> Before they could build enough scale to reach profitability, the startups ran into obstacles familiar to Indian companies: red tape, unpredictable regulators, intense competition, consumers’ limited spending power, and founders’ eagerness to prioritize growth over the sustainability of their business models.
Truly makes you appreciate the set of conditions that allowed SV to develop over time, and how difficult it is to replicate this elsewhere.
All the points are prevalent other than the red tape.
But it’s not clear at all that red tape has anything to do with the problems these companies are facing.
Considering that several of the companies mentioned in the article have corporate governance issue, arguably the problem is a lack of regulation. Or at least a lack of good regulation and/or implementation of the regulation, as opposed to red tape.
The biggest problem in India is thinking they can permanently buy customer loyalty by offering big discounts in the beginning.
This is where the 'intense competition' is dangerous part comes from. After you have spent billions on subsidising prices for the customer, newer companies come, and do the same. The customers see no issues in now buying from the newer companies. The older companies find themselves in a hard position with no profits and big debts.
In India customers are loyal to only one thing 'cheap prices'. Thats all there is to this story. Many times even if there is no real competition, you are often competing with the customers mindset itself.
How does this explain the phenomena of e.g. Repeat Mercedes-Benz buyers, even when other automakers offer the same luxury features at a lower price point (such ad Audi, BMW, etc...) ?
Yeah profiting after getting network effect or monopoly or growth is a function of customer inertia in the face of rising prices. And India has way lower inertia to than US.
Consumer's limited spending power should not be discounted. I worked for an Indian startup and it was clear that India gives you the user numbers to show growth but you are never going to able to monetize it because you can't squeeze blood from a stone. The typical strategy is use India to build and test products, and market to first or second world countries. The _only_ startups that could turn a profit were the fantasy gaming and gambling ones. Ultra predatory business practices and powered by addiction and the fact that UPI enables zero transaction costs on small amounts so they can make a profit with individual sales as low as a few cents.
This is one of those modeling exercises where you need a scalar not a Boolean to correctly understand the effect.
“Growth over sustainability” is a problem in proportion to how scarce funding is for your company size. (If you have a SoftBank willing to write huge series Z rounds then you can prioritize growth over sustainability for a decade.)
I would attribute red tape to only fintech companies. Ideally edtech should have had redtape considering how much rampant these VC funded companies ran riot.
Also, SV has these red tapes too. Bloom Tech -> California BoE anyone? Red tapes are not always a bad thing for the consumers, maybe for those following grow fast and break model.
Paytm: Here the issue was that they were not meeting RBI (Reserve Bank of India) compliance for their banking license. So RBI revoked their banking license which prohibits them to process UPI transactions by themselves. So this causes a massive exodus of UPI users from PayTM app. Later PayTM partnered with some other bank and resumed those services again.
Byju's was perplexing as almost every customer of theirs and the target customers knew what Byju's was doing except those in the board, the VC analysts and LPs.
Most Indian kids who could possibly buy Byju's products, could already afford 1 - 1 tuition. That is after a full day's school work, which in itself is a lot given the sheer gruelling regimen the kids go through- Having to work through class work, home work, unit and term tests.
Many schools also offer integrated JEE curriculum and testing.
It was a scam from the very beginning. Its like selling videos of tourist spots to people who can actually go to those places and see it themselves.
Truly makes you appreciate the set of conditions that allowed SV to develop over time, and how difficult it is to replicate this elsewhere.