#06 - MARCH 2008 by CyberMedia (I) Ltd

publication a

Vol 2 / Issue 06 / Mar 08

/Rs 30/-

What your

VC is looking for?

How to increase your valuation Structuring ESOPs Ripple effects of the Nano New contours in micro ďŹ nance Opportunities with ďŹ tness equipment E-Week: Touching 2 lakh+ students with the message of entrepreneurship

entrepreneur of the month/

Shiamak Davar, Dancer unique idea of the month/

Evoma: Hotel + Incubator innovation/ Daily Dump CASE STUDY Sula Vineyards Learning from setbacks Breaking through growth plateaus

Vol 2 / Issue 06 / MAR 08

BOARD OF ADVISORS C K Prahalad

University of Michigan

N R Narayanamurthy

Chief Mentor, Infosys

Kanwal Rekhi

Chairman, TiE

Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande

Chairman, Sycamore Networks

Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw R Gopalakrishnan

Chairman & MD, Biocon Executive Director, Tata Sons

Philip Anderson

Professor of Entrepreneurship, INSEAD

Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Arunjana Das Binesh Kutty Chhavi Tyagi Shilpi Kumar Sreejiraj Eluvangal Vimarsh Bajpai

/cover story

What your VC is looking for?

OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Chandan Sengupta Raghavendra Nivedita Naveen Barsainya

MARKETING Associate VP West North South South South-East Asia

PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Pooja Bharadwaj Assistant Manager, Reader Service Sarita Shridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at International Print-O-Pack Limited, B-204-206, Okhla Industrial Area, Phase 1, New Delhi-20. Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Mirchandani & Co, Mumbai. All rights reserved. No part of this publication may be reproduced by any means without prior written permission. BANGALORE 205, 2nd Floor, # 73, Shree Complex, St.Johns Road, Tel: 41238238 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712

KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387241 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 24-09 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.

DARE.CO.IN 4

MARCH 2008

How to increase your valuation Whether you are an established company or a startup, valuation is an important tool that provides you the power to negotiate

DARE.CO.IN

/contents

others/ Online fund-raising for NGOs ............... 60 Quick guide to ESOPs ........................... 62 Entrepreneurial marketing ................... 66 Importance of product designing ......... 88 Bamboo offshoots ..............................102

entrepreneur of the month

Shiamak Davar Dancer People told me that dancing is not for men, that the girls who came to my class would have bad reputations, and no one would marry them. They said that I was taking a big risk…

blogs/columns Philip Anderson .......... 20 Paranjoy Guha Thakurta ... 53

/INSEAD Case Study Sula Vineyards Learning from setbacks

opportunity/

Micro ﬁnance

MFIs are fast reshaping social lending postulates in developing countries. Here is your guide to set one up

28 54

unique idea of the month/ Evoma: Nurturing budding businesses....... 76 Entrepreneurs struggling with setting up their ﬁrst ofﬁce can now not only have one running within 24 hours, but also live leisurely in the same building

Anurag Batra................ 59 Rupin Jayal................... 68

innovation/ Daily Dump

coming soon

Poonam Bir Kasturi paves the road for citizens to go green in just Rs 600

DARE.CO.IN interactive business models,

wiki proﬁles, business

graph of the day, idea

pic of

the day, sector spotlight, blogs, news, discussion fora, keyword based alerts, rss feeds, contacts,

mentoring, market trends, webinars,

newsletters, live chat,

opinion polls,

leads, slideshows,

professional guidance,

search, on demand,

archives, event calendar, research, directories, faqs

opportunity/

The Nano Effect

The cheapest car will induce a fresh dose of entrepreneurship

opportunity / Mobile TV opens up personal entertainment......................................34 Toy business .......................................72 Fitness equipment ...............................80

society / Chillika Lake boatman ........................98

NEN / Entrepreneurship Week .......................92 MARCH 2008 5

DARE.CO.IN

blogs/edit

Hard work and money Like Henry Drummond so famously said, no man can become a saint in his sleep. It takes a lot of hard work and a lot of investment to build a business of any size

he startup costs are around 2 lakhs and the business can be worth billions of dollars in three years. During these three years, you need to invest

less than a crore. Cash is easy to come... In short, it’s the idea that matters; not other considerations such as connections and money. If it clicks, it’s easy to get everything else; and you need only a small amount to see if it clicks...” It was with a sickening sense of déjà-vu that I read these lines. Every day we get many letters from entrepreneurs and want-to-be entrepreneurs sharing their dreams or otherwise asking for help. But this one had me thinking. I had assumed that the crazy days of the dotcom boom were ﬁrmly behind us. Apparently not yet! Those of you harboring ideas along the lines above, please pause. You are on a wild goose chase. Businesses just cannot be built like this. If they could have been, then the dotcom bust would not have happened; then every one of us would have been billionaire many times over. In the days before the bust, amazon.com used to be the favorite example of those who argued that such businesses were possible. I still remember sitting with a very senior IT professional. His case was that Amazon was run from a basement with under ten people! It did not require too much of detective work to ferret out the truth. Amazon’s annual report gave us the ﬁgures – 9,000 employees and 2,85,000 square feet of distribution centers in the year 2000! Like Henry Drummond so famously said, no man can become a saint in his sleep. It takes a lot of hard work and a lot of investment to build a business of any size.

/Krishna Kumar

MARCH 2008 7

Feedback DARE.CO.IN

Dear Mr Anderson, Your write-up on “integrity”(Why do entrepreneurs need integrity? – Jan 2008) is a real jewel. It so lucidly explains the difference between loyalty, honesty and integrity. Generally these terms are used interchangeably. Your comment ‘integrity is in part culturally defined’ is a masterstroke. This type of ‘culturally defined integrity’ is quite common in India. Is it so in the other parts of the world also? This article is a must read for one and all. I marked it ‘must read it many times’ for myself. Keep enlightening the world. Dr V Pawar Bathinda I want to know about the future of the IT industry in India from now onwards. The rupee dollar exchange rates have prompted me to ask me these questions. I had thought of starting a new venture in the IT field and as of now I am rethinking my plan. If possible can you include a small article on this topic so that it might be useful to many others and me? Subin Revi

be a great entrepreneurial opportunity for ruralites. It may be noted that the concept of “home-stays” has become a big business in the Kodagu (Coorg) district of Karnataka. G. Anuplal Senior Lecturer in Industrial Relations, St. Joseph’s College, Bangalore After completing MBA, I joined American Express and worked for seven months. Now I have quit the job and I am starting a new journey to be an entrepreneur. I want to go in food business. I have a product, which is a traditional Rajasthani dish. I want to bring it into the market like sweet corns are sold in the malls. I want to start it in a very small way and see if it clicks or not. I have taken this step alone. I don’t have a huge capital but I do have passion, vision and resilience to achieve what I want. Currently I am doing a market research for the product. I also have plans to do test marketing for the product. I am residing in Delhi and want to discuss my plans. I am the one who DAREs. I request you to help me on this venture. Saurabh Sukhani

On the occasion of celebrating CyberMedia’s completion of 25 years, my suggestion is: put a contest on business ideas and business plan, select 25 best business ideas, fund their projects, be a mentor and be an equal partner. This way you can foster entrepreneurship and also help 25 people become successful entrepreneur under your leadership. Shyam S Mantha ATraC , Co-Founder & Chief Business Architect, Hyderabad As rightly pointed out in your article on agri-tourism (Feb 2008), there can be, with proper planning and entrepreneurial zeal, literally “digging gold in rural India”. With the ever-increasing stress and strain and monotony of urbanism, a good number of urbanites may consider agri-tourism a perfect get away and rejuvenator. This will also be a highly educational exercise. The Father of the Nation, Mahatma Gandhi, had rightly said that real India lives in the village. This comparatively new concept of agri-tourism in India will 8 MARCH 2008

I am a regular reader and ﬁnd the magazine extremely focused and inspiring. The article on Mom’s Kitchen was very inspirational as how the two guys started and now are doing great business. I want to become an entrepreneur and hence would like you to continue covering such entrepreneurs and their businesses. Recently, there was an article in Hindustan Times on some of the new age entrepreneurs. One the most fascinating idea was that of customized Puja Kits started by Prakash Mundhra, a 27-yearold entrepreneur. It would be interesting to read a complete story on him since that article was very scattered. Aparna Rungta I just want to state that “Ek Mutthi Anaaj” (Feb 2008) is not a new concept. Nevertheless, it is a very good gesture on the part of the ‘haves’ to serve the ‘have nots’. “Mushti Biksha” is a program of Shree Ramachandrapura Mutt, which has the disciples in mainly Havyaka community of South, North Canaras

and Shimoga in Karnataka & Kasaragod in Kerala. The community is spread all over India and abroad for the purposes of living and serving. Shri Raghaveshwara Bharathi Swamiji of Jagadguru Shankaracharya Samsthanam of Ramachandrapura Mutt, has initiated this program among the disciples who would spare a handful of rice everyday before cooking and this rice is sent to the Mutt branches from where it would beeline into the hostels, schools and needy institutions every month. All the disciples of the Mutt numbering over Four lakh families do this religiously every day. I am glad this gesture is spreading. Prof. B Harishchandra Bhat Bangalore I am very glad that you have started an excellent entrepreneurial magazine “DARE”. I am a regular reader since the ﬁrst issue. I introduced the magazine at TATA Institute of Social Sciences, and everyone likes this magazine. Inspiring articles, case studies, entrepreneur of the month, investor of the month etc. helps us to enhance our social entrepreneurship skill. To make our learning more enriching and pragmatic we look forward to your invaluable suggestions and guidance. Raju Ranjan Kumar Paswan Mumbai

Via SMS - DARE 56677 Taking inspiration from “It’s lunch time folks” (Jan ’08), I am setting up a home kitchen called “Mother’s Menu” in Delhi. Dare is inspiring the whole nation with its revolutionary work. Dare is a great idea. I am surprised why such a magazine did not come out earlier and why it took these many issues before I found it. Wish it all the best.

SMS “DARE <your comments, questions or suggestions>” to 56677 or Drop us an email: dare@cybermedia.co.in

Glimpse of Products & Performance December 2007

FAMILY FLOATER MEDICLAIM POLITY

SHOP AROUND THE WORLD

VIDYAVARDHINI INSURANCE

AIR TRAVEL INSURANCE

r out foklet k c e Ch al Boo e ci a Spe next issu in the f DARE o

news

DARE.CO.IN

/news EO event sees gathering of global entrepreneurs Entrepreneurs’ Organization (EO), a global community of business owners, all of whom run companies that exceed $1 million in revenue, hosted a 3-day conference in New Delhi from Janurary 6-8. Founded 20 years ago, EO now has over 6,000 members on its rolls with more than 108 chapters in 38 countries. The three-day event saw a lot of activities under one roof. On one hand, it brought bright entrepreneurial minds from across the globe to discuss and network, and on the other, it gave a good insight into Indian culture, business and society. The event also witnessed the Indian style wedding of two EO members of Barcelona chapter. Besides the keynote addresses by Commerce Kamal Nath and Infosys’ Nandan Nilekani on the rise of Indian economy and the Infosys growth story respectively, there were various breakout sessions on business communication, sales, opportunities in India, and hiring manpower. Other sessions included the legal and ﬁnancial aspects of cross-border mergers and acquisitions. Many entrepreneurs overseas, particularly in developed countries are mesmerized by the rise of India and China, and are looking at markets in developing countries. The conference gave them good insights into what to expect, and how to enter the India market.

TiE-KPMG study measures entrepreneurial confidence index The Indus Entrepreneurs (TiE) and KPMG have released their initial study measuring the Entrepreneurial Confidence Index (ECI) in ten states within India. Based purely on the perceptions of entrepreneurs rather than any factual analysis of the factors considered and measured, the study is designed as the first step in an annual exercise to identify the elements of and benchmark the development of a favorable entrepreneurial ecosystem across India. Some of the findings of the study: Entrepreneurs in general find the underlying ecosystem “moderately acceptable”. Despite the poor state of physical and soft infrastructure in most states across India, entrepreneurs themselves again find the current status “moderately to generally acceptable”. Expectations vary across states with entrepreneurs from states generally considered entrepreneurial probably expecting more from their ecosystem and thereby holding the state to a higher standard. 10 MARCH 2008

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/news Airbus foresees demand for 24,000 aircraft

VC investments treble in 2007

Aircraft manufacturer Airbus foresees a demand of

Around Rs 3,700 crore ($928 million) were invested by

some 24,300 new passenger and freighter aircraft valued

venture capitalists (VCs) in 80 India-based ﬁrms in cal-

at $2.8 trillion between now and 2026. In its latest Global

endar year 2007. The ﬁgure stood at $349 million spread

Market Forecast, Airbus said this will create an average

over 36 deals in 2006, according to a report by Dow Jones

annual delivery of some 1,215 aircraft, up from the previ-

Venture Source. Of the 80 deals, around 48% were in the

ously forecast 1,130 average deliveries.

Information Technology space. Firms in the web-heavy

Demand will drive the need for more fuel and eco-efﬁcient airliners to cope with trafﬁc growth and the need

information services sector saw nearly $141 million ﬂow in through the VC route.

to replace older generation less efﬁcient aircraft. By 2026,

The consumer, retail and business segments wit-

the fuel burn of the average world ﬂeet is expected to be

nessed 30 deals with over $346 million ﬂowing into the

at three litres per 100 passenger kilometers, or what the

sectors. This was around 90% jump over $180 million

A380 already delivers today.

that came in through 16 deals in the previous year. The healthcare sector saw $100 million put in by VCs through

PE deals surpass M&As in Jan

seven deals, as compared to $41 million in 2006.

Private equity deals have outnumbered M&A deals in the ﬁrst month of January this year. As many as 60 PE

Soros, Google.org set up India venture

deals were announced by Indian companies in January,

Investor George Soros and Google philanthropic arm

as compared to 56 mergers and acquisitions, according

have set up a $178 million venture to fund small and

to consultancy ﬁrm Grant Thornton. However, the value

medium enterprises in India.

of PE deals stood at $2.05 billion, much less that $3.01

The third partner in the fund is Omidyar Network. The

billion in the case of M&As. The year 2007 saw more than

venture is aimed at helping SMEs that do not have access

660 M&A deals as compared to 386 PE deals.

to formal funding options.

Form IV (See Rule 8) Statement about ownership and other particulars about newspaper DARE to be published in the ﬁrst issue every year after last day of February • Place of Publication

New Delhi

• Periodicity of Publication

Monthly

• Printer’s Name Whether Citizen of India Address New Delhi 110017

: : :

Pradeep Gupta Yes D-74, Panchsheel Enclave,

• Publisher’s Name Whether Citizen of India Address New Delhi 110017

: : :

Pradeep Gupta Yes D-74, Panchsheel Enclave,

• Editor’s Name Whether Citizen of India Address New Delhi 110017

: : :

Krishna Kumar Yes D-74, Panchsheel Enclave,

• Name and address of individuals who own the newspaper and partners or shareholders who hold more than one percent of the total paid-up capital. Cyber Media (India) Limited D-74, Panchsheel Enclave New Delhi 110017 Shareholders holding more than 1% of the paid up capital of the company as on 8th February 2008: Pradeep Gupta, Sudha Bala Gupta, Sal Real Estates Pvt. Ltd., Yukti Securities Pvt. Ltd., Ashish Dhawan, Anoop Jain, Dhaval Gupta, Quantum Securities Pvt. Ltd., Anuradha Gupta, Deepa Agarwal, Prenita Dutt, Archana Saluja, Ankush Saluja, Swarn Kaur, Book Wise (India) Pvt. Ltd., Star Finvest Private Ltd., Kriti Gupta, Jagdish Pershad Gupta, Navin Bhagat, Vijay Mahajan. I, Pradeep Gupta, hereby, declare that the particulars given above are true to the best of my knowledge and belief. Sd/Publisher MARCH 2008

DARE.CO.IN

The

nano

opportunity/auto

Ratan Tata has challenged conventional wisdom with the launch of the worldâ&#x20AC;&#x2122;s cheapest car, Nano. This would induce a fresh dose of entrepreneurship while making a big social impact

/Vimarsh Bajpai

MARCH 2008

opportunity/auto

DARE.CO.IN

Effect

MARCH 2008

DARE.CO.IN

hen Tata Group Chairman Ratan Tata fulfilled his “promise” in January this year with the launch of Nano, the world’s cheapest car, it enthralled not only the common man but big and small businesses alike. The world greeted the Rs 1-lakh car with accolades unmatched in recent history as the media from every nook and corner of the globe descended in New Delhi to take a first-hand look of the most anticipated automotive model ever. The compact hatchback has set off a revolution not only in the automobile industry but the entire manufacturing ecosystem, dismantling the belief that ‘low-cost is always cheap’. The fourwheeler is not only a marvelous piece of inspiration and innovation but also a dream come true for the burgeoning middle class and the ambitious bluecollar community in the whole of Asia. How well has the Nano made a place for itself in the minds of the common people of this country is reflected in the statement made by an auto driver I spoke to on a recent winter morning. “I will replace my auto with the Nano. It would save me from Delhi’s unbearable summers, chilly winters, and inundating monsoon,” he said. “But when will it be launched?” was his question. These words reflect the hope that drove Tata to meet the promise of making the Rs 1-lakh car four years ago despite the disbelief expressed by experts across the globe. Tata visualized a family of four on a scooter while offering the Nano, which would provide comfort and safety to the common man. “The Nano is just not about the small car segment—that would be taking a myopic view. It is a question of social growth and well-being,” says Dilip Chenoy, Director General, Society of Indian Automobile Manufacturers (SIAM). Indeed Nano is not just a machine; it is the locomotive for social change, and meets the aspirations of the masses. But as we talk of the Nano, we cannot help but think of Maruti 800, the original people’s car launched back in the 1980s. It too created a buzz with its

MARCH 2008

opportunity/auto price tag of Rs 50,000 at a time when there were no Internet and cable television. Even though history has repeated itself, this time around there are blogs and Websites splashed with the ﬁner details about the making and the launch of the ‘small wonder’.

Innovation: Low-cost is no more cheap No business can survive today without innovation. Nano has set a new benchmark for innovation. Products, services, processes, supply chain—each segment of business calls for fresh thinking in tune with the fast changing world. “About 70% of all cars are made by their component makers so the Nano is the product of huge joint innovations by them all. Bosch, for example, has created a totally new fuel injection system with one injector feeding the two cylinders turn by turn with precise electronic controls,” says auto analyst Murad Baig. After low-cost airline and low-cost mobile telephony, here is the low-cost

car. The Nano effect has made companies the world over ponder over how they can do a Nano with their products and services. The Nano has established India’s prowess as a low-cost manufacturing hub with supreme engineering skill on offer. It is time for entrepreneurs to stop and think of how to leverage this advantage and weigh a number of opportunities across sectors—housing, healthcare, public transport, and education, to name a few. Doesn’t it make business sense to offer low-cost housing? According to estimates, there will be demand for more than 25 million homes in cities by 2012, and over 90% of the demand will come from those belonging to the middle and low income groups. While all developers are focusing on high-end customers, no one is talking of low-cost housing. Low-cost healthcare is another area that needs focus. Can high-quality healthcare marry low-cost facilities? Take the case of Devi Shetty, who is offering healthcare services to the poor at affordable cost through Narayana Hrudayalaya.

Impact on the auto sector

About 70% of all cars are made by their component makers so the Nano is the product of huge joint innovations by them all. — MURAD BAIG AUTOMOBILE ANALYST

AUTO COMPONENTS A car is a sum of its parts. Understandably then, the auto components sector is abuzz with activities. “It is an opportunity for incumbent component suppliers to use their experience and scale up to meet demands of increased volume and low price,” says K Kumar, Professor, N.S.Raghavan Center for Entrepreneurial Learning, IIM-Bangalore. Ever since the work on Tata’s smallcar plant began in Singur in West Bengal, more than 50 auto components manufacturers have either set up shop there or are in the process of doing so. These include Tata Toyo, Amtek Auto, Kinetic Engineers, Bosch Chassis Systems, Caparo Engineering, Rucha Engineers, Sona Koyo Steering and Sharda Motors. To facilitate space to parts suppliers, a vendor park is coming up right next to the Nano plant. Caparo will provide the inner structural panels to Nano while Tata Ryerson, a 50:50 joint venture between

DARE.CO.IN

opportunity/auto

Will the launch of TATA’s Nano unleash a new wave of innovation in the automotive industry? If yes, how? The Nano is an innovation, which will lead to many innovations in the automobile industry, not only locally, but internationally as well. It is a remarkable example of out-of-the-box thinking. The Nano has proved that innovation may actually drive down cost, contrary to general thinking. It is simply not a matter of product design, but also application. Take for instance the single wiper of the Nano. Why put in two, when you can make do with one? A lot has been written about the single wiper of the Nano, but then all Mercedes-Benz W124 series cars from 1985-1995 (including the Mercs assembled by Tata Motors at one time) had only a single wiper, mounted on an eccentric arm! Take the tubeless tyres—an idea that the world runs on, but is a new concept in India. Just by using different type of tyres, you can save at least Rs 50 per tyre—a saving of Rs. 250 on the car. You may not think Rs 250 is much but multiply that by 1,000,000 cars and then it makes sense! Similarly, there have always been examples where innovative technology has been used—like balancer shafts in the engine, a central instrumentation console and a lot of Dilip Chenoy Director General, Society of Indian Automobile Manufacturers other examples. All it needed was the vision of one man to put it together in a vehicle that would be available at a socially responsible cost. A cost that would enable thousands to own automobiles. The original American dream, now a reality in India. The whole world has been stunned (some would use the word shocked) by the Nano. The innovativeness has caught the world by surprise. But amazingly, the Nano does not do anything drastically different. It is simply a no-frills car. Sometimes in the pursuit of innovation through electronics and hydraulics, core principles are forgotten and the Nano has simply brought the world automotive industry back to its roots. The fear of the global automotive industry is not that it cannot simplify. The fear is whether it can innovate and compete at that cost. Safety has also not been compromised. Today, the Tata Nano and the Porsche 911 are the last of the rear-engined cars and the Nano is as revolutionary a car as the Porsche. Remember all the criticism of the 911 when it was introduced? Everybody said it was an ‘unsafe’ car as it had an engine at the back, but then all rear-engine cars are inherently safe thanks to the huge crumple-zone up front. Another example of back-to-the-basics innovation. The $2500 cost of the Nano means that the Indian automotive industry has the capability to turn the global automotive industry around. Now, even India has the technology. It is something that every global automaker will want if they want to address the mass market to sell cars, now that all other markets are slowly getting saturated. Tata Nano is a compulsion for product designers and innovators to think new…to think Nano. Nano has rather established the fact the there is no relation between innovation and cost. A lot of logical innovations come from good connections and linkages. For this, Tata had had produced a special smaller engine, creating a new scope for the engine manufacturer. They are planning a higher version of the car—with air conditioning, plush leather seats, etc, and also versions with higher-powered engines, diesel engines, etc. A lot of such value-for-money options will soon hit the market. We have manufacturers who are producing two-wheelers in Rs 10,000. Every new vehicle that comes out has to be type approved, which means that it has to meet our existing safety and emissions norms before they hit the road. Why only the automobile industry, the cellphones and communications market is equally growing and innovative. I just heard that a company has come out with a mobile with connection for Rs 1650, and it has FM too. There are people with aspirations and it is a question of meeting those aspirations. How will India’s small car segment grow in the aftermath of Nano’s launch? What are SIAM’s projections for this segment? The Nano is not just about the small car segment—that would be taking a myopic view. It is a question of social growth and wellbeing. Today, India has the least amount of cars in the world—only 7 cars per 1,000 people. As we hurtle into the 21st century with so many innovations and achievements, are we going to deprive India’s citizens the right of movement as guaranteed by our constitution? Tata’s Nano is truly a manifestation of India’s dreams and you cannot talk simply of small car segment growth based on the aftermath of the Nano’s launch. In fact, the ﬁgures being quoted by self-styled alarmists on the growth of cars on Indian roads following the launch of the Nano are truly unfounded. The Nano is expected to reach a million cars only by 2013—that is ﬁve years away. Also, do not think of Delhi as India. See what the ground realities inside Indian villages and small towns are. Places, where the nearest hospital is at an average of 14 kilometres away and places where you have to travel a minimum of 6 kilometers to just catch a bus. The Nano is uniquely poised to make India’s socio-fabric structure improve. 16 MARCH 2008

DARE.CO.IN

opportunity/auto

The small cars may end up having some inﬂuence on ‘personal transport on hire’ and may perhaps push out three-wheeler scooters/autos etc. — K KUMAR, PROFESSOR

N.S.RAGHAVAN CENTER FOR ENTREPRENEURIAL LEARNING, IIM-BANGALORE Tata Steel and Ryerson, will supply the chassis for the car and 16 non-load bearing components. Similarly, Amtek Auto will provide engine and suspension components. But Singur is not the only shining spot. Adityapur, near Jamshedpur in Jharkhand, is also seeing a lot of activity in the auto space. The state’s first automobile and auto components special economic zone (SEZ) is being set up in Adityapur. Tata Motors is planning to develop an auto park in the city. In 2006-07, the auto components sector garnered sales worth $15 billion. This included exports worth $2.9 billion. There are several factors driving the growth momentum. These include flourishing domestic auto industry, sharply rising number of aftersales and service centers, and contract manufacturing. The Auto Show held in January saw participation of over 1,900 auto components and ancillary companies. “What might happen is that as more manufacturers introduce lowcost cars, it may improve economies of scale for small suppliers (typically tier2 and tier-3 suppliers). Even though the design of components could be specific to a manufacturer, it will still impact scale economies for lower tier suppliers,” says Jishnu Hazra, Professor, Operations Management, IIM-Bangalore. But will it be easy for a newcomer to leverage the small car revolution? Highly unlikely. This is due to the high pressure on margins. “Small cars will be a low-margin business, and the pressures on margins will be transmitted all through the supply chain,” says Ku-

mar, adding that “any new entrant will have to have some competitive edge— preferably technology—to challenge the incumbents. An unlikely prospect.” AUTO LOGISTICS The Nano effect is set to bolster demand for third-party logistics (3PL) as automobile manufacturers want vendors to ensure damage-free deliveries in a short span. Similarly, once manufacturing is done, automakers seek to reduce time-to-market and want to reach every nook and corner of the country at a fast pace. According to Frost & Sullivan, “the encouraging growth in global and intra-Asian level trade of Indian auto components sector has created many avenues for 3PL adoption and more can be expected due to India’s active participation in the regional free trade agreements.

Today, every new small car that is launched brings with it new technology and car parts, which are mostly imported. This has not only increased the scope of services offered by the logistics sector but has also led to a paradigm shift in the various dimensions of auto logistics. — P K JAIN DIRECTOR, TRANSYSTEM LOGISTICS

This is bound to improve prospects for auto components’ 3PL market.” According to some estimates, logistics cost in automobiles industry accounts for 2-3% of sales whereas in auto components industry, it is around 3-4%. The auto logistics industry has been pegged at Rs 34.7 billion in 2006-07. To contribute to the developing and dynamic Indian market by providing customized logistic solutions for the automotive industry, Transport Corporation of India (TCI) and Mitsui have joined hands to set up a new joint venture company, Transystem Logistics International. “Today, every new small car that is launched brings with it new technology and car parts, which are mostly imported. This has not only increased the scope of services offered by the logistics sector but has also led to a paradigm shift in the various dimensions of auto logistics,” says P K Jain, Director, Transystem. TCI claims to have successfully planned and managed supply chains of all leading manufacturers of cars, two-wheelers, tractors, and auto components. Transystem is not the only one betting big on auto logistics. Allcargo Global Logistics is planning to invest $86.4 million to establish 10 logistic parks in India to improve the supply chain for the country’s automotive industry. The company is planning to launch Trans-Rak containers designed for transportation of cars, for which it will invest Rs 100 million to bring out 200 containers. Jain believes that the demand for warehouse services will also go up, as the auto companies will have to store components in them before manuMARCH 2008

DARE.CO.IN facturing commences. Logistics is also about ensuring that no damage is done to vehicles while they are transported. Experts say that around 10% of all cars transported by roads in India suffer from some damages. Thus the logistics sector can play a very crucial role at this stage by providing an efficient system of transportation. Frost & Sullivan says 3PL service providers need to effectively tackle the challenges involved in skilled manpower shortage, meeting customer expectations and unorganized competition to establish their market presence. DEALERSHIPS As the launch of Nano created euphoria among the common man, car dealers have been busy handling queries about the world’s cheapest car. Tata Motors is said to be in the process of finalizing its dealers for Nano. The firm at present has 170 dealers in the country. Dealers bet that the sale of Nano will be a volumes game but could see their margins shrink. “Dealing in small cars may not be lucrative for the dealers, as these cars are targeted at the low end of the market where the emphasis of manufacturers is on cutting costs to make them more affordable for the common people. This may yield a very small sales margin,” says Gulshan Ahuja, Secretary General, Federation of Automobile Dealers Associations (FADA). He says various costs for dealerships, such as inventory cost, space rentals, legal costs in the form of compliance with various laws and consumer cases, manpower costs, registration costs, etc. are inelastic, and there is hardly any scope for reduction even if their sales volumes increase. Says Hazra, “We may observe some interesting processes that might emerge in the auto distribution to dealers. Dealers’ responsibilities may go beyond the scope of selling cars.” TWO- AND THREE-WHEELER MARKET The big question taking the rounds is whether the Nano will have a major adverse impact on the two- and three-wheeler segment. The start of 18 MARCH 2008

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As more manufacturers introduce low-cost cars, it may improve economies of scale for small (auto components) suppliers. — JISHNU HAZRA PROFESSOR, OPERATIONS MANAGEMENT, IIM-BANGALORE the New Year has already spelled doom for two-wheelers. Sale of two-wheelers declined by 10.96% in January this year, compared to the ﬁgures in the corresponding month last year. Is it a precursor to the commercial launch of the Nano? “The small cars may end up having some inﬂuence on ‘personal transport on hire’ and may perhaps push out three-wheeler scooters/autos etc,” says Kumar of IIM-Bangalore. He believes the two-wheeler industry may see some impact. “We may see some segments thinning down and some new segments emerging, due to the availability of small cars,” he adds. However, Ahuja of FADA, says only “a small proportion of two-wheeler customers, primarily the customers who have families, will switch over to the small cars. It will not dent the twowheeler market in a big way as the cyclists and users of public transport

Dealing in small cars may not be lucrative for the dealers, as these cars are targeted at the low end of the market where the emphasis of manufacturers is on cutting costs. This may yield a very small sales margin. — GULSHAN AHUJA SECRETARY GENERAL, FEDERATION OF AUTOMOBILE DEALERS ASSOCIATIONS

keep graduating to two-wheelers.” He believes passenger cars and twowheelers are two markets catering to different segments of customers. “The high-end customers who buy bikes for performance, sport and adventure will stay with the performance bikes. Similarly, the commuter segment of two-wheeler owners will also, by and large, not switch over to small cars because it is not only the initial cost but the cost of ownership of vehicle over its life span that matters to them,” he adds. AUTO DESIGN When renowned automotive designer Dilip Chhabria launched the country’s ﬁrst auto design institute in Pune last year, it signaled the coming of age in auto design. The launch of the Nano and the opportunities unleashed thereafter have come as a shot in the arm for budding auto designers. Chhabria’s institute DC College offers courses in automotive styling and transportation design. As global carmakers are lining up to make India a manufacturing hub, they are looking for innovative designs to make their mark in an already crowded market. A 100% India designed car is yet to hit the market as most companies source designs from abroad and rely on their design centers in India to carry out some cosmetic changes. Sensing opportunity in the space, the National Institute of Design (NID) at Ahmedabad, has also introduced a postgraduate course in transportation and automobile design. AUTO ACCESSORIES Car buyers today are more conscious than ever when it comes to gadgets such as car radios and music systems and upholstery. No wonder, India’s car accessories market is pegged at over Rs 10 billion, growing at more than 20% annually. According to estimates, the market could swell to Rs 20 billion by 2010. The small car revolution could give a further impetus to this fast-growing sector. It could also breed innovation in the accessories’ DAR E line of products.

