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Nandan Nilekani blames flawed unit economics in debate over growth and profit

Nilekani added that for startups, depending on external capital exposes them to the vagaries of the market. Swiggy co-founder too believes they would like to trace the path to be more profitable.

August 11, 2022 / 11:30 AM IST
Representative image

Representative image

The debate over growth at any cost has sharply divided opinions the world over, and many stalwarts of India Inc are now frowning upon putting growth over profit.

At an event hosted by growth-stage startup scaling platform xto10x, Infosys co-founder Nandan Nilekani said that the question of choosing between growth or profitability comes only when the unit economics of a business is not correct. “If your economics are such that you are making money on every sale, then you’re going to both grow and be more profitable. If we can focus on getting that right, the rest follows,” he said.

Nilekani added that startups need to earn money for the future, and depending on external capital all the time exposes them to the vagaries of the market and fund raising.

Sriharsha Majety, the co-founder and CEO of online food ordering and delivery platform Swiggy recalls his initial hurdles. He said, there was a week during the initial days when the company saw orders go from 1,000 to 2,000, which even led to Swiggy stopping operations for a day-and-a-half. “It was the most depressing week for us because everything we built had come undone,” he said, following which the company had taught delivery workers how to use the partner app. However, the company’s worst period was the first wave of the pandemic, he said. “Every other geography had food delivery grow massively in the face of the pandemic but for us, we came down to 10 per cent of our volumes.”

This came right after Swiggy had spent and invested a lot, and decided to focus on tracing the path to be more profitable. “It was easily the most painful thing me and the company have gone through,” he said as he looks back.

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Harsh Mariwala too famously took on FMCG giants in the ninties, as he scaled up Marico. Speaking on profitability versus growth, he said growth has to be sustainable. “You have to have the visibility of profits. You can’t say I will make profits after 20 years. To me, that’s not acceptable. For a new product, I will sacrifice five years, for a new business I will invest 10 years,” he said. He advised that if someone is not sure about making a profit out of their product, then they should withdraw rather than continue with the hope that profits will come because there is growth.

Swiggy’s Majety added that his timeline for profitability is similar to that of Marico’s. He added that 5-7 years is his outer limit, when they start something new.

With regard to goal-setting, Nilekani added that the approach both at Infosys as well as government projects has been to set a lofty goal, and work backwards to achieve it.
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