In the rush to grow rapidly, several Indian startups have over the last year ventured into areas not directly related to their core businesses.
For instance, in December 2017, ride-hailing startup Ola acquired food-delivery startup Foodpanda and e-commerce major Flipkart is reportedly in talks to buy a stake in online ticketing site BookMyShow.
While it remains to be seen how this diversification strategy works for most, at least one Indian unicorn has admitted that it tried doing too much too quickly and lost focus on the core business along the way.
In a Medium post on May 28, Kavin Bharti Mittal, founder and CEO of messaging app Hike admitted that his company had taken a ”misstep” in trying to build many new things.
“We started building away from our core too soon and we’ve been doing that for too long. This month we took a big decision to go ‘Back to Basics’ and back to our core and continue to innovate around the core,” Mittal said.
Now, as Hike tries to make amends, the company will shut its office in Bengaluru and also lay off employees. The layoffs could reportedly impact 25% of the over 350 people working with the company.
Hike refused to respond to queries from Quartz about how this move could impact other aspects of its business.
While diversification works for large businesses, it’s not the best practice for young companies, analysts said. Given the limitation of funds, workforce, and skillsets that small companies operate with, such diversification can lead to trouble.
“The fundamental definition of a startup is that it has to focus on something specific. You are not a conglomerate. Even if you are expanding there has to be some level of leverage of your basic competence,” said Yugal Joshi, vice-president of Texas-based consulting and research firm Everest Group.
The cost of chasing rapid growth
Launched as a simple instant messenger in 2012, Hike has quickly grown into an app that does everything from messaging and digital payments to games and taxi booking, among other things.
In 2016, the company joined India’s elite unicorn club (startups valued at over $1 billion). It has so far raised $261 million from investors, including Chinese internet giant Tencent Holdings, manufacturing firm Foxconn Technology Group, and the Bharti group, which is owned by Kavin’s billionaire father Sunil Bharti Mittal.
Hike has positioned itself as a social platform.
The company has also started operating a timeline similar to social media websites, incorporating disappearing statuses similar to Snapchat, and hosting news, cricket scores, and other content. It even took a bite of India’s booming fintech space with digital payments and partnered with Ola for in-app taxi bookings.
It made two acquisition over the last one year, buying hardware maker Creo and social networking platform Pulse. However, these acquisitions became a problem over time.
“We made a few acquisitions last year that skyrocketed the team size (200 to 350+) making us bigger than we need to be. Given the renewed focus, it’s an opportune time for us to integrate and streamline these teams,” Mittal said in the Medium post.
Now the company will focus only on the social and content aspects of the app. “Hike is social content platform focused on privacy, expression, and bite-sized content. A place where you can privately chat with friends and also consume snackable content that you love. That’s hike, that’s our core and that’s going to be our focus in 2018—social and content,” Mittal wrote.
As reality sinks in for Hike, experts say it is perhaps a result of investor pressure. “(They) are asking for credible outcomes now, which is revenues and profits. A startup does have the habit of taking flights of fancy and use investor money, but now (they) need to focus on what really gets to money in terms of revenue,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research.
However, some say this kind of streamlining following rapid growth is more an aberration in the Indian startup ecosystem than the norm, although some young companies could be prone to spreading themselves too thin in a short time. “Especially companies that are overflushed with funding,” Joshi said.
Nevertheless, this move should serve as a wake-up call for all Indian startups, experts believe. “It also reflects a lack of planning at the end of the startups in the name of innovation. Purely from that perspective, it requires startups that are in a decent shape right now to take a close look at their status,” Gogia said.