Should Startups Worry or Should Reliance?

Reliance has raised a lot of money and is planning to enter a lot of industries. It is not going to be that simple.

Reliance has raised more capital in the 2 months than all of the startup eco-system did in 2019. Indian startups raised a “record-breaking” USD 14.5 Billion in 2019!

Many investors and founders across many industries are worried about what might be possible with that kind of capital in their war chest. I think it is Reliance that should be worried now.

When working with startups we often say - once you raise money, the real pressure begins. You can't be slow and deliberate anymore, investors want returns. Till such time that you raise capital, you are only answerable to yourself, not after. Also, with deep-pocketed investors, if you falter and your valuations fall, they can easily buy you out and throw you out of the company.

Building Products

I have worked with a fairly large number of startups and seen how tough it can be to get a product right and get users to adopt it. It takes several iterations before you can declare that a product has the right ingredients to grow. The best thought out business plans require a fair amount of revision. Growing a product is not just about getting the product right but also constant engagement with the users. 

Often several assumptions are made and they are subsequently tested in the field. This is part of the reason slavishly copying another product rarely results in success. You have concluded without understanding the reason for arriving at that conclusion. Name one company that has been a runaway success consequence of a slavish copy. (Without giving it away free)

Have you heard of this app called ‘Hike’ which is owned by a company that has 100’s of millions of high paying users? Instead, an app developed by an 18 member team called ‘WhatsApp’ rules the world.

Reliance and Products

Reliance is not a product company. Reliance is a 'license' company. Right from the outset, their success has hinged on being able to extract licenses and political favours which have put them in the front. License for oil, license for telecom and license for retail (in the form of FDI limitation). 

Which was the last Reliance product you loved? (Not because it was just cheap)

Winning on products is a whole different ball game. It is not just about getting access which others do not have. It is about excellence. You have to be able to compete in an open market and succeed at that. No license is going to make it impossible for the other company to do business. Reliance is doing its level best to irritate e-commerce competitors. The leverage is always the law. Not the ability to compete and win. While that may be, it is not possible to turn every industry into a policy nightmare.

Product and Customer

Deploying a product successfully is about making a lot of cheap mistakes to arrive at the right formula to be able to put all the wood behind that arrow. If you are armed with USD 20 Billion, you are probably going to make huge mistakes and mistakes from which you may not be able to recover. Companies that get funded heavily before they hit the market often flame out. Reason - expensive experiments.

The reason for the expensive experiments if something called the base effect. If I have 100 dollars in capital and I need to deliver 100% growth, I need to make a 100 more - easy. If I have 20 Billion and investors have come in assuming I will double it in 5 years. Well...

Somethings money can’t buy.

Google is the latest company to invest in Jio Platforms. Google was once seen as invincible at anything Internet and then Facebook came along. Google launched a competitor Google Plus. It was a monumental disaster. Nothing Google could throw at it, including listing it on the home page of “Google.com” could save it. The reason - Network Effect. People go to Facebook because their friends are on Facebook. Google Plus, by comparison, was a ghost town. It is the same reason Hike failed. The same reason Jio Meet is not Zoom. It does not enjoy a network effect. 

So when it comes to the Indian 5G network, Reliance will have an upper hand in the highly regulated license driven space. But that will certainly not translate into successes in the area of Education, Healthcare, VR etc. 

Also, you know what happens to all-star teams?

Customer and Products

I mentioned earlier that it is important to make a lot of cheap mistakes with products. When you develop a product you are often trying to find a product-market fit. In other words, the right customer for your product.

Jio Platforms is busy launching a bevvy of products which is completely divorced from its customer base. Jio has an ARPU of hundred something rupees. A very small number of its existing customers are going to be able to afford a Jio Glass or the numerous other products that have been debuting. 

Finally

Reliance needed the fundraise desperately because they had piled on a lot of debt building Jio. The dominoes began to fall once Facebook stepped in and made a huge purchase. Everyone who had a few Billion in cash sitting around invested.

Having rid themselves of the debt, Reliance now has to undertake a metamorphosis to become a Product company. This is easier said than done. I think it is Reliance that has more to be worried than the startups that its businesses are going to threaten.