Rashmi Guptey
1st February 2022
Harish Talreja
25th January 2022
Sid Talwar
31st December 2021
Ankit Moorjani
30th June 2021
20th January 2024
Sandeep Murthy
17th March 2022
1st January 2020
20th November 2017
7th June 2022
15th May 2022
17th February 2022
28th November 2023
Prashant Mehta
2nd February 2022
22nd September 2021
30th August 2021
15th March 2022
21st January 2022
14th January 2022
5th November 2024
Monish Pathare
28th October 2024
4th October 2024
5th August 2024
20th October 2021
25th April 2021
Akshat Jain
12th February 2021
31st May 2020
Tanya Rohatgi
19th August 2024
20th June 2024
Siddhant Ahuja
25th April 2022
14th February 2022
2nd June 2018
5th June 2024
15th February 2024
9th February 2024
26th May 2022
1st February 2024
20th November 2020
Shivani Daiya
20th February 2020
17th August 2014
17th October 2024
18th July 2019
17th September 2021
15th September 2021
Maansi Vohra
28th January 2021
Atharva Purandare
10th January 2021
Tanvi Ghate
23rd January 2024
Ahan Rajgor
12th May 2022
8th March 2022
22nd February 2022
22nd August 2024
29th July 2024
5th June 2022
5th May 2022
16th April 2021
15th November 2014
25th October 2021
8th March 2020
7th August 2018
27th December 2016
17th February 2021
29th September 2020
24th September 2020
26th July 2020
20th January 2020
15th October 2018
26th June 2018
13th June 2017
21st May 2024
13th February 2024
15th July 2024
10th April 2024
20th February 2024
15th November 2024
Profitability isn’t a switch you can turn on and off. No business can suddenly decide that it’s time to get profitable and implement a strategy. If businesses aren’t structured to be profitable, the only real strategy an entrepreneur can implement is to cut costs, almost always at the expense of growth. Profitability at the expense of growth doesn’t last.
Over the past few years, many investors and entrepreneurs attempted to create value in startups purely on the back of investing large sums of money. The belief was (and in some cases still is) that the more money a startup raised, the faster it would grow, and growth alone would make it more valuable. But that’s not how long-term value is created. As an entrepreneur or an investor, if you follow this logic, inherently you are not trying to build a strong, self-sustainable business. You are trying to create short-term value, probably with the hope of flipping the business. The problem with businesses that rely purely on invested capital to drive value is that they have the propensity to fail as often as to succeed. And the Indian ecosystem has now seen plenty of examples of this mindset play out over the past couple of years.
Luckily, the conversation is changing. The ecosystem is realising that real value can only be created by businesses that generate profit. As a result, everywhere you look, you see people talking about how “it’s time startups got profitable”.
Unfortunately, profitability isn’t a switch you can turn on and off. No business can suddenly decide that it’s time to get profitable and then implement a strategy to become profitable. If businesses aren’t structured to be profitable, the only real strategy an entrepreneur can implement is to cut costs, almost always at the expense of growth. Profitability at the expense of growth doesn’t last. Nor does it create value. Can all businesses be structured to be profitable, you ask? Absolutely not. Profit is the result of a long-term business strategy that invests heavily in products and services that have, as Warren Buffett says, “wide, sustainable moats around them”. A “moat” is a fancy way of describing a competitive advantage. My favorite example of a moat is the licence raj that existed in India. Once you had that licence, you had pricing power. And that’s exactly what a moat provides: pricing power. Buffett agrees: “The key to investing is not assessing how much a company will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.
For me (and for our fund), the venture capital business is fundamentally about helping businesses build moats.
It needs to be part of the conversation from the very beginning of a business’s existence and constantly brought up every time a decision is made, every time a change is discussed, and every time a pivot is considered. The more money a business gets, the wider that moat needs to become. The wider the moat becomes, the more profit the business should generate in future. This is the kind of profit that helps build self-sustainable businesses. And creates real long-term value.
So instead of asking when a startup will or can become profitable, the real question to ask is if startups are investing in building moats that will create profitability as they mature and grow. Unfortunately, most businesses don’t have moats and will never have one. So it doesn’t matter if they try to achieve profitability because, as I said earlier, that profitability won’t last. It won’t last because if you don’t have a moat, you will most probably compete on price. If you compete on price, you will lose on profitability. And we see that happening everyday in India. As the startup ecosystem in India starts maturing, it’s crucial to make the conversation around profitability a part of the culture. It will be difficult to salvage older businesses that rely on new capital to survive, without having invested early enough on a moat. But there is an opportunity to help build new businesses that have a better opportunity to create long-term value, based on the strength of their business model and especially the durability of their moat.
We are at the cusp of creating great technology businesses in India. It can’t happen without the right support from a great board. And a great board needs independent directors.
It’s really hard, but so powerful. The "hack" culture of Facebook or the "do no evil" approach of Google or the "respect everyone" culture of the Mahindras. It is amazing to see what great things can be accomplished when a founder drives core values effectively through an organization.
A business without differentiation quickly becomes commoditised weakening margins. Operational improvements become a hygiene factor in highly competitive markets.
Your Product Is Your Business Model. Changes in one impact the other and in the best cases they play off each other.
Everybody pivots. If you ask anyone who’s run a business in the past, they’ll tell you they pivot a lot. They pivot based on everything from customer feedback, to external advice, to market conditions. And its a good thing….
Handling a downturn has little to do with what you do when the downturn starts, but more to do with how you built during the boom. At the start of a downturn, if you’re asking “What do I do now?” it’s probably too late.
You will receive the next newsletter in your inbox.
The monthly Gazette is your source of happenings within Lightbox - updates, blogs, deep dives, opinion pieces and all things consumer tech
Join the thousands who hear from us