Some news to start before:
Apple Inc
reported its first fall in revenue after 13 years. Google Inc holding company
Alphabet's revenue show peak rise making it most valuable company. Face book’s
revenue show 60% crosses the estimates stock soar 1% on Wall Street. Linkedin's
merger with Microsoft shares trade at 46% higher in a day.
Strategic Management teaches a fundamental basic, that private entity's primary
goal is profitability. Usually, when Government prefers to pull out an organization
from sickness, the primary turnaround is sought by privatization that organization.
The Other fundamental basic is Government works for welfare and losses are
unavoidable in government controlled entities.
Private enterprises have sheer desire towards profit maximization and can go
any further to maintain their margins and return. This mission is more
imperative when organizations go for IPO. The ultimate purpose then adds to be
wealth maximization. Profit is not merely difference between revenue and
expenditure but it's more than that subtraction. Profit is one way the value is
added by handling, deploying, and utilizing all your assets into the business.
An organizations success cannot be related without profit element. Profits are
always sweet no matter where they come from.
Startups in India:
A Survey report that Young generation turning out to be
entrepreneur admits Steve Jobs to be their source of inspiration followed by
Microsoft founder Bill Gates. India is a growing incubator for such people.
Everyday a new idea is born and battled to transform it into successful
business model. Two employees working for a company quit their job and go
on creating business to stand out to be biggest rival of their own employers.
21 Year old school drop out forms biggest lodging company and story goes on...
But that doesn't make us feel better about them. Though these giant start ups
have grown out in its massive sizes achieved a quiet million of valuation,
there is a rising concern about Indian Startups. Latest headline was “Ola
booked a loss of 795. Crore for year ending March 2016." The startups
backed by angel investors though are loss making maintain high liquidity
position by going for series of venture funding. Continuous expansion of
Business and cut throat competition from rivals has mandated start ups to keep
the pricing strategy at minimal. Non cash expenditure and higher cost of
capital by including the debt as funding is also a reason for the losses. In
case of Ola and Uber depreciation and hire charges come hand in hand. As tough
it is to reach breakeven, so much is difficult to survive without profits. But
after many years of direction These Start Ups like Flipkart, Snapdeal , Zomata
, Ola have not booked a penny of profit. The concept of profitability doesn’t
seem to exit for them.
Let's dive into understand..
Flipkart
Vs Amazon:
Amazon's profitability for the last 10 years is shown below:
Amazon.com
spends a lot of money to generate its revenue growth. The company's net profit
margin has broken one billion dollars only once in the past nine years, in 2009.At
that time, Amazon’s net profit margin was 2.8 percent. By September 2011, that
number fell to 0.6 percent. A year later, it was losing $274 million on net
sales of $13.8 billion. And in the latest quarter, ended Sept. 30, the massive
e-tailer reported a $41 million loss on $17 billion in sales.
Indian
breed of Amazon Flipkart, if it were to manage properly its business model
profitabiltiy for Flipkart for next ten years will not only be difficult but
also can be a myth. So much of resources and effort put in together to
evaporate the capital and incur losses sounds really absurd.
The bigger question to be answered how are these start ups are still raising
funds to survive in spite of proliferating losses. Well the answer
seems to be related to market, the entity is in. E Commerce in growing at speed
of 60% a year. Hence the speculation can be made at some point Flipkart may
grow enough to cover up negative cash flows or may cross its break even.
In hindsight, E commerce doesn't seem to be promising in terms of wealth
creation though it’s fruitful in terms of consumer interest.
Uber Vs Ola:
As Uber is not a listed company there were
no authenticated and reliable information
to believe that Uber is profitable but it can also been
seen that Uber's financial position sounds better. There
have been considerable chances
of company achieving its profitability and rumor
has it that Uber was also profitable in few parts of United
States and India
Indian Startup resembling Uber named "Ola" just booked a loss of
Rs.795 Crore. This start up providing fleet of vehicles , allows booking on
App only plat form like Uber. Ola still has bumpy ride to conquer road
and success of being a worthy company.
Why start ups are not profitable?
As said
private entities interest stands profit motive though above all, entities
control by its investors is main reason for their financial
position. The hindrance here is concern of investors.
After paying off fixed costs and these types of companies tend
to meet the investors condition by paying off interests or any other
form of consideration. This can be typical for companies with high growth
globally. There is large cost on infrastructure, hiring and server
storage before you catching up the profits. This period of economic growth
is also called diminished growth.
Will
these survive?
Unfortunately
, the trend is mixed. A survey reveals that nine out of ten start ups fail.
Food startups are in serious trouble many of them followed lay off and other
had to shut down their operation in wake of saving from further down
fall. So the answer depends on rivals ,favorable market conditions and local laws.
What is
the future?
The
Future of Mark led facebook attained its profit in just two years. There after
I raised underrated profits, and was able to acquire Instagram and whatsapp.
There is lesser meaning if an entity is unable to add value to its
work. So long our Big Sick startups are private equity controlled profit is no
matter of concern. But even if they feel the necessity to be a great and
successful like Apple Inc, Google Inc, and facebook at least still the road for
them steep and far long to be traveled. Tremendous growth along with economies
of scale tradeoffs is still a sour grape.
