The woes of Byju’s

Just as everyone thought the layoffs winter can’t get any more frigid and worse, looks like Byju is going to be laid off from Byju’s.

Every Edtech company has three components 1) Education 2) Technology 3) Business and management. That Byju Raveenran is an accomplished tutor is a well known fact. That his classes and method of teaching had immense potential to go online was also there which was why Byju’s grew exponentially in a short span of time and attracted the attention of global investors. So problem areas are not education and technology. Byju’s current woes are all on the business and management side.

There are several well known cases of VCs asking founders to focus on product development and appointing CEOs and hiring executives to run the business. Now that VCs are seeking to oust Byju Raveendran, it is puzzling as he had no prior experience in running a company then why did the VCs allow him to be the CEO and bring in his wife and brother to run the business. Byju’s situation was not at all complicated. Raveendran had to focus on education and the company needed a technology head with the potential to grow into CTO who could build a technical team from scratch. The VCs could have had easily set up the executive and management teams. Raveendran and his family members are not just the problem, the entire executive and management teams need to be dismantled and built from scratch.

I have heard several instances of Byju’s sales team being aggressively persuasive with the parents of children and making the parents feel like they are doing a crime by not giving their children Byju’s online classes. Raveendran seems to have clearly forgotten his own USP that made Byju’s touch the skies. It was the quality of his classes and word of mouth. Companies like Apple and Bose rely on the quality of their products to attract and retain their customers. Raveendran simply had to follow the golden rule. So what changed him?

Market valuation of a company is usually done based on the numbers on its financial statements and its business potential in the market segment it is catering to. Investors would ideally look at the past 3 years of financial performance for assessment. What they look at is profit margins, but with a catch. Ideally they would want to see increasing revenue and decreasing cost or expenses but even if the revenue remains flat for a couple of years they want to see decreasing cost because it shows efficient money management. This does not seem to be the case with investors and investments anymore. Market valuation can be conservative or inflated based on many factors. In the case of Byju’s it had huge potential with its online app, then covid struck and we literally started living on the internet. Byju’s valuation became like an endless pit because its business potential exploded into touching the entire population of the country. When investments started flowing in like water Raveendran spent millions on acquiring other edtech companies and running promotion ads with Lionel Messie and Shahrukh Khan and sponsoring events, notably sports events. The beleagured company’s valuation is now down by 95% from its heydays in 2022 which goes to show how inflated valuation can end up destroying companies (https://m.economictimes.com/tech/startups/macquarie-slashes-byjus-valuation-by-98-after-julius-baer-protest/articleshow/108165302.cms).

Terming startups that are loss churning machines year after year as unicorns is I believe the biggest crime investors and VCs are doing. Budding entrepreneurs all want their startups to get investments and become unicorns regardless of how poor their financial performance is because they know they can have swanky lifestyle, hire and fire employees when their business strategies fail miserably and can get away with everything even if their companies go bust.

Raveendran’s knowledge and teaching acumen were his heart and soul and investments pouring in acted as injecting venom into both. This is what happens in every case where we get more money than we really need. Education is more like the traditional barter system, we give money in exchange for knowledge. When we make education into a business, everything related to business takes hold, such as competition in the market, having to invest first to get returns, invest more for higher returns, commercialization and giving up on the core values of education.

Raveendran is accusing the investors of trying to oust him as the CEO of Byju’s and from the board of directors along with his wife and brother. He is also peeved now that investors have blocked access to money he has raised to pay salaries to his staff (https://www.reuters.com/world/india/indias-byjus-cant-access-rights-issue-funds-pay-staff-2024-03-02/). He needs to understand that investors are only looking to recoup their investments for which he has to either pay off all their money or step down and let them run the company. He doesn’t have a third option no matter whatever he tries.

VCs can do well by not being confrontational and convincing Raveendran to give up the executive positions and shift his focus back to education for the sake of his company and his future. If he gets ousted, the reality will hit home hard when he starts a new life without Byju’s especially if the investors decide to retain the name of the company.

The startup ecosystem is all about money and nothing about innovation

The recruiting head of a startup company based out of my home state in India contacted me recently for a senior role. Seemingly buoyed at my profile being a good fit for the role, she immediately set up an online interview. I went through the company website and checked out the team. When the interview invite came, I saw that the CEO was in the list of attendees and checked his LinkedIn profile. Turned out he had done all his education and all his work experience was with companies in my home state. He has never stepped out to work and has experience only in working with small to medium local companies and not with large and multinational enterprises. Having the polar opposite of his background I would have been a complete misfit in his company. Just as I had thought, during the interview it was evident from his body language and his way of speaking that he had no intention of hiring me. Couple of takeaways from this.

