AskMe scaled too fast and ran out of money

Chaitanya Gudipatymoneycontrol.com The suspension of Askmebazaar’s operations highlights, among many others, the management’s mistake to chase gross merchandise value, relying on warehouse model and a large player owning an over 90 percent stake in the company, according to experts. More importantly, they say that entrepreneurs regularly need a dose of reality check of their startup’s operations and scalability. Criticising the multi-dimensional approach of Askmebazaar, Devendra Agarwal, Founder of Dexter Capital Advisors, said: “Askmebazaar scaled too fast without understanding the market. It scaled too fast that it ran out of money to support the scale.” Similarly, “Every optimistic entrepreneur requires a dose of reality check every now and then. Investors lose faith when the initial projections are not in sync with the kind of money that has been put in scaling of the business, customer acquisition and increasing the growth rate expected by the company,” said Geetika Dayal, Executive Director, TiE Delhi-NCR. For some investors, promoters not having enough skin in the game is a red flag to be wary of. Askmebazaar CMD Sanjiv Gupta diluted his stake to Astro at regular intervals on time — so much that Astro owned 98.3 percent in Askmebazaar. “The main red flags would be promoters not having enough skin in the game. Also, net loss is acceptable for a period of sustaining, but gross loss over an extended period of time flags out errors in the business plan (of a startup),” said Rohit Chokhani, Principal Founder, White Unicorn Ventures. Dayal added that investors can exit a startup if the projections are not met and entrepreneurs miscommunicate with the investor. “What worries the investor most is when they don’t get a return of investment and are misled or when there is a mismatch on the vision for the strategic direction for the company,” she said. Bharati Jacob, Managing Partner, Seedfund, said it is while it is imperative for investors to have faith in investors, equally important is an entrepreneurs to be realistic about the startup’s performance. “Before raising funds, a startup founder needs to check whether the company’s performance is in line with the targets set. The exercise should be done regularly,” she added.Ahmed Naqvi, Co-founder and CEO Gozoop said: "Startup founders should remain true to building a fundamentally strong company with a scalable definite revenue model. Basics, yet so many of them seem to want to figure this out later. This approach needs to change. The swag and coolness around building a startup - which has become a trend today should give way to more common sense and hard work based approach."Also read: How the AskMeBazaar scam unfolded 'Am no longer an employee, have quit': AskMeBazaar CEO With no management, employees can’t even resign or get fired! In dire straits: Employees threaten suicide in emails to CMD 'I might have to sell my house to pay debt': AskMe seller