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blogs/INSEAD

Breaking through growth plateaus Remembering Robert Viswanathan Chandran, who developed his own original framework for explaining why plateaus occur and how high-growth companies transcend them /Philip Anderson

n January 7, 2008 the world lost a visionary entrepreneur and I lost a good friend. Robert Viswanathan Chandran was killed in the crash of a helicopter in Indonesia that was ferrying him around potential palm oil plantation sites. Bob died doing what he loved: developing new business opportunities. Born and raised in Kerala, Chandran earned a degree from Madras University and an MBA at the Asian Institute of Management in Manila before going to the US in 1976 to start his fortune. His story exemplifies the success that many hard-working, well-educated Indians have earned there: starting with no resources and few prospects, he built over thirty years the world’s largest independent marine fuels company, Chemoil, which listed in Singapore in 2006. In the last year of his life, Bob developed and taught at INSEAD an MBA elective called “From Startup to Fortune 500.” Occasionally, INSEAD employs as adjunct professors veteran executives with a gift for teaching, to offer courses that rely more on practical experience than academic research. Bob’s course was about why successful entrepreneurial startups tend to plateau once or twice between $10 million and $50 million in annual revenues, and about how to overcome these barriers, creating the next generation of Fortune 500 companies. Nobody ever asked Professor Chandran what made him think he was qualified to teach a course about building a startup into a company with a billion-dollar market capitalization, because he had done it with Chemoil. Bob developed his own original framework for explaining why plateaus occur and how high-growth companies transcend them. In this month’s column, I’d like to share with DARE’s readers an outline of his thinking, because he will never have the chance to write the book on this subject that surely would have emerged had he been able to teach it for another year or two. Bob conveyed an original point of view to his students that directed their attention to five inter-related factors explaining why most firms plateau while a few become great creators of wealth, jobs and opportunity. First, he argued, the key factor determining whether a firm had the potential to achieve a billion-dollar market 20 MARCH 2008

value was the drive and risk profile of the entrepreneur. Some entrepreneurs grow companies to a medium size at a stage in their lives when they are not willing to risk losing everything. One has to have a vigorous appetite for calculated risks to grow a company, and only young people or exceptionally aggressive older ones are willing to do that. Therefore, Bob’s experience taught him to look for four things when assessing whether an entrepreneur had what it takes to grow a billion-dollar company: • Does the founder have a history of taking risks at the very start of an enterprise, making a business work early in life? “Sam Walton borrowed $20,000 from his fatherin-law to start a store right after the war,” Bob remarked. “If you have small successes early in life, it builds up over time so you learn how to create bigger ones.” • Did the founder overcome early hurdles when starting a business? Describing his own life, Bob said, “My first day in business in 1976, I was hit with a lawsuit for not paying a $10,000 bill. I put on a tie and started knocking on the doors of banks until I had a reasonable commitment for a $50,000 loan. That’s how I learned the first lesson of entrepreneurship.” • Does the founder have an over-arching personal vision about who he wants to become, that goes beyond simply making money? “I think successful people have a bit of a Taj Mahal complex,” he told his students. “They want to build an edifice that will stand the test of time.” • Do they listen well and learn from their surroundings? Bob would subtly lay opportunities on the table to see how an entrepreneur would respond. “If a guy just glances at it, then I wonder how many other opportunities he is missing,” Bob commented. The second factor Bob examined was whether a company’s management team could scale. Bob started as an oil trader and by 1989 he had bought a refinery, so he believed that the only way for a team to create a billion-dollar company was by growing and changing. Behind most plateaus, he reasoned, you would find a management team that had tried a diversification or growth venture, lost significant money, and retrenched into a niche because of the scar tissue they had acquired. For this reason, Bob told his classes to look for problem-solvers who have a track record of not accepting “no” for an answer and who had a good balance of greed and purpose in life. These were the ones who would survive their first defeat and keep trying to grow. The third factor Bob evaluated was whether a company’s products and services could scale globally. Except in the US

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blogs/INSEAD and UK, he observed, it was very difficult to build a billiondollar company unless one could find a defensible winning formula and replicate it from one geography to another. An entrepreneur builds an economic model that is big enough, then transports it from place to place. For example, the founders of Crocs, the wildly successful shoe company, originally started with a licensing deal to market the footwear. Realizing that this wasn’t a big enough footprint, they bought out their manufacturers so they could control the patterns and colors. Once they owned a big enough piece of the value chain, taking Crocs worldwide gave them a straight-forward growth path. Fourth, Bob looked at whether a company had the right management systems to support a global business. That first meant moving the back office to a country with a favorable talent/cost ratio such as India; for example, Chemoil was a pioneer in shifting many administrative functions to Chennai before outsourcing became a major theme. The next key to growth was adding a “middle office,” an information center with advanced analytics aimed at mining insight from a single global database. Finally, Bob assessed whether a plateaued firm had the ability to fund hypergrowth. Unusually for an entrepreneur, he saw finance as above all other things a marketing function. He spent years cultivating relationships with financial institutions and strategic partners so that he was able to raise funds when the market timing was attractive, not when he needed money. By marketing financing opportunities to prospective capital providers well in advance, he ensured that the pump was primed so he could do a financing deal swiftly when the time was right. He also believed in working with partners who had not only deep pockets but also strategic assets to leverage, which is why he accepted equity financing from the Japanese trading giant Itochu and spent the better part of two decades building a solid relationship with this partner. The essence of Bob Chandran’s teaching was that plateaus start with the mindset of the entrepreneur and then cascade

from there. “Most of the time, entrepreneurs find out how fast to grow by hitting a wall and stopping,” Bob explained. The primary reason why most firms never develop into billion-dollar companies is because an early experience with failure makes them conservative, so they erect structures and processes that reinforce that conservatism. Their management team learns to be wary. They settle for an economic footprint in the value chain that is too small to support global growth. They build back offices and middle offices that support today’s business, not a global enterprise. And they raise financing only when they need it, instead of laying the foundations well ahead of time for capitalizing growth. Bob’s personal story exemplifies his own teachings: billion dollar companies are built by people who see failure as step on a journey, not a final verdict. In 1993, all of Chemoil’s businesses turned downward just as new legislation made US banks wary of financing anything that might risk oil pollution. Because Chemoil carried significant shortterm debt, it was caught in a credit squeeze and forced into a workout by its banks. It was compelled to slash expenses, close offices, lay off employees, and impose a 10% pay cut on senior managers. Recalling that situation, Bob told his students, “The first thing you go through during a crisis is the mourning cycle. You get desperate; blame yourself; your confidence is shaken and you question whether you can do anything right. This is the worst part. But afterwards, you realize that you have to live, you get mad and you fight back.” That’s the final message from Bob Chandran that I want to share with you. Most businesses plateau when they suffer a setback late enough in an entrepreneur’s life that he decides to play it safe from that point forward. Very few billion dollar companies are built on an unbroken train of successes. The people who build companies of that magnitude have the will and the courage to survive defeat, build a big enough DAR E business locally, then scale it around the world. INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab

SMS “DARE <your comments, questions or suggestions>” to

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opportunity/mﬁ

Jackpot at the bottom of the pyramid

Microﬁnance institutions are fast reshaping social lending postulates in developing countries. Here is your guide to set one up /Arunjana Das

hen Bandhan, a microfinance institution (MFI) made it to the second spot in the Forbes’ list of Top 50 MFIs of the world, it was a resounding affirmation of the growing clout of ‘social capital’ so far lying untapped at the grassroots level. Further down the list figured Spandana, Saadhana, Asmitha Microfin and Sharada’s Women Association for the Weaker Section. Five spots in the top 50 is no mean feat. Does this imply that India is home to most of the world’s poor? The answer is no. On the contrary, this reflects a deluge of opportunities that Indian entrepreneurs have caught sight of. Microfinance is an attractive business proposition in a country where 200 million people have no access to formal financial cervices.

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What is microfinance? Microfinance has its origins in micro credit—the lending of extremely small amounts of money to the impoverished to help them be self employed. Today, it goes beyond just lending to include a number of financial services including insurance, savings and pension. Microfinance is not about the size of the lending or provisioning institution, but the size of the individual loan or service. Microcredit is not exactly a new phenomenon. It was traditionally the bastion of NGO’s and self-help groups. The earliest example perhaps is the Swashrayi Mahila Sewa Sahakari Bank setup by SEWA in 1974 with 4000 members, each contributing ten rupees each. The Bank continues to be a strong player with impres-

sive ﬁnancial performance. But not all traditional players in the self-help microcredit space have been as lucky. Since there are large shades of charity in their mode of working, sustaining and growing their activities has been a problem. The remedy for overcoming these bottlenecks was provided by the rise of for-proﬁt models. India currently has around 20 such MFIs, which have realized the gaping hole that exists at the

DARE/banks investing in microﬁnance ICICI, HDFC, BNP PARIBAS, Axis Bank, IDBI, SBI, UBI, ABN-AMRO, Yes Bank, SIDBI, Citibank, Standard Chartered, ING Vysya, Indian Overseas Bank, Deutsche Bank, HSBC

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“Microfinance is a very good way of engaging the poor, but you cannot be in this business if you’ve got a bleeding heart. Microfinance is essentially a financing business. The target population is poor; therefore, it has a social impact. You need to be profitable. Else, neither I nor anyone else will invest in you!” — VINEET RAI MICRO VENTURE CAPITALIST, AAVISHKAAR bottom of the pyramid and the nonavailability of financial services for the ‘bankable poor’. Bankable poor is the section living at or below the poverty line, who, when provided sufficient capital and resources, are capable of producing commensurate returns.

Setting up an MFI LEGAL STRUCTURE An MFI can operate on a not-forprofit, mutual-profit or a for-profit business model, depending on its

objectives. Not-for-profit MFIs register themselves as societies under the Societies Registration Act, 1860 or as public trusts registered under the Indian Trust Act, 1882 or as non-profit companies registered under Section 25 of the Companies Act, 1956. Mutual benefit MFIs register themselves as state, national or mutuallyaided credit cooperatives. For-profit MFIs are required to register as nonbanking financial companies (NBFCs) under the Companies Act, 1956. NBFCs are financial institutions registered with Reserve Bank of India (RBI) and are subject to its guidelines. Registering as an NBFC provides the MFI an edge in the form of a formal corporate structure, stability and ability to attract formal capital investments. BUSINESS MODEL A high-quality MFI model is defined by four elements—permanence, scale, outreach and sustainability. Permanence is defined by the long-term stability of the organization, which includes the stability of its organizational structure, ownership and long-term financial stability. Scale is defined by the number of clients that the MFI is capable of reaching. Depending on the geography and demographics of a region, the scale could be as low as a few hundred clients to a client base worth a million small entrepreneurs. Sparsely populated areas are usually avoided, since the cost of acquiring clients and operational costs become quite high. Outreach is the vertical penetration that an MFI is able to achieve into the stratas of poverty. Sustainability comprises operational and financial sustainability. The services offered by your MFI need to meet your clients’ demands. Financial sustainability is achieved when you are able to operate in a subsidy-independent fashion; that is, the revenue that your MFI earns from interest rates and fees are capable of covering its operational and other costs. The debt portfolio is, however, kept clear of too many people engaged in the same economic activity, since it exposes the concerned MFI to what

To make microﬁnance more attractive as a sector for investors, we believe effort is called for on both sides—demand and supply. This would entail creation, education and development of a wider array of investors coupled with capital advisory services to the MFIs—the objective being to provide an entire palette of next-generation ﬁnancial products to help MFIs access the capital markets. These products could include securitization, syndication, IPOs/ M&A advisory and arrangement, private equity placements, etc. — ROYSTON BRAGANZA CEO, GRAMEEN CAPITAL MARCH 2008

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opportunity/mﬁ How did your association with Bandhan come about? Unitus partnered with Bandhan in 2005 after meeting with Mr C.S. Ghosh and being immediately attracted to his due diligence on-site, entrepreneurial leadership, exceptional vision and bold goals to increase client outreach to 1,000,000 within 5 years. Bandhan also exhibited a strong track record having successfully reached more than 50,000 people in just over three years of operation using the ASA Bangladesh’s lending methodology, commonly referred to as an individual lending methodology, which provides for highly standardized loan products and enables rapid expansion.

How do you conduct the performance measurement and valuation of an MFI? Kylie Charlton The performance measurement of an MFI comprises finanVice President, cial, operational and productivity metrics. The key metrics Global Capital Markets, Unitus include asset quality (as typically measured by portfolio at risk greater than 30 days), portfolio yield, operational efficiency (cost of operations divided by gross loan portfolio), operational self sufficiency (operating revenue divided by operating costs), number of clients per loan officer, return on assets and return on equity. Many MFIs also look to measure the social impact that their products and services have on clients. No industry-wide consensus, however, exists on the most appropriate methodology for measuring social impact. There are three main approaches taken in valuing an MFI: (1) mutliples of earnings (or other profit and loss items); (2) multiples of net assets (ie. book value); and (3) discounted cash flow (DCF) based approaches. A less common approach is to look at a multiple of revenue per client. Typically a final valuation for an MFI would be arrived at by determining a valuation using a number or all of these appraoches and triangulating the results. is known as Covariance risk, financial jargon for the consequences of keeping all your eggs in one basket. OPERATION The first step is to identify the target market—geographically and demographically, followed by a preliminary survey of the area to evaluate the prevailing economic activities, if any, and determine the potential opportunities of livelihood. It also helps an MFI determine the maximum scope of outreach in the area, and in effect helps it in designing its product-mix. The credit-product delivery models are based on the principles of financially viable lending to poor entrepreneurs, characterized by tailor-made loans designed to fit the preferences of poor entrepreneurs. MFIs such as Bandhan, Spandana, Grameen Koota, Saadhana, etc. work on a combination of individual and group-lending approach. Compared to conventional lending by commercial banks, the interest rates of 20%-45% charged by MFIs are quite high owing to the high24

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risk portfolio. The repayment schedule is made stringent and ﬁne for default made high to discourage any erratic element in repayment.

Accessing capital markets “The biggest challenge in starting an MFI is getting funds,” says Vineet Rai, founder of Aavishkar, a social entrepreneurship and microfinance organization of the country. A startup MFI faces a double whammy when it comes to raising capital; first, because of its position as a startup and second, because it deals with the lowermost section of the economy value-chain, those lying on or below the poverty line. “One way in which startup MFIs attract equity investment is by being a part of an international network of MFIs. These networks require you to operate in a pre-specified mold of doing a business, but at the same time, they provide some financial/capacity building support that is much needed for start-up MFIs,” says Yusuke Taishi of Institute for Financial Management

Christopher Mitchell Head, Intellecash

Microfinance Franchising Intellecash is probably the only microfinance franchising model of the world. The Intellecash Model • Customer segments served: Small struggling startup MFIs and greenfield entrepreneurs • Screening process: Franchisee assessment model evaluating the quality of portfolio, management, client base, etc. • Services offered: Access to Intellecash’s visioning and planning services, in-field training at Cashpor’s branches, individual poverty level rating for ensuring access to the poor, strategic support for designing appropriate financial products, access to funds • Quarterly audits and rating, which helps the franchisee evaluate its relative performance and seek equity investment • Portfolio-based royalties and Research (IFMR). Few such organizations you could team up with are: Consultative Group for Assisting the Poor (CGAP) of the World Bank, the Grameen Foundation, Ford Foundation, Friends of Women World Banking, etc. A who’s who list of partners is, though, not enough. Investors want to be sure that the money they are investing in will bring in good returns. Common performance indicators used by investors are: Gross Loan Portfolio (GLP), number of active borrowers (deposit accounts), institutional financial self-sufficiency (IFS), cost-effectiveness of credit delivery and ability to leverage equity to obtain debt.

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opportunity/mﬁ How did you start Bandhan? Experience says that only 20% of the community has access to credit. But what about the remaining 80%? They approach moneylenders for credit, who charge them an exorbitant rate of interest. Banks are not willing to lend out to this class as they do not possess income tax ﬁles, they don’t have bank accounts, no balance sheet etc. even this section needs easy and quick access to credit.

Chandra Shekhar Ghosh CEO and Founder, Bandhan

What challenges did you face while starting up? • Funding arrangement was difﬁcult since the credibility of the organization wasn’t established

• Lack of qualitative and skilled manpower • Lack of awareness of the civil society about the microfinance sector • Initial reluctance on the part of women to approach the organization for loans owing to past experiences (chit funds) How was your experience with investors and banks? During the initial stages, the bankers/FIs were reluctant to lend to us. However, having established our credibility, now the scenario has changed to quite a positive extent. They are quite forthcoming to invest in this sector. Lots of investors have lately been showing interest to make investment in Bandhan. With all banks approaching us, we are in a better position to negotiate and procure funds at competitive rates. This in turn facilitates smooth and cost effective delivery of services to our beneficiaries. That apart, the yearly rating is an inevitable component to procure funds from banks and other financial institutions. How much money are we talking though? If the recent investment trend in microfinance is anything to go by, we are talking hundreds of crores! Spandana, started by Padmaja Reddy in 1997, acquired venture investment worth Rs 49 crore from JM Financial India Fund and Lok Capital. SKS Microfinance recently raised Rs 147 crore from two US-based strategic investors, Silicon Valley Bank and Columbia Pacific, to finance its expansion plans. This is in addition to the US$ 11.5 million (Rs 46 crore ) that Sequoia Capital, the Silicon Valley-based venture capital fund, had invested into SKS. Aavishkar Goodwell Microfinance Fund recently invested US$ 2 million (Rs 8 crore) in Share Microfin, an MFI based in Hyderabad, in collaboration with Legatum Capital that put in US$ 25 million. Aavishkar Goodwell Microfinance Fund, one of the first few private equity microfinance funds in the country, has been launched by Aavishkaar in partnership with Goodwell Microfinance Development Company 26 MARCH 2008

of the Netherlands. Aavishkaar also has a Micro Venture Fund that provides micro-equity funding worth Rs 10 lakh to Rs 2 crore to commercially viable companies in rural or semi-urban India. Vineet Rai, the founding CEO, is currently building a portfolio worth US$ 25 million (Rs 100 crore), half of which will be used for equity investment into MFIs. There are organizations that provide investment-banking services to MFIs.

“Essentially microﬁnance is becoming retail banking for low income people. Technology may fuel product diversity as institutions realize that poor people have complex ﬁnancial lives and need more than just credit”. — MALIKA ANAND, CGAP

What is an effective microfinance model like? There are key criteria for judging the effectiveness of a microfinance model. It must be a model that: • Identifies its target market clearly and understands the financial needs of its target market. Also has a targeting tool and methodology to identify eligible clients. • Develops a methodology that is suitable for its market (group versus individual lending, weekly versus monthly meetings) and a product(s) that fulfills the needs of the market (in terms of size of loans, purpose, length and interest rate). • Develops a plan for growth and eventual sustainability/profitability. This includes identifying triggers for efficiency and access to financing and human resources. • Identifies the right partners (donors/investors/co-founders/lenders) who are aligned to overall objectives of the project. In addition, if the model is focused on the poor with an intention to move them out of poverty then it should also have: - a process to review whether poverty alleviation is being accomplished - a plan to provide non-financial services directly or through partnerships — CHANDNI OHRI REGIONAL COORDINATOR, FOR SOUTH ASIA, GRAMEEN FOUNDATION Grameen Capital India, launched by Grameen Foundation in collaboration with IFMR Trust and Citicorp Finance India Limited, is the first of its kind company setup to promote microfinance as an attractive ‘asset class’ by enabling access to capital markets. Intellecap is one other firm that specializes in providing investment solutions and incubation services to startup MFIs. In collaboration with Aavishkar, Cashpor and ICICI bank, it had recently launched an innovative incubation solution for MFIs – a microfinance franchising solution! Called Intellecash, it allows microfinance entrepreneurs to take advantage of a proven business template, thereby, cutting downtime and helping the franchisees operate with far greater outreach and DAR E efficiency.

ENTRE PLEXUS 08 Annual EDI Alumni Meet. Theme : HOW SUCCESSFUL PEOPLE BECOME EVEN MORE SUCCESSFUL Venue : EDI Campus Dates : 4-5 January, 2008 “Not born but created Entrepreneurs”………. Some 25 years ago, it is with this powerful and breakthrough thought that the seeds of Entrepreneurship Development Institute of India (EDI), were sowed. EDI, an autonomous and not-for-profit institute, set up in 1983, is promoted by apex financial institutions like IDBI, IFCI Ltd., ICICI Ltd., SBI with active support of the Government of Gujarat. EDI has been spearheading entrepreneurship movement throughout the nation and abroad with a belief that entrepreneurs need not necessarily be born; but can be developed through well-conceived and well-directed training interventions. It is with this motive of triggering entrepreneurial talent among youth that EDI’s Post Graduate Diploma in Business Entrepreneurship and Management (PGDBEM)* and Post Graduate Diploma in Management of NGOs (PGDMN) was launched in the year 1998. Since then it has, successfully developed a cadre of high potential business and social entrepreneurs, equipping them with calibre to survive in the present day competitive environment. In the Nine batches completed till now, EDI has successfully trained 504 PGDBEM students and 213 PGDMN students. EDI alumni has carved a niche for itself as first generation entrepreneurs in a variety of sectors or as competent successions of family managed business. The socially inclined students have achieved commendable results in the social development sector. The Annual Edi alumni meet is interestingly christened as ENTRE PLEXUS. It is through this platform that young and effervescent entrepreneurial minds come together to generate vibrant debates and discussions to further the cause of successful entrepreneurship. This years meet was of special significance as it coincided with 25 years of EDI and 10 years of its PG program. The battery of Business and Social Entrepreneurs who had gathered deliberated and discussed on the theme of HOW SUCCESSFUL PEOPLE BECOME MORE SUCCESSFUL. This was the second Entre Plexus meet; first one was chaired by Mr. Sushil Handa (CMD, Claris Life Sciences) 2008 got a glitzy start at the lush green lawns of EDI, Ahmedabad on the evening of 4th of January. Majestic aura thumped the evening by the sheer intellect that bestowed its presence on campus. Nothing else could have matched the aura but the crisp, surreal and enigmatic inaugural address that was showered upon the audience by Mr.Devang Nanavati, eminent Lawyer and LEAD INDIA Finalist. From business to politics, corporate chivalry to Indian history, Mr.Nanavati took the entrepreneurial audience by storm and left them spell bound. His mesmerizing speech did achieve its desired target of sensitizing the young audience towards nation building entrepreneurship. The guest of the evening then unveiled EDI Alumni Association’s (EDIAA) first newsletter. Mr. Mihir Gajrawala, Secretary of EDIAA, unleashed the ‘10 entrepreneurial commandments’ for new age entrepreneurs. The commandments summarized various factors that would help young entrepreneurs optimize their performance. A power-packed day 2 was kicked off by PGP chairperson Dr. Sunil Shukla’s, address wherein he shared with alumni the FUTURE DIRECTION FOR EDI PG PROGRAM. The alumni were pepped up by a high charged lecture on ‘SUCCESS MANTRAS for 21st CENTURY’ that was delivered by none other than EDI’s founder and former director Dr. V. G Patel. The Chief Guest for the event, Dr. Urmish Chudgar, MD, INTAS BIOPHARMACEUTICALS made a presentation on ‘HOW SUCCESSFUL PEOPLE BECOME EVEN MORE SUCCESSFUL’. The articulation of his experience was so subtle and clear that it left the audience asking for more. The presentation was followed by a free-wheeling interactive session wherein the guest had to confront many topical issues ranging from ethics to strategy to corporate social responsibility. The effervescence was kept alive by fun filled contests like the ‘SMART ENTREPRENEUR’ wherein the contestants were grilled on a variety of witty and wacky questions. The responses of each contestant left the audience in splits. Later Mr. Munish Patell, Director, Kennsville Golf and Country Club spoke to the audience on ‘Business Networking on Golf course’. It turned out to be quite an exciting session that generated pretty engaging debates. Next was a presentation by EDI alumnus Mr. Vikash Kumar who gave a presentation on ‘MICROFINANCE FOCUS-INDIAS FIRST MICROFINANCE ONLINE MONTHLY MAGAZINE’. Later on the alumni committee interacted with the participants and discussed the objectives of the Alumni Association. The President of EDIAA, Mr. Gaurav Parmar spoke about the benefits of coming together and asked the alumni to become registered members of the EDIAA. The evening encountered a rocking Cultural Show hosted and organized by the 10th batch of EDI PG program. Scintillating dances, skits, mimes and a host of electrifying acts filled the atmosphere with excitement and exuberance. The evening ended with a Gala Dinner where in the alumni had a chance to interact with EDI director and other senior faculty. As if this was not enough the students and alumni interacted with each other around a Bon fire. The starry winter night was made memorable as the alumni shared their hostel days with the current batch of students. All in all, just another day at work for the bubbling entrepreneurs. * PGDBEM now rechristened PGDM-BE , on receiving AICTE approved status. For more log on to www.ediindia.org

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case/INSEAD

Growing Sula Vineyards Rajeev Samant has grown Sula Vineyards into India’s leading high-end domestic wine producer

/Philip Anderson

s the sun set over the ﬁelds of grapes on the last day of 2006, Rajeev Samant sat on the front steps of his winery and pondered what the coming year might bring. In the ten years since his ﬁrst planting, Samant and his team had built Sula Vineyards into India’s leading high-end domestic wine producer. However, India’s wine boom was also drawing in competitors with deep pockets such as Seagram’s and UB Spirits, which were building high-volume wineries in India. Samant was convinced that eventually, India’s strict import restrictions would relax, confronting Sula with another set of aggressive competitors bent on expansion. Not content to remain a niche producer, Samant wanted to scale up Sula’s volume as rapidly as feasible while maintaining its reputation for quality and its image as a “made in India” success story. That would require 28 MARCH 2008

anticipating and overcoming the challenges that fast growth would create. Rajeev Samant was born and brought up in Mumbai in an entrepreneurial family: his father started India’s ﬁrst deep-sea diving company, even though he personally did not swim. Young Rajeev did well in school and went to the US to earn his bachelor’s and master’s degrees at Stanford University. He worked for two years in California as a ﬁnance manager for the software giant Oracle, then decided to quit and head back to India to do something completely different, but he had no idea what that was. He explains: When I was at college, I hung out with people who didn’t have conventional notions of success. They weren’t heading toward I banking or consulting—they wanted to do something cool, different, talked about that would make a differ-

ence to the community. I decided to go home and make a difference in my own country. There is still so much in India that hasn’t been done, though you take it for granted in Europe or the US. We had some land in Nashik and I decided to try my hand at farming mangoes. Two years later, after having tried a bunch of crops with not a lot of success, I asked one day why no one was making wine, since grapes grew so well in Nashik. No one could give me an answer, so I did a little study and decided to go for it. Samant’s family owned 30 acres in Nashik, 180 kilometers north of Mumbai. Only two wineries had been started in India, most recently in 1988. Through a Stanford friend, Samant met Kerry Damskey, an experienced wine maker from the Sonoma valley in northern California, who told Samant

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case/INSEAD it should be possible to make a decent wine from Nashik grapes. Samant worked in a California winery for a few months, taking photos, making drawings, and planning before moving back to India to launch his venture. With Damskey’s advice and assistance, Samant planted his first grapes in 1997. “After polling people, we decided we needed some varieties nobody had here,” he says. “We planted the first Sauvignon Blanc, the first Chenin Blanc, the first Zinfandel, and eventually the first Riesling in India.” However, he recalled, “People In Nashik thought I was crazy; they called me ‘The NRI’ in the papers. I would sit on a chair in a field watching grapes growing when everyone else was in media, banking, dotcoms and consulting.” Samant decided to emphasize the “Indian-ness” of his label, since everything was grown and made by Indian staff using California technology and foreign vine cuttings. He chose “Sula” because it sounded Indian (it was his mother’s name) yet also hip, and would translate well across cultures. He decided to position Sula at the high end of the domestic market, where it would compete with mid-priced foreign brands. Samant explained: We thought if we started pricing low, we couldn’t ascend the price ladder later. We looked at the strategies of Gallo and Mondavi in the US

and decided to go the Mondavi way, positioning ourselves at the high end. We are more expensive than cheap imports but there are more expensive imports. We were much more expensive than any Indian wine had ever been. When the firm began marketing its first bottling in 2000, a Sauvignon Blanc, sales started slowly. “In the first six months, we went door to door persuading people to buy an Indian wine that was more expensive than any other, and we sold just one truckload in Mumbai,” Samant recollects. “It was a real rollercoaster and I had a lot of sleepless nights, but we found a couple of people who were willing to take a risk and thought our wine tasted better than bootlegged French wine.” Once Sula got onto a few good wine lists, sales began to boom. Every wine list in India had French or Californian or Australian wines but not an Indian-made wine, and the patriotic angle helped the brand grow. “We planted to requirements, so we ran out of wine the first few years and couldn’t do anything about it, since it takes 2-3 years for the vines to mature,” Samant commented. By 2006, Sula Vineyards occupied 400 acres in Nashik and nearby Dindori, and produced 1.5 million bottles of wine, up from 1 million the year before. It had constructed a second winery in 2004 and acquired a third in 2006,

bringing total production capacity to 1.75 million liters. 80% of the grapes in Sula’s crush were sourced from other farmers in Nashik under contract. With the industry projected to grow at 25% each of the next three years, farmers in Maharashtra state were switching to wine grapes at an increasing rate. More than 20 new wineries had started production in the state in the past ten years, and many used cuttings from Sula’s ﬁelds. Sula alone commissioned 500 new acres in 2006, though the additional acreage would take two years to come into full production. With sales for 2006 at about $8 million, Sula was the market leader for premium wines priced above 300 rupees/ bottle1. Its Dindori Reserve Shiraz, priced at 600 rupees/bottle, was the most expensive domestically-produced wine, and had been sold out since its introduction in 2005. In addition, Sula produced four other red varietals (Zinfandel, Cabernet Shiraz, Merlot, and Madera Red), three white wines (Sauvignon Blanc, Chenin Blanc, and Madera White), two rosés (Blush Zinfandel and Madera Rosé), a sparkling wine (Sula Brut), and dessert wine. Its winery tours and tastings attracted thousands of visitors, and Nashik was booming as a destination for Indian wine tourists. 1. At the end of 2006, a euro was worth 57.8 Indian rupees, while a US dollar was worth 44 Indian rupees.

