Seven Truths From Startup Founders

Founders of Sri Lankan startups with a tech core or front on what defines a startup

“Unicorn essentially means that it doesn’t exist, there is no unicorn.”

Lahiru Pathmalal, co-founder and chief executive of Takas, is laying down how he would clearly like the company to do much more than just exist – to endure. At the beginning of his journey with what is now the biggest e-commerce business in Sri Lanka that runs without a storefront, Pathmalal functioned on the “vague idea” that he would make it in three years. If he didn’t, he would give up and try something else. Takas is now four years old, and investors tell him he hasn’t made an “impact” in the last year-and-a-half.

“These businesses that people talk about with very high regard now are not overnight success stories” Lahiru Pathmalal, Takas

The entrepreneur began subscribing to the idea that he had failed until he came across Amy Wilkinson’s “The Creator’s Code”. Reading through, studying the work and then in meeting Wilkinson in person, Pathmalal realized he needed perspective. It may not have made the unicorn cut, “but Takas certainly didn’t fail”.

The problem, as he sees it, is that businesses slave for years without any visibility, learning, adapting and growing. Then they hit the magic spot, and suddenly the internet is all about their fairy tale “overnight” success, with unicorns and rainbow poop to boot. Entrepreneurs, investors and bystanders swallow it whole, forgetting that real success is much less colorful.

Echelon set out to hear more of what founders are thinking of the startup ecosystem, and what the counter-narrative has to offer.

01. STARTING UP A STARTUP TAKES TIME

“Airbnb took around seven years to come into the picture and Uber took quite a long time as well,” Pathmalal explains, adding that “they pivoted” – meaning their core business proposition changed significantly as they understood their market better. “If you look at these businesses that people talk about with very high regard now,” he continues, citing SpaceX and Tesla as further examples, “they are not unicorns. They have been hard work by their entrepreneurs for five or six years before they got coverage. These are not overnight success stories.”

Pathmalal takes Yamu, easily the most popular website in Colombo for food and things to do, as a local example. He believes that, given another 10 years, the three-and-a-half year-old content provider can overtake Maharaja with its multiple television and radio channels, and production companies. But perspective is key here. “Compared with the generations it’s taken to build [Maharaja], what’s 10-15 years?”

But Yamu founder Indi Samarajiva begs to differ. “Yamu has been around for about four years now, and I don’t know if we can call ourselves a startup anymore.”

02. IF YOU’RE NOT GROWING, YOU’RE NOT REALLY A STARTUP

Samarajiva believes in Paul Graham’s “startup growth” theory. A startup is a business that is growing exponentially into something much, much bigger. “If you’re not growing,” he says, “you’re just a normal business.” Yamu’s content business grew 10% week-on-week when they started in 2012, which was impressive considering Sri Lanka’s mobile internet penetration of 10-12% at the time. Now, it is stable. Growth can be phenomenal, but has to stop somewhere, in his opinion, “and then we have to go somewhere else for growth”. The startup aspect of Yamu’s business is now their video channel, which launched in November 2015. They went from zero to one million views in less than three months, and continue to grow 50% month-on-month, almost doubling.

“You don’t see enough failures… People aren’t trying enough” Indi Samarajiva, Yamu

“People put money behind startups because growth matters,” Samarajiva says. Investors are simply making huge bets on untested markets for the slimmest chance that they may be able to own the whole arena. The hype in the startup market makes him “just a little bit jealous” that founders with zero customers get valuations equal to or higher than Yamu, which records 130,000 users on average each month. However, he concedes that the startup market is inherently incoherent and unpredictable, and this is where he seems to agree with Pathmalal.

03. FAILURE IS A STARTUP’S “SUCCESS”

Unlike their trend-setting Silicon Valley counterparts who invest in multiple similar options, Sri Lankan startup investors put all their eggs in one basket. “Then they treat it like a factory or a regular business, so that’s what they get,” Samarajiva claims. It is this expectation that Pathmalal is worried about.

The fairytale unicorn narrative is luring investors with the promise of gold, although the detachment of big business they bring to the table cannot reap the sort of results promised. The high-risk, high-reward dynamic is dumbed down in the Sri Lankan context where not enough startups are failing, and therefore the ones that succeed are not returning high enough rewards to justify further risk.

