Chasing The Next Billion: How Unicorns Are Gearing Up For The Next Normal?

The Indian start-up ecosystem is touching new heights, and the unicorns are the vanguard of this boom, paving the way with their innovative ideas to tackle existing as well as future challenges. 100 Indian unicorns have already taken off, and they are propelling India towards a brighter future. However, in this path lie several thorns which these unicorns must weed out.

In a recently concluded roundtable organised by BW Businessworld with some of India’s top CFOs in the world of unicorns, a wide range of topics were discussed, including the current business climate, finance working closely with IT, scaling-up, sustainability, risk management, and priorities for the upcoming future.

Perfect time to chalk out business models:

Akshay Sarma, CFO at Capital Float, underlined that one of the best pieces of advice he has received in the recent past is never to let a good crisis go to waste. Sarma said, "In the case of a potential or a dangerous-looking event, one needs to take a step back and think about what can be tweaked to fix the future into which one is walking in."  

Sarma underlined that it is the perfect time to chalk out business models. Sarma commented, "There is talk of costs going up with inflation, higher interest rates coming into the picture, and increasing debt costs.”

He mentioned that these challenges allow him to come up with more creative and innovative solutions. “In the past couple of months, we have been looking at costs and comparing them with where we stood a year or two back." 

"We already have a pipeline in place for all activities that can be reprioritized while ensuring that the status quo is maintained. We are currently looking at very innovative solutions to ensure that the bottom line is not squeezed in the future environment we are walking into," added Sarma. 

Surajit Chakrabartty, CFO at Medgenome, pointed out that in the policy creation domain, to create an ecosystem which is conducive to innovation, the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilizers has drafted the policy document for proper growth in the pharmaceutical and MedTech sectors.

Chakrabartty said, "The sector in which we are working in, the policy aims to cut down the time for regulatory approval of innovative products by 50 per cent in the next 2 years."

"This will position India as a leader in this space, particularly in the incubator and entrepreneur environment. The Indian talent, which is being recognised globally, will also contribute to this development. We are also one of the very few companies that are conducting their research and development in India to create their proper trade pipelines," he added.

Technology has revolutionised the way things operate:

Prashant Mahagaonkar, Group CFO at CitiusTech, underlined the importance of technology in today’s world. 

Mahagaonkar said, "All of us here agree that without technology, one would not have been able to stay afloat during the pandemic. Remote working, collaboration, telemedicine, tele-consulting, or even the vaccine, which rolled out so fast would not have been possible without the help of technology.  Acceleration in the adoption of technology is a major theme that is happening across industries, and more so in healthcare." he added. 

A major challenge which Mahagaonkar focused on was the efficient management of the workforce. He said, "Today, the demand for a high digital skillset is far exceeding its supply. How we manage this talent is becoming a crucial theme for companies like us. We are coming up with creative ways of ensuring that people stay with the organisation. Employee needs are not just limited to money, but also career paths, training, up-skilling and impact to society. All of these put together, constitute the employee value proposition."

Mahagaonkar mentioned how remote working has resulted in a major shift in the way in which organizations function. He said, "One of the major benefits of remote work is the increase in productivity. Especially, in cities such as Mumbai, one has to spend a lot of time commuting; a lot of time is saved, which translates to better work-life balance and more productive employees. The remote work model also allows us to hire talent across a larger set of locations than earlier, sometimes even in places where we might not have an office location."  

Finance leaders need to work in close contact with technology leaders:

Sumedha Varma, Director, SAP Concur India, observed that CFOs are at the forefront of their businesses’ digital transformation. 

Sumedha said, "Digital transformation is achieved through a combination of technology, people, and financial transformation. The road to achieving this is not easy, and the major challenge for CFOs is to increase the returns on digital investments while balancing ROIs with investments in tangible business objectives."

"Finance leaders need to work in close contact with technology leaders, and transform the finance function through understanding and determining which digital competencies are needed to be built across finance functions for business enablement. They also need to figure out which of the emerging technologies, including RPA/ML etc., will work best for finance organisations to automate processes," she added. 

Sumedha pointed out that collaboration between finance and IT organisations can help connect IT initiatives to business objectives and KPIs for achieving organisational goals.

She commented, "IT can certainly help finance visualise parameters that drive revenue, cost-saving, productivity, customer experience, and asset performance. Business leaders and finance leaders should also be active and accountable stakeholders in the IT governance process, and there should be a constant discussion between both of these organisations on how current systems are being used and funded, whether they are to be retired, replaced, upgraded, or integrated to support both strategies, and maybe to scale business and manage risks."

Sumedha mentioned that they have observed that finance organisations that work in tandem with IT organisations can make better strategic decisions that can drive shareholder value through revenue growth, operating margin, asset efficiency, and also meet other markets and shareholders' expectations.

Bharat has stepped on the digital accelerator:

Ketan Merchant, CFO at Fino Payments Bank, highlighted that in the fin-tech space, they are seeing new opportunities emerging in Tier-II and Tier-III cities. 

Ketan said, "Digitisation is no longer limited to select metro cities. Bharat is evolving in the digital space at a pace as fast as the metro cities are, if not faster. In such a scenario, the emerging opportunity is also huge."