1) Recruiters look for match between job description and candidate profiles and largely ignore the cultural fit aspect. It isn’t about the organization culture but the specific team culture for which the hiring is being done and the tone of the culture is set by the hiring manager which is defined by the manager’s personality, technical and people management competency and at times even their academic background. In the case of startups the CEO/Founder sets the tone of the organization’s culture. When candidates are rejected before/after interviews cultural mismatch is one major reason which is never mentioned. Whenever people have asked my opinion about joining companies I have told them any organization is fine what matters are the role, the manager and the team’s culture. At the lower levels of the corporate pyramid, team culture doesn’t matter much but assumes significance as responsibilities grows with roles.

2) The head of a department in a government engineering college in my home state once told me that students are no longer interested in completing their degrees and are obsessed with starting companies. This startup culture is being fueled by the glorified stories of Bill Gates and Mark Zuckerberg being college dropouts and going on to build Microsoft and Facebook, Sabeer Bhatia founding Hotmail and selling it to Microsoft and by the relative ease of acquiring funding now. The new trend is the growing obsession of having one of the CXO designations. Startups are largely associated with innovation which has distorted the meaning and purpose of innovation. Innovations have impacted, improved and drastically changed the entire human race. Radio, TV, Telephone, Fan and Penicillin are some of the best examples. For me, an air conditioner is not an innovation because it is still a luxury and hasn’t reached the majority of human population but a mobile phone has. How many of such innovations do we see coming out from the startup ecosystem and impacting humanity positively? Now it is all about money, go-to-market strategy is all about commercializing ideas and monetizing them, raising funds, achieving breakeven, becoming profitable, paying back investors, equity and financial ratios and percentages. The concept of innovation and business being for the people and by the people has largely eroded away. When I asked the CEO what his future plans for his company was he replied that he wants to expand internationally but not in India. Someone who knows nothing about international work culture is having lofty aspirations to go global with his business. Clearly, his focus is on generating higher revenue by leveraging on the weaker Indian Rupee compared to the Dollar and Euro. With such narrow vision these startups and CXOs aren’t going a long way ahead.

The future of startup funding

The concept of startups has defined the decade from 2010-19 and altered the landscape of business which continues strongly as we step into the next decade. While every company we know was a startup at some point in time without the tag of a startup, the startup ecosystem differs from the context of funding.

There was a time not so long ago when employees in companies used to come up with new ideas. Many of those ideas became alive and that’s how companies developed broad portfolios of products and services. But ironically, more than 95% of the ideas never saw the light of day and ended up in the garbage bin. Why? Funding or rather the lack of it. Companies discard them if they do not see a USP in a minute. Many such employees became entrepreneurs by taking great pains of taking the leap of faith by quitting their jobs and starting from scratch. Funding empowers such employees to take the leap by helping them put their entire focus on their ideas with the knowledge that if they can come up with an idea-to-market strategy, their chances of being funded will be very good.

The big boys of the corporate world watched the startup ecosystem grow without really doing much about it and I believe they missed a trick here. They could have had easily set up a startup ecosystem within their environment, selected more ideas, funded them and let them evolve as stand alone units for a certain period of time. For the employees there would have been nothing better than being able to develop a new idea while getting paid and having the security of a job in a company. We will definitely be more successful when we do not have the fear of failure and we will work with focus and passion on new ideas.

Where has the present startup ecosystem evolved? I believe nowhere. I see so many people bit by the startup bug and all they are looking for is funding and eventual acquisition by a big company. I am not at all surprised that even with the broad funding ecosystem available no startup has been able to grow to the level of an Apple, Google and the rest of the big companies. Easily available money is never a recipe for success. This is why investors analyze the risk taking capacity of startup founders by looking at how much time and money have they invested on their own. Investors also look at financial statements of the last 3 years if available and their minimum criteria is that companies should not be running in losses.

What could be the next stage of evolution for the startup ecosystem? I believe extending the funding ecosystem into the academia. All students of undergraduate and graduate courses have projects in their final year. Investors and VCs should create incubators, select the best projects from colleges at the state level, put them inside the incubators and give them guidance and funding. This in turn leads me to believe that companies are missing another trick here. I know of technology MNCs going for campus recruitment from engineering colleges and selecting students based on the results of aptitude tests. The final year projects of students are largely disregarded. Companies can easily decide to hire students based on their projects, select the best projects and set them up as stand alone units within their environment. Both the options can change the entire academic environment drastically. Companies have always complained about the misalignment between academic syllabus and the expectations of companies about the knowledge and skills of the students without coming up with a lasting solution.

As more startups flounder and run into losses after getting funded (like WeWork), the funding ecosystem will most likely stagnate in the long run. Investors and VCs should catch people when they are younger, bursting with ideas, ready to learn more and are flexible to be molded into any environment and situation. This I believe will make the startup environment better and more successful.