42 INDIAN MANAGEMENT OCTOBER 2017

The past may hold lessons for future success. So startups should reflect, course
correct, learn, and move forward.
MANOJ JOSHI AND SUHAYL ABIDI, AUTHORS OF STRATEGY
THE VUCA COMPANY

Too fast,
too furious

I
t is said had Hitler studied Napoleons
disastrous and overambitious campaign
of Russia, he would not have attempted
the Russian invasion. The mistakes
were repeated, leading to disastrous
outcomes. Was this Hitlers startup
in governance? Did his obsession with
speed lead to the disaster?
It is understood that initial success breeds
speeding, retards dynamic learning, and leads
to failure. The later one learns, lesser are the
chances of recovery. An incumbent with little
or no education and experience failing is still
understood. But it remains a question in the
case of those who are educated and wise, who
must learn from past failures. This is perhaps
what has happened with startups, and shall
continue to happen if they fail to learn from
the past.
Failure is in itself not a catastrophe, but failure
to learn from failures certainly is. Startups often
stumble due to poor scaling-up strategy, but
they persist on fast expansion in spite of several
instances of past mistakes leading to failure.
Recently, two startupsSnapdeal, ecommerce
player, and Stayzilla, a homestay pioneer
slipped on the fast expansion banana peel. Why

INDIAN MANAGEMENT OCTOBER 2017 43

The potent mix of a large cannot we learn from past
failures? Is it complacency
amount of capital and or overconfidence? Can the
ambitious expansion in all past not be a reflection of
functional domains would the future and vice versa in a
have led the company to VUCA world?
Snapdeal started growing
defocus from its core.
their business much before
the right economic model and
market fit were figured out. In addition, they
also initiated diversification without perfecting
the first business or making it profitable.
The focus was on building their team and its
capabilities for a much larger size of business
than what was required for the existing scale.
The potent mix of a large amount of capital and
ambitious expansion in all functional domains
would have led the company to defocus from its
core. They started doing too many things and
decisions taken by the founders failed.
Why was perfection for the first initiative not
looked at before diversifying? Is it not one
critical learning?
44 INDIAN MANAGEMENT OCTOBER 2017
Stayzilla had to shut down their operations
in February 2017. The founders cited the
following reasons:
Lack of effective local network in Indian cities
(which in simple terms meant suffering losses
and subsidising till business picks up (what
Uber and Ola are doing now)
Poor infrastructure support for startups (lack
of logistics, tech savvy suppliers, and online
user demand)
Massive discounting practices by rivals
Lack of focus on cash flow, which led to
draining of cash
Did they fail to study the prevailing market
and business model practices? We would say that
they failed to diagnose the volatile, uncertain,
complex, and ambiguous nature of their core
business vertical.
Stayzilla, an online room booking
marketplace, was founded in 2010 by first-time
entrepreneur Yogendra Vasupal. He managed to
rope in 55,000 homestays, hotels, guest houses,
jungle lodges, and boat houses under its banner
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Not only startups, many across 4000 cities and towns
companies in India across India, in six years. He
had an ambition to double the
have suffered due to numbers if the business had
their fast, reckless, and not shut down suddenly. Was
unprecedented expansion Yogendra fooled by the theory
in newer industries. of randomness, in which one
gets surprised by an outcome
that was never expected?
People think that the past is a testimony to the
future and the results shall be the same but for
Stayzilla, unlike Ola and Uber, it misfired. They
suffered losses and could not capitalise.
Both Snapdeal and Stayzilla repeated the
same mistakes made by Subhiksha Retail,
which went bankrupt a few years ago. Later,
the promoter of Vishal Retail too had to sell his
business at a low valuation. It is surprising that
the founders of Snapdeal did not learn lessons
from others experiences. They should have
read, understood, and interpreted these failures
before launching their business. Why did not
the soul-searching take place? Who paid the
price and burnt cash finally? Investors, markets,
customers, or all?
STRATEGY
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Not only startups, many companies in India
have suffered due to their fast, reckless, and
unprecedented expansion in newer industries,
leveraging debts and private equity, which are
easily available today. Some have gone bankrupt;
others are struggling to recast debts and selling
assets to repay loans. Many of these cases were
discussed in our book The VUCA Company, which
debates that many of these failures could have
been avoided, if only they exercised restraint in
their expansion and diversification plans.
Why did Subhiksha Retail, battered by rising
prices, collapse? Was it due to unwise and
inexperienced promoters and senior leaders,
or did the strategy/execution go terribly
wrong? Subhikshas CEO R Subramanian was
an IIT graduate, and the board had towering
personalities and leading PE practitioners. What
was the causality that led to the disaster despite
a seasoned team?
Like ecommerce and online marketplace,
retail is a new business in India and none of
the companies have yet been able to discover
a profitable business model. However, this
did not deter companies like Subhiksha and
INDIAN MANAGEMENT OCTOBER 2017 45