We thought if we started pricing low, we couldn’t ascend the price ladder later. We looked at the strategies of Gallo and Mondavi in the US and decided to go the Mondavi way, positioning ourselves at the high end. We are more expensive than cheap imports but there are more expensive imports. We were much more expensive than any Indian wine had ever been. — RAJEEV SAMANT MARCH 2008

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Although the next few years looked bright for the Indian wine sector and for Sula, Samant realized at the beginning of 2007 that Sula’s competitive advantage would be threatened by new entrants and by the eventual dismantling of India’s import barriers, according to agreements the country had reached with the WTO. The company’s culture matched its brand image: both were emotionally rooted in the pride of producing good wines made in India. How durable would this identiﬁcation be if Sula grew; faced sophisticated competitors who were also producing in India; and eventually turned overseas for more growth? Said Samant: I haven’t enunciated my vision to anyone; I haven’t thought about it, nor has anyone really asked me. My goals are to build a great company that makes great wine, is a great place to work, and in the process also helps the earth and the rural community in and around the place where we are situated. We created something beautiful out of nothing and provided an example for so many others by crafting a real success story that showed others they 30 MARCH 2008

case/INSEAD

should be free and bold to take different paths. I feel great that we were the ﬁrst winery in Nashik and there are 25 today. The number of people making a decent livelihood as a result of wine starting up in India is a fantastic thing. When I came, there was nothing in the village next door, which had one motorbike. Now at least one person per family works for Sula and each family has a motorbike. The transformation of the village is incredible. My farmers are so happy to meet me for two minutes and shake my hand, even if they don’t say anything. He continued: We take tremendous pride in the work we do and the wine we produce. The directive I have given is that each bottle that leaves has to be perfect, as simple as that. The market will accept small sediments and tartrates if you give them a bigger discount, but in the beginning if we had such problems, we would pull out all the corks in big batches, pour the wine bottle by bottle into a tank, and reprocess it. For us, there was no question we’d bite the bullet despite the expense. We have come

such a long way since our first year when labels were put on wrong; the wrong boxes were shipped to the wrong place; or the carton didn’t match the wine type. There have been zero goof-ups recently, which is amazing. We believe in what we do. This is not just a product but is a part of us in a way. We want to do things the way the best companies in the world do them. Our aim is to produce the finest wine, give the best service and make sure the community benefits. The way in which Sula has attracted and retained employees reflects Samant’s experiences working in Silicon Valley. He commented: I talk about the fact that we are an extremely exciting company in an industry that showed 30% growth each of the past 3 years and will remain there for 5 years or a decade. We are the leading wine brand in India, and the opportunity for somebody coming on board is tremendous for right person with right motivation doing a good job. You will grow with the company. I’m looking for self-motivated people. We don’t need to monitor what they are up to and what they are doing—they

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case/INSEAD should get it and go for it, and come up with their own ideas about how things should be made better. With the explosive growth of Indian wineries, especially in Nashik, it was important for Samant to emphasize the company’s vision, prospects, and distinctive culture in order to keep together the talent he has assembled. He elaborated: Everyone wants Sula people these days. We are aware of examples where people were offered much sweeter amounts to work for competitors, but unless it is a 60-70% jump, nobody is taking it. We have been raising pay 25-30% per year, but I hope people stay because we give them the freedom to do what they want to do the way they want to do it. I want our people to think, ‘He gives me responsibility and resources, and I feel we are building something great here that I want to be part of for many years.’ Putting people ﬁrst was the core value that Samant tried to communicate to everyone at Sula. He explained: We have a strong, committed team and all our guys have been with us a long time. I treat my guys really well,

like an extended family. They know the decisions I take are about employee well-being, that I am trying to make things better for them. For example, we instituted an employee personal loan program recently. Some of our guys don’t have easy access to bank credit, but they want to buy houses or vehicles, and we put into place a little program to lend them money at the same interest rate we get from the bank. 25 guys took loans in the past few months. In India’s old-style companies, the boss was often an ogre. I have never said an unkind word to an employee, used abusive language, screamed, or gotten angry. As for himself, Samant wanted to stay in the wine business and build Sula into a company he could pass on with pride to a new generation. He mused: I very much want to keep this business in the family. I can’t see myself doing anything but Sula ﬁve years from now. I don’t want to be a manager in a big multinational company. I love this business. Wine people are cool people and this is a fantastic way to live. I don’t want to be as hands-on as I am now, and

I could see myself maybe having a chain of Sula wine bars or acquiring vineyards abroad. I want to spend seven months of the year in India and ﬁve months traveling. Every year I would like to spend a couple of weeks or a month in at least one new place. I want time to do yoga every day and I would like to be married and have kids. I’m 39 and have been in a couple relationships with some cool women recently, but I don’t have enough time and it seems there is always a slight missed connection. Sula was selling all the wine it could bottle, but two factors capped growth in its existing product line. First, there was a shortage in the supply of red grapes in the 2006 vintage (purchased in January and February), and Samant expected shortages in the 2007 and 2008 vintages. Second, there was a lag of several years between adding new acreage and increased production volume, as the vines took time to produce suitable results. Samant therefore decided that in order to grow rapidly, Sula ought to push into the lower-priced domestic market. He explains:

MARCH 2008

DARE.CO.IN We are sold out with Dindori Reserve, which is the most expensive Indian wine today. I’d like to be the first guy to produce a domestic wine at 1000 rupees per bottle. That is where my heart is. However, the first year we sold barely 200 cases of Dindori. It’s hard to do more than that your first years with that quality of grapes, barrels and so on. You can get into a situation where there are more players and import duties have come down if you wait too long. Pure intuition tells me the time is right now for a nice, slightly sweet, semi-sparkling wine at 200 rupees per bottle. That would appeal to a broad segment of the population and take share from spirits and beer. Sula had always made wines from vitis vinifera, the classic wine grape. It planned to introduce in 2007 a lower-end white wine made from Thompson seedless grapes. The new brand, dubbed “Dia,” would have a unique taste thanks to a special additive produced by an Italian company. Samant comments: Thompson seedless grapes are available in vast quantities and are very cheap in Maharashtra state. There is a glut and export prices are sliding, so we would get great clout with growers and politicians. A large percentage of brut sparkling wine comes from Thompson seedless grapes because you don’t want an aromatic grape for a sparkling wine; a neutral, high-acid grape is what you need. I think we could sell a million bottles in the next vintage. If we had the financial resources, I think we could sell five million bottles next year. Although Samant had firmly decided to follow his intuition and introduce a lower-end brand in 2007, he realized that there were risks in this strategy. Buyers of less expensive wines were

case/INSEAD price sensitive. For example, Sula offered a lower-quality Madera wine to use up remaining vats of wine after the ‘premium’ wines had been blended. The net margin was slight, but the volume helped defray fixed costs. When Sula had attempted to raise the price of its Madera in certain districts of Maharashtra, demand dropped precipitously. It would be challenging for Sula to maintain clear differentiation between the premium-priced wines that were the basis of its brand equity and the new line. Having committed to broadening Sula’s product line and focusing on the domestic market, Samant still had to decide how to grow the business. One option would be to continue on the general trajectory he was presently pursuing. Sula could continue contracting for more and more vitis vinifera grapes in Nashik and grow its premium wine sales at a rate in line with the past few years. At the same time, it could produce and sell as much of the Dia line as its capacity permitted. Samant believed that the present strategy was sustainable and would be profitable, but he wondered whether Sula would grow fast enough to sustain its position in the Indian wine industry. Another would be to raise a significant amount of capital in order to scale as fast as possible. Some of the funds could be spent to grow the Dia brand at the maximum feasible rate. Sula could also invest in a major push to acquire new acreage, perhaps outside Nashik, or it could dramatically expand its marketing and branding expenditures. Raising the firm’s spending would be risky and it might be difficult for the firm to sustain the levels of quality Samant demanded, but perhaps aggressive expansion was such a strategic imperative that these risks would be worth taking.

A third approach would be to diversify into complementary sectors while growing the core wine sector organically. Samant did not believe that opening his own chain of stores like Indage would be a good investment, since he anticipated that continued de-regulation of India’s retail sector would create many opportunities to work with different retailers. However, the firm’s sales at the winery in Nashik were growing well, and Samant thought that Sula might, for example, open a chain of wine bars. A fourth approach would be to acquire another winery. Samant doubted that any significant domestic competitor could be purchased at a reasonable price, but if Sula raised more capital, it could buy a foreign producer. Then, Sula could leverage economies of scale and stay large enough to fend off competitors with deep pockets, while down the road it could import high-quality wines yet sustain its image as a “made in India” leader. All but the first path might require a significant capital injection. In October 2005, Samant had sold 33% of Sula’s shares to a private equity investor, GEM India Advisors2, for about $3.5 million in order to fund the third winery. In hindsight, given the run-up in the Mumbai stock exchange and the soaring market capitalization of Indage, he was convinced that the stake was worth much more than GEM had paid. Samant’s family still held 55% of Sula’s shares, and he could seek a fresh round of investment, bring in a partner to form a new joint venture, or take advantage of the bull market to go public. Samant was determined to retain the family voting control of the business, but was willing to go below 50% of the firm’s equity. “I’d prefer 45% of a pie that is twice as big,” he commented. D A R E 2. See http://www.gemny.com/index.html for information about its US parent

In August, 2007, Indivision India Partners, a private equity arm of Future Capital Holdings, purchased a 20% stake in Sula Vineyards for Rs. 50 crore, a 500% increase over the valuation just two years earlier. Sula has successfully expanded its capacity and rolled out the new Dia line and is rapidly expanding its channel presence as it prepares for a future when foreign competitors have much more freedom to enter the Indian market. Samant has decided against opening wine bars or other complementary businesses in favor of investing heavily in marketing as the number of options in India’s retail sector explodes. For example in-store promoters help introduce Sula’s products and ensure that they are associated with an appropriate brand image. Thus far, Samant has resisted buying any foreign producers because the ﬁrm’s growth and margins in India far outpace those available in other countries. He is committed to sustaining Sula Vineyards as a strong independent producer that offers Indian consumers high-quality products made in India and suited to Indian palates.

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Special Interest Group (SIG ) on Internet @ TiE Delhi The internet has truly been the medium for the new wave of entrepreneurship & has lead to the creation of some very successful ventures. The Internet is clearly a key growth area in many industry studies & this represents a huge potential for entrepreneurs to further explore lucrative opportunities in this sector. TiE Delhi has decided to launch the Special Interest Group (SIG) covering the Internet sector with the aim to inspire the next generation of Internet entrepreneurs by creating a cutting edge platform for showcasing ‘next’ practices and focused discussions on emerging issues. The SIG would be the forum of choice for leading entrepreneurs & practitioners in the ﬁeld of Internet who would contribute by way of their knowledge and experience in Internet related ﬁelds as well as take an active interest in impacting the policy framework that exists for the sector. Thus the SIG aims to attract not just thought leaders but also change agents that would help in creating a vibrant Internet community that would work towards improving the overall environment for entrepreneurs. The SiG would represent the common voice of the Internet sector in India. This initiative will be chaired by two TiE Delhi charter members – Sanjeev Bikhchandani and Mahendra Swarup. The exclusive Internet SIG launch event is scheduled for 14th March, 2008. Ram Shriram, founding board member of Google Inc and 24/7 Customer, would inaugurate the SIG. Participation in the forum would be limited to select invitees from the Internet space.

Delhi C-25, 2nd Floor, Sector 8, Noida 201-301 Tel: 0120-4243322, Fax: 0120-4243311 For future updates on the Internet SIG and other TiE Delhi events, please visit www.tienewdelhi.org. If you want to sign up as a member of the TiE Delhi Internet SIG, contact Manish at info@tienewdelhi.org

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opportunity/telecom

Mobile TV opens up Personal Entertainment Mobile TV may be the next frontier, moving the focus of entertainment from the family to the person, opening up new opportunities in this nascent sector. /Sreejiraj Eluvangal

heatre and cinema ruled during the days of the social entertainment. Then came TV, converting audio-visual entertainment from a social experience to a family experience. Now, after nearly half a century of dominance by TV-based living room entertainment, we are on the cusp of the next step -personal entertainment. â&#x20AC;&#x153;When it was introduced, everyone thought mobile TV meant people will watch TV on their phones as they traveled or moved around, but accord-

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opportunity/telecom

For fee-based systems, there are all kinds of possibilities as far as subscriber management and billing are concerned. While activation and deactivation can be done over-the-air, there would still be a need for an SMS-based or other billing mechanism. — SANJIV KAINTH COUNTRY MANAGER INDIA & HEAD - SOUTH ASIA, IRDETO ing to the information shared with us by a Korean operator, 60% of the viewing is taking place in the house,” says Sanjiv Kainth, who heads the South Asia business of Irdeto, one of the top conditional access and subscriber management companies in the world. Iredeto, part of the South Africa-based media giant Naspers Ltd, is one of the many technology solutions providers scouting around for opportunities in what is expected to become the second largest mobile TV market in the world, after China. Irdeto is not alone. Other technology

providers like NDS of Britain, Thomson of France and Nokia don’t tire of talking about the possibilities of live entertainment to the next dimension in entertainment - the mobile phone. The arguments are familiar. At 240 million, there are twice the number of mobile phones in India as there are television sets. In addition, the number is swelling at 8 million per month, the fastest pace in the world and is expected to reach 500 million (50 crore) by 2010. The true magnitude of the number comes across when we compare it to the number of declared subscribers for satellite and cable TV in India - 12 million. Throw in the recommendations by the country’s telecom regulator framing the basic ground rules for the introduction of the service, the sector offers opportunities for both existing telecom and broadcasting players as well as new entrants with deep pockets.

FIRST THE BACKGROUND Mobile TV, in the form of video-on-demand, has been around for years in India. Short clips, usually of one to three minutes duration, are sent (streamed) onto mobile phones over cellular networks. But this form of video consumption, where each user requires a dedicated bandwidth, requires many tens of times of spectrum than is available in India. As a result, even where telecom operators have been courageous enough to offer it, the poor quality of service and the high prices

DARE/network & handset Mobile TV - the Network* 1. Head-end (content formatting) = Rs 4 Cr. 2. Main Transmitter (RF modulation, antenna) = Rs 9-11 Cr. 3. Gap-Filler (multiple low-power repeaters) = Rs 2 Cr * 15 4. Distribution, subscriber management & billing = optional/variable^ Mobile TV - the Handset 1. Increased handset cost = Rs 400 2. Monthly charges = optional/variable^ * Example is based on Delhi, with DVBH/MediaFLO technology ^ Zero, in case of FTA model and varying (according to scale) in fee-based model

have prevented the mass adoption of the service. The Telecom Regulatory Authority of India (TRAI) has in January suggested that players should be allowed to start ‘broadcasting’ video to mobile phones, and not just stream them over data networks. In broadcast mobile TV, a ﬁxed number of TV channels or videos are streamed at all times. Since the streams are not addressed to a particular person, any subscriber in the range can tap into it and watch it. As the same stream is tapped into by many subscribers, it places far lower stress on spectrum resources. For example, while 8 MHz of spectrum in the traditional one-to-one streaming can serve only around 25 to 150 subscribers per cell, depending on the technology; in broadcast, an operator with just 8 MHz of spectrum and just one cell can have thousands, even lakhs of subscribers. Broadcast mobile TV is able to support more subscribers as a cell can be as big as 25 kms in radius and adding extra subscribers within the signal area places no extra burden on the operator or his spectrum requirements, unlike cellular technologies.

SO, WHERE’S THE MAD RUSH? You may be wondering why, if the prospects are so rosy, there aren’t already a dozen companies out there broadcasting for mobiles (and everything with a display and a receiver chip.) The reasons are mainly two - legal and handsets-related. The ﬁrst stumbling block is legal. In India, you need the government’s permission to start any service that involves the propagation of radiowaves, unless you do it a narrow range where there is the risk of interference. Broadcasting services work well at frequencies of less than 1000 million cycles per second (1 GigaHertz or 1000 MegaHertz). For example, FM radio works around the 100 MHz frequency. Sadly, almost all the frequencies under 1,000 MHz is licensed in India. While this prevents interference, it also means that the government has to ﬁrst come out with a policy of allotment of spectrum before private companies MARCH 2008

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opportunity/telecom

India may be a market where the free-to-air model works really well. Otherwise we may see a hybrid model. The business model is still very much in the process of being worked out, even the oldest operators are yet to achieve break-even. — PRASHANT GOKARN PARNTER, SPECTRUM VALUE can secure it and start services. This stumbling block is now in the process of being removed, with the government asking the TRAI to suggest a basic framework of rules for such services and the regulator giving its suggestions in January. While restricting only content producers from launching mobile TV, the TRAI recommendations, if accepted as it is, will ensure that only companies who can invest tens of crores of rupees can hope to enter the sector. This is because, according to the framework suggested by TRAI, any company winning the license will have to roll-out its network in at least one big city in the state where it won within 18 months. The regulator has also suggested that, to qualify, the applicant should have a net worth of at least Rs 3 crore. The second stumbling block is the availability of a critical mass of handsets with built-in broadcast reception equipment, the market for the service. As of now, only three or four such models are sold in India and are all priced above Rs 17,000. Though mobiles with such tuners are sold in Korea for as low as $ 200 (Rs 8,000), the Korean vendors, Samsung and LG are yet to introduce such models in India. However, according to Nokia, the added cost of manufacturing a phone DVB-H (one of the broadcasting standards) reception feature is only 7 euros (Rs 400). The world’s biggest mobile-phone manufacturer has also announced its intention to make DVB-H a standard feature on most of its phones in the future, like it has done with FM radio. “Mobile TV is not a critical service like staying in touch over the phone 36 MARCH 2008

is,” points out Prashant Gokarn, partner with the London-based Spectrum Value Partners which provides consultancy services on telecom and related services in India and abroad. Prashant believes that the early success of the mobile TV start-ups will hinge largely on what happens in the handset market. “It would be wrong to infer that since 240 million people are paying for mobilephone services, they will necessarily pay for mobile TV also,” he says. “Handset costs have to come down. The economies of scale achieved in markets like India will drive down the costs and the cost of putting mobile TV on the handset will go down from 10 dollars to 5 dollars easily,” he adds. “However, as of now, all the mobile TV chipsets are going into the high-end phones. Vendors haven’t come out with TV phones for the emerging markets,” he points out.

THE INVESTMENT “There are three elements to a bare mobile TV network,” says Jatinder Duggal, Head - Broadcast, Rohde & Schwarz. “First is the head-end, which processes the raw feed, usually a TV feed, into a format suited for mobiles. Depending on the technology, it can convert it into a DVB-H format or a MediaFLO format or a TDMB format. “Once the content is formatted, it is sent to the transmission network where it is modulated on a radio frequency carrier. This includes the high or medium power transmitters, with broadcast antenna hoisted on a tall tower. The third part are the gap-ﬁllers/repeaters

that strengthen the signal of the main transmitter and enable the reception of mobile TV inside buildings, “Duggal points out. In addition, the repeaters, which are synced with the main transmitter using GPS timing, have to be connected tothe output of the headend of the main signal processing centre through fibre or satellite. According to a survey of the industry officials, the head-end, usually one in each city, will cost around $ 1 million (Rs 4 crore), the transmission network, around $ 2.5 million (Rs 10 crore) and each of the gap-fillers/repeaters, which can be mounted on even cell-phone towers,around 0.25 million (Rs 10 lakhs). “The number and the power of gapfillers will depend on how much indoor penetration you want. One needs to have the network planned before deciding the numbers and power of the transmitters required.If you want a decent enough penetration in a city like Delhi which does not have many high rises, you can do with around 15 of them, but in Mumbai, with its stretch and tall buildings, you will need a substantially higher number if you want in-building coverage,” Duggal adds.

DARE/mobile broadcast TV Subscriber Numbers and Projections Current

- 15-20 million (mainly Korea & Japan)

In-Stat

- 102 million (2010)

Gartner

- 133 million (2010)

Screen Digest - 140 million (2011) ABI Res.

- 462 million (2012)

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opportunity/telecom OTHER EXPENSES, AND THE BUSINESS MODEL Another big question-mark on the sector is lack of set precedents or an accepted business model. The oldest mobile TV service, that of South Korea’s TU Media, is almost three years old and is a paid service. However, in the oldest markets for mobile TV, Korea and Japan, TU Media’s satellite and terrestrial network is an exception as most of the subscribers are with nonpay or free-to-air networks. In Korea, for example, the pay service of TU Media had 24 lakh subscribers against nearly 40 lakh for the free-to-air networks by November last year. But Japan, which started its completely free-to-air or non-pay mobile TV services in March 2006, seems to have overtaken Korea as the world’s largest mobile TV market, with the sales of mobile TV enabled handsets crossing 9 million (90 lakh) months ago. Compared to this, the US and Italy, both of which are pay-TV markets, have only around one million subscribers each. In a free-to-air system, the mobile TV operator gets his revenues from charging carriage fees for the channels he carries, while in a pay-TV system, the operator is paid a subscription fee by the customers. Asia seems to have gone the free-to-air way, the west has clearly followed the subscription model. “India may be a good FTA (free-toair) market,” says Gokarn of Spectrum Value Partners. “Going FTA will also bring down the set-up and running costs of the network,” he points out. Indeed, a big stumbling block for anyone trying to set up a mobile TV business in India is providing the backup solutions for supporting a pay-TV model. “If it’s a subscription-based service, then you need to have an SMSbased billing mechanism,” says Kainth of Irdeto. Kainth points to a variety of solutions, including the scratch-card mechanism used by telecom and DTH operators. “If the coupon-based system can be put in place, then we can authorize or deauthorize connections over the air,” he says, pointing out that actual physical contact with the subscribers’ phones may not be necessary.

The fee-based model gives an advantage to telecom and DTH operators due to their coupon-distribution and billing networks, while a completely new player will have to invest in setting up new billing and distribution networks. Even if a new player decides to go for completely free mobile TV service by charging broadcasters for being on the platform, it may restrict his choice of content. One big worry is how a completely FTA platform can work in a market where most of the popular programmes are on pay-TV. However, it is yet to be proved that a purely carriage-fee based model, where the only real source of revenue is advertising, a part of which is then passed on to the mobile TV, actually works. However, with as many as one crore mobile subscribers in Delhi and Mumbai, even a small carriage-fee per mobile-TV customer may help the operator make proﬁts, even if only a fraction of the audience tunes in. Another reason for optimism is that an increasing subscriber-base does not impact the capital or running cost of a free-to-air network, unlike a fee-based service. “India is an extremely price-sensitive market,” says the Industry Manager for ICT at Frost & Sullivan, Saurabh Kaushal, who believes that a hybrid model, where some of the content is subscription-based and others free-toair is likely to work well in India. “So, the operator should also be able to offer me a channel, for example a sports channel during the cricket season, for 20 or 40

DARE/trai recommendations 1. Separate license for each state/metro 2. Multiple players per circle 3. Spectrum for offering 15-25 channels per player 4. 10-year license, alloted after single-stage bidding 5. Applicants must have net worth of Rs 3 Cr. 6. 74% foreign investment allowed 7. License fee at 4% of revenue 8. Should cover at least one city within 18 months

If it’s a fee-based model, one will need to invest in a transmission network and a recharging or billing mechanism. If it’s a free-toair model, the transmission network is the big cost. — JATINDER DUGGAL HEAD-BROADCAST ROHDE & SCHWARZ INDIA rupees, instead of asking me to buy an entire bundle of 20 channels and pay for all of them,” he points out. Meanwhile, market research ﬁrms are predicting big numbers for the future, though currently there are only around 20 million subscribers globally. According to broadcast industry tracker, London-based Screen Digest, the number of mobile broadcast TV subscribers worldwide will hit 140 million by 2011, generating revenues of Euro 4.4 billion (Rs 25,500 crore). Another report by the London’s ABI Research last month puts the number of mobile TV subscribers at 462 million by 2012, with Asia accounting for the lion’s share with 260 million. The report expects China and India, currently untapped, to emerge as big markets along with the existing markets of DAR E Japan and Korea. MARCH 2008

DARE.CO.IN ow did dance happen to you? When you started off, what was the biggest act of faith you received? Who or what did it come from?

If only you dare to dream, a billion possibilities open up to you. I have learnt that you cannot depend on anyone else for your happiness. Every successful venture in my life began with the support of my parents and the love of my spiritual mother, Khorshed Bhavnagri. When I was younger, I lived in a dream world of music and singing. My dream was to record a music album and act in films, like my grandmother, ‘Nadia Hunterwali’. It was on Khorshed aunty’s persuasion that I began to teach dance. When she told me to start dance classes, I cried, “oh God! I don’t want to be a dance teacher.” She just smiled and asked, “Why not?” I found that dance came to me naturally, like flying comes to baby birds. It’s their nature to fly. So it is with me and dance. Every day my experiences tell me that dance is my pathway to God, because it’s all about your soul. It’s about taking what you feel inside and baring it to the world. You have to follow your heart. So I followed where it led

entrepreneur of the month me—to the Pineapple Dance Studios in London, the Guildford School of Acting and Dance, to New York… but my journey really began when I returned to Mumbai in the ‘80s, after training as a dancer.

When did you decide to institutionalize this? Did you try to ﬁnd out the potential of it as a business before you actually set it up? In 1985 I started jazz classes with only seven students, most of them my friends. Four years later we formed the Shiamak Davar Dance Company, and in 1992 came Shiamak Davar’s Institute for the Performing Arts (SDIPA). Back in the ‘80s, there was just one ballet school and you would see one musical every three or four years. You didn’t hear of the great success of anyone teaching Western dance styles in India. Everyone I spoke to tried to dissuade me from starting classes and even from dancing myself. So the ‘potential’ of the ‘business’ as others kept telling me, was non-existent. I was just doing something I believed in, building from ground zero, with only my friends, family and God backing me. Meeting Khorshed Bhavnagri helped me renew my belief in myself, and gave me the strength to make a beginning.

What were the difficulties that you faced in rolling out the institutes? What are the difficulties that performers with a desire to open such institutions, would face today? The biggest challenge was to fight society and what they thought of me. I was hurt when people laughed at my dreams. I never thought my kind of dance would work in India. People 38 MARCH 2008

/bio

SHIAMAK DAVAR

SHIAMAK DAVAR INSTITUTE FOR THE PERFORMING ARTS People told me that dancing is not for men, that the girls who came to my class would have bad reputations, and no one would marry them. They said that I was taking a big risk…

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DARE.CO.IN

MARCH 2008

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/bio

told me that dancing is not for men, that the girls who came to my class would have bad reputations, and no one would marry them. They said that I was taking a big risk… there was a lot of opposition, because till then no man had taken that stand to say, I am a passionate dancer and I want to teach others. The idea seemed ridiculous to them. Today, the difficulties are not in terms of acceptance, financials or marketing, because there is plenty of that available. The challenge is to maintain a level of interest, instruction, fitness, quality and safety for the students. There is a lot of place for growth and dance is finally gaining its due all over. I feel sad when half-baked teachers set up dance schools and impart knowledge that is incorrect or incomplete. If making money is your only motive, that is going to show through in the long run, and you will lose the faith of your students.

You are a great dancer, a great performer – with an essence that people want to learn. How do you ensure that the essence is passed on to every student across all the

Most of my students came to me by word-of-mouth publicity and recommendations. Later we began to put an ad in the paper, to announce that classes were about to start, so that people would not miss out joining a new batch. If your service or product does not appeal to your customer, in my case, my students and the clients who hired my dance company and me to perform at their events, that is the end of you. No amount of connections or marketing will see you through that. So let your work speak for you. That is your best marketing tool.

How much time and effort do you actually spend on looking at the business affairs, as compared to the time and effort spent in dance, choreography, et al? Although I am involved in most major decisions, I delegate tasks to my trustworthy managers, staff and instructors. My CEO, Glen D’mello, keeps everything working like a welloiled machine at the business end, but yes, I am involved in all aspects of the business. To me there is no real distinction between the business and the artistic side. But the large

MANTRA/IT DOESN’T MATTER WHO YOU ARE, HOW MUCH

MONEY YOU MAKE, WHAT KIND OF SHAPE YOU ARE IN, WHETHER YOUR FRIENDS ARE DOING IT OR NOT. JUST SWITCH ON THE MUSIC AND LET GOD GUIDE YOUR FEET. HAVE FEET. WILL DANCE. branches of the institution; especially, when you can’t possibly be there conducting classes at all the places? My SDIPA family is dedicated in their training and wholehearted in their contribution to the school. My loyal faculty of instructors passes on all that they learn from me, to their students. We share a common vision, which is to heal through dance. Dance can help you mend a battered body, mind or spirit. My instructors and even my advanced students understand that our mission is to spread joy through the self-awareness and self-expression that dance empowers you with.

What have been the key elements for successfully rolling out such an institution and keep progressing across time? Well, the ﬁrst element is that you must have something of true value to offer others. The second is that your offer must deliver a consistent level of quality. The third element is that you must have systems in place so that your work is organized. Above all, keep your eyes and ears wide open to the people you serve, because they are your partners in success. We all progress together, or not at all. By ‘all’ I mean my administrative staff, my dancers and instructors, my students, their parents, my ofﬁce boys, my driver.

How important was it to have connections in the entertainment industry to pull this off? How did you go about marketing this business? 40 MARCH 2008

chunk of my time is taken up by my spiritual work, creating a new body of creative work, and my students. I share a great rapport with my staff, they are my extended family. As far as the creative aspect goes, I like to design and direct every feature and facet of an entertainment piece, right from the lighting, the sets, the costumes and props... the entire look of the production, besides the dance and movement.

What would you say was your biggest success? Also, what was the biggest mistake from which you learnt the most? There have been many magical moments through the years. I have had the good fortune to sing with my idol, Sting; to perform for my guru, the person I take inspiration from as a dancer, the amazing choreographer Debbie Allen. I have been complimented by former American President Bill Clinton and Hollywood actors Richard Gere and Michael Douglas, among others. My dance company has had the opportunity to represent India at international events on many occasions, and that is an honour. These are cherished moments. I guess my greatest success is my school, SDIPA, because it is a way for me to touch people’s lives in a positive way. We do cherish the kids of my Victory Arts Foundation (VAF). These gifted kids are underprivileged, some of them are physically or mentally challenged. Those of the Helen Keller Foundation are visually challenged, many of them also cannot hear. But come and watch them dance, and you cannot help but smile. That to me is the peak of success.

/bio

There is no one mistake that you learn from. What is important is your attitude to failure. If you can take a negative incident and turn it into something positive, you have succeeded. That is something that my spiritual mother Khorshed Bhavnagiri taught me. I guess my mistake was to doubt myself and let others’ ridicule and laughter bother me when I was young. I still have many fears, but today I can overcome them with prayer and positive thought, because of my spiritual guides

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What is the next big change that one can expect in the dance and performing arts segment? Hopefully, we will see more people acknowledging that technique is important in dance. God is indeed, in the details, and when you are dancing, as in any other sport or physical activity, it is very important to do things right, to excel and avoid injury. Dance connects yours sole to your soul. Last year, we made an effort to revive dance theatre in Mumbai. Dance theatre is the art of storytelling through dance. My students performed the Ramayana, my favourite Indian epic, in my Indo Jazz style. We also staged a spectacular musical called ‘I Believe’, produced by the Aditya Birla Group. I hope more corporates and individuals get involved with theatre. I also produced a play written by my friend Anosh Irani, called ‘Bombay Black’. You can expect more theatre from us in 2008, and I am hoping others will follow suit, because these days, most people only want to watch ﬁlms. I also think that there will be more television shows about dance and performing arts, like Jhalak Dikhla Ja. This is good news, because it’s important to give others the conﬁdence to dance. Many people don’t dance because they think they won’t be able to, or that they will falter and someone will laugh at them. I would like to share with them our motto at SDIPA. It doesn’t matter who you are, how much money you make, what kind of shape you are in, whether your friends are doing it or not. Just switch on the music and let God guide DAR E your feet. Have Feet. Will Dance. MARCH 2008

DARE.CO.IN

funding/strategy

My Dream Team DARE talks to VCs and Angels to ﬁnd out what kind of entrepreneurs make them say yes /Sreejiraj Eluvangal

sk any seasoned investor, whether angel, VC or PE, they will all tell you how important the team is. Unlike the outsider’s impression of risk investors as people always on the look-out for the next big idea, a large part of investing is about the plain old business of assessing people. While some investors put the team or the person on par with the idea or the concept, most put it over everything else. As Bharati Jacob, the Bangalore-based early-stage investor and one of the few women in the business puts it, “Out of our top ten considerations before investing in a company, the top seven are team, team, team....,” “One of the truths of venture investing is our total reliance on the management team,” says Dan Sandhu, a UK-born rocker turned radio station owner turned BPO-entrepreneur turned angel investor. “Every other 42

MARCH 2008

part of the business can be disposed off later on if you don’t like it, but the team you have invested in stays with you,” he points out, rather matter-offactly. “A bad management team can make a good business do very badly, but a good management team can take an average business and make it a star”. So what is this elusive being called the ‘team’? What do investors look for in the people they invest in? What are those magical ingredients that make them say ‘yes’, and what makes their eyebrows go up? DARE brings you a sneak peek into the thoughts that occupy the brains on the other side of the table.

