Time and again we’ve spoken about the ‘clingy-red-bottom-line’ of the startups that hide behind the façade of the ‘Unicorn’ tag. For an idea to be sustainable in the long-run, there must be signs of ‘Positive Unit Economics’.
What is the significance of Positive Unit Economics?
Speaking in a session with Inc42, Snapdeal (Unicorn) founders Kunal Bahl and Rohit Bansal spoke about the importance of unit economics. “Positive unit economics means the consumer is allowing you as a company to make money while serving them. Negative unit economics means you are having to pay the consumer to use your service. Snapdeal’s view for the last few years is that we made a lot of errors to get to this realization.”
Should valuation be the only metric of performance?
With clauses like Guaranteed Minimum Returns, investments are virtually made riskless which automatically attract higher valuations. (To learn more, read our piece on Are Startups Overvalued? Yes, But why & when?).
In an interview with Inc42, co-founder of Dream11 (Unicorn) Harish Jain points out how different investors often come with innovative voting rights in order to get their returns. The truth is what we read are the headlines only. The detailed agreement often reveals more than
what meets the eye.
Are Startups only a valuation game?
What we often forget is that the term ‘stakeholders’ has a much wider scope, as it gives equal importance to customers as much as it does to shareholders. An entrepreneur sets forth on the journey of entrepreneurship with the aim of finding realistic solutions to problems that we face in our day to day life and business. One cannot be in this only to bag higher valuations.
In an interview with Inc42, BookMyShow (soon to be a unicorn) founder Ashish Hemrajani, says, “Unicorn club is a total fallacy… You must have a purpose in life and a purpose of business instead. Build a culture and integrity in the business. Valuation, money, cash are by-products and those will come. Entrepreneurs need to understand that — your job is to leave a legacy and enjoy the journey and the byproduct.”
If not valuation, then what?
If Investors are in this for the volume game, what really matters in startups is its top-line. Startups that are able to achieve impressive topline growth are indeed worthy of the celebrity tags.
Dream11 (Unicorn) cofounder Harish Jain emphasized on the need for “revenue-corns” in the Indian startup ecosystem. Jain defined revenue-corns as companies with $1 Bn revenue, instead of simply going by valuation on paper.
This article is a part of the June'20 edition of our Startup Newsletter. Here's the complete publication:
