Start-up CEOs often seek the next funding round, hoping for a better valuation to attract interest and money.
Mr. Rajesh Shukla
In the colourful world of Indian start-up where innovation meets aspiration, the goal turns out to be direction less towards valuation. Start-up CEOs often seek the next funding round, hoping for a better valuation to attract interest and money. Still, in my case as a mentor in a venture capital firm it is my opinion that it should be more about value-add process rather than valuation. It is time to discuss why value creation is critical and how start-ups can focus on this critical factor of value creation successfully.
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Understanding Value Creation
Value creation is the act of deriving useful and valuable services, goods, and solutions for customers, businesses, and communities, as well as improving the way those targeted entities generate, deploy, and capture value. The two represent two different approaches to developing a company that is not only financially profitable but also economically responsible for creating value that encompasses the business environment surrounding it. Valuation, on the other hand, in most instances, is a figure on perceived market price, investor sentiments and expected earnings. People get thrilled when they see high valuations but these are not always an indication of steady and profitable businesses.
The Cost of Fixing on Valuation
Focusing solely on valuation can lead to several pitfalls:
1. The new businesses are likely to focus on tangible goals and targets rather than developing sustainable competitive strategies. Such a narrow perspective often results in poor growth strategies that harm the brand and erode customers’ trust.
2. Start-ups are often pursuing increasingly higher revenue multiples, which generates negative consequences to the internal environment and psyches of the founders and their staff. This pressure could well take the shine off creativity and innovation.
3. When markets push the product or service in the direction of what investors want over what consumers want, the product or service may get off course. Such misalignment can put the very existence of this type of start-up into question.
Strategies for Value Creation
1. The first point that start-ups should consider is what the customer wants or needs or what problems they have. When working directly with the customers through surveys, feedback loops and pilot projects, then the information collected is good. The above feedback should help in product development and improvement in a way that the offerings appeal to the intended market.
2. These ideas mean that having new business models can make a start-up stand out from the pack. For instance, using people technology to bring in sales via subscription services or using the method of freemium can lead to engaging customers as well as making money sustainably.
3. The most precious resource for a start-up is people. Appropriate emphasis on the selection and nurturing of employees and a favourable attitude towards corporate culture would generate increased levels of creativity, organizational revenue, and staff retention. That is, the more one feels appreciated for their contribution, the more likely they are going to contribute to the organizational goals.
4. In today’s global and socially considerate market place, the integration of sustainability can provide superior value propositions into the business model. This is an appeal that startups cannot afford to ignore but also one they need to take into account as they go about their business. Green initiatives are neither a fad among environmentally aware consumers only but can boost business savings on costs as well as achieve operational improvements.
5. Entrepreneurs should come up with long term goals that are long term in goal and not just focused on revenue returns. It should, in particular, serve as the basis for making decisions and planning for the future. Specific objectives supportive of this vision can then be set to ensure that efforts remain precisely fixed on the creation of value.
6. Powered by expertise, advice, and counsel from experienced professionals makes sharing of knowledge enterprising. These networks are very useful for start-ups to cope with challenges perhaps define opportunities for value creation that are not easily identifiable.
The Bottom Line
Improvement of the start-up ecosystems around the country, it is important for founders to move from the next ‘big’ valuation to the real value creation. Acquiring investments is a key to success, however, the creation of a sustainable growth model is based on obtaining value from customers and other stakeholders. Through focus on value creation, start-ups do not only improve their position within the market but also work towards constructing a legacy of value among start-ups.
Thus, for any start-up, it is not just about getting a good valuation, the idea is to build for the long term. When founders set a goal to create value alongside others who work as employees and investors, co-build their companies and the world – it forms an important foundation for a better and more equitable future in the context of India’s start-up future.
The writer is Mr Rajesh Shukla, Chief Strategist, National Intellectual Advisory, Mentor at Venture Studio Capital, Jagoo Nari and Padhega Bharat
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