Economics of Start-Ups: Colloquium


The Colloquium, a discussion forum for campus students has acquired the nature of a space for freethinking and open discussions, wherein no topic is taboo and no member is taken to task for speaking his/her mind. In the previous year, the body discussed on wide variety of topics such as mental health, sexual harassment, environmental issues and role of social media, among other things. Nithin writes about his experience in the first talk for the semester, which was about start-ups.

The Colloquium’s first event for the semester on September 27th saw the inner workings of a very popular trend being discussed. Entitled “Economics Of Startups”, the panel discussion was moderated by Prof Ashok Jhunjhunwala (Padma Shri awardee, in-charge of IITM Research Park ) and Visakh Sasikumar (Founder and CEO of PiBeam Laboratory Pvt Ltd., an IITM Incubated Company which specialises in solar powered transport solutions).

Prof Jhunjhunwala began the discussion by sharing some of the statistics that had been compiled in the Economic Survey released by the Government of India for the year 2014. The findings revealed that 3100 startups had set base in India, which is also the 4th largest startup hub in the world. He tried to reduce apprehensions about the low initial income of startups and asserted that entry level salaries in startups were only 20% lesser than in mainstream, professional occupations. On the motivation behind his startup, Vaishakh admitted that there had been very little progress in tapping alternate energy for vehicular use due to the fact that all mainstream vehicles were high powered and could not be supported by solar energy. He reiterated that he had begun his venture with a non-economic focus.

Prof Jhunjhunwala emphasised that irrespective of how noble the purpose of the startup, the ultimate aim of a startup had to be the achievement of commercial success. Any startup, he remarked, could be allowed to float on investments and external funding until the 3rd year, after which it was expected to make a certain level of profit. He described the key to a successful startup as the ability to assign an appropriate cost price to the product by taking into consideration multiple factors like labour, cost of setting up shop, maintenance and cost of procuring raw materials among other things. One of the major reasons behind the economic non-performance of fresh startups, he said, was because of the underestimation of costs.

“Investors give money when there is risk and banks give money only when there is no risk” said Prof Jhunjhunwala on the topic of funding, reminding the audience that expected returns were always very high. In order to be successful right from the initial stages, a startup, he said, had to advertise vociferously. He cited the example of the strategy followed by Micromax, which used the IPL as a platform to advertise. When asked about the role of the government in funding a startup, Prof jhunjhunwala said that a startup should seek to minimise dependency on government funding and that the government usually provided upto Rs 5 lakhs to every startup initially. Visakh explained that the initial funding must be used to design a prototype after which more funding could be expected depending on the quality of the prototype.

Prof Jhunjhunwala explained that IITM’s incubation cell consisted of 3 major incubators- C-Tides, RTBI and Bio Incubation Cell. However, he said that it did not really matter as to which cell was approached and that all the cells would guide aspirants directly to the appropriate cell.

On a final note, he iterated the fact that the main aim of a startup was to be financially successful and that social obligations, such as family needs, must be fulfilled before any major risks were taken.

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