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For start-ups, ethics and values will define legacy

Nov 20, 2023 10:45 PM IST

The success of Indian start-ups will not be measured by valuation alone but by the enduring legacy of their principles and global footprints.

Over the past decade, the Indian start-up ecosystem has witnessed a remarkable transformation. The country has become a hotspot for innovation and entrepreneurship, with numerous start-ups making their mark in diverse industries, from technology and e-commerce to health care and finance. The government’s initiatives such as “Make in India” and “Startup India” have played a pivotal role in fostering this growth. Investment from both domestic and international sources has poured into these start-ups, enabling them to scale rapidly. India now boasts a thriving network of incubators, accelerators, and venture capital firms, which has empowered a new generation of entrepreneurs.

Indian start-ups have achieved impressive milestones with over 100 unicorns PREMIUM
Indian start-ups have achieved impressive milestones with over 100 unicorns

Indian start-ups have achieved impressive milestones with over 100 unicorns (private companies valued at over $1 billion) including companies such as Flipkart, Ola, Paytm, and Zomato and garnering substantial attention. India’s digital revolution and rapidly growing internet user base have further propelled startups in sectors such as fintech and consumer tech. It’s also interesting to note that Indian entrepreneurs have not only excelled domestically but have expanded their operations internationally, making India a global player in the startup arena. This progress reflects a promising future for Indian start-ups.

In Indian start-ups, where innovation and growth are rewarded with valuations, there is a critical yet often overlooked aspect that deserves unyielding attention — governance. It’s time to look closely at the very essence of corporate behaviour and the intricate dance between progress and ethical responsibility. Issues such as questionable valuation practices, lack of transparency, and instances of corporate misconduct have raised concerns. Some start-ups have faced criticism for prioritising rapid expansion over profitability, which can affect the long-term sustainability of their business models.

Moreover, instances of leadership disputes and governance lapses have highlighted the need for stricter regulations and improved oversight. As the Indian start-up ecosystem continues to evolve, addressing these corporate governance issues will be crucial to ensure its sustained success and credibility in the global market.

Start-ups are known for their audacious journeys where uncharted waters are explored and the status quo is shattered. Founders are “expected” to be risk-takers. Yet, as we revel in this audacity, it’s easy to overlook the foundational significance of culture. Culture is not just an abstract term to adorn the walls but the soul of any start-up. It’s the North Star that guides decision-making, shapes relationships, and ultimately defines the startup’s identity.

Governance, as many mistakenly assume, isn’t a concern reserved for later stages or regulatory scrutiny. It’s not a veneer to impress investors or a checklist to fulfil on IPO day. Governance must be woven into the very fabric of a startup right from day zero. It’s the invisible hand that ensures ethics are upheld when challenges arise and that the principles of fairness and transparency are not compromised for the sake of rapid expansion.

Challenges abound in this landscape. One glaring issue is the founder’s transition from a hands-on leader to an angel investor. While diversification is sensible, founders must remain mindful of their core enterprise. Neglecting the original venture can have severe consequences. As we’ve seen, the overzealous pursuit of other businesses can dilute the start-up’s focus and compromise its growth trajectory.

Founders are often haunted by the spectre of FOMO, the Fear of Missing Out. This lurking dread can lead to reckless expansion. A grow-at-all-costs culture is detrimental to the start-up’s long-term health. They are often driven by investors and venture capitalists seeking growth which is a big reason for the rise in corporate misgovernance cases. So the onus isn’t on the founder alone. Growth, while essential, must be balanced by a prudent evaluation of market dynamics, scalability, and the start-up’s intrinsic strengths. Blind growth can foster a culture where ethics take a back seat and valuations trump values, a perilous path that no startup should tread.

Governance is the thread that binds ambition, innovation, and ethical conduct. It’s not an afterthought but a necessity. The success of Indian start-ups will not be measured by valuation alone but by the enduring legacy of their principles and global footprints. In this journey, founders must remain true to an ethical compass, and governance must remain their unwavering guiding light.

Lloyd Mathias is an angel investor and independent director and Srinath Sridharan is a policy researcher and corporate advisor. The views expressed are personal

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