After a small lull, funding is back for start-ups. Big mergers, new unicorn, million dollar seed funds are back. But another thing which has not changed is the fact that almost all the funded start-ups and new company registration are still far away from being profitable. Hundreds of Billions have been spent in funding, start-ups have access to all the technology, resources and funds but still bottom line remains elusive. What can be the reason for the same?
Through this article we will try to discuss the reasons why funded company registrations are unable to make profits.
Pressure of shoring up Top Line: There is constant pressure from investors to continuously raking up the Top Line. Valuations, which is the only thing of interest for investors, are top line and they do not want to compromise on it. Hence discounts, cash backs etc. has become a norm and profits are still elusive.
Peer Pressure: No company wants to allow competitor to gain market share at their cost and hence no one wants to compromise on top line to manage their profitability. No one wants to bell the cat first!
High cost of Operations: If you see any funded company registration, you will find that there is no control on operations cost. Highly paid resources doing mundane job, i-phones for every team member, resort outing. This is for company registration who are almost ‘burning’ as much cash or less than what they are generating in revenue
Clueless about Bottom Line: ‘Burn’ has become part of regular lexicon in any new company registration which is funded. Founders to key personnel, they all use the term ‘Burn the cash’ very freely. But if you ask any top level executive or founder of any funded company registration about what is their plan to profitability, they will be clueless. What is the critical mass which will ensure that they have enough economy of scale to break even? Well, with million rides a week. Ola and Uber still loses about 150 Crore a day!!
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