The first quarter of 2017 created a shock in Indian startup ecosystem with the Snapdeal debacle. As a leading e-commerce firm with double digit growth every year since it founded, no one expected an anti-climax. Since Snapdeal utilized all the resources supplied by the system for its growth, a deeper analysis is highly useful for start-up entrepreneurs. Learning from others’ failure is the best lesson for budding entrepreneurs if they wanted to reap success. Someone who is carefully analyzing the debacle can learn that it is a created disaster that could have avoided.
Before moving to the analysis, let’s look into what led to the recent trouble in Snapdeal. A series of incidents led the e-commerce giant into the crunch situation. In the last weeks of February, online sellers of Snapdeal threatened to quit the platform due to payment default issues. Subsequently, they approached commerce minister and currently plan to move to court. Also, around the same time, the online retailer announced a layoff without specifying the numbers – reports confirm 1,000 in numbers. In the initial weeks of April, SoftBank – the largest stakeholder of online retailer – backed out the Snapdeal funding plan. Subsequently, the withdrawal of $150-200 million debt financing led to a boardroom battle between the retailer’s old and new investors.
Focus on Balancing the Numbers
In 2015-16 financial year, the online retailer registered a revenue growth of 56%, but it faced a loss of 150% comparing to 2014-15. People should note that the firm recorded a revenue growth of 450% in 2014-15 compared to 2013-14. A business plan focusing only on revenue growth without minding profit is self-destructive in nature. Additionally, the investors with mutually conflicting interests in the Director Board, add pressure to show results in balanced numbers. By March 2016, the firm’s loss stands at Rs 2,960 crore with a revenue of Rs 1,457 crore in the financial year. Not focusing on losses in a turbulent industry with new players enter on a daily basis is not futuristic.
Should have a Clear Execution Plan
Snapdeal completed a number of acquisitions, partnerships in the past, and many of them added distractions to the firm’s focus. Remember the acquisition of Exclusively.com, a luxury fashion brand, it collapsed within one year and finally shut down. Snapdeal did not display a clear intent and solid execution plan to integrate each acquisition into its ecosystem perfectly. It is visible in the purchase of GoJavas, a logistic firm, which finally went to Pigeon Express’ hands without adding any benefits to the e-commerce player.
Be Consistent with Strategic Intent
Snapdeal changed its strategic priority thrice last year, and that displayed the lack of focus and clarity on key metrics. It moved from Gross Merchandise Value (GMV) to Net Merchandise Value (NMV), then to users, and finally to net margins. These quick changes are reactionary and not from any structured internal analysis or well-thought policy change. The entrepreneurs should not change strategic priorities frequently, and they should wait until it provides some desired results.
It’s a Marathon – Be Realistic
Indian e-commerce industry has miles to go as the consumer behavior is not completely in favor of the online purchase. Multiple players gave stiff competition to the firm from very first, but it did not make a realistic approach to the growth strategy. Additionally, it failed to focus on survival and long-term growth by targeting only on growing sales numbers and market share. If Snapdeal worried about the increasing expenses there by accumulating losses, it would have gone for more realistic recruitment strategies to avoid the excess headcount that resulted in the current layoffs. Sticking to frugality, working on long-term results and vision, and understanding the ground realities are most critical for any business.
Innovation is not Copycatting
The Indian e-commerce giants are not fit for using the word “innovation” with their brands. Most of them, including Snapdeal and Flipkart, replicate the successful business models in the U.S. or Europe. The founders of Indian firms’ did not evaluate the geographical characteristics Indian economy comparing to others.
People argument that Chinese companies have registered success by replicating the U.S. and Europe business models. Interestingly, they do not notice that China is a protected market with no foreign player has access to it. But in India, Amazon and other global players have free access, and they innovate in their own ways. For instance, Amazon made a partnership with India Post to service over 155,000 post offices for expanding its delivery network. The companies should focus on innovation as it is the way of sustainability and growth.
Availability of resources is not an excuse for the extravaganza, especially when it comes to entrepreneurship. Not having a clear focus or losing focus is the biggest crime in every business. Indian e-commerce giants should come out of the notion that market share is the primary performance metric. In many ways, Snapdeal is an important lesson for Indian startups.