When does a startup stop being a startup? Is it when it reaches a certain number in terms of sales, when it hits profitability, when it offers its stock to the public or when its founders grow up?
Flipkart, India’s most valuable startup, has been acquired by Walmart Inc., one of the world’s largest corporations. Now, should we look at Flipkart as a startup, or does it qualify to be evaluated as a company?
Simply put, when does a startup stop being a startup? Is it when it reaches a certain number in terms of sales, when it hits profitability, when it offers its stock to the public or when its founders grow up?
In the current benevolent environment for all startups, the answer to that would be none of the above. Amazon and Alibaba, as also Flipkart, are already much larger than their offline retail rivals. Yet, we continue to refer to them as startups. The first, too, has also been profitable for years, yet that does not affect its status. For good measure, both are listed as well. So, not size, certainly.
Dhirubhai Ambani founded Reliance Industries in the mid-1960s and 12 years later, the company’s initial public offering (IPO) was resoundingly supported by investors, setting it on the path to becoming the giant corporation it is today. It is safe to say that from that day on, Ambani was no longer just an entrepreneur.
Uday Kotak set up his financial services conglomerate in 1985. It had stopped being a startup and started behaving like a company less than a decade later.
Longevity can’t be a yardstick either. Between Uber’s nine years, Facebook’s 14 and Google’s 20, there is a difference in terms of perception and management, which goes beyond the years. Travis Kalanick’s behaviour at the company he founded has left his successor Dara Khosrowshahi with a mountain to climb in convincing the public as well as investors that Uber is a mature and stable organization.
In his December 2014 piece for TechCrunch What The Hell Is A Startup Anyway?, Alex Wilhelm posited what he called his “50, 100 or 500 rule", declaring that “if your company has, or is any of the following, you have to hang up your startup uniform, and realise that you are just another technology company, either hunting for or actively avoiding an IPO:
■ $50 million revenue run rate (forward 12 months);
■ 100 or more employees;
■ Worth more than $500 million, on paper or otherwise.
The numbers are not as important as the principles behind Wilhelm’s definition. Many Indian startups today would comfortably breach these figures. Yet, we know from the experience of the last 10 years that it will not fundamentally alter the way they function, the core of which is their low accountability index. If that is set only to keep the founders and their handful of funding agencies happy, it is a sure bet that they are not yet ready for the market ecosystem.
Paytm founder, the irrepressible Vijay Shekhar Sharma, probably put it best when he told Quartz: “A startup becomes a company when the founder does not know what is happening—that is, when teams can take independent decisions without including the founding members."
So, why would a startup continue to call itself that even after it has fulfilled all the preconditions to be welcomed to the corporate high table?
The answer lies in the cosseting that the status confers. It is almost like the 30-year-old who continues living with his parents, soaking in the parental attention while making occasional dashes outside to assert his adulthood. Starting up is good, staying that way even better.
The debate is not new, but in the Indian context, with venture funding replacing public offerings as the major focus of funding, it is extremely relevant.
India’s corporate ecosystem cannot afford its best entrepreneurs functioning in a bubble, with a lucrative sale at the end as the only objective. Rather, it needs entrepreneurs committed to creating large corporations that can go on to take over the mantle of fostering innovation, creating public wealth and generating jobs.
Twenty years from now, Flipkart will be a footnote in India’s corporate history. The likes of Infosys, Bharti Airtel, Hindalco, HDFC and Hero MotoCorp will still rule the headings.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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