publication a
Vol 2 / Issue 12 / Sep 08
/Rs 30
WATCH OUT! common mistakes entrepreneurs make
Business of Luxury Stores Preschools: Franchise or your own?
entrepreneur of the month/
Amit Burman, Dabur India investor of the month/
Digital distance education
Alok Mittal, Canaan Partners
Boom in agricultural equipment
Cow urine therapy for cancer
Community radio: Startup time? Global opportunities: Finland
unique idea of the month/ columns/
Going the last mile – the power of point of sale Slow Growth and Ination The calling of an entrepreneur
Vol 2 / Issue 12 / SEP 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
Chairman & MD, Biocon
R Gopalakrishnan
Executive Director, Tata Sons
Philip Anderson
Professor of Entrepreneurship, INSEAD
Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Aswathi Muralidharan Binesh Kutty Mohita Nagpal Shilpi Kumar Sreejiraj Eluvangal Vimarsh Bajpai OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Imran Ali Dayanath Levaj Jagadeesh Nivedita Dwarkanath Naveen Barsainya
MARKETING Associate VP West West South South South South-East Asia
/cover story
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WATCH OUT! common mistakes entrepreneurs make
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 and Rajhans Enterprises, 134, 4th Main, Industrial Town, Rajajinagar, Bangalore-10. 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
Business of Luxury Stores
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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, # 14-03 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.
94 pages including cover
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SEPTEMBER 2008
Around two million Indian households spend about $10,000 per year on luxury and premium products and service. Should you be in this space?
DARE.CO.IN
/contents
60
opportunity/ Agricultural Equipment Business ............. 50 Is the time right to launch a community radio station?...................... 53 Preschool and Nursery business: Franchise or start on your own? ............... 82
entrepreneur of the month
Amit Burman
Dabur India
He is the fourth-generation promoter of a century old and tremendously popular company – Dabur. Amit spoke to DARE about the challenges he faced, the opportunities that he sees, and more…
blogs/columns Rupin Jayal ............. 22
global opportunities/
opportunity/
16
Guide to distribution business
While money could determine the products an entrepreneur gets to distribute, it is his salesmanship, networking skills, and the knack for providing value-added services that ensures lasting success in this business
Business opportunities in Finland ............ 66 society/ Two Cart Strategy helps vegetable vendor reduce losses ............... 90 events/ CEO Summit on Global Opportunities...... 70
Paranjoy Guha Thakurta ... 75 investor of the month/ Alok Mittal, Canaan Partners
Anurag Batra ........... 78
audio book
Alok Mittal is the Managing Director for Canaan Partners’ India operations. In India, Alok focuses on building companies in the fast-growing wireless, technology and Internet domains.
books brand
business cabs chauffeurs come companies
company cost crore customer customers delhi entrepreneurs fleet good goods hand
house india industry
just like make manufacturing market number passion people
publishing radio resort says search
second services share start time traffic tree used value want world year years
42
39
innovation/ Alternative therapy products based on cow urine Patented products based on cow urine help in the treatment of AIDS, cancer, skin ailments, heart diseases, diabetes, blood disorders, respiratory disorders, and many more such diseases. They also make a great business idea
others / Exchange ............................................... 10 Feedback ............................................... 15
from the website / blogs ..................................................... 26
NEN / Best Businesses of the future, found today ... 76 Angels want skin in the game ................ 80 SEPTEMBER 2008
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www.dare.co.in
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blogs/edit
A year and counting I am sure that as we embark on our second year, we have your good wishes and that you will be with us as we together explore the frontiers of opportunity and entrepreneurship
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his issue is a milestone of sorts; this is our twelfth issue. We complete a full year in print. The past one year has been a completely out of the world
experience for all of us here at DARE. The people we met, the questions we asked, the questions we were asked, the type of articles we wrote... frankly, when we first set out to create DARE, we had absolutely no idea that it was going to be like this. From advice on legal issues and what businesses to start, to matchmaking requests for partners and funding, the type of questions we get every day and the type and depth of comments that we get at our website are proof enough of what your expectations from us are. I hope that we have lived up to your expectations. But, it is quite possible that we were not geared up to meet your expectations fully and so have failed you in some measure. If that has been the case, then, on behalf of all of us here at DARE, my sincere apologies. In the year ahead, we will try even better to meet your information needs. I am sure that as we embark on our second year, we have your good wishes and that you will be with us as we together explore the frontiers of opportunity and entrepreneurship. Thank you once again. PS: The winners of the “Who will be the next manufacturing super power?” contest will be announced at www.dare.co.in on 15 September 2008.
