Funding is not everything for success of startups
As the information technology dependence is growing in every business entity, the focus has shifted to IT sector and the new generation considers all startups are IT-driven
By K Krishna Sagar Rao Harvard Business School Certified Organizational Strategist
ESOPs do work for retaining top talent in a startup. However, early-stage startups wouldn't have the bandwidth or possibility to offer ESOPs. This option is only possible when the enterprise is ready to be listed on the stock market or already listed on the stock market
Q. I have completed BE (Mining) from Osmania University, and M Tech from IIT Bombay. As a Mining Engineer, I have been following the startups ecosystem in our country since last few years.
As per the general observation, mainly the software/ IT-based startups have been evolving in the past few years. Is it true or brick & mortar and other sector-based startups are also being evolved, being encouraged to test their ideas and potential? - Srinivas Rao Kanaparthi, Hyderabad
A. Any enterprise which starts off with an idea and eventually translates that idea into commercially viable product or service is a successful startup. From over 100 years after the industrial revolution, any company which has been initiated through the above process is a startup. Some succeed and many fail.
There's a misplaced understanding that startups have evolved from IT sector which is not a fact. Any enterprise either from old-economy sector or from new-economy sector which gets initiated freshly is a startup. However, with the information technology dependence growing in every business entity, the focus has shifted to IT sector and the new generation considers all startups are IT sector-driven, which is not a right assumption.
Q. WM Motor, the Chinese electric vehicle startup which raised $5.3 billion in funding, filed for bankruptcy. In your opinion, what is the primary reason for the fall of WM Motor? What are the lessons for startups from this episode? - Surendar, Bengaluru
A. Funding of capital is an essential part for success of a startup. However, it is not everything. Bankruptcy of WM Motors in just eight years is a test case of this fact, as WM has received $5.3 billion and still failed.
There will be many factors contributing to the failure of an enterprise. However, the leadership of the top management is a critical factor for enterprise failure and can be held responsible.
WM case showcases lack of vision and competence of senior management to utilize such massive funding towards critical spends and to commercialise its product successfully in the marketplace.
Q. Do employee stock options, ESOPs, motivate employees to work harder? Is it beneficial for startups to announce ESOPs for their employees? Kindly give your expert opinion on this. - Rajesh Kumar, Hyderabad
A. Employee Stock Options or ESOPs do work for retaining top talent in a startup. However, early-stage startups wouldn't have the bandwidth or possibility to offer ESOPs. This option is only possible when the enterprise is ready to be listed on the stock market or already listed on the stock market.
