Photo: iStock
Photo: iStock

Five things start-ups should do when the funding scenario turns gloomy

Start-ups should look at the potential of a city, the current traction as well as the competitor activity

New Delhi: Back in 2001, founder of online travel company MakeMyTrip Deep Kalra was struggling to stay afloat his year-old travel start-up, as tremors of the dotcom crash and the fallout of 9/11 had created a bleak investment scenario and not a single investor was ready to bet even a small amount in the start-up.

Kalra decided he would cut costs to survive.

Two of the senior colleagues took 50% cuts. In return, Kalra made them co-founders. They shifted from a spacious office in Okhla to a mezzanine of the same office. The team size was reduced from 42 to 24 over a weekend.

The measures worked.

The business started recovering and by 2003-04, MakeMyTrip got funded by two angel investors who gave them $200,000. It not only survived the meltdown, but went on to list in the US.

It is 2016 and the rush for start-up funding seems to be ebbing again, and many start-ups are finding it difficult to raise their next round of funding.

Here are five things every entrepreneur should keep in mind to conserve cash and sustain business till the market opens up.

1. Cut down on expansion, albeit, strategically: Start-ups should look at the potential of a city, the current traction as well as the competitor activity. If the competitor has already captured a major chunk of the market in a city, it is wise to exit that city. “You can always come back later. The important thing for a start-up is to survive to fight another day. So play up your strength and not your weakness," said T.C. Meenakshisundaram, founder and managing director of venture capital firm IDG Ventures India.

2. Move from paid marketing to organic traffic: “Try to get more referrals, crack organic channels of traffic and make sure word of mouth happens," said Abhishek Goyal, co-founder of Tracxn, a start-up tracker. He added that all this will happen only when the product and service quality will be good, so the key is to concentrate on that.

3. Hold on to current customers: Every company spends much more to acquire a new customer than retaining an existing one. The last thing should be to take a measure that hits customer experience. People in customer relationships team are critical. They help to get new customers, retain existing ones and encourage them to make repeat purchase.

“If you don’t have enough of those people then sooner or later customers will become unhappy. Cutting down on customer relation team can be suicidal. Rather the retrenchment should happen uniformly across divisions," said Ravi Kiran, co-founder of start-up accelerator VentureNursery.

4. Opt for venture debts/loans: Experts say if money is available and start-ups are in dire need for it, they should take it. “You have limited options to survive, thus don’t be picky," said Sasha Mirchandani, founder of Kae Capital.

5. Don’t take no for an answer: If a vendor says he can’t give you a discount, give him a better quotation. Be extremely proactive in everything you do. “I have seen companies that would have long died but the founders somehow managed to hang and they are today household names. On the other hand, there are companies which actually should have succeeded but they coolly gave up. It is all about the determination of the founders as to how much they can strive to make it work," said Mirchandani.