Conviction, Commitment and Communication The ﬁrst, and perhaps the most common thing, that investors look for in a team is passion and commitment to-

wards the idea. Of course, along with having the passion, the entrepreneur must also be able to communicate it, inspire his team and get the best out of them, feel many. “Passion is the most important factor for me. If you are not insane about what you want to do, you can’t make it,” says Rajan Anandan, who, besides being Dell’s India manager, also invests in start-ups in India and the US. Mahesh Murthy, the Mumbai-based early-stage investor associated with Seedfund, couldn’t agree more. “If I was forced to choose, I will always bet on a very passionate person than a very knowledgeable one. If someone is passionate, he will also be conﬁdent. Too often I ﬁnd people too ready to give up and agree with me. If both of us agree on everything, one of us is redundant,” he rues. But passionate about what—money, fame? “A very good entrepreneur

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funding/strategy has a desire to create something out of nothing,” says Bharati, “When you start off, there’s no organization, no employees. It is the need to create and share something where there was nothing that motivated the great entrepreneurs”. Of course, it is not enough to be just passionate. Our investors want more that just passion—you should also be able to convey it. “You should be able to sell your dreams, your desires and your thoughts to every stake-holder, so that they buy into it. From the first employee that you hire, to the first investor you take on, to the first supplier you talk to and the first customer you get, you are constantly selling yourself and your vision. While it is not enough to just have passion, no matter how good a communicator you are, you cannot communicate what you don’t have,” he points out.

Perseverance, Hard Work & Mental Toughness Closely related to passion, our investors believe, is perseverance and

Passion is the most important factor for me. If you are not insane about what you want to do, you can’t make it. — RAJAN ANANDAN VICE PRESIDENT & GM DELL INDIA

the ability to work hard and make sacrifices. Many investors take great pains to ensure that the person they are backing has “real staying power” and will not desert them and the company when the going gets tough, almost an inevitability in the life of every start-up. Alok Mittal, founder of jobsahead. com (acquired by monster.com in 2004) and now with Gurgaon-based Canaan Partners emphasizes the need to distinguish between those who are excited by the short-term opportunity and those who stick around for the whole ride. “There may be a short team opportunity that people want to exploit, but that doesn’t mean that they will stick around. It is important to see how the person or group has performed through adversity in the past,” he points out. Kanwaljit Singh, the 20-year veteran of India’s top private sector companies and partner with early and midstage investor Helion Venture Partners has his own ideas about how to spot the ‘serious’ entrepreneur. “Is he the type who thinks of a car, a driver and a secretary when you mention the term CEO? The only reliable way is to judge whether someone has perseverance is to look at his or her personal or professional life. Has he or she faced adversities in his or her personal life? If so, how did they react?” Mahesh too shares his tips on finding the ones that don’t give up easily. “One of the guys who applied to us said that he had driven all the way from Dharvad to Hubli naked on a bike to win a bet, when he was in college. In such cases, you at least don’t have to worry about the guy deserting you when the going gets tough,” he exclaims. Another tip of his is to watch out of confidence. “A good sense of humor indicates strong self confidence and it denotes intelligence. Only those who are able to maintain their cheerfulness under pressure are the ones who can be a good leader. In reality, building companies is a lot of fun, and we need people who can appreciate that,” he explains. Venkatesh Rajendran, owner of Billionways and serial entrepreneur ex-

A bad management team can make a good business do very badly, but a good management team can take an average business and make it a star. — DAN SANDHU ANGEL INVESTOR plains how he gets a feel for the metal. “In a new venture, everything that can go wrong will go wrong. I have also come across people who said, ‘I have a house that I purchased on loan when I was in my last job.’ or ‘I have a wife and children and of course, I cannot spend all my time in the ofﬁce.’ To such people, my reply has always been, ‘don’t even think of it.’ To be an entrepreneur you need a blind, fanatic belief—a spirit that never gives up.”

Humility, Intellectual Flexibility & the Ability to Scale After passion and the willingness to go the extra mile, the third most desired characteristic is ﬂexibility—a willingness to learn and accept other people’s suggestions. Investors in general are afraid of non-cooperative entrepreneurs, as it may stymie company’s expansion after the initial start-up stage. “Early on, I did get into an unattractive situation precisely because of this reason,” Alok Mittal remembers. MARCH 2008

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The ﬁrst point that we look at, when evaluating a team is ‘can this team do a large-scale business? — KANWALJIT SINGH HELION VENTURE PARTNERS “There were two investments that I made, assuming that if and when the time came for the companies to get professional CEOs, we could do it. But we faced challenges because the founders were not very receptive to the idea,” he remembers. As can be expected, investors dread the concept of entrepreneurs who are full of themselves and see lack of humility and openness as a big drawback. “If you visit the person at his workplace, see how he behaves towards his juniors. See if someone opens his door for him or how he talks to his driver,” tips Kanwaljit. “Of course, at the end of it, there’s nothing wrong with funding someone like that, but at least you know what to expect,” he points out. Investors see humility as an essential quality that determines an entrepreneur’s evolution, his ability to learn from his mistakes and the valuable advice that the investors, usually veterans, have to offer. “As investors, we don’t expect you to have all the skills. However, in return, you should have an open mind towards feedback. If it’s a team that thinks it’s a good idea 44

MARCH 2008

funding/strategy because it’s theirs, that’s dangerous,” Alok points out. A common refrain was an entrepreneur or team’s willingness to accept help when needed—not as common a quality as it seems, they say. “Early in my investing career, I backed a venture that I truly believed was a world-beating one,” remembers Dan. “I did not pay enough attention to the entrepreneur and I had to paid the price. The person I funded just could not execute,” he says. “Five people managing a team of 100 is one thing, but the same group managing a 200-store network is very different. I don’t care about the profits they bring in the initial years, but can they put in the processes that make them tough? Do they have alternatives to deal with loss of suppliers, are they able to negotiate multiple contracts and is their technological infrastructure ready for a rapid expansion?” he adds. Kanwaljit proves the point with an example. “The first point that we look at, when evaluating a team is ‘can this team do a large-scale business?,” says Kanwal, “If they prove not to have the ability to ramp up and scale very fast, do they have the flexibility of bringing in the talent from outside? If it’s a firsttime entrepreneur, you need to make sure that he can build a team around him. For example, we have funded a company called Ji-Grahak, started by a young entrepreneur three years after he passed out of college. He didn’t have any managerial experience, but he understands the space and we were very impressed with his passion and we felt he was flexible. Since then, we have brought in experts from the industry, from Reliance, American Express etc and he still able to lead the team well”. Mahesh points out that flexibility and humility are far from just ‘desirable virtues’ for an entrepreneur, but lies at the core of his ability to adapt and ultimately, win. “Success here is not about solving academic problems. Your education makes little difference. That is why ‘jugadoos’ always beat the academics. One group came to us with an 11 year business plan, and we threw it out of the window. If you want

to plan out your life for the next eleven years, entrepreneurship is not for you,” he explains.

Personal Integrity and Willingness to Share While so far we have discussed qualities that had an obvious and direct ‘utility value’ in achieving success, many investors surprisingly put a lot of emphasis on two old fashioned virtues—sharing and honesty. Indeed, while many investors were willing to go without one or two of the other qualities, honesty and the willingness to share the fruits of the success were considered ‘deal breakers’ by nearly all of the investors. “Even if everything else is there, if there is even the slightest sign of any lack of integrity, we will immediately drop the deal,” says Kanwaljit. “If the old way of doing business was ‘I win at everyone else’s cost,’ the new way is ‘everybody wins’,” says Venkatesh of Billionways, “If you want to build a long-lasting company, you have to build your wealth in a clean way, in which not only you, but the investor, your suppliers, your customers and your employees, all win.” Just integrity and honesty is not enough, however. A willingness to share the fruits is also a pre-requisite, especially for investors who consider themselves as partners who took the risk initially. “A good way to gauge someone’s approach to sharing is to see how the ownership is distributed at the senior level. We met a guy who owned 95% of the business and he said ‘Oh, I want to get a CEO. I will give him 1% of the equity,” says Kanwaljit. “His mindset was that he wanted to hold on to as much equity as possible”. “In any business we would like to see a stock-option plan. If someone says we don’t need one, then the warning signal goes up,” he echoes a widely shared sentiment. “Of course, if someone, after reading this thinks, ‘ok, these are the ﬁve things to tell a VC, we can easily get a feel of whether you actually feel what you are saying. Most of us have at least 20 years of experience in business,” he warns with a smile. D A R E

DARE.CO.IN

FEBRUARY 2008

/bio

DARE.CO.IN

funding/valuation

Guide to Valuation Whether you are an established company or a startup, valuation is an important tool that provides you the power to negotiate /Arunjana Das

ou can probably find the very first example of a valuation exercise done in human history in Genesis-I (The Bible). Adam and Eve, the first humans, were subjected to extraneous market forces in the form of Satan, to which they succumbed. The forbidden apple turned out to be one of the parameters on which the divine valuation process was conducted. The result? Adam & Eve Co.’s perceived value deteriorated, and in the absence of any valuation-enhancement mechanisms in place, they got thrown down from the Garden of Eden. Extrapolate to the 21st century. Yahoo, with its declining stock prices and Microsoft’s unsolicited overtures, has been marked with $44.6 billion, a valuation that is lower than what it believes it deserves. Its self-conducted valuation puts it at something around $56 billion, an amount that Microsoft is loathe to pay. Analysts claim that $56 billion is crazy valuation even for a company like Yahoo, given its current downswing in stock prices and the bleak economic 46 MARCH 2008

outlook for 2008. So what does Yahoo do? It uses tools that Adam & Eve Co. never possessed; tools that increase its valuation and help it justify the $56 billion that it puts itself at. Yahoo is just one of the many millions of corporations that ﬁnd themselves in the eye of the valuation storm every now and then; and it’s not just in the context of a possible merger or acquisition. Valuation is the evaluation of a company’s total market worth, and is required in many contexts ranging from M&A transactions, investment analysis and capital budgeting to ﬁnancial reporting, book-keeping, and determination of tax liabilities. In the present context, your valuation is an important weapon that

DARE/what is valuation? It is the process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective. SOURCE: Investopedia

DARE/when and why? • For acquiring investments or loans • Acquisition/disposal of business • Deciding equity at the time of foreign collaboration • Value for regulatory purposes • Dispute resolution • Purchase price allocations in the new regulatory environment • Value benchmarking and strategic business planning. provides you the power to negotiate. The negotiation can take the form of a wrangling-out of better terms in a possible strategic partnership to a better stock price in a money-making transaction with a potential buyer.

Valuation Process: an Art and a Science Valuation is a ﬂuid concept. The value of your company is a variable quantity that depends on many factors, such as

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funding/valuation the general economic outlook of the market and the specific sector; the objective of valuation; the nature, history and financial condition of your business; your earning and dividend paying capacity; management and strategy, market share and strategic positioning, risk/reward aspects, level of gearing (debt), etc. Corresponding to the changes brought about in any of these factors, your valuation is likely to change. Virtually anything can be valued, ranging from tangible assets such as real estate, hardware or market instruments such as stock, options or bonds to intangible assets such as brand name, customer relations, product quality, intellectual property rights, and even goodwill. Anything that has capability of generating capital can be valued. The key to doing an efficient valuation is to identify the moneymaking elements of your company and get them valued. The valuation process primarily measures three fundamental elements of your business—growth rate, cashflow capacity and risk profile. It is a process that started off traditionally with a mere evaluation of the financial ratios of the valuee company visà-vis the standard industry-specific ratios. The P/E ratio (price/ earning ratio) was every valuer’s darling baby, in the sense that it was not only easy to calculate but intuitively appealing, and hence, widely used. Although the darling baby still remains, the scene has become more holistic in nature with the inclusion of several qualitative aspects in addition to the quantitative ones. The process now is, hence, part-objective and part-subjective. Objectivity is brought in by the necessity of adopting a correct valuation methodology and calculating the corresponding ratios, whereas subjectivity creeps in because of the existence of such factors in your business which are intangible but are productive anyway, that is, your intangible assets. Part of the subjectivity is also brought in by the valuer. There is no standard way of evaluating intangible assets, which is why it requires a valuer’s better judgment to value the same. Valu-

DARE/begins Factors affecting your valuation Nature, history and ﬁnancial condition of your business; your earning and dividend paying capacity; management and strategy, market share and strategic positioning, risk/reward aspects, and level of gearing (debt) ation is, hence, as much of an art as a science.

Methodologies The first thing that a valuer does is to define the valuation engagement, that is, determination of the valuation objective and the circumstances surrounding the same, known in financial argot as the business value standard and the premise of value, respectively. This is a crucial step in the sense that depending on this, the subsequent processes are conducted. The valuation process is different for public and private companies. For public compa-

Valuation is a typical Negotiation exercise between the Target and the Investor and is taken up from two directions based on whether its an acquisition or an Investment. — JAYANT TEWARI OUTSOURCED CFO

nies, most of the market information is already available, whereas for a private company, a valuer goes through exhaustive data gathering and assimilation to make sense out of the chaos. A thorough analysis of the historical financial condition of the company is made by analyzing its financial statements such as the income statement, balance sheet and cash flow statement. For privately-held companies, normalization of the financial statements is done, which helps the valuer compare the business with the industry and identify trends. Normalization is done with respect to accounting principles, non-recurring transactions, non-operating assets or liabilities, etc. An appropriate valuation methodology is chosen to determine the fair market value (FMV), technically defined as the value of a business put on the table between a willing buyer and seller when neither of them is under any compulsion to buy or sell, respectively. The FMV is, in spirit, the bare frame of the valuation process to which flesh and blood is added in the form of parameters representing the actual market conditions, and other extraneous factors such as various strategic or synergistic influences the seller might be under. There are usually three approaches to determining the FMV: earningsbased, asset-based and market-based, each comprising more than one methodology. For the earnings-based or income approach, the most popular methodology used by valuers in India is the discounted cash flow analysis (DCF). This method is an interpolation procedure that gives a present value to the expected returns from your company. To arrive at a present value of your assets, DCF employs one of the two procedures—equity valuation and firm valuation. The parameters used are your projected cash flows over a period of time, say five years; a discount rate, representing the risk of the cash flows and the period over which the cash flows are projected. In case of equity valuation, the discount rate is the cost of equity (CoE), that is, cost of raising equity investments. For determining MARCH 2008

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funding/valuation

How important is valuation for a startup? Valuation is not critical for a startup in the normal course. It becomes important only if there are one or both of the following • Partners, ie, more than one person is promoting the business. In this case it is important to agree on the shareholding percentage of each of the promoters for the venture and how much (if any) is kept aside for ESOPs and other investors. It is important to have clarity on this subject to avoid disputes later as also on dilution and Harish H V exits among the promoters. Valuation is not Grant Thornton, India critical for this but it helps if all the promoters understand the present and potential valuation and the drivers for the same so that they can agree on the relative values each is bringing to the business and hence the stake of each of the partners relative to each other as well as focus on building the valuation. • The second instance where valuation is important for a startup is when raising venture capital to determine the valuation and the percentage stake for the investor. How is the qualitative analysis for business valuation done? It is important to understand the business, the potential, the competition and the promoter team before valuing a business and the judgmental factors based on these are used to derive the business plan in terms of growth in sales, profitability, etc. These qualitative factors affect the ability of the business to grow and achieve the cost and revenue targets. How strictly is the quantitative analysis done in practice? The most typical method of valuation is the Discounted Cash Flow method, which is to discount the forecasted cash-flows of the business in the future based on the business plan. In addition, the most common method is metrics, where based on the business one looks at comparative companies and forecast the value of the business using the metrics. I have developed a method called the PATG (Propogative Adaptive Technology Growth) model, which is useful for businesses like those based on mobile and Internet, where the rate of growth could be phenomenal but at the same time there are risks involved in the business in terms of its ability to succeed or fail. In this model, which is based on rapidly growing businesses like mobile phones, Facebook, Google, etc are understood in terms of the valuation metrics over a period of time and applied to the startup (if it can show similar potential) to show potential investors the huge valuation that can be achieved if it succeeds. This also provides a base valuation, which is the value at which initial investors come in. How can valuation be increased? Valuation is typically the function of cash-flows and the risk involved. Any steps to improve the cash-flows and reduce risk would improve valuation. On another dimension, valuation is a function of the promise to potential investors in terms of growth and any demonstration of huge potential growth and the ability of the enterprise to achieve it will benefit the valuation positively. Valuation is also a function of the market dynamics in terms of the need for consolidation. Higher valuations can be achieved in industries that are consolidating, as smaller players become must-have targets for others (eg. Yahoo is getting a substantial premium because Microsoft needs to compete with Google). the cost of equity, either a risk-return model or a dividend-growth model (in case of a public company) is used. The Capital Asset Pricing Model (CAPM), Arbitrage Pricing Model (APM), Multifactor and Proxy models are the popular risk-return models used. All four work on a sum-of-risks frame and yield 48 MARCH 2008

the value of the expected returns from assets, as a function of the risk-free rate (usually rates of return provided by long-term government bonds), the Beta (risk relative to each aspect of the company portfolio) and the market risk premium, with a few other market variables thrown in. The Dividend Growth

Model employs a simple formula for estimating the present value of expected dividends by counting in the present stock value of the company, expected dividends per share in the next year, cost of equity and the steady growth rate in dividends. For firm valuation, the Weighted Average Cost of Capital (WACC) is used. WACC is the cost of raising capital for a firm, in the form of both equity and debt, each given due weightage as a function of their individual costs. Equity valuation is done in companies which have stable leverage (debt-level) or are public since equity information for public companies is more readily available allowing an easy valuation of the equity. Firm valuation is done in cases of high leverage levels and companies where only partial information on leverage is available. The asset-based approach is more objective than the earnings-based one, since it involves the estimation of the net book value of the company based on the book value of all its assets. It acts on the simple assumption that the value of a business is the sum of the values of all its assets. The net book value is the original book value (historic cost carried on the books of an account) minus the accumulated depreciation and amortization. This approach, however, usually yields a lower value than the FMV since it doesn’t take into account any intangible assets of the company. The market-based approach relies on relative valuation, and employs, what are known as ‘multiples’ to compare the financial parameters of the valuee company with those involved in a reasonably similar line of business, similar growth and risk profiles. The underlying concept is that in a free and fair market, all prices are driven by demand-and-supply forces and that companies with comparable assets, risks and lines of business should be similarly valued. The asset values are standardized using common variables such as earnings, cash flow, book value, revenues, etc. The corresponding multiples are: earnings-based multiples: viz, the much favored price-to-earn-

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funding/valuation

Everything that affects cash ﬂows, risk and growth will affect value. — PROFESSOR ASWATH DAMODARAN, STERN SCHOOL OF BUSINESS, NYU ings ratio (P/E), value/EBIT (Earnings Before Interest and Tax), value/EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization); book value multiples: price/book value of equity, value/book value of assets, value/replacement cost; revenue multiples: price/sales per share, value/sales. Private companies valued on the market-based approach usually end up getting lower valuations than public companies, since the equity in private companies is less liquid owing to a lack of free exchange of stock. Counting this factor in, hence, provides a lower FMV than a similar public company.

Valuing the Intangibles How do you value an Apple (the company, not the fruit that did Adam & Eve Co. in)? The story clearly doesn’t end at the equations, given the amount of dough it earns from its brand, goodwill, innovative product design, market sentiment and customer satisfaction—all intangible assets. This brings in a substantial amount of subjectivity in the valuation analysis. Traditionally the valuation of such intangible assets was considered to be a tad difﬁcult owing to their perceived inconvertibility to ﬁnancially sound terms. In the present day, however, even such qualitative

factors have been quantified and analyzed for value, employing techniques such as Decision Theory, Choice Modeling, behavioral and information economics, etc. These techniques seek to understand the individual decisionmaking process depending on social and emotional biases and how market trends are affected by the same. A new technique known as the Applied Information Economics, first used in 1995, seeks to refine the older ones further by bringing in probabilistic theories. “You can conduct a qualitative analysis by linking the numbers in the valuation to the qualitative factors,” says Professor Aswath Damodaran of Stern School of Business, New York University. However quantifiable the qualitative aspects are, though, it depends on the valuers to decide the extent to which they choose to use them. Hence, in practice, the techniques mentioned above may not be strictly followed. Most of the time a comparable analysis of sales of a firm like Apple with a firm XYZ with similar tangible assets and risk profiles would be done, the difference being levered by the superior brand name, goodwill, customer relations and other intangibles of Apple. Now, if you were to value the forbidden apple, the very fact that it is forbidden would increase its general desirability and hence increase its valuation in the eye of the general public, as it did in the case of Eve! Add to it the fact that it came from the Tree of Knowledge, an asset that in itself is rated quite high. Hence, the forbidden apple would be any day valued higher than its regular counterparts!

Extraneous circumstances that may affect your value There are several circumstances that may affect your perceived value. On a general note, turmoil in the market, low investor morale or ﬁnancial catastrophes in your line of business could affect you adversely. In case you are a business owner who is selling in distress, you will be given a salvage value or distress value, which would be much lower than the true value of your

assets in the market. If you are a company with volatile earnings and are merging with another company with equally volatile earnings, depending on whether the expected resultant earnings of the merged entity generates earnings more or less volatile than the single entities, you could get a lesser or higher valuation. In mergers or acquisitions, over and above the individual valuations of the merged entities or the seller, a few other analyses of the parameters of the proposed resultant entity are also done. If company A with annual sales worth, say, $100 million proposes to merge with company B with annual sales worth, say, $ 75, the resultant entity might see annual sales over $300 million. Why? Because of synergy. Synergy is obtained when the merging companies possess assets that are complementary and hence when merged provide even higher revenues than the summation of their individual revenues. This gives the valuee (seller or merging company) quite a few brownie points. Some more of

At the end of the day, an asset–be it tangible or intangible–is as good as the money it brings you, directly or indirectly. — KALPANA JAIN DELOITTE TOUCHE MARCH 2008

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DARE/ Hamilton Lin of the Wall Street Training, a registered service mark of HL Capital Partners, Ltd. Tips for a startup to enhance its value to potential buyers: - depending on the specific industry and nature of the startup’s business, properly decide pros and cons of going to market as soon as possible or not - if it is technology, be it software or hardware, file the required patents and copyrights, depending on who the existing competitors are, you may want to keep it under wraps until you are ready or start generating the buzz in the online community - if you are a storefront-based business, like retail, this is not as relevant - if it is a services-based business, institutionalize the business as much as possible so it is not a lifestyle-based business that requires the owner-operators to physically work; build up the business so it is not reliant on any one given person or persons, but is self-sustaining - it is critical to have that business plan for growth so potential buyers can see that you are following the path you set out, or a path that will always evolve as the business progresses - reach out to potential buyers early on to begin the dialogue if the intent is to sell - the key is to clearly identify the value proposition of the start-up ¬ is the product or service a new product or an enhancement and how big is the market for it? How important is management once the product or service is finalized? ¬ Think about YouTube: new product and huge market and management aren't as important once a larger player with better distribution acquired it. Thus, the startup must create synergy for the acquirer that cannot be achieved by either in a standalone state. Identify the source of the synergy, attempt to quantify it and be rewarded for it the same can be obtained from what is known as the Control Premium, the amount of control that the company selling equity is ready to give to its investors. Still more can be squeezed out from what is known as the Entry Barrier factor. A dominating market player might want to nip its rising competitor in the bud by acquiring it and making the entry barrier even higher. The takeaway of the buyer in such cases would be the synergy that a similar albeit smaller company offers and the killing of competition. 52

MARCH 2008

funding/valuation How to increase your valuation “The single guru-mantra” to increasing valuation is performance, and proﬁtable performance. The success of a business lies in being able to demonstrate its commercial viability at the microcosmic level and then seeking funding to attain scale”, says Jayant Tewari of Outsourced CFO. All experts concur on the point of performance. Since the valuation process fundamentally evaluates three elements of your business, growth-rate, risks and cash-ﬂows, it makes sense to keep them healthy. The basic framework of earning a healthy valuation depends to a great extent on how these fundamental factors are managed. In addition, the marketing strategies of your company contribute a huge piece

A good valuation is one that is equitable to both investors and the founders and in which both have trust that it is so. The investor has to know that poor valuation can be a great de-motivator for the team and an entrepreneur has to know that an excessive valuation based on promised future that has no hope of being realized is going to result in a stressful situation, which may hamper the business. It doesn’t beneﬁt an entrepreneur’s standing for raising money in the future if his business has performed but his investor made no money. — AJAY KUMAR KAPUR, SIDBI

A startup can increase its valuation by increasing its revenue and profits, more importantly with the least amount of capital. Hence, the valuation is higher when there is a more efficient use of capital. — PRAVIN GANDHI SEEDFUND to the valuation pie, for they enhance your brand-equity. On the flip side, big corporates possessing tremendously high valuations may sometimes resort to somewhat underhanded, although perfectly legal, techniques of getting higher valuations or justifying a high self-conducted value. For established companies, getting a high valuation is not very difficult. But what if you are a startup looking for investments? The proven valuation techniques don’t quite apply in case of startups since they do not possess any proven momentum in the form of superb past performance, track record or even a brand name. In such cases, the projected cash flows, capital structure, management attitude and general vision of the company is valued. The key is to be passionate about the company mission and show it with present perDAR E formance and future goals.

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/blogs

Plight of Small Investors The lack of conﬁdence among small investors stems from the fact that the systems that are in place in the country are heavily loaded in favor of FIIs and other large investors /Paranjoy Guha Thakurta

ndia’s stock-markets have been rather volatile of late. While this volatility is to a great extent a consequence of developments that have taken place outside the country, notably the rise in international prices of crude oil and the slowdown in the US economy, the section of people that has suffered the most is small investors. A typical small investor, also known as a retail investor, belongs to the middle class. She or he is not a ‘day trader’ who speculates on sudden movements in share prices in the hope of earning easy and quick profits. A person who chooses to sell shares when stock prices are expected to fall or who buys shares when prices are likely to rise, is not a speculator. Such an investor is a rational human being doing what is normally expected. A speculator, on the other hand, is someone with, say, Rs 100, but strikes a deal to buy shares worth Rs 1,000. In many countries, it is common to find all people, and not just those belonging to the middle class, investing a part of their savings in equity shares, debentures and other financial instruments. In the 1980s, it was observed in Singapore that even a typical cab-driver or a waitress in a restaurant had parked a portion of his/her savings in the stock market. In India, the so-called equity cult started during the 1990s. Reliance Industries Limited, in particular, actively wooed the middle-class – salaried professionals, small businesspersons and traders, and well-off farmers – to subscribe to the company’s shares issue. Many did and were handsomely rewarded. One heard stories of paan-stall owners on Mumbai’s Dalal Street playing the markets. But where is the small investor today? This person has burnt his/her fingers more than once. The first occasion was during the Harshad Mehta scam that was unearthed in 1992. Nine years later, the story was repeated; this time round, the kingpin was Ketan Parekh. Then, there were sundry scandals such as the one involving the ‘disappearance’ of dozens of companies that had floated shares. The short point is that the retail investor has become extremely wary and cynical about entering the stock-market, where greed and fear seem to be the dominant emotions. Unfortunately, many small investors with hard-earned savings have shunned mutual funds, which are universally believed to be the preferred investment route for individuals

as risks are spread and investors do not need to understand specialized financial information. One development that reinforced some of the worst apprehensions of ordinary investors about capital markets was the fate of the Reliance Power initial public offer. If the total offer amount in the IPO is totted up, it adds up to an incredible one-sixth of India’s gross domestic product (GDP). The issue opened when share prices were going through the roof. By the time the shares were listed, the markets had collapsed. The 30-scrip sensitive index of the stock exchange at Mumbai crashed 22 per cent between January 10 and February 11. Subscribers who had borrowed to invest in the IPO were shocked to learn that instead of doubling the value of their investments, they had ended up with losses. Because the issue was heavily oversubscribed and each individual investor obtained only 15 shares, the losses incurred on the first day were limited to Rs 700. Thereafter, the company offered sops in the form of bonus shares and called for an investigation into the actions of a clutch of Mauritius-based foreign institutional investors (FIIs), who had allegedly hammered the stock. But the damage had been done. The absence of confidence among small investors essentially stems from the fact that the systems that are in place in the country at present are heavily loaded in favor of FIIs and other large investors. The Securities and Exchange Board of India (SEBI) defines a small investor as an individual who applies for up to 1,000 equity shares in a public issue without specifying the face value of the share. The minimum percentage of the capital issued that has to be offered to the public has come down steadily over the years, from 60 per cent to 40 per cent, further down to 25 per cent and even 10 per cent in certain cases. Prithvi Haldea of Prime Database believes that SEBI’s “guidelines relating to book-building, reservations and allocations have increasingly favored the large investor”. It is not surprising then that stock-market investments, including investments in mutual funds, account for barely 8 per cent of the total household savings in the country. Moreover, studies on the total number of investors in India show that this proportion has hovered at around only 4 per cent of the country’s total population. Yet the media gives disproportionately high coverage to what is happening in DAR E the capital markets. The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media – print, radio, television, internet and documentary cinema. MARCH 2008

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biz/INSEAD

Learning from setbacks Sometimes, failure forces a person to search in areas he had overlooked or dismissed, ďŹ nding greater opportunities than he would have realized had his original plans succeeded /Philip Anderson and Irawati Gowariker

