The free fall of Byju’s, once the poster child of the Indian startup ecosystem, from a peak of $22 billion to ‘zero’ is a startup drama, not witnessed too often. For those who watched Byju’s affair unravel over the past year, there have been a multitude of twists and turns until the complete collapse. However, the failure of the educational technology platform leaves lessons worth millions. And what are the errors?
First, a drive toward overexpansion. It’s not just Byju’s, but most companies that scale too quickly and often spread their resources. Byju’s sought rapid expansion both at home and abroad. Billions were spent on acquisitions. In 2021, the company spent around $950 million to acquire Akash Educational Services, followed by $300 million on coding platform Whitehat Jr. and another $600 million on Great Learning. The goal was to generate rapid diversification and drive rapid growth. But as happens with rapid expansions, operational inefficiencies began to creep into the system. Sustainability therefore became the central issue that led to the first chink in Raveendran’s armour.
The second mistake was spending too much on marketing and sales, which consumed almost half of the company’s expenses. In FY21, Byju’s’ official recorded revenue was around Rs 2,428 crore, but the company’s net loss soared to Rs 4,588 crore, a massive rise from the loss of Rs 262 crore in FY20. Even though revenue grew 80 percent, the cost of acquiring customers and maintaining the workforce outpaced the growth.
The third biggest mistake on Byju’s part was his mistake in terms of financial reporting. The company’s audited results for FY21 were presented more than 18 months late. Such delays and transparency issues led to an erosion of trust. Revenue recognition practices generated further criticism: the Blackstone group reduced the company’s valuation by 6 percent.
Finally, a major problem with Byju’s was its dependence on external capital financing. In 2020-2021, Byju’s raised over $2 billion in funding from investors such as Tiger Global, Sequoia Capital and Bond Capital. However, the post-pandemic global economic crisis led to a fund crunch and Raveendran could no longer afford to spend cash. By then, the allure of online education also started to wear off. Customers in many places also started asking for refunds because the company was not meeting expectations.
Relentless focus on hypergrowth, rapid scaling with an unsustainable model and leadership that has failed to measure the complexity of running a global business led to Byju’s failure and unceremonious death. While Raveendran admits his “zero value” and talks about changing his destiny with the promise of a possible comeback, there is a million-dollar lesson in business prudence in his journey.
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.