While Subhiksha is figuring out different ways to restart it’s business (they plan to close the debt restructuring round by April 2009), there are a few very important lessons from Subhiksha’s story: (Read: Subhiksha Story – Anatomy of Bust):
Subhiksha story highlights the perils of growth at any cost and challenges of scaling a business – something which today’s startups will face tomorrow.
- Thin margin business remains a thin margin business despite the scale it can achieve, Walmart grew first in areas where it had less competition. Subhiksha on the other hand at least in NCR was within walking distance from numerous kirana, spencers, and other branded retailers
- Cash is king (read: money saving tips for entrepreneurs), again highlights what happens when you run out of cash. If you are a startup and are in growth stage, do understand that managing cashflow is key.
- Retail after the initial few stores ends up becoming a real estate business. Starbucks in the US is also going through similar issues. High growth means 2-3 store openings every other day. often you pick the wrong locations, expensive leases and poorly trained staff and this comes back to haunt you, as Subhiksha is experiencing first hand now
Subhiksha’s investors – What to keep in mind?
Qn to startups – How should you react when your VC wants you to grow fast so that the VC can exit, vs. what you think is right for the business for the long-term?
Infact, how many VCs in India understand the complexity of the retail business and what were Subhiksha ‘s investors doing as this business was imploding. not saying that their VCs were ignorant or demanded high growth but what value did they add to the business? [read: “Why should I marry you?” and other questions to ask VCs (during fund raising process)].
What’s your opinion?