In the volatile world of startups, when fiscal year 2023 came to a close, an astonishing number of bold endeavors made their way into profitability. Even old war-horses such as Zomato, which used to be famous for its ruthless lossmake strategy of massive scale expansion, were able to turn the corner financially. The concern that keeps coming up as FY23 comes to a finish is this: Can the new profitability trend be maintained in 2024?
That change can be seen against the backdrop of 2021 empire building, when many entrepreneurs still felt that profitability was an impossible dream. With profitability increasingly rare, like unicorns themselves–the ecosystem is reeling from the fallout of a go-go fundraising frenzy. However, a peculiar finding emerged in March of this year when we probed the financial statuses of Indian unicorns. Among the seventy-four Indian unicorns that have already disclosed FY22 financial results, fifty-five were still making a loss. In FY22, the total loss was almost double that of the previous fiscal year and reached $ 5.9 billion.
Why did the startup story change this way? Was it just a strategic move by investors to force companies into putting profit before growth? Is this change due to outside forces such as the slowing of the world economy, money becoming scarce and winter starting for funding?
But when funders went tight-fisted, there was a profound change in the startup scene. And it became clear that to sustain oneself, one must put the bottom line first; only then can runways be extended and new finance attracted. This abrupt sea change began a round of restructuring by startups, with big spending slashed and the shedding of employees. Efficiency suddenly became paramount again.
It was not easy to realign the priorities. Many entrepreneurs preferred a more sustainable strategy to growth, often having found themselves forced by circumstances to rethink their own previous quick-growth policies and the excesses that went with them. This introspective period, which was often provoked by outside economic forces, required entrepreneurs to revise company plans and simplify procedures while doing the best possible job of allocation.
A change of this kind is evident in Zomato’s recovery. This giant food-delivery company, which in the past had concentrated on market share and not profitability, changed direction to become financially stable. Zomato unexpectedly turned toward profitability when it chopped away all that was not really making a difference, optimized on delivery lines and concentrated in the high-margin areas.
By the time we enter 2024, this economic period is still up in the air. Thanks to globalization, the world economy never ceases moving and therefore startups have to take risks of inflation, supply chain interruptions. Moreover, the startup environment is by its very nature unstable. Only those who are resilient and adaptive thrive there.
All in all, the profitability era that startups are seeing now is a sign of maturation for the ecosystem. While external factors may have played a role in catalyzing this shift, the fundamental lesson is clear: Startups need to reconcile their growth goals with financial prudence. In the changing startup environment, 2024’s enduring successful ventures will be those who can maintain profits while constantly innovating
