My earlier two columns that dealt with the opportunity and the shakeout were published in the second half of November and I wanted to wait until the curtains come down on 2015 to write the third and the last part of the series: Boom, Bust and What Comes Next
The time around the end of the year is apt to reflect on the year gone by, plan the next one and evaluate how we are doing and where we are going. As we move on to the next, I think the food- tech sector needs to take time to reflect.
While I have written extensively on the real opportunity in the food-tech sector and what led to the shakeout, I wanted to briefly summarise these columns for you:
Act 1: The Boom – The Opportunity
What’s fuelling the food tech revolution?
· Roti, Kapda aur Makaan – Roti (food) comes first and is over half of consumption basket
· Demographics are amplifying the behaviour of eating out and ordering-in
· Changing consumer tastes and preferences leading to increase in demand
· Collapse of the physical and the digital divide – we now have a digital existence in the physical world
What does food-tech really mean?
· Food Discovery – Solving the problem of finding great food around you
· Food Ordering – Connecting the consumer with the restaurant to place an order
· Table Booking – Connecting the consumer with the restaurant for reservation
· Cloud kitchen and online-first restaurants
· Enterprise Solution – Enabling the restaurant owner with tools to manage the establishment efficiently
· Hybrid and Niche Models – combining two or many of the above segments
Act 2: After Boom Always Comes A Bust - The Shakeout
What led to the shakeout?
· Wrong valuations
· Compromise in fundamentals
· Bad unit economics
· Little differentiation in start-ups
· The act of aping the US and China gone terribly wrong
With the ecosystem experiencing a crunch on funding and start-ups shuttering regularly, the only logical question in our mind is: What lies ahead for this sector? After a bit of crystal gazing, here’s what I think lies ahead.
Venture Capitalists would back teams and not start-ups
Venture capitalists (VCs) usually back good teams and not the idea. 2015 briefly saw a breakout from this thought process, where start-ups were backed despite having no unique value proposition and low barrier to entry. Ideas are easy. Everyone has a winning idea, but to take it to the next level, you need a team that can deliver on that idea.
Backing the right team is an important aspect in funding, as start-ups rarely have the perfect product and typically need several iterations based on customer feedback, competitive landscape and industry support. The right team needs to have complimentary skill sets and the track record of collaborating well over a relatively long period of time. While high level of conviction is required, you also need diversity and domain knowledge.
2016 will see the comeback of preference of great teams over great ideas.
Many people refer to slow down as a bad thing to happen to the ecosystem. Contrary to the view, while gathering pace is important, slowing down to build the right things is critical. As businesses scale, you need systems, processes and the right set of people to run the new to-be organisation. Many entrepreneurs who are also CEOs of their respective companies spend a significant amount of time on fund raising. Everything else is de-prioritised. This needs to change. A CEO cannot move from one funding round to another with little focus on business, product and operations.
2016 will witness a slowdown in pace of execution as companies far ahead of others in the game will pause, consolidate, build processes and systems and control the burn rate. Challengers will slow down to build the right product with compelling unique value propositions.
Having a vision helps entrepreneurs and organisations. The vision translates into goals that define strategy and tactics which result in activities. Mere activities are abstract and don’t drive value. As the saying goes, “If you don’t know where you are going, you can go anywhere.” Regardless the shelf life of technology and shifts in trends, an organisation needs to stay relevant. A vision helps survive.
VCs need to ask themselves: Is the team’s vision to be the best in the world and to strive for excellence? Is it audacious enough? How well the team has been able to translate the vision into action over a short period of time goes a long way to show how the team can execute that audacious vision over a longer duration.
2016 will see vision take the centre stage.
Comeback of the Manager
Initially a company is built on individual talent and intellect. To scale a business further, an entrepreneur needs to harness the potential of other talented individuals. While leadership and management are not the same, they are interlinked and complimentary. An entrepreneur needs to be a great manager, especially in smaller companies where the leader and manger’s role cannot be separate.
2016 will be the year of managers in food tech and not entrepreneurs.
Finding a Mentor
At the time of funding every entrepreneur needs to ask themselves: Does this funding give me just money or does it give me access to intellectual capital that money can’t buy? Many entrepreneurs do not ask this question. This undermines the role of an investor by limiting the transaction merely to cash.
It is really lonely at the top and entrepreneurs need to find people who have the wisdom and the experience in the domain of start-ups – preferably a successful CEO of their own start-up.
2016 will see good entrepreneurs reject investment proposals from wannabe angels who look at start-ups as a portfolio risk management tool.
Evolution of the Hybrid Model
VCs and angels help budding entrepreneurs realise their goals. One way to do that is through an investment. But these young entrepreneurs do not have the necessary skill-set to run or build a company that lasts. Investors need to help entrepreneurs recruit seasoned professionals who can build a company that lasts. They also need to see this as inevitable and entrepreneurs need to see this as something that is working in their favour, help from the outside, a different perspective to life than as disrespect to their legacy and ego. If someone is trying to help – take it.
2016 will be the year that the investors and entrepreneurs will work closely to create value in the ecosystem through a hybrid model.
Collaboration over Competition
Start-ups instead of competing with each other will look for collaboration. Every start-up is trying to solve a complex interconnected problem and will have to find common meeting ground, define deliverables and enhance value. Competition when pretty much many of them have covered 2 per cent of the addressable market share, is only self-defeating.
2016 will be the year of collaboration.
In the world of start-ups, nothing is certain. 2016 will see a new wave in a new sector. Food tech will shutter and experience turmoil, but it is only a natural thing to happen in a vibrant ecosystem.
(The author of this article is Pradeep Prabhu – Co business head, BURRP. The views expressed here are solely those of the author and do not in any way represent the views of the publication)