pays for this innovation. This however does not help defend those startups who have simply blown the money away.
A fresh change was recently witnessed, when GoZoomo, a startup operating in the second-hand car market, concluded that their business model was not working out even after several iterations. Instead of trying to throw more money at the problem, they decided to close, returning millions they had received to their investors. They could have sat on the money and tried fresh new ideas, but in closing, the maturity they have shown is commendable.
What is so special about it, though? Don’t all businessmen shut shop when they are losing money, saving the remaining amount? The difference lies in the fact that even though startups are businesses, they are run differently. They are not funded on loans with personal collateral, rather on investors’ trust, vision and money with little to no personal collateral. This drives risk taking ability with potential excessive returns, but may also sometimes lead to errant decision making. We have seen cases of startups who have burnt millions of dollars even when things did not seem to working out. Such cases bring a bad name to the system, making investors wary and also damages the chances for new startups to raise money, hampering growth. Which is why GoZoomo’s back out is a welcome change in the right direction, accepting their failure with grace and saving a ton of money. India is a new player in the startup space and corrections such as these will bring some much needed stability to the system.
Originally published for the Dainik Bhaskar Group on 2nd Sept, 2016.