Ketan underlined some of the major challenges which organisations will face in the upcoming future.  

He commented, "In the last 2-3 years, a lot of changes have taken place. The question is whether, at our current rate of growth, human capital can grow at the same rate as the aspirations of new-age organizations. Secondly, whether the infrastructure growing at the same pace? If not, there is a tendency to grow too fast and then grow too slowly. Also, sustainability will be a crucial factor for all organisations to successfully  look at the next phase of growth ." 

Make money, but make a difference too:

Manohar Singh Charan, CFO at ShareChat & Moj, suggested that investors are now starting to wonder about the purpose and contributions of companies, beyond their growth and valuation, whether they exist only to generate profits or is there a broader vision to make a difference.

Referring to the case of social media companies to elaborate on his point, Charan said, "We intend to serve exceptional social experiences to our user and creator communities. Without the right checks and balances, stray bad actors on the internet can be detrimental to the entire community. We diligently publish a transparency report and have state-of-the-art automated and manual moderation systems to regulate content on our platforms. Besides the direct feedback we get from consumers, there is an entire wing of the AI team dedicated to catching and curbing bad behaviour.”

Charan further added, "Our endeavour is not just to make profits but to serve people and to make a difference in their lives."

"Apart from providing a platform for users to showcase their talent and creativity, we have also charted out various revenue streams for our community by enabling them to monetize their creativity and reach on our platforms. We are pushing the boundaries of the creator ecosystem in our country by providing livelihood opportunities for them," he added.

Sumedha Varma underlined that sustainability metrics, which were once under the purview of the marketing and investor relations departments, have now become the strategic priority of the C-Suite.

Sumedha said, "For CFOs, ESG criteria are no longer a compliance requirement but a way of being in today’s new world. Investors are also actively seeking companies with strong ESG credentials. ESG reporting has added a layer of complexity to the CFO's charter as multiple aspects of financial management, like risk management, compliance, financial reporting, capital allocation, financial audit, tax, etc. have been impacted by sustainability issues."

"In addition to impacting financial management aspects, what adds to the sustainability reporting complexity is the fact that, unlike financial reporting standards, sustainability metrics do not follow set standards globally and are confused by varying interpretations by investors," she added.

As a result, CFOs are helping their companies take a lead in sustainability reporting by measuring and tracking non-financial achievements. 

Sumedha highlighted, "CFOs are implementing sustainability dashboards for performance tracking and reporting. They are integrating financial reporting with sustainability reporting and making it easier for their investors to understand the impact.”

By taking these measures, CFOs are helping their organisations create value by meeting investors' and management expectations and thus ensuring the long-term success of their organisations. 

What happens when a start-up acquires a legacy organisation:

Rohan Mittal, CFO at Rivigo, suggested that the responsibilities of the CFOs go beyond funding.

Mittal said, "As a business leader, the first and most important aspect is to justify the story along with how things will change post-integration and then actually deliver on those metrics. The board, investors, and shareholders committee will count upon the COOs, CFOs to stick to the projections that were made, and that is where the pressure really starts coming in."

Mittal touched upon the three recent big-ticket transactions – BYJU’S acquiring Aakash, PharmEasy acquiring Thyrocare, and Delhivery acquiring Spoton.

He commented, "If you look at the kinds of businesses that have been acquired, the discounted cash flow model will practically underwrite itself.

On one hand, you have legacy organisations with a sharp focus on delivering the bottom line and free cash flow, and on the other hand, you have start-ups which have exceptionally strong, tech-driven hyper revenue growth engines, and when you combine these two on paper, you are looking at something which will take off, both at the revenue and the bottom line level as well. However, there is a catch."

Mittal emphasised that the post-merger integration of even culturally symmetrical organisations finds it difficult to align to a common purpose post-acquisition and deliver on numbers.

He pointed out, "In this particular case of start-ups acquiring legacy organisations, typically they will be culturally diametrically opposite organisations- and the biggest minefield which I will consider on the CFO's desk will be cultural integration. CFOs would not just have to play the role of getting and delivering the numbers shared with the board pre-acquisition but also play a strong role in cultural integration too." 

Risk management must be a priority for unicorns:

Sumedha Varma mentioned that unicorn companies are on a high growth trajectory and tend to reach scale in 3-5 years, and as a result, the big outcomes both success and failure, usually come from what is surprising and unpredicted rather than what is expected and predicted. 

Sumedha mentioned, "So how does one deal with these surprising and unpredicted scenarios and emerge financially successful? This is what differentiates a successful start-up from others."

Risk management must be a priority for unicorns. Sumedha pointed out, "Whether it is regulatory risk, reputation risk, the risk resulting from industry disruptions or shared risks that arise due to businesses being interconnected more than ever. Risk can be used as a tool to create value and achieve high levels of performance when you have the right tools and technology.”

Sumedha highlighted, "For increased risk visibility, new technologies which have attributes such as data engines which utilise historical financial data, publically recorded information along with risk and controlled metrics to identify patterns can be harnessed alongside novel technologies such as AI."

Technology will certainly have a force-multiplying effect on risk management in the near future, and that will also be something that will help secure a bright and successful future for all digital-native organisations.