Startups shouldn’t be debating whether to chase growth or profitability and both should happen at the same time, in tandem with each other, Infosys co-founder Nandan Nilekani said on Wednesday.
Speaking at a startup summit hosted by xto10x, a company that helps new-age companies scale their businesses, Nilekani advised founders to find a way to earn their own money.
“I think the question of growth or profitability comes only if the basic unit economics are not correct. But, if your (unit) economics are such that you are making money on every sale, you are going to do both, grow and be more profitable. If you get that right, the rest follows,” Nilekani said in a discussion with other panelists like Harsh Mariwala, Marico chairman, Sriharsha Majety, co-founder of Swiggy, and Binny Bansal, co-founder of Flipkart.
“The current (economic) situation shows that ultimately you are in charge of your own destiny. You have to earn the money for your future. If you are depending, all the time, on capital from outside, you are exposed to the vagaries of the market and fundraising,” Nilekani added.
He stressed the need for startups to focus on lowering customer acquisition costs and said the key to success in businesses was to invest in its people and hire rightly. “Those companies that do a great job in attracting, motivating and retaining people — in the long term — are going to do much better than those who don’t. Also, I am a strong believer in not spending much money on customer acquisition, because the best customer acquisition is zero cost and there are many ways to think about getting there.”
India has emerged as the third-largest ecosystem in the world for startups globally, with about 105 unicorns having a total valuation of roughly $340 billion. Half of those were born in the last two years, some of which have disrupted the way traditional businesses functioned. Speaking on the impact from new entrants, Mariwala said Marico had never thought its business would get disrupted by startups, especially in the direct-to-consumer (D2C) segment. That, however, led him to start a separate unit which is not part of the larger organisation, to monitor competition, make acquisitions and launch D2C brands for Marico.
“We had never thought Marico’s business would be disrupted by the players in the D2C segment. All of a sudden, the entry barriers in the FMCG business are low. Barriers like high advertising budgets, distribution, infrastructure to cater to the Indian masses all of them vanished with the emergence of e-commerce player but we saw this as an opportunities for our business.”
Asked on his views on which path startups should choose, he said startups can thrive on the trade-off between growth and profitability but only till a certain time.
Swiggy’s Majety said his company too had a similar timeline for profitability like Marico, when his company starts something new. “…The perception is just different but 5-7 years is the outer limit we have when we start something new,” Majety said.