All startups should Vishal Retail, which did
not have deep pockets like
remember the bankers established corporates.
motto: top line is vanity, They went on a reckless
bottom line is sanity, and expansionSubhiksha from
cash flow is reality. 500-1,800 stores within 18
months, and Vishal from 50
to 150 within one year using
short-term loans. They ran
out of money and closed down. RC Agarwal,
promoter of Vishal who is presently engaged in
re-launching apparel retail under V2, in a recent
interview said that in his second innings, he
would keep debt down, move slowly, increase
management bandwidth, and have a high degree
of automation.
We know that in biological and social
systems, entities which lack effective feedback
loops do not survive. Slow adaptors fail in any
evolutionary and competitive environment. This
is also the case with man-made organisations.
The fall of Lehman Brothers, General Motors,
and Kodak have only underlined this principle.
Is not resilience the need?
To our understanding, this is primarily due to
dysfunctional learning of the promoters with
ABOUT THE AUTHOR a poor understanding of the volatile business
Manoj Joshi is ecology. Our mechanical clockwork model is
Professor, Amity
Business School.
behind these organisations assumption that the
future is calculable, plan-able, predictable, and
46 INDIAN MANAGEMENT OCTOBER 2017
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engineer-able. Quants knowledge says this
as a syndrome of regressing to the mean. The
reality is that the world is a complex ecosystem
where the future is random and unpredictable.
Strategic planning assumes that one can predict
the outcome and control the process. But when
there is ambiguity and uncertainty, there is
no ability to predict and control. This is the
business environment we are facing now. Hence,
do we see a need to do scenario planning?
Considering the world we find ourselves in is
not going to change to a more stable one in the
near future, what is the way out for companies
to maintain growth and manage their risks?
This strengthens our proposition on scenario
planning and need to mitigate risks as an
outcome of assessing the VUCA dimensions.
The first is a close control over cash flow. A
survey in the US showed that cash flow is the
second most important cause for enterprise
failure (the first is the absence of need).
All startups should remember the bankers
motto: top line is vanity, bottom line is sanity,
and cash flow is reality. Time and again, history
has shown that our addiction for topline growth
blinds us from seeing the draining cash. It
also makes us vulnerable for a black swan-like
recession. It is no surprise that management
guru Ram Charan identifies cash as the topmost
priority in his article Basics of Moneymaking.

How fast can the company He says that the key factors
expand without straining to making money are the
same in any business: cash,
its cash flow? Timing is margin, velocity, return, and
essential to deliverables. growth. These should be at
the forefront of all analyses
and decision-making in every
job. No business survives long without cash.
You should know how much cash your business
generates and how much it consumes. What are
its sources? What drains it? What is the timing
of inflows and outflows, and how is it changing?
More revenues (sales) often mean more cash.
But growing a business consumes cash. How fast
can the company expand without straining its
cash flow? Timing is essential to deliverables.
The second and more important is the
learning principle enunciated by Peter Senge,
author of The Fifth Discipline. He says slow is
fast and its corollary is fast is slow. A paradox.
It essentially means:
Check undisciplined speed of growth: pause
Reflect, make course correction, learn
and embed learning in the organisation:
move forward
Genpact froze all expansion and recruitment
between 2000 and 2002, and used this period
ABOUT THE AUTHOR
Suhayl Abidi is
a management
consultant.
STRATEGY
to revisit their strategies and evaluate their
processes and systems to ensure they are
sturdy and flexible to support future growth.
We consider revisiting the past, studying, and
analysing as patterns for future growth.
The third and most important is exercising
humility. Success sows its own seeds of
destruction. All these entrepreneurs, buoyed
by their initial success, made increasingly more
grandiose plans. Why fear to learn?
All the companies quoted above could
have benefited from Peter Senges advice and
today would have been in a position to move
forward with sustainable growth. It is no
wonder that tortoise won the race with the
hare. It spent the time thinking, reflecting,
and learning. Most startups dream to emerge
as unicorns. Yet an advice for startups: stay
humble, focussed, and be assertive and timely
intelligent. We make fast choices from a trade-
off, which is based on intuitive thinking. On
the other hand, slower choices are based on
rational thinking. For a start-up to move slowly
and steadily, it must think fast and slow in a
VUCA world. Its like the race between the
tortoise and the hare, fast thinking and slow,
yet steady action.
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