MARCH 2008

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biz/INSEAD

ith her rich media background, Irawati Gowariker has led strategic communications for the IT arm of HSBC and ANZ in India. Irawati now ‘dares’ to go beyond large multinationals to tell the story of some Indian entrepreneurs. Because India has so many talented people, competition is often fierce, particularly in the educational system. Indian children strive to be the best of the best, and often what separates those at the apex from those barely a rung below is a single mistake, a small error. With so many contestants reaching for excellence, Indians learn from a young age that nothing less than perfection will do in the tournament of life. Although rivalry breeds excellence, it can also produce an unintended side effect: fear of failure. When a tiny slip-up can close the doors of opportunity, people may become excessively conservative. They focus too much on avoiding blunders instead of achieving greatness. Worse yet, they never learn how to recover from failure because they have spent their lives avoiding the experience. Risk-taking and occasional failure are part and parcel of the entrepreneurial life. Entrepreneurs who never fail probably are not acting boldly enough. Sometimes, failure forces a person to search in areas he had overlooked or dismissed, finding greater opportunities than he would have realized had his original plans succeeded. And, as Friedrich Nietzsche famously said, “What does not kill me, makes me stronger.” The lessons of failure can be difficult to learn because most entrepreneurs prefer to talk about their successes. We asked three successful entrepreneurial leaders to talk with us about their brushes with failure in the past and share the insights they have gained. Their message: they and their companies are stronger today than they would have been had their life experience consisted of an unbroken chain of triumphs. For example, consider the career of Suhas Lunkad, the Chairman and Man-

aging Director of Rohan Builders (I) Pvt Ltd, a flagship company of the Rohan Group. Today, this fast-growing construction company has a turnover exceeding Rs. 450 crores and is reckoned amongst India’s top civil contracting companies, with headquarters in Pune and regional offices in Bangalore, Delhi and Dubai.. Lunkad’s strength as an entrepreneurial leader derives not only from the company’s many successes, but from an instructive, unsuccessful attempt to break into a new line of business ten years ago. “In the late 1990’s, after Rohan Builders had completed some very successful construction projects, I was passionate about exploring a new line of business,” Lunkad says. “I wanted to leverage the demand for high-end technology in very large scale integration (VLSI) design to offer chip designing services that would enable us to create miniature devices with a diverse functionality. This excited me enough to want to siphon profits out of Rohan Builders to start my new venture, V3 Logic with a team of highly-trained chip design engineers.” The new venture attracted a team of highly-trained chip design engineers and set up state-of-the-art centres in Bangalore and Pune. However, despite four years of effort, the team was not able to clinch a business deal. It turned to training for software engineers, but only a handful of Bangalore-based companies required such high-end skills, and the dotcom bust further reduced the demand for training in very large-scale integrated circuit (VLSI) design. “Unfortunately, as I didn’t have adequate knowledge of VLSI, I could not guide them on customising our services to become more attractive to prospective customers,” says Lunkad. “We had already sustained losses for four years to the extent of Rs. 3 crores, so I had to decide to pull the brakes and think this through objectively.” Would Lunkad and Rohan Builders have been better off had he never pursued this dream? Perhaps not, as the subsequent success of the company has much to do with the lessons Lunkad learned from its foray into high

technology. “Closing down V3 Logic brought renewed energy into my plans for construction, a core competency for the civil engineer in me,” he explains. “Rohan Builders started to take on profitable construction contracts outside the state of Maharashtra for the first time, in Orissa and in Assam.” Trying something new taught Lunkad what he and his company truly did well and guided the future growth of Rohan Builders. Lunkad comments, “To focus on my core competency was the biggest learning for me, and being a civil engineer, my core strengths are in construction. So after making a mark in real estate, we also saw success in industrial construction and infrastructure projects and successfully expanded. Not only do I know the market better, but I have a clear understanding of the level of customisation and valueaddition required to make a success of my construction projects.” The dotcom bust also tempered Jawahar Bekay, today Chief Strategy Officer at Collabera, Inc., formerly known as GCI, Inc. Between 2002 and 2005 he was CEO of Planetasia, one of Asia’s pioneering Internet Professional Services companies and led it through a near-death experience. “In a short span of time, we reached many milestones in high-end internet professional services and attracted top class talent across industries,” he recalls. “Our ever-increasing customers were dotcom companies around the globe and our service quality underpinned our success in these boom times.” But when the dotcom bust, 9/11 terrorist attacks, and a global recession struck in 2001, he reminisces, “Almost overnight, many of our customers ceased to exist and along with them went large unrecovered revenues of Planetasia.” Crisis brought out the management team’s underlying strength and welded it together. With a staff of around 600, “we had a great brand, a great team and very few customers left and very little money to boot.,” Bekay says. “All that counted were our combined skills.” The team had to cut the venture’s burn rate dramatically, and the only solution was to shed valued employees. MARCH 2008

DARE.CO.IN It also had to look for new customers that were not dotcoms, then build additional capabilities to serve these new clients. “It took us two plus years to tide over these turbulent times but we came out tops,” Bekay states. “The efforts we had invested in strengthening our stakeholder relations came to play through these challenging times. We were able to piggy-back on the core values that Planetasia stood for. It’s a testimony to our reputation and relationships that there we stayed clear of acrimony of any kind with all our stakeholders. Venture capitalists, banks and investors demonstrated conviction in us and put our down phase to the

biz/INSEAD technology meltdown rather than any mismanagement.” Learning that might have taken 57 years was compressed into a much shorter time frame because the firm had no choice. In the firm’s halcyon days, says Bekay, “Our growth trajectory had us sometimes turning back clients because we were saturated with orders from the internet players.” Because of the dotcom bust, the firm had to explore new markets and form new strategies in short order. “We would have added new market segments and capabilities eventually but the recession only propelled us towards this evolution in a short time frame,” he notes.

For Shekhar Pimplekhare, Managing Partner of Club Oasis in Pune, failure uncovered previously overlooked growth opportunities. A former chief ofﬁcer on a ship, he joined his father, also a seafarer, in entering the hospitality industry in 2001. Pimplekhare senior had been refused membership in a social club in Pune, and the father-son duo bought ten acres of land along a hillside on the outskirts of the city, intending to create a social club offering sports facilities along with recreation. “My father and I dreamt of seeing champions emerge after training our badminton court and the swimming pool,” Shekhar recounts.

I have always been passionate about running a restaurant, and the effort we had invested in service, ambience and the quality of our cuisine and our beverages worked well. We decided to bring our restaurant to centre stage such that the sports facilities would support the restaurant and not the other way around. A more promising model that was diametrically different from the original model evolved.” — SHEKHAR PIMPLEKHARE MANAGING PARTNER CLUB OASIS 56 MARCH 2008

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biz/INSEAD Aiming to attract sports enthusiasts who were looking for a getaway with their families, the Pimplekhares invested heavily, building high-quality facilities such as a swimming pool, gym, indoor badminton court, tennis courts, miniature golf course, and billiards tables along with a scenic estaurant overlooking the city of Pune. But few bought lifetime club memberships even though the proprietors saw the Rs. 50,000 fee as reasonable for the amenities provided. “We had not hit the bull’s eye,” Pimplekhar summarizes. Maintaining the facility led to ﬁnancial strain, so the partners had to ﬁnd a solution quickly. Lowering the fees

would have compromised the service levels to which they were committed. There was a silver lining to the clouds: the restaurant business was growing steadily. “The drain on our resources made us revisit our business idea, and we decided to do away with the lifetime club model, as it was not working for us,” Pimplekhare remarks. “I have always been passionate about running a restaurant, and the effort we had invested in service, ambience and the quality of our cuisine and our beverages worked well. We decided to bring our restaurant to centre stage such that the sports facilities would support the restaurant and not the other way around. A more promising model that

was diametrically different from the original model evolved.” Would these three entrepreneurs have been better off had they never encountered failure? All agree that overcoming a setback proved to be a blessing in disguise. Says Lunkad, “Had V3 Logic been as successful a venture as Rohan Builders, I would have experienced the thrill of knowing that I could diversify in a completely new line of business. But chip designing is a very specialised area and with my limited knowledge of it, I would have always been in it on the back foot.” Adds Pimplekhare, “The lifetime club model would have been a more interesting venture and a fulﬁlling one

After Rohan Builders had completed some successful construction projects, I was passionate about exploring a new line of business. I wanted to leverage the demand for high-end technology in very large scale integration (VLSI) design to offer chip designing services that would enable us to create miniature devices with a diverse functionality. This excited me enough to want to siphon proﬁts out of Rohan Builders to start my new venture, V3 Logic. — SUHAS LUNKAD CHAIRMAN & MD ROHAN BUILDERS MARCH 2008

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biz/INSEAD

The efforts we had invested in strengthening our stakeholder relations came to play through these challenging times. We were able to piggy-back on the core values that Planetasia stood for. It’s a testimony to our reputation and relationships that there we stayed clear of acrimony of any kind with all our stakeholders. Venture capitalists, banks and investors demonstrated conviction in us and put our down phase to the technology meltdown rather than any mismanagement. — JAWAHAR BEKAY CHIEF STRATEGY OFFICER, COLLABERA on the personal front. But this original model had a downside: it didn’t factor in the rate of inflation. Having morally committed to a lifetime membership, we would not have experimented with a more lucrative option at a later point in time.” Each leader can also point to important lessons from adversity that fueled later success. Notes Pimplekhare, “This experience has taught me the importance of flexibility. The drifting Pune population has responded better to year-long club memberships, and we also introduced day-long packages for groups.” Adds Lunkad, “Even now, as Chief Strategy Officer I am particularly cost-aware and my plans are made with a more holistic view about markets. I learned to be conservative about cost outlays through boom times and bad times both and to never lose sight of all those less obvious factors that could possibly jeopardise your business. I also realize how important it is to have your people with you and let them trust you as the management. People double up as an army of defenders.” 58 MARCH 2008

Knowing when to persist and when to admit failure and try a new line of attack is also a skill the three entrepreneurs honed through their brushes with failure. Says Bekay, “Dwindling markets and negative cash ﬂows are clear indicators. We pulled through the recession because we charted a recovery plan which started to show results.” Adds Lunkad, “Try to decide consciously on a certain period of time past which you will have to take those hard decisions.” Echoes Pimplekhare, “The motivation for most entrepreneurs is the excitement of starting and creating something new, more than the money alone. But I would encourage entrepreneurs to analyse input versus output and keep the emotions out of this analysis.” What counsel can these veteran business builders offer for those who must cope with the stress of unexpected setbacks? Says Pimplekhare, “Keep trying something new if you feel you have failed. Ask yourself whether you are a quitter or whether you are going to keep trying till you succeed.” Notes

Bekay, “Such challenges are part of the game, a fact any entrepreneur should keep in mind. Take it in stride and learn from every failure whether small or big.” Elaborates Lunkad, “Through hard times, I ask myself ‘Will it help me at all if I stay on in it?’ and this often reduces the stress of failure. If the gestation period you experience seems to make you go into losses, learn to put a full stop. By not flogging a dead horse, you will be able to conserve your energy when making a new start.” All three entrepreneurs note that failure did not cause them to become more conservative. Says Lunkad, “My risk appetite has not reduced but I take calculated risks.” Adds Bekay, “Despite the market and trend analysis that we get done, I trust my gut too. I think my gut feel got enhanced. My experiences of the time have made me more conscious about bigger decisions and I reflect more than earlier.” Overall, running into a wall proved a more positive experience than negative for these three leaders, and they suggest that failure in nothing to fear. Says Bekay, “Sometimes these situations can’t be avoided. Try not to run away from it. You might still fail, but if you are confident that you have done your best, it’s ok as long as you learn from it and it makes you a better person in what you do, going forward. More often than not, you will overcome things and actually succeed.” Pimplekhare feels much the same, counseling entrepreneurs, “Don’t give up easily. Modify your business venture to suit the prevailing market demands. Keep re-inventing till you hit the right idea otherwise you would hit dead end. There is no guarantee to success but never stop trying.” Summarizing the lessons he has learned, Lukad advises, “Always make the time to analyse along the way so that you can take right decisions. Don’t lose your thinking cap. And let your revenue inflow be the best DAR E indicator of things to come.” With her rich media background, Irawati Gowariker has led strategic communications for the IT arm of HSBC and ANZ in India. Irawati now ‘dares’ to go beyond large multinationals to tell the story of some Indian entrepreneurs

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blogs/opinion

Is Israel = Jews = Entrepreneurship? /Anurag Batra

“I

am a Jew. Hath not a Jew Eyes? Hath not a Jew hands, organs, dimensions, senses, affections, passions; Fed with the same food, hurt with the same weapons…….Why, revenge. The villainy you teach me I will execute, and it shall go hard but I will better the instruction.” (Shakespeare, Merchant of Venice, III.i.49-61) Remember Shylock, the infamous Jewish moneylender in Shakespeare’s “The Merchant of Venice’’, the stereotypical Jew as perceived by the antiSemitic—the shrewd businessman without moral scruples? In this famous quote, Shylock protests that, even though he is a Jew, he is human like everyone else (that is, Christians), and in fact, only improves on the hard business practices Christians have taught him! Barring the bizarre collateral (“a pound of flesh”) in that unlikely plot, it is all too true. Yes, Jewish entrepreneurs often do much better than non-Jews in the same line of business. I envy my Jewish friends who are successful entrepreneurs running highly profitable organizations. Their innate quality of leadership, sharpened by business acumen, makes them respected businessmen all over the globe. Traditionally, the Jews have been good at numbers, which is why globally, in modern times, financial sector professions such as credit rating, insurance and merchant banking are often dominated and controlled by them. Indeed,

one can even equate Israel’s progress with a species of geo-political entrepreneurship. A couple of weeks ago I was in Israel, and one of my Jewish friends posed an interesting question to me, “Why are Jewish entrepreneurs disproportionately successful in entrepreneurial pursuits as compared to their counterparts in any other part of the world?” Believe me, I have no clue. Like all of you, I know that Jews are champions in hi-tech areas, and front-runners in computer technology and data security. Moreover, the Israeli intelligence agency, Mossad, is one of the best in the world. The Talmud, one of the most sacred texts of Judaism, preaches a doctrine interlinking business ethics with social responsibility—something that is yet to seriously catch the fancy of modern businesses in the rest of the world. The ancient Jewish law has certain tenets on how to conduct ethical business. Jews do not view poverty as a virtue, whereas creating wealth for them has always been a challenge, given the arbitrary exclusions they had to suffer in all European countries, which left them socially disadvantaged for centuries. Talmudic doctrine only enjoined the more successful in the community to look after their less fortunate brethren. To understand the Jewish approach to business properly, one needs to delve a little deeper into the ideological origin of this faith and these people. It is said that in the Jewish tradition a question is asked, whether God wants us to be rich. The traditional answer is that for the Good Lord, pre-occupied with so much to do, that question is not top-of-mind. However, He does want human beings to be obsessively preoccupied with the welfare of their brethren. Ergo, if you succeed in discovering what others need, you should not be surprised that you are rewarded with wealth!

Jews are entrepreneurs because they deem no work to be too lowly. They view business as an activity based on long-term relationships rather than the short-term gains. I don’t think that successful entrepreneurs possess any extraordinary caliber or IQ, genes or better educational backgrounds. Some people put forward the idea that Israelis are highly successful because they have cheated their way to success. Another view is that the Jews have a money gene that they pass on from one generation to the next. Yet another is that Israeli entrepreneurs have high IQ levels. All these theories can be debunked by the simple fact that businesses don’t work that way. An interesting study reveals that 60 percent of the Fortune 500 companies are headed by people without advanced degrees. For any entrepreneur, the only mantra to succeed is to be obsessively pre-occupied with discovering and supplying goods and services that others need, with a long-term vision. Simply put, business must always be a consequence of relationships between human beings, and not the cause. That takes me to the question, are successful organizations the ones that log in higher turnovers, or the ones that conduct ethical business and promote values like corporate social responsibility? Certainly, successful businesses have profitable bottom-lines and believe in sharing wealth with their stakeholders, including employees and even distressed sections of the society. But more than that, like the good Jews, entrepreneurs should reap the benefits of financial success in sync with traditional business and DAR E social ethics. Anurag Batra is a real life first generation entrepreneur who is Much Below Average (MBA) when he is not busy writing such columns and can be reached at anuragbatrayo@gmail.com. ed: Anurag is the founder of exchange4media.com. MARCH 2008

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funding/NGO

Online fund-raising for NGOs and a hair-raising, nail-biting ﬁnish /Liby Johnson

he night of January 31st, I stayed awake till midnight watching almost a minute-by-minute progress of an online fund-raising initiative for NGOs on globalgiving.com. My interest in this was sparked after a request from Seva Mandir to contribute and to spread the word about this “Giving Challenge.” It was meant initially to be a United States fund-raiser but eventually became a global one. Different organizations had put in their fund need pitch on the site (Seva Mandir’s was for nonformal education for tribal children; others were, for example, 300 fuelefﬁcient cooking stoves in Honduras, routing out poverty for Cambodian children, education for 900 rural girls in Burkina Faso, invest in International Development Leaders). It was a very interesting mix of development action ideas. The contest went something like this:

60 MARCH 2008

You raise the maximum number of donations (there are conditions like unique donations, etc.), you get all the money you raised, plus the top four projects will get a cash award of US$ 50,000 each! I am sure every one of the fundraisers went around the globe stoking passions to get people to contribute. In Seva Mandir’s case, I found a series of requests from various people in my inbox.

The real fun (just like a nail-biting 20-20 cricket match) was on this night, Indian time. The contest was to close at 3 pm US Eastern Time (around 1 at night in India). Between 10.30 pm and 11.30 pm as I watched closely, there was at least one donation being added to at least one of the projects of the top ﬁve I was watching (http://givingchallenge.globalgiving.com/dy/amgive/ leaderboard/ag.html is the link I was looking at) with every screen refresh I

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funding/NGO Global Giving and the Giving Challenge GlobalGiving is a Web-based online fund raising mechanism that helps development projects and charities around the world raise funds by connecting to a large pool of donors. Projects are referred to GlobalGiving through its network of project sponsors, reputable organizations that vet projects for eligibility and provide references for projects’ work. In addition, GlobalGiving periodically offers competitive opportunities for anyone to submit their projects for consideration. The recent competition that GG hosted was the “Giving Challenge” that ran between December 13, 2007 and January 31, 2008. The ‘Challenge’ before projects that were listed (anyone living in the US could list a project that really needed funds) was to raise the maximum number of donations, online of course, to support the project. The top four would be awarded US$ 50,000 each. In order to generate momentum, the Challenge also had periodic awards for ‘maximum donations in a day’. A leader board on the Website gave real-time updates on progress made by the top projects.

Seva Mandir is a rural development organization based in Udaipur, Rajasthan. Established in the mid-1960s to work among the rural and tribal communities of Udaipur district, Seva Mandir now works in more than 600 villages in the region.

did (sometimes even three per minute). Seva Mandir (SM) was on the top of the table, challenged closely by the Cambodia project (1475 donations to SM and 1474 to Cambodia), and then, all of a sudden, the tally was 1490-1492 against SM, soon 1501-1496 in favour of SM, with similar contests going on between the next three projects as well. Well, I went to sleep. Next morning I logged on to check the site out of sheer curiosity. Here are the ﬁnal results: Cambodia - 1710, Honduras - 1698, International Development Leaders (USA) - 1661, Burkina Faso - 1635, Seva Mandir – 1576. Cambodia did marvellous pinchhitting in the slog overs, while Seva Mandir, like the good Indian cricket

team, probably sent an off-form Rahul Dravid to play his forward and backward defensive shots in the final overs! Honduras, after leading earlier in the week and after having fallen to No.5 earlier on January 31st, probably used its time-zone advantage to make a final surge. The US-based project, of course had the same advantage. Burkina Faso is like the South African cricket team—never the very best, but seldom far from the top! Indians went to sleep at midnight, with less than two hours to go before close, and see what happened. The lighter vein apart, what prompted me to write this note is a real thought/concern about what it holds for us in the “development” sector, with a real need to raise funds. “Technology”, “competition”, “pitch,” etc have already become the buzzwords, replacing “bleeding hearts.” PS: Seva Mandir despite being fifth in number of donations is second in terms of funds raised (close to US$ 42,000). Honduras, despite its second position, raised only two-thirds of that—about $29,000. But since they have a larger donor base they take the $50,000 award as well! PS2: We still do not have many online fundraising consultants! Get a room, get some good bandwidth and start off! At least one will not need to call oneself a Consultant—”Social Entrepreneur” is just about anybody DAR E these days. Liby Johnson has worked with rural development organizations in various parts of India for over a decade. Presently, he is a resource person to small development organizations, providing management support. Fund-raising has been and continues to be an area of interest.

MARCH 2008

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strategy/ESOP

Quick guide to ESOPs

More and more companies are now bullish on issuing stock options to their employees. Here is what you need to know while contemplating ESOPs

/Vimarsh Bajpai

What is an ESOP? Employee stock option plan (ESOP) is aimed at offering shares to the employees of a company, wherein promoters decide to dilute their stake. The shares are offered to either a select group of employees or all employees in general at a price, which could be the same as the market price or less than that. In case the company is yet to come out with an IPO, the promoter decides the price of a share.

Why and when do companies offer ESOPs?

hen Lotus Mutual Fund decided to offer its employees stock options last month, it joined the list of asset management companies willing to share a pie of their equity to retain their best brains. Another fund house, UTI Mutual Fund, also allocated stock options to its employees recently. Fund houses are now catching up with companies in other sectors offering stock options. The IT sector made ESOPs quite popular in the early part of this dec-

ade. ESOPs have emerged as an important tool to keep talent from spilling over, thanks mainly to this sector. “Our ESOP scheme has been a tremendous success, both in terms of human resource organizational growth. Today, we are one of those rare IT companies where the attrition rate is a very low 2%. In fact, we are probably one of its kind in the industry with 22.32% of the company being held by employees,” says C K Shastri, Managing Director, Intense Technologies.

Talent crunch has forced companies to think of innovative ways to retain employees. While established companies use ESOP as a retention tool, startups could offer ESOPs to hire people with complementary skills and setup a key management team. ESOPs act as a big motivator. As the company’s performance and earnings go up, the value of its share also increases, thus making the employees richer. There is no right time to go for ESOP. All it requires is the willingness of the promoters to dilute their equity in the company. The terms and conditions may vary because ESOP is a legal contract between the company and its employees.

strategy/ESOP Harshu Ghate Co-founder & MD, ESOP DIRECT

DARE.CO.IN Harshu Ghate has 22 years of professional experience in Accounting, Corporate Finance and Beneﬁts Consulting. ESOP Direct provides end-to-end solutions in equity-based compensation. Apart from consulting companies on designing of ESOP plans, ESOP Direct provides ESOP administration with expertise in UK / US based plans.

What does structuring ESOP mean and what is the best way to do it? There are a couple of angles to structuring ESOP. There is an HR side, which deals with whom to give how much (of shares). Then there is a legal angle, because ESOP is ultimately a contract between the company and its employees. There are legal issues about what should go in the contract. Then there is a taxation issue, because under the prevailing law there could be a situation where an employee and the company would be required to pay tax. There is also an accounting angle because as per the Indian GAAP (generally accepted accounting principles), any discount that you give to the market price has to expensed in the books. There is also a company law angle because there are shareholders’ approval, board approval and SEBI guidelines that have to be complied with. Is ESOP a mere retention policy or more than that? Retention is the pre-dominant objective. The ESOP trend started somewhere in the late 1990s, when we also saw the emergence of new entrepreneurs and many venture-funded companies. In many cases, there were also management buyouts. Essentially, the investors hired key executives and in order to get them equity in the company, ESOP was the ideal way, wherein they did not put in money initially but they did get options that were at a discount. So they could get shares in the company at a lower price than the investors. For established companies, retention is the main objective and for start-ups it is a way to get a management team in place. It is also something like a joining bonus in case the employee who joins had stock options in his previous company. You have to compensate him, because he foregoes the gains he made there. Just like you match the salary, you also match the stock options. Typically, retention works where the unvested options are more than the vested options. Employees should have something to look forward to. If ESOP is like a one-time grant, after two years when the options vest, there is nothing that the employee will look forward to. What are financial implications of ESOP for companies and for employees? For a company there are no financial implications as such. There is a net inflow, because it gets the price for its shares. For all the gains an employee gets, there is no payout for the company as he makes money from the market. For an employee, ESOPs are linked directly to market situations. ESOPs are long-term instruments. Thus the value of the option should not be calculated on a day-to-day basis. This is because in any case if the options have not vested whether the market price goes up or goes down, it is a notional loss or gain. Even if the market price were to double, the employee cannot sell his shares because it has not vested. Typically every company has a period within which employees can exercise their option. Even if the market is going through a low and the stock options are vested, the employee would not sell his shares as the prices are down. In a growing company, prices will bounce back and options will win the money. What major decisions do companies have to take while considering ESOPs? On the company’s side, there are a couple of major decisions that need to be taken. Since ESOP is about equity, there is an element of dilution. Therefore, key shareholders will have to dilute to the extent of ESOPs. To what extent they can dilute, to what extent should they dilute is something that promoters have to decide. Legally there is not bar on it, so it could even be 1%. Second thing is about pricing. If you issue shares at a discount-to-market price, it adds to the dilution apart from the percentage dilution. The value of the remaining shares also relatively goes down. The core thinking behind ESOPs is ‘if the price today is Rs 100, I’ll give you at Rs 100, you can buy over the next 2-3 years but you should gain only if the price goes to Rs 300’. That is the basic concept. Particularly at senior level, we do not advice companies giving options at a discount, because there the whole story is about taking the company forward. So such are the decisions that companies have to take. From an HR angle, ESOP is about coverage. Do we cover only senior management or key employees? That is something very important to decide. Another important action from the company’s side is about communication to the employees. Unfortunately, ESOPs have been projected as an easy way of becoming a millionaire. Thus, it is important to keep the expectations realistic because otherwise if the prices dip for a day, employees start complaining. There have been cases where we have seen companies wanting to offer ESOPs just because some other company has been doing it. What are the tax implications of ESOP, now that it is in the ambit of the Fringe Benefit Tax (FBT)? FBT as a tax is on the company, so the responsibility is on the company to pay but specific with ESOPs, the law also gives authority to the company to pass it on. So in our experience almost 100% of the companies have passed on the tax impact to their employees. Before FBT came in, the ESOP gains were virtually tax-free. The kind of gains employees were making was very noticeable, so the tax was long overdue. But the real impact of FBT is much less than 33%.

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strategy/ESOP Cherian M J set up the stock based compensation practice at Keynote, and has structured and implemented plans for almost 100 clients across the country spanning a wide range of industries. He has also acted as an independent adviser on several technical interpretation issues on company and ESOP law.

What are ways in which employee stock option plans (ESOPs) are structured? I always start by equating ESOPs to money. Hence it becomes extremely important that we are clear on what the objective of implementing an employee stock ownership plan is at any organization. As a compensation tool, we are witnessing an increasing trend of ESOPs being used to cover employees in companies across all sectors. It may be over and above the cash compensation and in some cases over the variable compensation. In a few others it is used to replace the variable performance reward paid in cash over a phased manner. This decision may be made considering what is necessary versus what is available; equity being the most valuable asset of the owner. Several startups with the most brilliant products/service ideas and competitive strengths Cherian M J may often find availability/management of cash in the short to medium term extremely difficult. VicePresident KEYNOTE ESOP Structuring a suitable stock option plan can often help address these issues whilst enabling them to attract, manage and motivate excellent talent. ESOP structuring becomes a function of longevity in the organization, performance (both past and expected) and future potential (criticality) based on the skill sets of the employees in the organization. Finally, stock option plans need to be structured to be most tax efficient, from both the employer’s and employee’s perspective, and also in compliance with several other legislative requirements. In India, entrepreneurs are increasingly beginning to believe that democratization of wealth can add greater value to their business over the long run and this philosophy is reflected in the way their employee stock option plans are being structured. What should companies keep in mind while structuring ESOPs? This could be more of a function of demand and supply. Acceptable dilution, whether the talent in question is really worth the dilution or is that talent still expected to come on board in the near future. Timing, to harness the best value into the ESOP, the company may grant options prior to any VC/PE investments or before tapping the capital market for any additional capital. Also please note that this is not an exercise to raise capital. The pricing for an ESOP may be in a way to deliver maximum upside to the employees. Lot of people I meet are from the school of thought that the options should be at a maximum discount to its fair value (also means an accounting charge in the books of accounts of the company). I believe a more suitable way to structure an ESOP plan would be to enable employees to cash in on the appreciation of the stock price to the grant date fair value. So discounts should be in the range of 15%-20% to cushion any short-term volatility in the company’s stocks that are traded in any stock exchange. This will give a reason for everybody to work harder to enhance shareholder value and will minimize accounting charge for the discount on options being granted. Also it may be noted that the benefit passed on to the employee through a discount is very limited, whereas the advantage accruing to them from the upside is uncapped. Finally for private limited companies, the ability to provide exit options for employee shareholders would need to be evaluated. What are the financial implications of ESOPs for companies and employees? Financial implication to companies begins with cash costs for expenses incurred in structuring and implementing the scheme. In addition to this, discount to fair value of shares being issued, cost of dilution and savings in employee compensation cost would all be need to weighed in to understand their cost/benefit. Financial implication to employees would be the money they need to raise to exercise options. They get held up only in case of schemes that do not provide appropriate exit/liquidity opportunities. A lot of promoters ask me this one question, “How do we really benefit out of an ESOP where we dilute our ownership?” The simple answer is that the benefit made by the employees is only a percentage of the wealth created to the existing owners. So if the plan is well thought out and structured, it can weed out all those average performances and reward only on crossing a pre-determined threshold of performance for each year. So like the new washing powder ad says – ‘Daag acha hein’ (read as - it’s good to dilute through employee stock option plans). What are the tax implications for companies and employees? Benefits arising out of the exercise of options under an ESOP plan have been brought under the purview of Fringe Benefit Tax (FBT). The primary liability of the fringe benefit tax falls on the employer. However, it may be noted that it shall be lawful for the employer to recover the fringe benefit tax from the employee to the extent to which such employer is liable to pay the fringe benefit tax in relation to the value of fringe benefits provided to the employee. The fringe benefit is the difference between the fair value on the date of vesting and the exercise price. The employee is also liable to pay capital gains tax on the difference between the sale price and the fair value on the date of vesting used to arrive at the fringe benefit liability. In case of a listed entity whose shares are sold on any recognized stock exchange suffering Securities Transaction Tax, long term capital gains tax is nil. DAR E

25 years of

our focused

VISION To expand globally in the knowledge domain through quality media products and services

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strategy/marketing

Entrepreneurial marketing Forty-four years old Shellye Archambeau is one of the most successful women in corporate America. After having spent her ﬁrst 15 years at IBM, where she rose up to be the highest ranking African American woman ever in the company, she moved to many smaller, entrepreneurial companies. She is currently the CEO of MetricStream, a provider of compliance software. She is the co-author of “Marketing That Works”, a book on entrepreneurial marketing. Shellye, is guest faculty at Stanford University and the Wharton Business School, and also a member of the Information Technology Senior Management Forum and the Forum of Women Entrepreneurs in the US. Here she shares her insights into effective marketing practices for start-ups and entrepreneurs. /Sreejiraj Eluvangal Shellye Archambeau

After having spent most of your career at IBM, how did you end up writing a book on entrepreneurial marketing? Even though I spent the ﬁrst 15 years at IBM, I was typically in situations where I had very little funding. Usually, I had a new function to launch, a new product to get going, a new market to tackle and things needed to be turned around. So, I worked in a very Skunkworx environment. The time at IBM gave me a lot of insight into the importance of marketing, because in selling, even if you have a big brand, if you don’t have the right

66 MARCH 2008

marketing message, if you don’t have a clear value proposition, and the right marketing materials, your customer is not going to buy from you. When I moved on to the entrepreneurial companies, I saw that they needed the same things. They needed a strong value proposition, they needed to have in place the materials to communicate that, and they needed to make sure they were going after the right target market. I saw a lot of people struggling with this [marketing]. This tends to be the reason why, especially for entrepreneurs, even though they have a great idea, a good product concept or a good service concept, it never makes it out of the garage.

