Maxson Lewis, Founder of Magenta Mobility, on the other hand, introduced a slightly contrarian view, advocating for “P before G”– profitability before growth. Magenta Mobility, according to Lewis, is India’s largest electric cargo fleet operator, specialising in decarbonising logistics and sustainable fleet management with over 2,400 EVs.
Lewis cautioned against blindly following the Western startup model, where larger funding rounds can often support unprofitable growth for longer periods. “I believe that the India market and the Asian market is a playbook of wafer-thin margins,” he remarked, warning that copying Western growth models could lead Indian startups into a “negative cycle.”
“If you do not have a view of when you’re going to eke out that wafer-thin margin, then you are desperately in the business of burning money,” he cautioned, suggesting that growth must be pursued with a clear sight of eventual profitability.
This pragmatic perspective seems to resonate with the shifting focus in India’s startup ecosystem, where investors are increasingly prioritising profitability. “I think the conversation has changed,” Lewis noted, pointing out that even “12 to 18 months ago, it wasn’t winter; it was ice cold.”
Growth and profitability: The paradoxes
Both Saran and Lewis were speaking at the recently concluded closed-door roundtable at the ET Soonicorns Summit 2024, held in Bengaluru, titled ‘What Next After Product-Market Fit?: The Growth vs Profitability Conundrum’. This curated roundtable brought together soonicorn leaders, who dived into the complexities of scaling startups while balancing aggressive growth with profitability. Moderated by Shabori Das, Senior Assistant Editor at The Economic Times, key stakeholders from diverse sectors, including EVs and last-mile mobility, healthcare, agritech, personal care, and seafood logistics, addressed the paradoxes of the growth versus profitability debate—a key concern for many startups that have already achieved product-market fit.
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Kicking off the conversation, Das posed a fundamental question: “What does balance between growth and profitability look like?”
Saran was quick to address the complexity, especially in the automobile industry. “Every startup needs to think about this,” he said while referring to the unique challenges faced by the EV sector, an inherently capital-intensive industry where profitability may not be feasible in the short term, but maintaining a positive unit margin is critical to survival.
Securing the next round of funding
For Vinod Changaramkandam, Head of Finance, Medfin, the need for capital access is central to venture-funded startups. He argued that before startups can focus on profitability, they must first ensure they have sufficient capital to play the long-term game. “Let us look at the balance sheet first… whether you have access to capital… when you get the money exhausted, then you have access to the capital.” For him, the growth versus profitability debate is less about a direct trade-off and more about strategic capital allocation to sustain growth until profitability can be achieved.
This view contrasts with Saran’s focus on building material margins early, as Changaramkandam believes startups must first secure the financial runway to survive the intense “8-10-year” VC investment cycle.
A consensus on profitability-centric growth
The session revealed an emerging consensus: India’s startup ecosystem is evolving rapidly, with an increasing emphasis on financial discipline. While Saran asserted that different industries have different profitability timelines, Lewis reaffirmed the importance of turning a profit before chasing aggressive growth.
Furthermore, Lewis’s call for profitability-centric growth echoed throughout the roundtable, framing the debate in the context of India’s fast-maturing startup environment.
There was a clear consensus that while each startup’s path to profitability will vary based on industry and market conditions, one thing remains constant: the balance between growth and profitability must be carefully managed from the outset. Whether through building material margins as Saran suggested, managing capital strategically as stressed by Changaramkandam, or prioritising profitability as emphasised by Lewis, startups must tread cautiously as they navigate the complex journey from product-market fit to sustainable growth.
Why trends are key to a D2C brand
The conversation touched upon the often-cited “Amazon effect”—the company’s years of losses before turning profitable. Das questioned whether Indian startups, particularly in e-commerce, could afford to replicate this model.
Vanda Ferrao, Chief Marketing Officer, WOW Skin Science, a direct-to-consumer (D2C) brand known for “shaking up traditional brand playbooks” explained how her business sidesteps this issue by capitalising on industry trends rather than incurring large upfront costs. “The benefit for our kind of industry is the volumes are lesser. So, you are not really cycling with high [number of] SKUs or huge cost at the time of onset,” she noted. By employing a lean manufacturing process and focusing on and focusing on their core expertise of formulation and smaller test batches of products, Ferrao’s brand avoids heavy inventory cost while maintaining innovation. She explained that insurgent brands, like hers, thrive by staying ahead of trends and leveraging smaller product batches to test markets efficiently. “We work on trends… We don’t incur these huge costs at the onset, and we actually see, for example, a patch size of shampoo, conditioner made,” she explained.
Ferrao acknowledged that the pandemic created an unexpected tailwind, with customers eager to adopt new products for personal care. “The audience was waiting to adopt things for hair, for skin, etcetera. So that really worked to our benefit,” she said. In her view, growth and profitability can go hand-in-hand when managed with an agile, data-driven approach that continuously refines product-market fit.