“You don’t see enough failures,” Samarajiva says. “It means people aren’t trying enough.”

The startup narrative, in his view, gives people an excuse to run something that isn’t making money. “In the past, if you told someone that you’re running a business that is not making money, they would laugh at you, but now, that’s an acceptable thing. It’s good and bad in a way. It gives people cover to try something.”

04. STARTUPS MUST STAY LEAN

In a Q&A with Vanity Fair in March, Chamath Palihapitiya was happy to strip startups of their glamour with a trip down memory lane of Facebook’s early days: “The food was terrible; we’d ship in lunch, and probably two to three times a week, the lunch had maggots in it. But we were there because we believed, and it didn’t matter.”

Dulith Herath, founder and chief executive of Kapruka, preaches the same (or worse) abstinence. “A startup should be a lean company,” he begins. Have sleepless nights, lose girlfriends/boyfriends, live at the office and work with one hand while lunching with the other are some of his prescriptions for making a startup work. He draws a tight circle around his teams and says no staff additions – “get birth control, no more recruitments”.

05. BURNING CASH DOESN’T MAKE YOU A STARTUP, OVERACHIEVING DOES

Kumar Melvani started MyDeal.lk somewhat how Herath prescribes, growing their business organically, with the first employees not even taking salaries. In the last four-and-a-half years, they have recorded 100% top-line growth year-on-year, and kept working for a bottom line. “An investor gives you money and you burn the cash. Then when you go back to the investor with the same plan as before, he’s not going to give you any cash,” he explains. You either need to show a bottom line or make some good targets to justify further investment. Melvani is strictly against the idea of burning. “Burn 5% if you must,” he says, “better yet, try not to burn.” But burning 20%-30% higher than revenue and letting costs skyrocket for the sake of making ridiculously high goals is a complete no-no in his books.

“Get birth control – no more recruitments” Dulith Herath, Kapruka

Instead of setting impossible targets with investors and crashing through their money, Melvani says ‘go the other way’. “Always say you’re going to do less but do more. Say you’ll do 30% but do 60%, then the investor is happy. Overachieve and keep evolving.”

06. THERE IS MORE TO IT THAN MONEY

Melvani agrees with Pathmalal and Samarajiva that Sri Lankan investors are not ready for startups to fail, and this is not a good thing.

“Investors should come with contacts,” he says, “it’s all about networking. Investors should not only expect higher returns, they should be a part of the business and help it grow.” What a startup needs from big investors with years of experience is mentoring, more than money. “If I want money as a business, I can go to a bank.”

Entrepreneur Manoj Ranaweera, chief executive of Unified VU, a tech company geared towards “unifying customer records from sales, marketing, finance, support and external systems on one intuitive user interface to increase customer Life Time Value (LTV)”, agrees that for the unicorn approach to work, “you need to have the right connections in place”. But he questions the very thought that a unicorn can be grown in Sri Lanka. Any company growing that fast in our small economy would be acquired “well before it reaches the billion-dollar valuation”, he says citing MilleniumIT, which is now a part of the London Stock Exchange, as an example.

07. NOT EVERYONE CAN BE A UNICORN

“Perhaps a more appropriate target for Sri Lanka is not the $1 billion valuation, but a more realistic $100 million valuation and/or revenue. Second, if they achieve this level of traction, what are the chances of them staying a Sri Lankan company? At this level, the biggest market for these companies will shift from Sri Lanka to notably the US. At this juncture, they are more likely to become a US company with a sizeable base in Sri Lanka. With a 20 million population, Sri Lanka isn’t big enough to support a $1 billion or even $100 million tech company.

What Sri Lanka does have instead, Samarajiva points out, is a strong case for a startup incubator.

“Startups work in the US because of places like Silicon Valley where people come straight out of universities like Stanford and go into jobs there. There’s an abundance of capital, banking systems that aren’t retarded and social freedom.”

While Sri Lanka has none of these three ingredients, we do have a small but fairly well-educated, English-friendly user base that is demographically relevant and are good programmers for cheap. Buzzbird and Moodoo are among a number of recent tech startups born in Sri Lanka, but bred elsewhere.