Why do many entrepreneurs mess up? What should they do differently? Couple of reasons. One, entrepreneurs get very passionate about what they

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strategy/marketing are building and sometimes they fall in love with their product. When you fall in love with somebody, you are blinded from everything else. When you are in love with your product, it’s the same thing. You don’t see the flaws, you don’t see what needs to be worked at, you are so in love, your view becomes narrow. What actually needs to happen is, before you actually start building that product, when you have the concept, you need to start thinking about who is this product going to work for? Then you need to start having conversations with those types of people or companies to ensure that the concept you have is one that actually meets a real need. Before you actually start taking the time to build out your concept, you should start having conversations with people within companies to ensure that the need they are seeing is a need they can fill. If you are working in an environment where you are already touching those kinds of companies, you can have those conversations and try to understand not just if your product is valuable, but if you are going to pay for it? How much would you pay for it? You can do that kind of research informally before you get started. The other thing you need to do when you have those conversations, find someone who says, “oh, I will absolutely pay for this if I can have this.” So you say, “Oh, great! Would you be first beta, I won’t even charge you.” One of the things you need first is your very first customer, which is typically the hardest customer to get. Another thing is to get involved in some groups or organizations that are in this area of interest. Link with people because it helps you figure out what’s happening in the market, what’s going on. Because once you have built a product you don’t want to find out that someone else has it too. So, the most important thing to start with is your target market. Does your idea actually have a market that will pay for it? Targeting the market is a critical point in being successful. For example, in our book, we take the peo-

ple through the basic steps—what’s a market, what’s a value proposition and so on. People want to jump straight to creating the product. You don’t create the product until, say, step ﬁve! Creating the product is fun, it’s exciting, but if you don’t do the work upfront, what happens is that the product gets ready, but it never leaves the garage. You have to ensure that what you have built, can fulﬁll the need that the market has. The pricing, sales, everything has to be worked out before designing the product. Otherwise, you may end up designing a $100,000 solution for a $10,000 price market. If you think about all those things, you might design the product differently.

Any strategies for effective low-budget marketing for start-ups? Don’t charge the initial customer, give it away free. Once you have got your initial customer, you look for other companies that are just like that one. So, if you are selling a piece of software for financial people, and you found an initial customer, a finance person, in the energy sector, start there. What you are asking from your first customer is just a reference, not money. What’s more important than the first dollar that comes in is a referral. Odds are, this person knows other finance professionals in the industry. You ask him to make introductions. You want to look for things just like what you have just done, because that’s the easiest. Once you get a couple of customers, look for scenarios. Is there an educational class where financial people go to? You can go there for a couple of hundred dollars, compared to a couple of thousand to go to a conference. Try to meet people and establish relationships. Once you have got your first few customers, you take the kernel of what you have got and spread it out. Once you get a few customers, you have two choices. One, you build your value proposition. Why did that person use it, what value did they get? And you want to get that articulated as crisply as possible. That’s your mar-

keting message. ‘This person was able to reduce the resource required to do that by so much’ - this is your value proposition. Then, look for companies that are selling to your target market, with complementary products, and try to bundle your product along with theirs and maybe even give them a part of the revenue. So, even though you don’t have a sales force, you are leveraging someone else’s sales force. There are also contract sales people, who sell a lot of things. You can also become a subject author and get bylined articles out, both online and ofﬂine, and get your company known. That gives you some credibility in the market-place. A common mistake that entrepreneurs make is that they spend more time talking about how their product works versus what value it gives.

What about start-ups who use the Internet as their distribution mechanism and whose products are essential digital, such as mobile applications? How do they tap the global markets? What has happened here is that you have a neat idea, you created a product and then you are trying to ﬁgure out how to market it. That’s backwards. You need to think about how you are going to market before you build the product. If you have a way of reaching your channels or customers, then that’s probably not a business that you are going to be able to build. The reason why people get caught in it is because they have done it backwards. They get a concept and they say “Ah, this is neat! And they spend hours and days and months creating it. They get it out and then they don’t know what to do! There are literally millions of products that are developed every year that never get to market. A successful business isn’t always the one with the best products. Building a business is not about having the best product. Building a business is about having the right model. It is a combination of value proposition, products, access to DAR E markets and more. MARCH 2008

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strategy/brands

On consumers and people Pithy phrases are created to describe whole segments into which consumers are divided. Very rarely are they seen as and referred to as “people”.

/Rupin Jayal

ne of the w o r l d ’s largest car manufacturers spends years of testing and millions of rupees adapting a socalled luxury car for Indian conditions, but provides power window switches for the front seats only, when the car is most likely going to be chaufferdriven. An international fashion house launches an old collection aimed at people who are likely to travel abroad frequently and therefore know that the collection is old. Examples of misunderstanding the people who will actually buy products or services are numerous. 68 MARCH 2008

The market is littered with examples of products that do not require hindsight to see that their chance of success was about as likely as Delhi car drivers becoming disciplined just by being asked to do so. Yet they were launched and as expected they swiftly disappeared. There are several such examples in advertising and in the entertainment industry as well. How about an ad for a leading soft drink brand that is hopelessly contrived and clunky, aimed at an audience that prides itself in being on the cutting edge of what’s cool and slick? Or TV commercials cluttered with features and facts that become hard to absorb even if you are glued to the TV set avidly waiting for the next commercial? And then there are movies that defy understanding

as to why they were made in the first place, convoluted story lines, neverending endings, hackneyed plots and millions spent on covering them with a fine patina of special effects to cover up their deficiencies. At this point it is important to differentiate between genuine innovations that did not work because of reasons like they were ahead of their time, or because technology moved faster than they could adapt, and simply misunderstanding the people you seek to address. The times are tough enough for new products and brands without loading things against them further. So why these apparently obvious mistakes? Did the companies lack resources for research? Did the creators lack experience?

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strategy/brands The root of the problem often lies in the way the people for whom these products, services or communications are created are perceived. They are called “consumers”, as though their only aim in life is to consume. They are called “target audiences”, as though they are immovable objects at whom anything can be aimed. Pithy phrases are created to describe whole segments into which they are divided. Very rarely are they seen as and referred to as “people”. Many manufacturers see them as a grey mass. Hence while the brand may well be statistically “India’s largest selling motorcycle”, what’s sometimes missed out is that for the individual buyer purchasing it, it is a moment of pride and achievement. In a country of burgeoning aspirations, the person buying the bike has probably stretched himself a bit beyond what he can really afford. He has probably spoken to friends and family and had endless debates discussing the strengths and weaknesses between the newest model available and this bike. When he makes his ﬁnal decision it is both a moment of pride and of trepidation. It is a lot of money, has it been wisely spent? A fog of post purchase cognitive dissonance hovers over him. What that essentially means is (like all of us) a little voice is saying in his head “Is this the best decision?” Instead of celebrating his specialness, many marketers see him as a statistic. A consumer. One of millions. In doing so any loyalty he may feel tends to become more a factor of practicality and behaviour rather than attitude and emotion. Thinking about the people you are selling a product or service to, as “people”, means that you acknowledge that they do more than just consume your product, service or communication. You acknowledge that your brand might actually play a very important role in their lives, as one of the anchors of familiarity and living memories. Or it may just be something that enables them to live a comfortable life. So it isn’t about the ﬂavor, color, shape or other product related factor, but really about the meaning that that brand is enriched

“The consumer isn’t a moron; she is your wife.” DAVID OGILVY by, built up over years of individual usage, anecdotes and moments in which the brand acts as a hot button. If the product or brand is a new one then it might help to understand in what actual context it will be used. What role will it practically play and how much bigger can that role become? We all lead very hectic lives. Time is increasingly becoming a very scarce commodity. Value for time is, for many, exceeding value for money. For a husband, time spent before the TV is precious time spent recovering from the day’s challenges and is time used to reconnect with his family. For the woman, it is time spent enjoying the sight and sounds of her family together, a sense of bonding, a sense of togetherness. For the kids it is that special time when they can be with their parents and just play or share the day’s adventures and frustrations with them. The TV set can be likened to the ﬁreplace of old where the family used to gather to spend time together. At such a time how welcome would a salesman be? And if that was the only time a salesman would have to sell, what would he need to do to not be an unwelcome intrusion? How do all of us like to be treated when we go to a restaurant, visit a dealership to buy a car or enter a shop to buy a special shirt? Yet, when we don the mantle of “marketer” and talk to that entirely different species called “consumers”, how does our attitude change? What do we, when we become so-called “professionals”, consider to be most important? How is that different to when we are just being “people”? Sometimes it seems as though when we become marketing people we are like assassins. If you do not think of the people you are targeting as people, then it might just be easier to get

them. By bestowing the anonymity of “consumer” or “target audience”, they suddenly become statistics, homogeneous segments, always consistent, always predictable. They inhabit a comfortable world of certainties. And then when they act like “people”, you can shrug helplessly and criticize their inconsistency. All the while forgetting that they were and still are just like “us” marketers, people who had better things to do, were savvy enough to realize that the product was irrelevant or worse, deficient, or did not understand what was being sold to them and with time at a premium, simply ignored it. There is just too much happening in people’s lives to believe that they are primarily driven by the need to consume – whether it be products and services or communications of any kind. India has evolved with breathtaking rapidity from being a sedate, rationed marketplace where people had to book watches, to becoming a cluttered, cacophonous, fast-changing bazaar maelstrom. Now is the time to start thinking of whom you are selling to as people, not “consumers”. Today, personal ambitions, social acceptance and applause, adaptability, competitiveness, peace of mind, relationships, maximizing opportunities and juicing the most out of what life has to offer, are just some of the more pressing things on all our minds. Hence brands have to reflect these, counteract these or at least take cognizance of these tectonic concerns to be able to effectively appeal to real people. Those that do will be guaranteed a special place in the hearts and minds of people who choose them. Those that do not, will not be challenged, criticized or even rejected, they will simply be ignored. Before all the complicated definitions, pithy names, statistical calculations and professional analysis we have to see our “targets” first as people. By doing so, we can understand just how big a role what we offer really plays in their lives. Only then can we truly appeal to them, and in the process effectively market to them. D A R E The author is Director-Strategic Planning at M&C Saatchi MARCH 2008

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/innovation

p m G u D y Dail

enesis of the innovation

Going Green in just 600 rupees Poonam Bir Kasturi, a Bangalorebased NID graduate, introduces composting in terracotta vessels – a simple and sustainable way of managing waste from the very comfort of your home.

/Shilpi Kumar 70 MARCH 2008

It might seem surreal to get people to do away with the good old trashcans and buy a pot worth Rs. 600 for disposing garbage. However, that is exactly what Poonam Bir Kasturi, the woman behind the Bangalore-based startup Daily Dump has been up to for the past one and a half years. Poonam’s terracotta vessels are designed to convert household waste into useful high-quality, nutrient rich manure. Ask her what made her come up with such a concept, and she says, “An average urban citizen generates over half a kilogram of solid waste everyday, which is disposed off without being segregated. People want to make a significant contribution towards reducing landfill waste, and they look for a simple way to do so. Replacing dustbins with these pots is an easy solution for customers to do their share of environmental friendly work.” An alumnus of the National Institute of Design, Poonam’s knowledge of design also contributed in the shaping of the vessel. “Design as a process thinking tool is extremely powerful. I would constantly ask myself, ‘How can design impact everyday life?’, ‘Can it be an enabler for a dignified individual action?’ ‘Is there an alternative to this obsessive consumerism?’ It is after having many such discussions with friends and my students at the

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/innovation Srishti School of Art, Design and Technology, that the idea evolved,” she says. After testing many different materials, Poonam concluded that terracotta is the best for decomposition. “Plastic failed miserably,” says Poonam.

Implementation of the idea Poonam made an initial investment of Rs 400,000 to set up the business. This included the cost of researching, getting the material, prototyping, publishing hand manuals that accompany the product, etc. The project has been completely funded by Poonam herself. As she puts it, “I do not want to sign for a grant or a loan, because I want to prove in some way that it is not always about the money or a business model, it is about intentions.” How did she implement the program and get the word across? She claims that a clear vision, correct platform and proper packaging are all it takes to build an intrinsic value and to disseminate information. In Poonam’s case, her Website (dailydump.org), which cost her around Rs 200,000, played a great role in implementing the project. “I don’t advertise for my products so most of the publicity happens through the Website. You can put up a lot of knowledge; you can direct people, and use it as a central force,” she claims. Thanks to their beautiful designs, these vessels can be placed anywhere from the garden, kitchen or even the entrance of the house. Also, there is a wide range of products, including the gamla, patta kambha, leave-it-pot, kambha and mota lota, from which the customers can choose. Miniature sets for kids, aprons, rakes, spoons and spatulas are available as well. For customers who don’t have the time or are unsure about how to begin with the composting process at home, Daily Dump offers service plans where someone from the team comes on a weekly basis to help with the maintenance. “Our fastest moving product, the kambha costs Rs 600. The cost of other vessels and accessories ranges from Rs 50-500, depending on the size and if someone wants a speciﬁc design, there is an extra project cost. The

cost of the service plan is Rs 2,000,” claims Poonam.

Challenges en route One of the initial conﬂicts Poonam faced was to come to terms with the decision to make Daily Dump an opensource idea, i.e., to allow other players to venture into it and not patent it. Her friends thought that she was impractical in doing so and she was told that it is a complete do-gooder scheme and not a viable business proposition. Poonam, however, decided to march on. “I have just leveraged my expertise and haven’t put a cost to it. Business analysts might think that my business model is all wrong, but I look at it as enabling several others to make money

ida. “I love the fact that I am a woman living in a developing country, working with completely low tech ideas, addressing a real urban problem and enabling someone in Florida to make money. Just the thought of it is so exciting,” says Poonam. Is it a profitable business? According to Poonam, an investment of Rs 50, 000 can ensure a business that makes profits, within three months. She adds, “Although my time is not paid for and I have to find another revenue source to compensate, everything else, including my team of service employees, potters, and experts, are paid for by the sales of the product. I can still say that it has been highly profitable for me. I have made a lot of friends and get a lot of fulfillment when I sleep, being involved with such a good cause.”

I love the fact that I am a woman living in a developing Making it future perfect country, working with completely Poonam is currently working on designing a mechanical composting delow-tech ideas, addressing a vice, which she dreams would one day real urban problem and enabling be fitted into everyone’s house and it would become like second nature for someone in Florida to make people to use it. “Firstly, architectural money. Just the thought solutions are required to execute this project. Secondly, I need money to of it is so exciting. POONAM BIR KASTURI DAILY DUMP from my ideas,” says Poonam. She even helps her clones in setting up the business, locating the suppliers, and gives technical assistance related to composting. The first slot of material can be obtained for free from Daily Dump. On asked whether an open-source idea actually translates to increased competition, she comments, “Do you know how many people we need in this business before the waste is going to disappear from the society? Even if there are five clones of Daily Dump in Bangalore, the problem is so enormous, it won’t suffice.” Daily Dump has clones in Hyderabad and Chennai and more are expected to start up in Delhi, Pune and Chandigarh. There are clones in Dubai, Israel and China who have taken assistance from Poonam in setting up their business as well. The model is being replicated even in Flor-

travel to places in India and abroad, to show the product to people, as well as to educate them about composting. This, combined with a two-minute spoof on composting by a Rajnikant or Amitabh Bachchan, aired free on a Star TV or Zee, and I’ll feel like I have really achieved something,” she says. Again, she plans to make this an open source idea for small fabricators all over the country to start replicating. Whether it is constructing green buildings, using CFL lamps, driving eco-friendly vehicles or something as simple as replacing plastic bags with those made out of paper; everyone seems to be doing their bit to become a responsible, environment-friendly citizen. Poonam, by offering a range of composting products and ﬂexible service plans to households is not only doing her bit, but has also paved the way for about a 1100 customers, based in Bangalore and Chennai, towards beDAR E coming green citizens. MARCH 2008

DARE.CO.IN

taking on

the Chinese

onslaught

MARCH 2008

opportunity/toys

Time is ripe to enter the toy manufacturing business but you must brave the challenge from China and innovate to score big in the market /Vimarsh Bajpai

DARE.CO.IN

opportunity/toys

aresh Chawla has been in the business of toys for over a decade now. However, in the course of time, his role has changed from being a toy trader to that of a toy manufacturer. This Director of Welby Impex used to source toys from local vendors for export until 2001, when all of a sudden some vendors decided to exit the business, leaving Chawla in a lurch. He had orders in hand from his customers overseas but no vendors to supply. “So I decided to buy the factories and start manufacturing myself,” he says. His business has since grown eight times in terms of turnover, and he has introduced a number of new products. Chawla is among the growing breed of toy entrepreneurs in India, who are all out to brave the threat of cheap imports from China.

The Indian market The Rs 2,000-25,00 crore Indian toy industry has come a long way in the last ten years but is still far from beating China, which sold toys worth $7.1 billion between January and October last year in the international market. “Out of the about Rs 2,500 crore toy industry, around Rs 1,000 crore is in the organized sector and the remaining is in the unorganized sector,” says Vishnu Swarup Agarwal of Toy Association of India (TAI). The association represents 600 toy industry members, which includes dealers and manufacturers. The unorganized sector also comprises the companies that heavily import from China. There are around 300 toy manufacturing units in Delhi, and around 100 units in Mumbai. Several very small manufacturers dot Uttar Pradesh, Tamil Nadu and Punjab. This has made it extremely difﬁcult to estimate the correct size of the industry. However, Mattel, Funskool and Hanung continue to lead the toy business. After import restrictions were lifted in the late 1990s, Chinese toys ﬂooded the Indian market in a big way. Between 1999 and 2003, India was importing around 1.2 million toys from China every week. The Indian toy industry lost almost 80% of its market to

There is a huge opportunity in making limited edition toys. Anything that is not mass-produced in China can work in India’s favour. – PARESH CHAWLA, DIRECTOR, WELBY IMPEX Chinese toys. It is believed that only 200 of the 700 companies survived the onslaught. However, in the last ﬁve years, India’s toy industry is again on the upsurge. “The Indian domestic and export market is now growing. But we don’t want people who buy from China and sell here. The manufacturing opportunity is always open,” says Gulu Jhangiani, former president, All India Toy Manufacturers’ Association. Toy exports from India have almost doubled since 2003 from Rs 200 crore to Rs 400 crore. The industry is growing at around 20% annually. The growing market has led

India is ready to become a big base for toy manufacturing, and there is scope for new players to enter the market. – VISHNU SWARUP AGARWAL, TOY ASSOCIATION OF INDIA

to many closed businesses reopening shutters. The domestic market is also seeing robust growth, driven primarily by rising disposable incomes, increase in demand for quality toys and mushrooming shopping malls. Earlier toy sales used to happen mostly during Christmas. But that has changed now, with most companies clocking sales all round the year. But there are some dampeners too in the form of expensive raw material, stringent labour laws and high taxes. There are various segments in the toy market. Plastic toys rule the roost followed by soft toys, fabric toys, wooden toys and metal toys. Board games and educational toys are also gaining popularity. Metal toys are considered dangerous for children and over the years have lost popularity.

The China factor The US presidential candidate Barack Obama was in December quoted as saying that, if elected, he would “stop the import of all toys from China,” citing concerns about lead content. The statement created a furor in Beijing even as China’s foreign ministry issued a statement calling Obama’s expressions “irrational and unobjective.” The reaction was understandable in the light of the fact that more than 80% of the toys sold in the US carry the ‘Made in China’ tag. Obama, however, later clariﬁed that he was only referring to “harmful toys.” This incident came in the backdrop of Mattel, the world’s largest toy maker, having recalled more than 18 million China-made toys from the market last year, denting the dragon country’s image of being the world’s ‘toy factory’. The recalls were based on concerns about toxic lead paint and magnets considered harmful for kids. According to estimates, China exported over 22 billion toys in the international market in 2006, while till October last year, the Asian giant had sold toys worth $7.1 billion mostly in the US and Europe market. The extent to which China’s reputation has taken a hit post Mattel recalls can be gauged from a recent survey MARCH 2008

DARE.CO.IN

Toy-making is a lot about product development. If you want to export, you got to produce something different from what the world is offering. – GULU JHANGIANI, FORMER PRESIDENT, ALL INDIA TOY MANUFACTURERS’ ASSOCIATION released by the Fortune magazine. It shows that 57% of those surveyed in the US were “less likely to buy a product if it is made in China.” However, as much as 52% of the respondents said such an incident would not affect their purchasing decision if the product is made in India. With China’s fortunes dwindling in the US toy market, can Indian manufacturers make the most of it? The opinion is divided among the industry players. Some believe that most US companies would review their plans of sourcing from China and may look at India as a sourcing base but others say that China’s prowess is too large to be tackled. “India is ready to become a big base for toy manufacturing, and there is scope for new players to enter the market,” says Agarwal. However, Jhangiani doubts if Mattel’s recalls would create a huge opportunity for 74

MARCH 2008

opportunity/toys

Indian toy makers. “China’s manufacturing capacity is way above us. So even if you eliminate 300-400 of their manufacturers from the picture, there are still a lot of people there,” he says.

DARE/toy facts • China is the world’s largest toy manufacturer; between January and October 2007, it sold toys worth $7.1 billion in international market • Size of India’s toy industry: Rs 2,000-2,500 crore

The opportunity

• India exports toys worth Rs 400 crore

Experts believe that while there is deﬁnitely scope for new players to enter the market, there is an urgent need for innovation. The industry is craving for new designs and only innovation can help make a difference. Thus creativity is the name of the game. Indian manufacturers have been lacking in new designs, and have only been copying from China. This may change as the central government, in association with the United Nations Industrial Development Organisation (UNIDO) and the toy industry is planning to set up a toy design centre in Mumbai. The trio are said to have pooled in Rs 1 crore each. “Toy making is a lot about product development. If you have to export, you have to produce something different from what the world is offering,” says Jhangiani. He believes that some prior knowledge about toy-making would come handy. In the case of Welby’s Chawla, a vendor from whom he bought the unit worked with him for a couple of months and helped him understand the minute details of the business. Chawla has a word of advice. “Anything that is not mass-produced by China can work in India’s favour. In

• India’s toy industry is growing at around 20% year-on-year • More than 80% of the toys sold in the US are made in China • Increasing concerns about safety and environmental hazards • Mattel, the world’s largest toy manufacturer, recalled more than 18 million toys manufactured in China from the US market due to high lead content

the case of tin toys, China is also there but without mass production. So you have the opportunity to have limited edition toys,” he says. Also the educational toys segment, which comprises board games, is where Indian minds take lead over China. The soft and stuffed toys segment is another segment where India is giving China a big competition. The stuffed toys market is growing at around 25% every year. Hanung Toys is a leading player in the stuffed toy market. When it comes to setting up a toy manufacturing unit, the major investment is in land and factory shed. The cost could vary depending upon the location. “If you have land ready then getting the machinery is not very expensive. Within around Rs 10-15 lakh, you can get a fairly decent size of facDAR E tory going,” says Jhangiani.

DARE.CO.IN

/unique idea of the month

Evoma: Nurturing Budding Businesses Entrepreneurs struggling with setting up their ďŹ rst ofďŹ ce can now not only have one running within 24 hours, but also live leisurely in the same building /Shilpi Kumar

KAMEEL VOHRA CO-FOUNDER, EVOMA Every client has their own set of quality standards, price preference and time frame in which they want the work to be completed. There are companies that need us for as little as three months, before they are ready to venture out on their own, but at the same time, we even have companies that stay with us longer than a year. 76 MARCH 2008

Kameel Vohra (left) and Ashok Vohra (right), EVOMA

DARE.CO.IN

/unique idea of the month

s it a hotel or a business incubation center? Well, the beauty of it lies in the fact that it can be either, or even both. We are talking about Evoma, the brainchild of Ashok and Kameel Vohra, who term it as a “business incubation center that provides an optimum business environment for startups, small and medium enterprises, as well as multinational corporations to sustain and grow.” What is so unique about it? Fivestar hotels also provide you with similar facilities, right? Well, if you are an entrepreneur looking to set up your business in Bangalore, Evoma can assist you during that critical incubation stage of your business. From getting your company registered, taking care of legal matters, to ensuring the right infrastructure and recruiting, etc— Evoma helps in dealing with the plethora of issues that need to be addressed while setting up a company. Meanwhile, a considerable chunk of business also lies in their hotel facilities. Whether you are based in Bangalore, or just visiting the city in need of a place to stay in, think of the kind of networking that can happen in such a place! Not to mention the muchneeded change in ambience from the regular hotels. For entrepreneurs that are based out of Bangalore, this could also possibly mean having your place of work and your place of stay, all under one roof, giving you a “zero commute” beneﬁt.

Blending business with hospitality Apart from the services mentioned

DARE/big idea Sector: Incubation/Hospitality Big Idea: Providing emerging businesses in Bangalore with incubation facilities and solutions, blended with hospitality services. Target Audience: Startups, SMEs & MNCs Entrepreneurs: Ashok Vohra and Kameel Vohra Brand: Evoma MARCH 2008

DARE.CO.IN

above, Evoma also assists its clients with payroll services, travel desk and back-office services. For those who are still looking for a location to set up an office, Evoma provides a virtual office environment solution. This could include boardrooms or a simple one office desk, combined operational and support staff, Internet and telephone lines. So does an entrepreneur need to have a deep pocket to have such an office running? “There are no long term leases or hefty deposits. The virtual office environment is perfect for a company that doesn’t require fulltime premises, but wants to create the right impression for prospective clients. So, you can have an office up and running within 24 hours of signing up,” claims Vohra. Besides the entire gamut of services offered in the virtual office environ78 MARCH 2008

/unique idea of the month

ment, there is a range of individual facilities offered by Evoma. For instance, space and facility provision for training programs, meetings, video conferencing, etc. Coming to hospitality, Evoma’s 66room luxury hotel comes with café, bar, restaurant and garden banquet facilities. Other amenities include round-the-clock security, medical services, wi-ﬁ and broadband Internet connection, cable television and laundry service. Sounds like this is going to burn a hole in the pocket for sure, right? However, the costs vary from company to company, depending on the services they avail of. Some just need a place to operate from, whereas others are looking for assistance with everything starting from their paper work, to stationary, logo designs, Website, etc. As said by Kameel, “Every client has their

own set of quality standards, price preference and time frame in which they want the work to be completed. There are companies that need us for as little as three months, before they are ready to venture out on their own, but at the same time, we even have companies that stay with us longer than a year. Depending on the magnitude of the problem, the pricing alters.”

Gestation of the business Evoma was conceived about four years ago. This happened while Ashok and Kameel Vohra were working in Esco Audio Visual of the Esco Group. In their work role, they were setting up offices in India for the company. It is during this period that the idea of Evoma sprang up. “Although Esco already had offices in Singapore, Thailand, Malaysia and Indonesia, we faced a lot of difficulty in setting up an office in India,”

DARE.CO.IN

/unique idea of the month says Kameel, “We realized if this is a case with an established company like Esco, who already had offices in other locations, surely many other Indian companies must be facing a similar problem too,” says Kameel. After researching and evaluating, the Vohras realized that there indeed was a gap that needed to be filled. As Kameel puts it, “The available infrastructure is not flexible and there is no easy mechanism for setting up an office. The concept of Evoma evolved from this very premise.”

The tale behind the name Evoma, as a brand name is as unique as the concept itself. The Vohras were looking for something that did not have any implications in any language. Also, they wanted something distinct, so that people could look them up easily. “We came across the name Evoma while browsing through a list of possible names on the Internet. It suited our requirements since it did not mean anything else and would only refer to us,” says Kameel, “Just like Intel is Intel, Microsoft is Microsoft, Evoma would also just mean Evoma—the business incubation center,”

Taking the plunge How did Evoma, which now assists several others in getting established, get established itself? A mix of funds had them up and running. Evoma got private funding from the Featherlite Group and Esco Group. Besides this, Ashok Vohra himself had some funds that he could put in for Evoma. Even though the Vohras can’t quite recall the actual investment made for the ﬁrst

incubation center, the claimed investment for the second unit is a whopping $12 million. “We decided to get our first office building custom made to suit our requirement. This was to avoid taking on an existing building compromising on proper facilities, parking space, etc and then modifying it later. It took us around nine months to raise this building in Whitefield, Bangalore,” claims Kameel. During the time when the office was being built, the Vohras did a comprehensive market research. They contacted a lot of young businesses to understand their needs and mindset. At the same time, they were trying to figure out how to convince clients into availing their services. How did they reach out to their clients? “We started with trying to plough as many fields as we can. Then we waited to see which one we will be able to harvest,” answers Kameel. “Being a part of the entrepreneurial community ourselves helped a lot in spreading the word across.” This strategy is being implemented even now. “We get most of our customers through referrals and direct marketing. Our sales team of around eight people reaches out to emerging businesses, telling them who we are and what we can do to help them. Although advertising helps people in recognizing our name, it does not play a big part in bringing in clients.” Kameel says.

Hurdles in the way One obvious challenge at hand was tackling the drawing of parallels be-

tween them and hotels with business centers. As Kameel puts it, “For us, it was like asking how an apple pie was different from an apple. Making our customers believe that we were more than just a business hotel was extremely difficult.” Besides this, the Vohras had to provide customers with whatever they required and for that they had to ensure that the processes were properly in place. “Initially, companies would come asking for assistance with things we weren’t equipped with or had no experience of dealing with,” says Kameel. For the first 18 months, the Vohras constantly re-evaluated their policies and procedures. Additionally, there were regular checks for loopholes, so that a solution was in place for the clients’ problems and queries.” Another challenging aspect is providing businesses with staff. “We get the staff for the clients, i.e. operational, support, legal, accountants, etc from human resource outsourcing players. Finding the right players and getting them to recruit as per our customers’ requirements, is exceeding difficult,” claims Kameel.

Looking at what lies ahead When asked about plans to expand their business in the years to come, Kameel replied, “In terms of our services, we constantly change and improvise according to the demands of our clients.” In the years to come, Evoma is expected to start operations in Delhi, Mumbai, Pune, Chennai and Hyderabad. Sounds like good news for budding entrepreneurs wanting to set up DAR E a base in these cities.

Sun Startup Essentials Jumpstart your Startup For more information log on to: http:/in.sun.com/startup © 2007 Sun Microsystems, Inc. All Rights Reserved. For information on Sun's trademarks see: http://www.sun.com/suntrademarks. All other trademarks mentioned in this document are the property of their respective owners.

MARCH 2008

DARE.CO.IN

opportunity/manufacturing

Giving them a reason to be ﬁt!