The growth vs. profitability dilemma through the B2B lens
However, the challenge of balancing both still looms large, especially in sectors with inherently low margins. On the business-to-business (B2B) front, Hemant Vasudevan, VP & Head of Marketing, Ninjacart, emphasised the importance of prioritising profitability in low-margin industries like agritech. Given the operational-heavy nature of Ninjacart’s business, ensuring cost structures remain intact during scaling is crucial.
“When you decide to scale, the cost structures have to maintain themselves because as soon as you scale, if the cost structure breaks down, then the growth story is not really relevant,” Vasudevan explained. Ninjacart is a pioneering agritech firm, focusing on B2B supply chain solutions. They connect farmers, traders, and retailers in the food value chain and provide fintech services for stakeholders.
Meanwhile, Abhishek Sudhakar, SVP – Business Excellence, Captain Fresh, a B2B startup that operates in the competitive seafood commodity market, offered an altogether different perspective on the concept of product-market fit (PMF). “In my mind, I don’t think you’ve achieved PMF if you haven’t fixed both [growth and profitability]… you can’t claim to have achieved PMF if you aren’t making X positive any X decimal point positive for every product that you sell.”
Sudhakar also emphasised the importance of efficiency, especially in highly competitive markets. “The commodity market will not only have the margins very thin, but the competition is very unorganised. So what that means is that you’re competing with people who don’t have your cost structures… Tech definitely helps and it plays out over time.” Echoing Vasudevan’s viewpoint, he emphasised that prioritising profitability before growth is the key to long-term success, even though they have grown 3-4x annually.
Leveraging technology for growth
Vasudevan emphasised the importance of tech in driving operational efficiency in a low-margin space like agritech. “Operational efficiency is obviously multiples in terms of reduction of cost… one example was embedding RFID in crates used to transfer stock to track and bring them back to the source, reducing costs,” he clarified.
Ferrao of WOW Skin Science echoed a similar sentiment about leveraging digital media for marketing to minimise costs. “We do digital media, which you don’t need to actually spend on like the likes of mainline media, so it’s not TV. You can actually isolate a geography,” she explained.
Asserting that achieving PMF is meaningless if profitability isn’t built into the model, Sudhakar cautioned against the pitfalls of prioritising growth at the expense of profitability, stressing that growth without profitability is unsustainable in their competitive, commodity-driven industry. “Most startups make the mistake of trying to short-circuit success… the biggest problem in startups is that they spend too much money trying to learn, and they don’t learn fast enough,” he said. This reflects a broader challenge many startups face: balancing the need for rapid growth with the discipline required for long-term sustainability.
Sustainable growth and daycare surgeries
Changaramkandam of Medfin highlighted the need for a well-calculated approach in terms of cost management and operational efficiency. He explained, “You cannot just invest and leave it to the marketing team.” His emphasis on the necessity of aligning costs—whether equipment, marketing, or operational—with the business’s ability to generate customers demonstrated a strong focus on profitability. For Changaramkandam, sustainability isn’t just about growth; it’s ensuring that each investment decision, from leasing equipment to scheduling surgeries, is backed by a clear understanding of demand, costs, and operational constraints. “We cannot compromise on the medical outcome,” he reaffirmed.
The sunrise sector of EV
Das asked Ankit Taparia, Head of Marketing, Yulu, about the growth-versus-profitability dilemma, particularly as the company operates in a competitive space like last-mile mobility, where the likes of Uber also exist.
Taparia’s response revealed a bifurcation in Yulu’s approach: on one hand, the mobility provider caters to environmentally-conscious consumers who value green mobility, and on the other, the startup navigates a commercial sector where profitability and operational sustainability are critical. He articulated, “The choice has always been between growth and profitability… we have always looked at unit economics at the per-ride level, per-vehicle day level.” For Taparia, scaling the business is essential, but only if each ride can generate a profit. He acknowledged the challenges of balancing the need for infrastructure investments, such as charging and swapping stations, with the imperative to maintain healthy unit economics.
Contrasting with Taparia’s views on the per-ride profitability approach, Lewis of Magenta Mobility shared Magenta’s city-level profitability approach. “We were stuck in four cities for two long years… we will not go to the fifth city till the time we don’t get the process profitability right,” he stated. Unlike competitors that expanded rapidly, with a granular focus on profitability Magenta chose to perfect its operations within a limited geography before scaling further. This decision allowed the startup to monitor every line cost item, assigning accountability to city heads.
In the context of the EV sector, which overlaps the mobility and tech spaces, the speakers’ viewpoints seemed to converge. Both Taparia and Lewis recognised the capital-intensive nature of the industry, preferring their own tweaks to execution.
Despite representing the dynamics of different sectors, each speaker emphasised a balanced approach to growth and profitability. Across the table, profitability seemed to resonate strongly, serving as the cornerstone upon which sustainable growth is built.
The ET Soonicorns Summit 2024 is powered by Phoenix Kessaku. Upskilling Partner: UpGrad Enterprise; Insurance Partner: PolicyBazaar for Business; Banking Partner: Bank of India. Gifting Partners: IGP.com; The Mind and Company, Plum, Clay Capital.
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