Start-up's flights of fancy

Topics Startups | Hike | free messaging app

In August 2016, just four years after he set up Hike, Kavin Bharti Mittal walked into the hallowed unicorn club after he raised $175 million at a valuation of $1.4 billion. The response from the world was predictable: Sunil Bharti Mittal’s son who struck out on his own at the age of 23, was showered with praise in the countless “inspirational” profiles in the media and became the poster boy of the start-up world. Here was the desi David who finally was able to take on the Goliath (WhatsApp).

Unfortunately, this fairy tale couldn’t have a happy ending. Hike shut down and vanished from the app stores on Monday. In a series of tweets a week ago, Mr Mittal had sounded bitter: “India won’t have its own messenger, global network effects are too strong (unless India bans Western companies)”. Over the past year or more, Mr Mittal, however, has steadily diversified Hike into social and virtual-mobile products, and his company will continue to develop its Vibe social media app and work on a new gaming product called Rush, he wrote on Twitter.

Apart from the failure to sustain India’s first home-grown messenger app, what must have added to the bitterness was that the shutters have come down on Hike messenger at a time when Signal and Telegram have added tens of millions of users,  helped by a controversy over WhatsApp’s privacy update for Indian users.

But the demise of Hike messenger couldn’t have come as a surprise. There were signals galore that Hike got carried away by the initial hype and in its boyish enthusiasm tried to get into too many things. Mr Mittal admitted as much in a blogpost in January, 2020. This is what he said: “Be selective about your focus — “In (a) world of so many possibilities, the key is to focus on a few things with the right probabilities. That’s half the battle won.”

The realisation was perhaps too late. And Hike can be a classic case study of why a company should first identify its core area and then focus on it relentlessly — basically do less, but do it much better — instead of rushing to beat the war trumpets against other global, established messenger giants.

It’s a lesson every single company should learn over and over again. Those that invest in, protect and strengthen their core business before venturing into other areas thrive; and those that get distracted wither away. Companies must have a well-defined and strongly differentiated core and create value in the eyes of their loyal core customers over a period of time. And only then should they venture out into other areas of business.

There is no denying that Hike had a stellar beginning, and within four years of launch managed to garner 100 million users. The problem was that growth stagnated after that and the customer base started slipping from 2018, putting severe pressure on the company’s finances. Mr Mittal may have been inspired by WeChat’s success (Tencent, the owner of WeChat invested in Hike) and wanted to follow its complicated business model. More than 80 per cent of WeChat’s revenue comes from games and the rest from online advertisement, mobile payment and the sale of online goods like stickers.

So Hike took the same route and integrated games, mobile wallet and more than 20,000 online stickers on its platform. Hike, though, could never come anywhere near WeChat’s success as it failed to build a decent user base, which over time dented its brand image, reputation and led to markdowns in valuation.

Hike also aimed to be what’s called a “super app” — an app that provides services that go beyond chat. So it had a separate interface for news, where it provided short summaries across categories. It had chatbots that sent users messages — Hike Daily started sending inspirational quotes and Just For Laughs was sending jokes and memes. All this was exciting stuff to draw the young users but one can safely say Hike spread its bets too far and lost focus.

The other factor that went against Hike was its target population of the under-20 age group. That’s not the ideal user group that can be offered to brands for monetisation. Also, technology and the entire ecosystem changed rapidly and in 2019, Mr Mittal announced plans to unbundle its super app business and roll back its payment platform.

Soon Hike decided to go back to basics. It shut its office in Bengaluru and laid off employees. That was the beginning of a rather long end.

The lesson to be learnt from all this is that business can’t be about taking flights of fancy when you are dealing with investor money. Large Internet companies can still afford it, and they do spend dramatically more on R&D per dollar of revenue. No one is expecting that from first-stage start-ups — so Hike should not have forgotten that the fundamental definition of a start-up is that it has to focus on something specific so that there is some level of leverage of the founders’ basic competence.

 


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