In today’s fast-pace life, the growing clout of the ﬁtness, health, and wellness industries calls for a plethora of equipment to help them get there

/Binesh Kutty

he seventy-ﬁve year old stalwart of the Indian ﬁtness industry, Madhukar Talwalkar, gasps, “People are spending crores of rupees buying poison!” The poison he is referring to is cigarettes, ghutkas, and the other ‘injurious for health’ products. “The companies selling these are becoming billionaires,” he continues, “there is no reason why people like me, the ones who are selling life, should not be multi-billionaires.” The state-

80 MARCH 2008

ment is indeed thought-provoking. So, are there business opportunities that can be explored here? Gymnasiums, spas, health clubs, ﬁtness centers, and other such places are slowly showing an increase in people wanting to devote quality time to their body, mind and soul. It is evident by the fact that Talwalkars, the largest chain of ﬁtness centers, went from 15 branches to 47 branches in the last two-three years. Then, there are other

Indian entrepreneurs who are carving a niche of their own in this industry. Surya Vinayak Industries is all geared up for opening the largest chain of day spas in the country—about 300 spas in the next two years. Similarly, Advansys, an upcoming ﬁtness equipment manufacturing company based out of Pune, is in the process of launching India’s biggest chain of ﬁtness and wellness product retail chain. These indicators also hint at opportunities in one

DARE.CO.IN

opportunity/manufacturing of the very basic but very important infrastructure requirement of these businesses—ﬁtness equipment. China is at least 20 years ahead of India as far as the ﬁtness industry is concerned. Many of the big players from United States and Europe are sourcing from China, while undertaking some manufacturing locally. India holds a huge potential because these players are looking at building a secondary base, and that is where the real opportunity lies for Indian companies.

Health and fitness equipment: the importance As pointed by the fitness industry veteran, Madhukar Talwalkar, “One of the greatest benefits of equipment is motivating the exercisers,” he says. “Besides this, there are movements in certain exercises that one cannot do without equipment. It is an absolute necessity for health clubs and fitness centers to be equipped with as many types of equipment as possible. At home, one can do with less equipment.”

Who is the market?

DARE/target customers Corporate users Gymnasiums, health clubs, ﬁtness centers, hotels, spas, sports academies, military and paramilitary training centers, business schools, corporate companies, and many more. Home users Women looking at weight loss, looking good, feeling young and energetic Middle-aged people looking to prevent and/or control health problems Senior citizens looking for coping with their health problems, rehab Youngsters looking at bodybuilding Biomedical users Hospitals, physiotherapy clinics, rehabilitation centers

The international market is divided into two segments – home and commercial. In the commercial segment, equipment that is sold includes the strength-line and weight-training machines. In the last five years, various new technologies in induction motors, pneumatics, hydraulics, hydropneumatics et al, have surfaced in the weight-training line of equipment. The commercial market internationally is widespread. This includes fitness centers, hospitals, hospitality industry, construction industry, and more. Even the home segment internationally holds a phenomenal potential. As profiled by Talwalkar, “About 90% of the customers today are lifestylers, who want fitness, good looks, mental health and physical energy. These are high-spending customers who typically fall between the ages of 25-30 and 45-50 years. Customers in this age range either want to prevent such problems or control the problems

they already have. Besides them, there are many women and men who primarily come in for weight-loss. Then there are the youngsters between 18-25 whose primary interest is that of bodybuilding” Pankaj Balwani runs a company called Advansys based out of Pune, and does 100% manufacturing of fitness equipment in India and plans to cater to both, Indian as well as international markets. His segmented customer profile is that of senior citizens, women’s fitness (old age, gynecological problems, recovering after caesarean child birth, body toning, etc), and rehabilitation (cardiac, physical, neuromuscular, etc). Similarly, according to Niqi Kundhi, MD of Geo Spa Fitness, their line of products, i.e. home, professional, and biomedical range include a huge variety of products catering to one and all. In a dipstick survey we did by visiting various fitness equipment retailing outlets in Gurgaon, we found out that the market is slowly opening up. “There has been a substantial increase observed in the home users segment,” said a Senior Marketing Executive of Grand Slam Fitness, a company that retails various foreign brands here in the country. Clearly, the scope of the potential market is humongous. One other aspect that is blatantly ignored in India is that there is a captive audience on a platter, waiting to be tapped and serviced life long.

What are the challenges? Like in any line of business, gaining acceptance is a crucial element even in the industry of ﬁtness equipment. There has to be a need felt in the minds of people, especially in the countries of operation, to be ﬁt. While this mindset is prevalent in the western countries, the market in India is still not that open. “People in the western nations are the experimenting kinds and also indulge in fads,” says Kundhi of Geo Spa Fitness, “In India, however, the customer is of the questioning kind and would typically go only for the real deal.” MARCH 2008

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opportunity/manufacturing With the ﬁtness industry blooming, has there been an expansion strategy at Talwalkars? A couple of years back, we had about 15-16 branches across the country. In the last couple of years, we have had a rapid expansion and currently have 47 branches. By March end this year, we intend to have 8-10 new branch openings. By the year 2010, we are targeting to hit the 100 branches mark. In each of our established branches, we have an approximate turnover of around Rs 10-20 million. We are planning to go for an IPO by the year 2009-2010.

Can you mention some of the current trends in the fitness market? In the current scenario, we see a lot of activity in the metros and big cities. We call these customers Lifestylers. Lifestylers want fitness, good looks, and plenty of health and energy. Besides these, they also want a lot of additional pampering like massages. These are the customers with deep pockets. There is a tremendous market prevalent in providing them with good health clubs. Additionally, we see smaller cities and towns also slowly catching on to the need of being fit. One of the big problems that surfaced off late is that of proximity. Formerly, customers used to flock in at a popular brand health center. Now customers are putting in extra hours at the workplace and traffic is a major nuisance they try to avoid. There is a need for fitness centers to go closer to their homes and business centers. The challenge is in reaching out to them by setting up branches in smaller areas as well. We have to be dedicated and result-oriented for our customers. Ambience, personalized services, a little bit of pampering thrown in, like we see at five star hotels—these are the Madhukar Talwalkar, Chairman kind of things that keep the customers happy. There is no shortcut to being fit. Everyone in Talwalkars Better Value Fitness Group the family feels the need to indulge in fitness centers. However, they need all this without burning a hole in the pocket. For the fitness businesses, the challenge is to cope with the increasing property rates and keeping the fee affordable. Can you profile the customers for our readers? About 90% of the customers today are Lifestylers. These are high-spending customers who typically fall between the ages of 25-30 to 45-50 years. Besides them, there are many women and men who primarily come in for weight-loss. Then there are the youngsters of 18-25 whose primary interest is that of bodybuilding. Breaking down further, 60-65% of business for health clubs comes from ladies, who are usually looking for weight loss or fat loss. The main reason for this is because they opt for many other courses at the health clubs, such as massage, steam bath, services of dieticians, etc. Typically, here in India, we see health problems surfacing from the age of 30-35. Customers in this age range either want to prevent such problems, or control the problem if they already have one. But then, it seems that the habit of starting to dig a well only when we feel thirsty is still prevalent to some extent. After the age of 50, people should exercise more to remain fit. Out here, the idea is that walking and controlling diet is enough to remain healthy, without having to shell out a single paisa. Someone needs to tap these customers as well. Look at me, I am seventy-five and still so active. I regularly exercise and do weight training even now. I want people to take fitness seriously from the early age of 20. Even if people start exercising at the age of 75, I am sure there is an increased chance of living longer. With a fit body and mind, one can deal with family problems, like disputes, illnesses, etc more efficaciously. In your line of business, how important is fitness equipment? One of the greatest benefits of equipment is motivating the exercisers. The sheer availability of equipment to exercise with motivates the person to try it out and make most of it. The new line of equipment that we have shows the progress the person exercising is making on it. Besides this, there are movements in certain exercises that one cannot do without equipment. It is an absolute necessity for health clubs and fitness centers to be equipped with as many types of equipment as possible. At home, one can do with less equipment. Even more important is for these equipments to be bio-mechanically accurate. For instance, if I intend to do leg exercises, the equipment has to enable me to do exactly that. What do you look for in the equipment that you buy? We decide to buy equipment based on biomechanical accuracy, build quality, aesthetical appeal, brand, price, guarantee, etc. We buy a variety of equipment—sometimes all from one company and other times from many different companies. There is no preference on the country the equipment comes from. Just some time back we saw the manufacturing of an American company being done in Istanbul, Turkey. I do not doubt the quality control at remote foreign locations, but you can never be sure these days. So one should not blindly go for equipment that is labeled to be from a particular country. Another factor that affects the buying of equipment is the type of fitness center one plans to start. Do I want to start an ordinary fitness center or a high-class high-tech health club? Besides this, the locality the center is being set up in, the size of the premises, the 82

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opportunity/manufacturing fee structure that one has in mind, and other such elements make a difference in deciding on equipment purchase. Why is it that we are not seeing Indian brands making it big in the fitness equipment segment? We seem to be lacking the right technology, quality control, and mass demand. With manufacturers in India, there is a lot of customizing happening to fit the budget and tastes of customers, without quality control. Also, because of the lack in mass production, even rolling out with a premium price becomes an issue. Added to this is the mindset of the customers. One of the commonly asked questions by people joining health and fitness clubs is, “Do you have imported equipment?” However, there are certain entrepreneurs like Pankaj Balwani of Advansys, who are coming up with equipment manufacturing for foreigners in India. The new breed of entrepreneurs can bring about a change in the mindset of the people and make it big in the segment of fitness equipment. What do you see happening in the health and fitness industry in the next five years? The business of health and fitness has been around for several decades now. However, it is only in the last few years that we have seen this sudden upsurge in health and fitness centers. This is because more people are entering the field. Human resource available for running this business is not enough at the moment. However, even that is changing slowly, with lots of academies coming up, like we have our own academy, Talwalkars Fitness Academy. We are spending about Rs 30 million in training our staff. Soon enough we will see people like personal trainers, supervisors, management, marketing, salesman, doctors, etc, opting for this line of business. In the next couple of years, the certification of this workforce will become important. There is going to be an increase in the competition for sure. There are a lot of rich people, who are basically into some other line of business like builders, hoteliers, etc, who will be seen venturing into this field. Since they are not aware of health and fitness basics, they will be employing a team to do this for them.

Almost 10% of the US population is active and have some kind of fitness equipment at their homes. This could be because of their very outdoorsy culture. This naturally opens up the markets out there. In India, this is slowly happening, thanks to the enormous amount of information flow vide the Internet, television channels, media etc. Even spiritual figures like Baba Ramdev are fuelling the need to be fit and live a good life. Talwalkar adds, “One of the commonly asked questions by people joining health and fitness clubs is – Do you have imported equipment?” This depicts the lack of confidence of Indians in the Indian manufactured fitness equipment. Or simply the notion that imported equipment is better than what Indian companies can produce. Besides this, there is a bit of a snob factor involved as well; Indian manufacturers will have to massage the egos of the masses to be able to get into the good books of customers in India. Opportunity in the business of fitness equipments, as huge as it may sound globally, is also a very sensitive one. The idea is to improve the health of the buyers rather than experimenting and cashing in on them by selling fads. An observer of the fitness equipment industry, who spoke to us under the condition of anonymity, gave us an example: “Vibrating plates, as a technology, were selling like hot cakes at one point of time. In time, studies showed that products using this technology, without proper supervision, could be fatal for the user in the form of brain damage, heart attack, paralysis, and many such irreparable damages,” Developing and sourcing technology that has accurate biomechanics could be another hurdle for Indian players. In this line of business, one has to be a cut above the rest by staying abreast of the latest technologies and medical studies, and bringing out products that marry these together. Then there are patents and licensing of technologies used in manufacturing of products that manufacturers need to be aware of.

Finally, there are companies who have established branches across the world, including India, in operation for decades now. Since all the manufacturers share the same client pool, penetration into the base of one manufacturer by a newcomer will be a Herculean task.

What does it take to make it big? One of the keys to success in this business is understanding and knowing the customers’ body, and manufacturing products that can bring about positive and visible difference in their fitness level. Balwani, for instance, has done a full time course in fitness management and intends to continue doing many other courses to know the human body better. This knowledge helps in rolling out products proficiently and confidently. “We have over 5000 body composition scans across various regions of India. We collaborated with a company in

People in the western nations are of the experimenting kind and also indulge in fads. In India, however, the customer is of the questioning kind and would typically go only for the real deal. — NIQI KUNDHI MD, GEO SPA FITNESS MARCH 2008

DARE.CO.IN Korea to gather this data, working with lots of doctors, ﬁtness experts, etc. Based upon our research, it can be said without being speciﬁc but in general, genetically Indians tend to have weak muscle mass, low bone density, and slow metabolism, as compared to Americans and Europeans,” Balwani explains, “This can be due to a variety of reasons such as climate, eating habits, lifestyle, etc. Down the line, somewhere around the age of 40, Indians tend to have knee, lower back, and joint problems. They tend to put on more weight in the form of fat.” Apparently, the business approach of knowing the human physiology is working for him.

Cut-throat competition with the well-established players is inevitable while foraying into this segment of manufacturing. One of the possible reasons why Indian manufacturers are not making it big in this industry is the approach of making products to meet the budget of the customers. “It is a wrong approach to compromise on the quality and mechanics of equipment for doing so,” says Kundhi, “The clients in this business are not in it for a one-time deal; there is a captive audience on the platter. If the overall quality demands for the product to be expensive, so be it.” Further, according to her, once a quality product is out, marketing it is very important. Manufacturers in India have been observing the industry long enough to be aware of that. As a part of his strat84

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Advansys was started with a capital of Rs 100,000 of my own. The exposure to the fitness industry happened in this line of business. We started off with supplying engineering components to various international companies in industries closer to the fitness industry. For instance, we were supplying a lot of products for skin tanning companies in the US. — PANKAJ BALWANI, MD, ADVANSYS INDIA egy, Balwani has affiliated with many foreign companies and brands. Competitive pricing, mass manufacturing, bringing brand names under his belt, alliance with many international players, and building a good team are some of the key aspects he is working on. “We are manufacturing in India for the commercial and home markets, as well as to cater to the manufacturing requirements of the international companies.” Balwani continues, “At the same time, we will also handle the distribution and sales of many big international players here in India. We are already selling directly to the international market in collaboration with

two companies in Europe. We have the selling rights of those products for all of Middle East and Australia, which gives me a big foray. 100% manufacturing in India, they’ll market from Europe to USA, and we’ll do it from Gulf to Australia.” Like in any other business, carving a niche holds good potential. Advansys did the same by buying out Motor Motion, a UK based company. Motor Motion had a great business going on from 1980-95 in UK, as it specialized in motorized fitness equipment only catering to people above the age of 50 years and upwards. They never sold the products in the market, and manufactured exclusively for their fitness centers. Since the 50 years plus customer is a vastly ignored segment in the country, there is an exclusivity of the product. Balwani is all geared to capture this segment. There is an acute shortage of knowledge and training when it comes to using the purchased equipment. Even the trainers are at times overwhelmed by all the latest technology upgrades. Educating the customers and trainers is another aspect that manufacturers should have as a part of their strategy. Kundhi divulged that Geo Spa Fitness is coming out with a solution to tackle this problem very soon. Similarly, Advansys also has planned out a strategy for it. Talwalkars have already rolled out a solution for their staff of trainers. Says Talwalkar, “At Talwalkars Fitness Academy, we are spending about Rs 30 million in training our staff,” he adds, “Soon enough we will see people like personal trainers, supervisors, management, marketing, salesman, doctors etc opting for this line of business. In the next couple of years, the certification of this workforce will become important.” Even though there is no market size estimate available for the fitness equipment industry, everyone we talked to—Talwalkar, Kundhi, Balwani and few others—agreed that it is worth several billions of business. So, are you up for giving them all a reason to be fit? It could be a healthy DAR E business, you know.

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/event

Mentoring real India On 26th January this year, 225 technocrats got together in 16 cities to mentor entrepreneurs from semi-urban and rural India

“T

h e Me n tor-Ment ee interaction has been taken to a new scale with this event”, remarked Professor Chandru from Indian School of Business (ISB), Hyderabad, while delivering his speech in the Entrepreneurship Mentoring Programme held on 26th January in Hyderabad. An initiative of PanIIT - the alumni association of IITians, the Indus Entrepreneurs, 3iInfotech and the National Entrepreneurship Network (NEN) in collaboration with Times of India, it covered 16 odd cities in the country, viz, Ahmedabad, Bangalore, Bhubaneshwar, Chandigarh, Chennai, Cochin, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Mumbai, Patna and Pune. The event has many ﬁrsts to its credits: the sheer size of the number of entrepreneurs (1020) and mentors (225) attending the event across the 16 cities of the country where it was simultaneously conducted, the scale that was achieved and the kind of audience that turned up for the event. Across the 16 cities, the audience was an optimal mix of around 500

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startups, 200 working professionals, 150 growth-stage companies and around 170 students. Most of the entrepreneurs belonged to regions of the country which are still counted as small-towns or villages. In this sense, the programme truly reached out to the semi-urban and rural India, where although entrepreneurship thrives at several levels, it hasn’t reached appropriate scale owing to lack of resources and proper guidance. Presiding the event in ISB, Hyderabad, Dr. A P J Abdul Kalam, the former President of the country, took the bull by its horns when he mooted the idea of One VillageOne Product. He egged the IITians of the country to take on one village each, guide it in developing a product and market the same globally. Webcast at 15 other cities, he answered queries received realtime from all the 15 other cities. His speech marked the very spirit in which the programme was conducted – taking mentorship to the next level, to the real India! Most of the mentoring was done on a one-to-one basis, wherein one mentor interacted with one

entrepreneur for a specific amount of time, over and above a general mentoring session. Queries ranged from those in strategy and operations to those in finance and legal issues. The Mentors included B Muthuraman (Tata Steel), Pradeep Baijal (Ex-TRAI), Pramod Chaudhari (Praj Industries), R N Khanna (Controls & Switchgear), Saurabh Srivastava (Indian Angel Network), Ashank Desai (Mastech), Pradeep Gupta (CyberMedia) and 200 successful IITians In Bangalore, around 12 startup and concept-stage companies presented their ideas to the Mentoring panel, which included K Ganesh from TutorVista. All other cities saw a proportional mix of startups, early-stage companies and students. The event was, as Pradeep Gupta – PanIIT member and Chairman of Cyber Media – exclaimed, the fulfillment of a promise made in 2006 to former President Dr. Kalam, that the technocrats of the country would come together and cover the last mile in organizing a Pan-Indian entrepreneurship deDAR E velopment programme.

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strategy/startup

more than just With the market being ultracompetitive and high on style, it is not enough to just have a good product—it has to score good on looks too /Chhavi Tyagi

DARE/eye on design? keep this in mind Good design does not come cheap. Design is as much a philosophy as it is a process. It is important that all stakeholders be actively involved right from start. Each product influences the overall brand and the brand in turn influences the product design. The design has to be evaluated for cost as well as the price the market can bear. Manufacturing capability to execute the final design is critical. Once you have finalized the design get it registered. The rights to the design belong to the client and not to the designer. Ensure that this is clearly agreed to right at the beginning.

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strategy/startup

hat is it that makes the consumers choose one product over the other? What are the reasons? Where does the difference lie? Mukund Bhogale, Managing Director, Nirlep Appliances explains: “The difference lies in product designing. The markets have been getting competitive and most products tend to be ‘me-too’ products in the market. A professional product designer can deliver a better design in terms of consumer usage by adding on small features that make the product more marketable and give it a competitive edge.” Nirlep, a familiar name in the nonstick cookware and accessories market, realized the importance of good product design way back in 1968 and has been using the services of Elephant Strategy + Design, a Pune-based design ﬁrm for the last 15 years. Since the company deals in a segment where the overall shape of the products is very similar for all the brands, Nirlep extensively uses design of handles, grips, etc to differentiate its products. For instance, one of their pressure cookers has a place on the knob to park the spatula so that it does not touch the usually unclean kitchen platform! When the economy opened up, it paved the way for global players to enter the Indian market. The common Indian realized that there is a lot more he/she could add to his/her life. And the fast-emerging competition forced the Indian companies to realize that in order to survive more was needed, in terms of better features, excellent product interface, impeccable quality, and appealing styling.

The Indian experience has been a new lesson for foreign companies that entered India with their products. They realized that in order to sell their goods in India, their products and their design needed to be in tune with the Indian customer’s psyche. Deepali Saini, Director of Think Design, whose clients include Whirlpool and Marico, talks about the increasing recognition for product design. “We are moving more and more towards a consumerist society. Earlier it was simpler, you either had copies of imported products or you imported them. Now most of the international brands are present here, and they are not just importing their products and dumping them on Indians. They are selling their products to Indians and so they want their products to be speciﬁcally designed for the Indian market.”

How to go about it A designer today comes into the picture as soon as an idea is conceived. Says Pradyumna Vyas, Chairman of Educaton, NID, “How is a brand established? With design. Brand and design, you can’t separate them. For a product, brand is very important, like for Mercedes or Titan. In the making of a brand design becomes very important. It’s a packaged deal. If you say Philips is a good brand it means that Philips is providing a good service, good technology and a good design.” A company looking to get a product designed starts with a marketing brief to the design company, which includes a rough sketch of the requirements of the product. The design ﬁrm then takes it up and usually does its own design re-

DARE/how to register your design A design can be registered under the Designs Act 2000 if it fulfils the following requirements: a) It’s new and original; b) It has not been published; c) It is significantly distinguishable from known design or a combination of known designs; d) It does not comprises or contains scandalous or obscene matter; or e) It does not have any functional features i.e., the functionality of a specific design does not enjoy any protection under the law. Initially, the Patent Office provides a filing number and issues the filing receipt. Thereafter, the application is examined by an Examiner of the Designs. The Patent Office generally issues an Examination Report within 2-3 months of filing of the application to which a response has to be filed within one month of the date of issue of the Examination Report. Thereafter, the Examining Officer may call the applicant/agent for a hearing to present her/his case before the Examining Officer. If all the concerns of the Examining Officer are addressed and resolved to her/his satisfaction the Design will be entered in the Register of Designs. The term of the protection of design is for 10 years in India further extendable by another 5 years by payment of the renewal fee after which it will fall in the public domain. search in the market to study how consumers will react to the product, which colors are selling more in the market, why are certain shapes preferred by the consumers, etc. That forms the groundwork of a design project. Says Saini, “We start from scratch and the actual design comes at a later stage. We conduct a competitive study, a marketing survey, a consumer study, etc. All this is much before the drawing board stage. We might also suggest some more features for which certain

Design gives the consumer an experience and not just a product, which, in turn, leads to a loyal customer base. This is one area where investments are small when compared to the beneﬁts a company can get out of it. — MUKUND BHOGALE MD, NIRLEP APPLIANCES MARCH 2008

DARE.CO.IN

strategy/startup

It takes time for a startup to realize the worth of design. A startup is also, more often than not, cash-strapped and thus does not have funds to invest in designing, which is an area that requires huge investments. — ASHISH DESHPANDE ELEPHANT STRATEGY + DESIGN technology has to be developed or certain engineering has to be done. All this process, though, is done hand-inhand with the engineering department of the client.” The time involved in the whole process, however, depends on the type of the product. Small products, like some FMCG products, do not take more than a few weeks, but if it’s a bigger product, then it takes at least a few

It’s not just that now a person can afford to buy a fancy fridge or a much better washing machine with better features. It’s also that they are more aware of what is available internationally so the competition has really gone up.

— DEEPALI SAINI DIRECTOR, THINK DESIGN

90 MARCH 2008

months. For instance, a Horlicks bottle, says Saini, will not take more than 3-4 weeks for the whole process, that is, from doing the user survey down to the ﬁrst mock-up. But a bigger product like a refrigerator takes a few months depending on the size of the refrigerator, on the complexities involved in the whole process, etc.

Aesthetics vs. Ergonomics The only way to get the most out of your product is to get your designer to deliver a perfect combination of aesthetics and ergonomics. When designing a product all of these factors attain equal importance. Design is perceived as a process that improves the overall quality of the product and gives out a perfect combination of styling and functions. Both of these factors assume equal importance for the client as well as the designer. Because of globalization today’s consumers have become more aware of the choices that are available not only in their own country but also internationally and they are not going to spend money on something that is either not easy to use, or is easy to use but is not easy on the eye. However there are some products for which the importance of these two factors varies. For example, in the case of jewellery or a wristwatch, the aesthetics are more dwelled on as compared to a product like medical equipment for which ergonomics assume the highest importance.

Startups and design The needs of an established brand for product design are as great as that of a startup.

Says Achal Bakeri, Managing Director, Symphony Comfort Systems, “Product designing is as relevant for a startup as it is for an established brand since it is the design of the product that builds a startup into a brand.” Symphony, which makes the Sumo range of air coolers, has been investing in product designing since 1988, the year it started off. But startups do not always take this view. Ashish Deshpande, Founder and Principal Designer at Elephant Strategy + Design puts it well when he says “An established brand is more designsavvy than a startup as it understands the need for design more deeply. Often it takes time for a startup to realize the worth of design. A startup is also, more often than not, cash-strapped and thus does not have funds to invest in designing, which is an area that requires huge investments.” With the forever-changing needs of consumers and technology going obsolete, design has become a reiterative process. Mukund Bhogale talks about the continuous need for design, “Every now and then all the established brands revamp their entire range. These changes generally go hand in hand with brand positioning, upgradation of packaging or the way the brand is perceived in the market. All of this have been associated with some change in the product design itself”. Product designing helps in customizing products to the altering needs of the consumers by adding on features, making complex technologies user-friendly and thereby providing a wholesome experience, which in turn, helps in making the product DAR E more marketable.

revealed! their research magazine When it comes to buying digital products, consumers today like to take informed decisions. Living Digital is the one magazine readers invariably turn to for research on such products. Armed with in depth reviews and analysis, Living Digital provides them with valuable insights into technology usage in the personal space to help them make purchase decisions with confidence. In a world spoilt for choice, Living Digital is the most trusted magazine buyers turn to for enhancing their digital lifestyle.

www.livingdigitalindia.com

/CMIL/02/08

experts say most consumers buy digital products only after careful research

Entrepreneurship Week India 2008 ‘I

s there an entrepreneur in me?’ would seem to be one tough question to answer, especially if one happens to be in a college campus. Dream jobs, fat salary packages, parental and peer pressure – students feel it’s not always easy to explain to the world – or themselves – that they don’t want a 9-to-5 job. That they itch to be different and start out on their own. That they want to be entrepreneurs. Entrepreneurship Week India, launched by National Entrepreneurship Network (NEN) and held from February 2-9, 2008, acknowledged the spirit of entrepreneurship living in the hearts of millions of young people across India. In its second year, the public awareness campaign celebrated today’s opportunities and engaged individuals in building an entrepreneurial ecosystem in the country. E Week was co-hosted by The Indus Entrepreneurs (TiE), India Venture Capital Association (IVCA), Indian Angel Network (IAN), Proto.in and DARE. Corporate sponsors include Symphony Services, HSBC and Himalaya. Almost 2,00,000 students from 270 institutes across 30 locations participated in over 2,500 events, of incredible variety, during E Week. E Week Yatra From Kolkata to Indore, Delhi to Coimbatore, the spirit of entrepreneurship was brought to life by young Indians across campuses. E Week Yatra captured the energy in campuses across seven cities through the seven days. A snapshot:

Ever heard of an ‘infrastructure entrepreneur’?: MS Ramaiah Institute of Technology t is not an oft heard event: Students partnering with a civic agency to expedite a delayed infrastructure project. But that is one of the many things the E-Cell members of MS Ramaiah Institute of Technology were up to this E Week, helping out the Bangalore municipality at the construction site of Cauvery junction underpass. The MSRIT E-Cell students volunteered to supervise some of the labour to relieve the site engineers to focus on other priority issues. The team, with the help pf a thermocol model, is also creating awareness about trafﬁc ﬂow to passing road users. Some even test-drove a JCB! As MSRIT E-Cell President Abhishek explained it: “The real classroom is here. We couldn’t think of a better way to celebrate the spirit of entrepreneurship.”

DAY 1: RE BANGALO

E Cell members at the construction site at Cauvery junction

MARCH 2008

Living the E Week spirit: IPS Academy ven on a Sunday, the dullest day of the week in a small town, students of IPS Academy were busy organizing events for E Week. An ambitious signature campaign grabbed attention. Hordes of students crowded over the massive ﬂex displays set up in the academy portico, to give their support to the EWeek pledge. The display itself was crammed with signatures, scribbles and good wishes. The students had increased the social relevance of E Week by mobilizing funds and clothes for blind and differently-abled children. The students set up makeshift shops in leading shopping malls to sell the artwork made by these children, through the week.

DAY 2: INDORE

IPS Students sign on the E We ek pledge board

Sharing is the key: IIT-Bombay

DAY 3: I MUMBA

fear most often expressed by aspiring entrepreneurs is: “If I tell someone my idea, will they steal it?” Allaying such apprehensions was Dheeraj Gupta, founder of the famous vada pav brand Jumbo King, who in his talk at IIT-Bombay took the opposite stance. Sharing ideas is the key to success, he believes. “We all have good ideas but we don’t share them with people because we fear they will be stolen. That was the biggest mistake that even I made,” Gupta said. Gupta tried twice to brand Indian sweets, back in early 2000, but both ventures ﬂopped. “If only I had shared it with others, they might have warned me that the market was not ready, or advised me to do things differently,” he felt. For Gupta, it was a lesson well learnt. So when he decided to explore the vada pav market, he shared his plan with everyone who came his way. “I even approached the supply chain managers of Mc Donald’s, Subway and Dominos for their inputs. That helped.” “I have come to realize that people are too busy implementing their own ideas, and nobody has the time to copy. It is a baseless fear,” Gupta concluded.

Dheeraj Gupta of Jumbo King

MARCH 2008

DAY 4: KOLKATA Look who’s here…: NSHM Knowledge Campus t The campus was in a tizzy, thanks to the presence of celebrated writer-thinker Peter De Bono. During his walk through NSHM, someone asked him a smart question, and got a smarter answer. Q: “Sir, do you feel entrepreneurs are born or made?” De Bono: “Made, of course. Only bodies are born, my dear.”

Gyan Gurus: Jaypee Business School

E Cell faculty and students at Jaypee Business School 94

MARCH 2008

Peter De Bono with students at NSHM campus

he panel discussion began with the most frequently asked question: “Who here wants to be an entrepreneur?” The number of hands that went up took the panelists – entrepreneurs Prajakt Raut, Chandan Agarwal and Vijay Vashee – by surprise. Almost everyone in the audience wanted to become an entrepreneur. “I feel a start up is the most successful wealth creating device,” said venture capitalist Vashee. India is the place to be, felt Vashee, who is now advising new entrepreneurs in the US to look at India. To those seeking the “right formula”, Agarwal gave a shrug. “If you ﬁgure out that there is money in an idea, and if you are ready, then just do it,” said this IIM-A alumni. Raut chose to be a little cautious in his approach. “Unless you have an idea that can’t wait, it’s better to gain some corporate experience,” he said. By all accounts, the students were listening.

DAY 5: DELHI

DAY 6: RE O COIMBAT

E Cell members of PSG College of Technology Unlikely pair: MOP Vaishnav College for Women

Code Red: PSG College of Technology emember the ‘Give Me Red’ Eveready battery ad that shook all with its raw energy over a decade ago? That same color and energy ruled PSG College of Technology during E Week. The E Cell members were literally camping in the E Cell ‘command center’, visiting their hostel rooms only to catch a midnight nap. Nearly 600 SMS updates on E Week were sent out every day. The events were big hits. The treasure hunt was a riot with over 300 students registering for the event. The ‘Live the Dream’ documentary ﬁlm festival received 16 entries across colleges. The women entrepreneurs’ conclave brought a different perspective to their activity.

