The Rise and Fall of Startups

The birth of the start up can be traced back to the early beginnings of the Silicon Valley in the 1950s and 1960s. Since then, start ups have expanded and evolved several times, more so with the arrival and widespread adoption of the internet. In India, the start up culture exploded into the scene with the dawn of the present decade. In spite of its late beginning, the scenario measures all other economies where hardware based start ups have slowly made way for internet based start-ups. However, the start-up world remains a constantly evolving universe and one of the recent trends that we have seen is the rise of consumer brands in the start up world.

At the beginning, start ups were perceived as outliers or fringe elements of the business world. They operated in their own niche. However the growth of start ups was unprecedented and caught established consumer brands off guard. One example is Amazon, the online retail company, that affected fortunes of Walmart, the brick and mortar behemoth. At the same time, consumer brands have realised that start ups often have specialised roles that can be used to harness current industry trends. One prime example is Unilever acquiring Olapic which enables companies to harness consumer generated pictures by removing their copyright. While the startup’s work is definitely different from Unilever’s core business, these tools can be utilised for social media marketing. What consumer brands are also realising is that startup culture is more open to innovations and fresh ideas. On the other hand, in-house innovation projects require investment without any guarantees. Hence, acquiring or investing in startups is a safer option.

In the year 2016, investment deals in start-ups fell from 346 in 2015 to 182. The decline was not just numerical as the amount of investment also dipped my 44%. As the seed funding seems to be on a decline, it is of grave importance that other forms of investment are explored. Investment by corporations or outright buyout could be the way forward and the trend is definitely picking up. Some might argue that this might spur the unhealthy growth of ‘selling entrepreneurs’ who will launch start ups purely with the goal of selling it afterwards. But corporations increasingly understand the dynamics and culture of start ups. These days they do not necessary impose their own restrictive work culture on the start ups they acquire and allow them to function independently so as to not stifle innovation. Some companies have even gone further to launch incubators of their own to promote the growth of start ups – Google being a prime example, encouraging its employees to launch their own start ups. Such corporate backing is useful for start ups as it means they won’t have to worry about funding or marketing and building a selling network.

Growth in the consumer goods sector is starting to hit a plateau. It is expected that in the next few years either growth will remain constant or increase only marginally, recent estimates put it as 3%. Keeping this in mind, companies are looking to make strategic gains in related sectors to expand their business. One example is Kellogg which has invested heavily in start-ups dealing in food packaging which it believes will lead to effective packaging solutions and decrease wastage. Similar strategies are now being applied by other consumer companies. At the same time, start up industry is witnessing a revolution of sorts. These days, start ups are being created to specifically offer services to these larger multinational corporations. Hence we see a number of new start ups in sectors such as logistics, delivery, marketing and packaging.

Looking into the future, keeping a fine balance is going to be the key. The days of inflated investment is truly gone. Now startups have to look to other sources of funds or try to be profitable soon. An early drive towards profitability might cause a dent on innovation. But making money should be one of the important aims of corporations. Hence, in near future, a balance will emerge in which consumer brands would invest in measured proportion and also try to get to profitability through internal accruals in a speedy manner.