DAY 7: I CHENNA

own the narrow road at over-crowded Sowkarpet lies the tiny shop of Venkat Iyer, a cobbler who, on a good day, makes Rs 200. Iyer’s fortunes promise to change, thanks to the entrepreneurial vision of a young design student of MOP Vaishnav College for Women. Preeti is now training Iyer to produce eco-friendly designer slippers. “Iyer used to make low cost slippers using spare leather strips. That’s when I thought – Why don’t I source waste cloth from tailors and use them to make trendy slippers?” she said. Iyer’s new line of business will get a kick-start when he participates in the MOP annual bazaar in March, where he will open shop in the campus and create slippers for students. Preeti plans to price the slippers at Rs 170. Iyer is thinking of investing his earnings back into the business, and dreams of becoming a wholesaler someday. Preeti’s innovation plus his own willingness to risk a new venture – the combination could change Iyer’s life.

Preeti (centre) and her friend Saru Priyanka with Venkat Iyer (left)

E Week reﬂection: Beginning of a revolution Entrepreneurship stands for belief, passion, creativity and back-breaking hard work. All of these, and much more, were celebrated this E Week. It has created a new appreciation for the energy and power of India’s future entrepreneurs. According to Laura Parkin, Executive Director, NEN, E Week lived up to its motto: Together, We Can. We Will. “We are overwhelmed by the creativity and dedication shown by young people across the country. Their effort, their leadership is already showing results. Tens of thousands of people are newly engaged in building an entrepreneurial ecosystem. Students are energized. And more future entrepreneurs are poised to build a stronger, richer India,” she said. “In its DAR E own unique way, E Week has, indeed, sparked a revolution!” MARCH 2008

DARE.CO.IN

/event

Entrepreneurship is fun, say students NEN’s second Entrepreneurship Week ends with a bang, and a lot of memories for the 200,000 students participating. /Sreejiraj Eluvangal

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el College by Mount Carm A fashion show at Bangalore ony closing cerem 96 MARCH 2008

staged at the

ntrepreneurship is not a something you normally associate with fun, but the 700 or so college students gathered at Bangalore’s St John’s auditorium on a Saturday evening were determined to prove otherwise. The closing ceremony of NEN’s second Entrepreneurship Week resembled a rock concert as groups of students screamed, shouted and jumped as any mention of their colleges was made through the 3-hour program. “When we started the E-Week, the students were all worried about getting placements. Starting out on their own was not even considered an option,” says Janardhan Rao, secretary of the Entrepreneurship Club at the PSG College of Technology, Coimbatore. “By the end of it, the students at least know what entrepreneurship means.” The second E-Week saw around 200,000 students participate in a variety of events–talks, workshops and symposiums, competitions and even a cookery event–from the nearly 250 institutes that have tied up with the Wadhwani Foundation’s National Entrepreneurship Network or NEN. “They have surprised us by what they have achieved,” says NEN’s executive director Laura Parkin. “They formed partnerships with radio stations, walked into corporate ofﬁces, organized street rallies, went on trips to government ofﬁces.” During the week, for example, PSG’s E Club held 25 events, including even a visit to an orphanage and talks by industry veterans. “Having a platform like the E-Week gives us a chance to show everyone what we are capable of. Otherwise, being in a smaller city, we don’t get that much attention, no matter what we do at the college,” says Rahul Sakhamuri, one of the 600 students

who have enrolled as members of the E Club at PSG, out of a total 7,000. Started with the aim of spreading awareness about the option of entrepreneurship among the youth, students say it was not just the awareness that was raised through the event. “What we learnt in our organizational behavior class was tested when we tried to put together so many events,” says Jyotsna Kumar, MBA student at Bangalore’s International School for Business and Media. Jyotsna’s club organized a total of 230 events, including interactions with entrepreneurs and even one based on caring for the environment. “The entire week passed like a dream,” says P Tanuja from the same city, wistfully. Indeed, as Parkin says, all that NEN really gave the students were “a date, some posters and a Website.” Parkin, who got the idea of the EWeek from a conversation about a similar event elsewhere, when she was in the US for a summit, says the Indian experience has been unlike any other. “It has a different character than what you seen in, say, Stanford. There, it’s about innovation and venture capital, here it’s also about commitment to the country. The students have been extremely caring, the PSG club even organized a trip to the orphanage,” she notes. Thrilled by the response NEN has got, the organization is now focused on making the event even bigger. “We want to make it open source, open it up to non-students and involve young companies and startups too. We don’t expect people to become entrepreneurs just because they have been through this event. But if the next time they want to buy something or join a new organization, if this event makes them take a second look at a startup, that’s DAR E good enough,” she says.

DARE.CO.IN

Boatman, ﬁsherman, construction worker…. This entrepreneur at the bottom of the pyramid has to keep changing roles just to keep home ﬁre burning 98 MARCH 2008

xxxortunity/xxshion

s the sun rises over the Cillika, Lingaraj Behra, along with a hundred other boatmen like him start the daily wait for passengers at Barakula, one of the four embarkation points into Asia’s

DARE.CO.IN

xxxortunity/xxshion

largest brackish water lake and bird sanctuary. Season is in winter and even then, more people hire boats to visit the nearby temple of Kallijai than to go see the birds. Each trip can take upto ﬁfteen passengers and earns six hundred rupees for the round trip to Kallijai or nine hundred to go bird watching. Out of

the nine hundred, Lingaraj gets to keep six hundred and sixty; six hundred because he is the owner of the boat and another sixty because he is his own boatman. A part goes to the boatmen’s association which regulates the boat trafﬁc and also pays a stipend to those boats which did not get any trip that day. The rest goes for fuel.

This family of six, including his wife, two daughters and two sons lives a part of an extended family of eighteen along with his brothers. Between the brothers, they have managed to purchase two large passenger boasts and two smaller fishing boats. The passenger boats carry a price tag of about a lakh each and are financed by the local moneylender at 3% per month (which incidentally corresponds roughly with the interest rate on your credit card). How are the earnings? The answer is a wry shrug. “During peak season, I can expect two to three trips a day and as winter gives way to summer, it becomes an all too futile wait with a hundred boats competing for the few travelers who drop by”. And it is then that Lingaraj gives up being guide to those seeking the blessings of kallijai. The Chillika also is famous for is its fresh water shrimp and fish. Shrimp from here enjoys a good market both locally and abroad. Come summer, Lingaraj dons the garb of a fisherman and swaps the passenger boat for one of his smaller fishing boats. According to his own estimates, (which were revised upwards many times) he makes upwards of twenty five thousand every season from fishing. And as the fishing season comes to a close, Lingaraj changes his line of business, yet again. He becomes a construction laborer! Till the season changes and it’s time to launch the passenger boat again! Talk to him about the long term and his eyes light up. From nothing, now they are the owners of four boats and have a house, albeit a straw one to call their own. His two sons have followed him, dropping out of school to take up fishing; but his daughters are in school. And his biggest dream? To build a pucca house- one of bricks and concrete . Finally, does he really have to keep switching professions round the year? The answer comes straight at you without even a pause to think – “If I do not change at the right time, there will be no food for that day for my family.” D A R E MARCH 2008

Organizations DARE.CO.IN

covered in this issue, in alphabetic order; ﬁrst appearance

3iInfotech ........................................... 86

Friends of Women World Banking ..... 24

Marico ................................................ 89

SIDBI ................................................. 22

Frost & Sullivan.................................. 17

Mastech ............................................. 86

Silicon Valley Bank ............................ 26

Aavishkar Goodwell Microﬁnance Fund ............................. 26

Funskool ........................................... 73

Mattel ................................................. 73

SKS Microﬁnance .............................. 26

Future Capital Holdings ..................... 32

Mc Donald’s ....................................... 93

ABI Research .................................... 37

GEM India Advisors ........................... 32

Mercedes ........................................... 89

Society of Indian Automobile Manufacturers ................. 14

ABN-AMRO ....................................... 22

Geo Spa Fitness ................................ 81

MetricStream ..................................... 66

Sona Koyo Steering ........................... 14

Aditya Birla Group ............................. 40

GlobalGiving ...................................... 60

Microsoft ............................................ 46

Spandana .......................................... 22

Advansys ........................................... 81

Google ............................................... 48

Mitsui ................................................ 17

Spectrum Value Partners ................... 36

Airbus ................................................ 11

Grameen Capital ............................... 23

monster.com ...................................... 43

All India Toy Manufacturers’ Association ........................................ 73

Grameen Koota ................................. 24

MOP Vaishnav Collge for Women...... 95

Sri Bhagwaan Mahaveer Jain College ....................................... 96

Grand Slam Fitness ........................... 81

Mount Carmel College ...................... 96

Allcargo Global Logistics ................... 17

Grant Thornton .................................. 11

American Express ............................. 44

MS Ramaiah Institute of Technology..................................... 92

Amtek Auto ........................................ 14

Guildford School of Acting and Dance ......................................... 38

ANZ ................................................... 54

Hanung Toys ...................................... 73

Aavishkaar ......................................... 23

Apple ................................................. 49 Asmitha Microﬁn ................................ 22 Axis Bank........................................... 22 Bandhan ............................................ 22

HDFC................................................. 22 Helen Keller Foundation .................... 39 Helion Venture Partners..................... 43 Himalaya ............................................ 92

Srishti School of Art, Design and Technology ..................... 71 Standard Chartered ........................... 22

N.S.Raghavan Center for Entrepreneurial Learning .............. 14

Star TV .............................................. 71

Naspers Ltd ....................................... 35

Subway .............................................. 93

National Entrepreneurship Network... 86

Sula Vineyards................................... 28

National Institute of Design................ 18

Surya Vinayak Industries ................... 81

NDS ................................................... 35 Nirlep Appliances............................... 89

Swashrayi Mahila Sewa Sahakari Bank ................................... 22

Nokia ................................................. 35

Symphony Comfort Systems ............. 90

NSHM Knowledge Campus ............... 94

Symphony Services ........................... 92

Omidyar Network ............................... 11 Oracle ................................................ 28

Talwalkars Better Value Fitness Group .................................... 80

Outsourced CFO ............................... 52

Tata Group ......................................... 14

Pan-IIT ............................................... 86

Tata Motors ........................................ 18

Philips ............................................... 89

Tata Steel........................................... 17

Pineapple Dance Studios .................. 38

Tata Toyo............................................ 14

Planetasia .......................................... 55

Telecom Regulatory Authority of India ............................................... 35

Stern School of Business .................. 49

BNP PARIBAS ................................... 22

HL Capital Partners ........................... 52

Bosch................................................. 14

Horlicks .............................................. 90

Bosch Chassis Systems .................... 14

HSBC................................................. 22

Canaan Partners ............................... 43

IBM .................................................... 66

Caparo Engineering........................... 14

ICICI .................................................. 22

Cashpor ............................................. 26

IDBI.................................................... 22

Chemoil ............................................. 20

IIM-Ahmedabad ................................. 94

Citibank.............................................. 22

IIM-Bangalore. ................................... 14

Club Oasis ......................................... 56

IIT-Bombay......................................... 93

Collabera ........................................... 55

Indian Angel Network ........................ 92

Columbia Paciﬁc ................................ 26

Indian Overseas Bank ....................... 22

Consultative Group for Assisting the Poor .............................. 24

Indian School of Business ................. 86

Controls & Switchgear ....................... 86 Crisis.................................................. 55

Information Technology Senior Management Forum ............... 66

Crocs ................................................. 21

ING Vysya.......................................... 22

CyberMedia ....................................... 86 Daily Dump ....................................... 70

Institute for Financial Management and Research .............. 24

DARE ................................................. 92

Intellecash ......................................... 24

DC College ....................................... 18

Intense Technologies ......................... 62

Dell India............................................ 43

International Development Leaders... 61

Deloitte Touche .................................. 47

IPS Academy .................................... 93

Deutsche Bank .................................. 22

Irdeto ................................................. 35

Dominos ............................................ 93

Jaypee Business School.................... 94

Dow Jones Venture Source ............... 11

Ji-Grahak ........................................... 44

Elephant Strategy + Design ............... 89

JM Financial India Fund .................... 26

Securities and Exchange Board of India (SEBI)......................... 53

Esco Group........................................ 78

jobsahead.com .................................. 43

Seedfund ........................................... 42

V3 Logic............................................. 55

ESOP DIRECT .................................. 63

Jumbo King........................................ 93

Sequoia Capital ................................. 26

Victory Arts Foundation ..................... 39

Evoma ............................................... 76

KEYNOTE ESOP............................... 64

Seva Mandir....................................... 60

Welby Impex ..................................... 73

Facebook ........................................... 48

Kinetic Engineers............................... 14

SEWA ................................................ 22

Wharton Business School ................. 66

Featherlite Group............................... 79

KPMG ................................................ 10

Sharada’s Women Association .......... 22

Whirlpool ........................................... 89

Federation of Automobile Dealers Associations ........................ 18

Legatum Capital ................................ 26

Sharda Motors ................................... 14

WTO .................................................. 30

LG ...................................................... 36

Share Microﬁn ................................... 26

Yahoo................................................. 46

Ford Foundation ................................ 24

Lok Capital......................................... 26 Lotus Mutual Fund ............................. 62

Shiamak Davar’s Institute for the Performing Arts.................................. 38

Yes Bank............................................ 22

Forum of Women Entrepreneurs ...... 66 100

MARCH 2008

Indivision India Partners .................... 32

Praj Industries.................................... 86 Prime Database ................................. 53 Proto.in .............................................. 92 PSG College of Technology ............... 95 Reliance............................................. 44 Reliance Power.................................. 53 Reserve Bank of India ....................... 23 Rohan Group ..................................... 55 Rohde & Schwarz .............................. 36 Rucha Engineers ............................... 14 Saadhana .......................................... 22 Samsung ........................................... 36 SBI ..................................................... 22 Screen Digest .................................... 37 Seagram’s ......................................... 28

The Bamboo Store .......................... 102 The Indus Entrepreneurs ................... 10 Think Design...................................... 89 Thomson ........................................... 35 Titan................................................... 89 Toy Association of India (TAI) ............ 73 Transport Corporation of India ........... 17 Transystem logistics .......................... 17 Transystem Logistics International .... 17 TU Media ........................................... 37 TutorVista........................................... 86 UBI..................................................... 22 United Nations Industrial Development Organisation (UNIDO) .. 74 Unitus ................................................ 24 UTI Mutual Fund ................................ 62

Zee .................................................... 71

People DARE.CO.IN

covered in this issue, in alphabetic order; ﬁrst appearance

A P J Abdul Kalam, Dr. ...................... 86 Achal Bakeri ...................................... 90 Ajay Kumar Kapur.............................. 52 Alok Mittal .......................................... 43 Amitabh Bachchan ........................... 71 Anosh Irani ........................................ 40 Aseem Narain .................................. 103 Ashank Desai .................................... 86 Ashish Deshpande ............................ 89 Ashok Vohra ...................................... 76 Aswath Damodaran ........................... 49 B Muthuraman ................................... 86 Baba Ramdev .................................... 83 Barack Obama................................... 73 Bharati Jacob..................................... 42 Bill Clinton ........................................ 39 C K Shastri ........................................ 62 Chandan Agarwal .............................. 94 Chandni Ohri ..................................... 26 Chandra Shekhar Ghosh ................... 24 Cherian M J ....................................... 64 Christopher Mitchell ........................... 24 Dan Sandhu....................................... 42 David Ogilvy ...................................... 69 Debbie Allen ...................................... 39 Deepali Saini ..................................... 89 Devi Shetty ........................................ 14 Dheeraj Gupta ................................... 93 Dilip Chenoy ...................................... 14 Dilip Chhabria .................................... 18 Dodhi Pathak ................................... 103 Friedrich Nietzsche ............................ 55 George Soros .................................... 11 Glen D’mello ...................................... 39 Gulshan Ahuja ................................... 18 Gulu Jhangiani................................... 73 Harish H V ......................................... 48 Harshad Mehta .................................. 53 Harshu Ghate .................................... 63 Howard L. Morgan ............................. 66 Irawati Gowariker ............................... 55 Janardhan Rao .................................. 96 Jatinder Duggal ................................. 36 Jawahar Bekay .................................. 55 Jayant Tewari ..................................... 49 Jishnu Hazra...................................... 17 Jyotsna Kumar ................................... 96 K Ganesh........................................... 86 K Kumar............................................. 14 Kalpana Jain ...................................... 47 Kamal Nath ....................................... 10 Kameel Vohra .................................... 76 Kanwaljit Singh .................................. 43 Ketan Parekh ..................................... 53 Kerry Damskey .................................. 28

Khorshed Bhavnagri .......................... 38 Kylie Charlton .................................... 24 Laura Parkin ...................................... 95 Leonard M. Lodish ............................. 66 Lingaraj Behra ................................... 98 Madhukar Talwalkar ........................... 80 Mahesh Murthy .................................. 42 Malika Anand ..................................... 26 Michael Douglas ................................ 39 Minhazz Majumdar .......................... 102 Mukund Bhogale................................ 89 Murad Baig ........................................ 14 Nadia Hunterwali ............................... 38 Narayana Hrudayalaya ...................... 14 Niqi Kundhi ........................................ 81 P K Jain ............................................. 17 P Tanuja ............................................. 96 Padmaja Reddy ................................. 26 Pankaj Balwani .................................. 81 Paresh Chawla ................................. 73 Peter De Bono ................................... 94 Poonam Bir Kasturi ............................ 70 Pradeep Baijal ................................... 86 Pradeep Gupta .................................. 86 Pradyumna Vyas ............................... 89 Prajakt Raut ....................................... 94 Pramod Chaudhari ............................ 86 Prashant Gokarn ............................... 36 Pravin Gandhi .................................... 52 Prithvi Haldea .................................... 53 R N Khanna ....................................... 86 Rahul Sakhamuri ............................... 96 Rajan Anandan .................................. 42 Rajeev Samant .................................. 28 Rajnikant............................................ 71 Ratan Tata ......................................... 12 Richard Gere ................................... 39 Robert Viswanathan Chandran.......... 20 Royston Braganza ............................. 23 Sam Walton ....................................... 20 Sanjiv Kainth...................................... 35 Saurabh Kaushal ............................... 37 Saurabh Srivastava ........................... 86 Shakespeare ..................................... 59 Shekhar Pimplekhare ........................ 56 Shellye Archambeau ......................... 66 Shiamak Davar .................................. 38 Shylock .............................................. 59 Suhas Lunkad.................................... 56 Tridib Mahanta ................................. 104 Venkat Iyer ......................................... 95 Vijay Vashee ...................................... 94 Vineet Rai .......................................... 23 Vishnu Swarup Agarwal .................... 73 Yusuke Taishi ..................................... 24

DARE is not an acronym. It represents the daring spirit of the entrepreneur. The red color for the R of DARE represents the ﬁre in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R. The entrepreneur dares to do things. (S)he dares to do things differently

SMS “DARE <your comments, questions or suggestions>” to

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opportunity/agri

Bamboo offshoots

The business of bamboo products is a Rs 2,500 crore market, which is only a small margin of its actual potential! /Shilpi Kumar

t is a small store with a big dream. The dream is to promote bamboo as a viable eco-friendly alternative to wood and plastic. As you walk in, you see a variety of bamboo lamps and bamboo planters resting on the ﬂoor of the shop. Shift your eyes to the shelves and you ﬁnd yourself in bamboo heaven. From bamboo toys, bird feeders, wind chimes and candles, to CD racks, trays, bags and baskets—you name it, and they have it! They even have an ‘eco-bathroom range’ with bamboo soap dishes, toilet paper holders, towel stands, and bath mats and toothbrush holders.

MINHAZZ MAJUMDAR OWNER, THE BAMBOO STORE In places like Uttar Pradesh and Rajasthan, people have access to what is going on in the market, which is why they are entrepreneurial. But the North East, where bamboo is amply available, has been isolated geographically, politically and economically. To orient them to produce for such a large market, even though they are familiar with working with bamboo, becomes exceedingly challenging. 102

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opportunity/agri Bet you didn’t know that bamboo could be used for making so many products. Well this is exactly what The Bamboo Store based in New Delhi is set out to do. Supported by the National Mission on Bamboo Applications, the store aims to create awareness about the tremendous potential of bamboo both for handcrafted and industrial products. How was such a store conceptualized? Says, Minhazz Majumdar of The Bamboo Store, “After working with bamboo for over a decade with The Earth and Grass Workshop, I realized that people only knew about bamboo craft, and were oblivious to its industrial usage. Bamboo flooring, corrugated bamboo roofing, bamboo charcoal etc are relatively a new concept in India, if not completely unheard of. Bamboo needed to be promoted in a more efficient manner”. Does this account for a new opportunity for entrepreneurs? According to Minhazz, it is a definite yes! “Entrepreneurs can work in conjunction with designers and traditional craft communities to create innovative bamboo products. Being the second largest in bamboo production, if we can just get the bamboo artisans community to become organized, we will definitely go places in terms of bamboo exports”.

Where do we stand? According to Aseem Narain, of the National Mission on Bamboo Applications, the global market for bamboo is about Rs. 50,000 crore and is expected to double by the year 2015. The annual turnover of the bamboo sector in India is around Rs. 2500 crore, but it has a potential of Rs. 4500 crore. “The annual harvest of bamboo in India is 13.47 million tons, but the current demand is about 26.7 million tons,” claims Aseem. Even though there are around 130 species of bamboo, spread across several parts of India, 80% of the world’s bamboo comes from countries like China, Japan and Malaysia. India accounts for a mere 4% share in the global market. 65% of the bamboo harvested

in India is used for non-commercial purposes. As Minhazz puts it, “There are about 1500 documented uses of bamboo but in India, most of it is sent to mills for paper production. There is obviously a huge gap between the present and potential yields”.

What’s in a bamboo? Bamboo is extremely sustainable and has proven to be a survivor in even the harshest of conditions. It is no wonder that it can be found in several parts of India, including Assam, Orissa, Bihar, Kerala, Tamil Nadu, West Bengal, Madhya Pradesh and Uttar Pradesh. Bamboo is also one of the fastest growing plants with an extremely large biomass production. It takes about 3-5 years to mature and is easily renewable in comparison to most wood species that take between 12-20 years. Bamboo’s strength and physical characteristics also make it a viable alternative to wood. “Nature’s band-aid” is what Minhazz likes to call it. “Bamboo roots bind soil together, helping to prevent soil erosion. It also generates 30% more oxygen than other trees, making it a better ecological option for green cover and the puriﬁcation of air,” she says.

What can be done? When it comes to bamboo, the sky is the limit. All you have to do is use your imagination and anything is possible. Take the example of Dodhi Pathak, who could not afford a bicycle for himself, and therefore constructed one with the cheapest and easily available raw material, bamboo. He is even known to design a set of artiﬁcial teeth, made out of bamboo for himself, with which he happily eats all kinds of food, including mutton and ﬁsh. Are these ideas too crazy for you to venture into? Perhaps, you can try your hand at bamboo packaging. As Minhazz puts it, “Be it for packing clothes, like a re-usable shirt box for example, or hand-woven baskets for fruits, the advantages are tremendous. There will be less trash and there will be optimum utilization of the tremendous

DARE/potential bamboo products for business • Shoots • pickles • cutlery • construction material • furniture • fences • canoes • bridges • walking sticks • chopsticks • toothpicks • incense sticks • food steamers • toys • hats • martial arts weaponry • musical instruments • flooring • decorative pieces • fabrics • sports equipment (skateboards, surfboards, skis, polo balls etc), • beers • perfumes • medicines from bamboo extracts • paper pulp • handicrafts • vinegar • charcoal • mat boards • ply boards • mat corrugated sheets • packaging • interiors • curtains • screens • room dividers • table mats • household items • framed mirrors • handbags • hair clips • containers • footwear • pre-fabricated bamboo housing • cages craft-skills present in our country”. In urban areas, lifestyles have changed and there is great emphasis on novelty, style and presentation, which could translate bamboo packaging into a potential business opportunity. Bamboo fabric is a segment yet to come into India. It is known to have natural antibacterial properties and said to have an extremely soft feel. Products made out of bamboo fabric, including clothes, towels, bed sheets etc are considered to be luxury items. Or how about bamboo flooring, paneling, stairways and furniture like stools, chairs and sofa sets? You could also be in the business of bamboo décor. Bamboo is increasingly finding its way into home interiors, as it not only has an advantage of stability and endurance, but it also looks extremely elegant. According to Minhazz, it’s like “sitting on nature’s lap”. Another possible business opportunity is supplying bamboo as a construction material. Bamboo is widely being used by construction engineers, since it is light but stiff, anti-combustive and pest-resistant. Bamboo mat corrugated sheets are also slowly replacing cement-corrugated sheets at construction sites. Experts claim that MARCH 2008 103

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opportunity/agri Tridib Mahanta’s journey from being a statistics topper to an award winning bamboo craftsmen is quite an intriguing one. On the 24th of November 2003, Mahanta, on the request of his daughter set out to make a fork carved out of bamboo. “I sat down to make it at 9PM and by 3AM, I had made my ﬁrst fork. This changed my life forever,” says Mahanta. Soon enough, the craftsman from Assam was getting orders from his relatives and friends for making bamboo cutlery sets. Today, his bamboo cutlery can be seen in various crafts exhibitions across the country and he has even been appreciated for his creative mind and excellent work with bamboo products by A.P.J. Abdul Kalam. In the year 2006, Mahanta was also awarded the UNESCO Seal of Excellence certiﬁcate for his eco-friendly range of cutlery. Ask him if he has faced any challenges on the way and he replies, “The only problem I face is justifying the cost of the products to customers. They don’t believe that it is hand-made and that the carving requires a lot of intricate detailing. Often, I get customers sarcastically asking me, whether the cutlery is made out of gold!” Mahanta is currently on a mission to make the world’s smallest cutlery set out of bamboo, which he wants to pitch in for The Guinness Book of World Records.

TRIDIB MAHANTA the rise. “Bamboo has a great potential to be the 21st century material. Just like there are paperless ofﬁces, I hope to see a wood-free environment, with What lies ahead? As people are becoming ecologically everything made out of wood in homes aware, there is an immense need for and ofﬁces replaced by bamboo,” substitutes for wood and plastic. The says Minhazz. In the coming years, cultivating demand for bamboo products is on bamboo is also expected to play a key role in the stabilization of environmental problems. First of all, bamboo’s rapid growth ensures an effective reconstruction of damaged eco-systems. Secondly, it can provide a solution to the increased carbon dioxide emission, as it absorbs the gas in large amounts, replenishTridib's miniature cutlery paving its way to The Guiness ing the air effectively. Another concept that is Book of World Records bamboo makes for an excellent reinforcement for concrete.

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Tagged: “1st piece I made on the night of 22-11-2003”

bound to catch on is of pre-fabricating bamboo housing for disaster management. Bamboo housing can be easily constructed, is affordable and sustainable, giving it an advantage over other construction materials. A prototype house built entirely out of bamboo has already been tested at the Earthquake Engineering and Vibration Research Center in Bangalore, aided by the Britain-based Timber Research and Development Association (TRADA). According to TRADA reports, the house was subjected to the highest magnitude earthquake, but even the paint did not crack. There is a lot of scope for many such houses to be set up, especially in lands that are prone to earthquakes. Bamboo's potential for usage from pure aesthetics to functional utilities will alleviate its status from the “poor man’s timber” to DAR E that of “green gold”.

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Entrepreneur of the month – VSS Mani, Just Dial Unique idea of the month – The Royal Time Machine A 19 seater luxury bus, ﬁtted out in an early Mughal setting, with drinks and snacks, LCD screens and multi lingual voice-overs can earn an annual revenue of Rs. 1.75 crore How to get Private Equity A comprehensive primer for those seeking PE. Insights from entrepreneurs who have done it, how they went about it and leading PE funding agencies The business of better environment Call it a concern for environment or plain economics, many businesses around the world are striking gold in 'green' pastures Generic pharma & patents Will the upholding of Section 3(d) of the Patents Act by the Madras High Court be the end of the battle between patent holders and generic manufacturers Farming for caviar Captive sturgeon farms for caviar could earn millions. Russia, Japan and US are doing it. UAE is following suit. Can we replicate it? Radio cabs: a business of Rs. 7,210 crore • Case Study - Hidesign • Angel investing in India • Apprentice youself to an entrepreneur

106 MARCH 2008

Entrepreneur of the month - Shahnaz Husain

FEB 2008

Unique idea of the month - Timond Watches Bitten by the retail bug, Jewellery maker Chain and Chain forays into the competitive luxury watch market with Karan Johar as brand ambassador

Entrepreneur of the month RC Agarwal, Vishal Retail

How to get VC funding Too many entrepreneurs are chasing too few VCs even as the funding market hots up. Few things to help you improve your chances of getting funded

Investor of the month Srini Vudayagiri, Lightspeed

Organic Farming Highly fragmented and lacking mature players with scale, this sector could well offer a few hidden treasures Dreaming big for Darjeeling If France can build a multibillion dollar tourism industry around wine and champagne tours; why can't we build one around Darjeeling tea? Opportunities in telecom infrastructure Release of more telecom spectrum to new players opens up new opportunities in the infrastructure space Rs. 6,000 crore in waste management • Case Study - Ittiam • Prepare yourself to start a company • Women entrepreneurship in India

Entrepreneur of the month - Ajay Bijli, Priya Village Roadshow (PVR) Investor of the month - Bala Deshpande, ICICI Venture

Unique idea of the month Ek Mutthi Anaaj A campaign with the belief that a handful of grain is all it takes to eradicate hunger

A complete guide to debt ﬁnancing Credit ratings explained The big business of fashion Explore the opportunities that exist in the Rs. 1, 30,000 crore Indian apparel market Wine making is a Rs.1, 700 crore business Rural Tourism There lies a Rs. 4,100 crore opportunity in unraveling various facets of village life and letting tourists spend some time in the lap of nature Business of Pet Grooming With a handful of players and a potential of Rs. 300 crore, snipping and clipping pooches is a big business in the making Second Life Is taking your business to the virtual world a good idea? • Case Study- Indus World School • Early-stage funding in India • A brush with failure

Unique idea of the month - Babajob.com Three entrepreneurs combine social networking with online job search for the beneﬁt of unskilled workers How to get Angel funding for a startup Windfall proﬁts in carbon trading Kyoto Protocol turns reduction of pollution into a revenue generator Opportunities of Rs. 5,500 crore per year from parking lots Opportunities in mobile apps New avenues open up for content companies and application developers as bandwidth increases for mobile data The business of Spas As healthcare moves beyond treatment to wellness and people get ready to pay more for being pampered, this business is set to boom • Case StudyEnchanting India • Manage your team's relationship network • Can you win in China?

Entrepreneur of the month Chetan Maini, REVA Electric Car Co. Investor of the month - Raman Roy, Indian Angel Network Alternative Investment Markets All about the sub-set of the London Stock Exchange; what the London School of Economics called the world's leading stock market for young and growing companies Intrapreneurship in Indian companies How it helps both, the employee and employer, unlock their hidden potential and take the innovation route Opportunities in packaged lunches Changing lifestyles and longer working hours have led to a sharp growth of the packaged food and ready to eat (RTE) meals business in India. Go ahead, grab a slice of the pie! Opportunities in BPO driver training This small segment of the entire gamut of opportunities at BPOs holds a potential of Rs 780 crore by the year 2010 Corporate governance for listed ﬁrms The route to an IPO is paved with tough decisions and a lot of hard work, which needs to be continued even after listing. This piece walks you through the essential compliances to be met pre and post IPO • Case Study- TutorVista • Family Businesses: Growing next gen entrepreneurs • Why entrepreneurs need integrity

RNI No.DELENG/2007/22197 Posting Date: 5th & 6th of every month. Posted at Lodi Road HPO.

DL(S)-17/3314/2008-09-2010