/Krishna Kumar
SEPTEMBER 2008
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WWW.DARE.CO.IN If I were given 10 Crores now, I would spend it on starting a new business/product line 45 61.6% making my products better 11
15.1%
infrastructure, IT & offices 7 9.6% advertising my products & services 6
8.2%
I would invest it in the market 4 5.5% Number of Voters : 73 First Vote : Sunday, 27 July 2008 18:37 Last Vote : Tuesday, 05 August 2008 03:37 If I were to start a new business now, I would choose to startup in.. IT / ITES /BPO /KPO 51
32.5%
Social sector 26
16.6%
Transport / Travel / Tourism 23 14.6% Manufacturing / Auto / Auto anciliaries 20
12.7%
19
12.1%
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Published: August 2008 Vivek S. Pande was seeking a marketing partner for his company PrincipalSoft Technologies. Nandini Vaidyanathan had invited entrepreneurs seeking mentoring to get in touch with her. Response: August 2008 I am working as a Software Configuration Engineer and I don’t have my own company yet. I am looking for some innovative idea to start my own venture. I would like to partner with PrincipalSoft Technologies. As well as I want to contact Nandini Vaidyanathan. Kinjal Vohra
I have been reading your magazine for the past 5 months. I am happy that such magazine has been released for budding entrepreneurs like us. Let me introduce ourselves. We at Blue Lotus are into Knowledge Industry. We have set up this business for quite some time, and have spread our reach in Tamil Nadu and Andra Pradesh. We are looking for all India presence in two years time frame. We have been concentrating on building our strength on delivery mechanisms and have been pretty successful too. We have not been focusing on any activities of branding and marketing. We now need a mentor who would help us move to the next level of organizational marketing from entrepreneurial marketing. Kindly help! Chitra Shivakumar
10
SEPTEMBER 2008
Published: July 2008 g for guidance for plans Urvashi Ved was lookin road, and also sought to setup a venture ab d VCs. funding from intereste 08 Response: August 20 ow from I would be eager to kn e type of Urvashi Ved about th is willing business venture she e uritius is among th to go into, and if Ma sed ort listed, as I am ba countries she has sh in Mauritius.
R. Dharkhan
working as an I have spent 4 years al ant to help internation independent consult ment, before leaving clients in web develop ce job. I have recently 10 years full time servi b th focus to provide we formed a company wi of dia. I have a team portal services for In ed ers, and have develop designers and develop a can be considered as a web portal which t. “First In India” concep , fundraising are of DARE articles on VC issues related to these great help in knowing d l person, valuation an topics. Being a technica g ng for me. I am lookin fundraising is a new thi s. help me on these issue for somebody who can to you if you can I would be thankful ht hope I will find the rig publish my request. I my business growth. person to help me in Rakesh K. Sidana
Please write to us at marketing.india@emerson.com or call us at 18002096070(Toll Free No.)
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Published: July 2008 Arvind Tolye of Delta Group invited entrepreneurs to grab a business opportunity on the launch of his new men’s brand apparel. Response: August 2008 1.
I want to enquire about Delta Business Group of South Maharashtra (DCR Limited,
from Kolhapur), with reference to their note printed in July 2008 issue and regarding their new launch of menswear “Confido”. I request to provide me with more information on this firm and this specific offering. I reside in Ahmedabad, and am interested in this offering. Ranjeet Singh 2. I am from Bangalore presently freelancing in creative field. I was planning to start up a business on my own, and as per your July 2008 issue in Exchange column, Mr Arvind Tolye (DCR Limited, Kolhapur) has mentioned a business opportunity. It sounds interesting to me. I kindly ask you to forward me the details of Mr. Tolye to know more details about that franchisee offer. Sangamesh K 3. I am from Chennai and am interested in the master franchisee opportunity of Delta Group for their newly launched brand of men’s wear. Ramesh R.
We are a growing company based in Bangalore serving global clients in e-learning, i.e. online content development. We are in the process of completing our flagship online learning product now for India after putting 1.5 years of rigorous research and development efforts. The product is meant to teach English speaking in all Indian languages using Voice-Recognition technology. Using this software, the learner will communicate in English with the computer using their computer microphones. This will be the first of its kind product in the world for using multiple Indian languages to train in English Speaking. We have plans to further enhance the product to train in French, German and in other European languages also. We are looking for funding of around 4-5 crores (in stages) to launch this product in the market. We want to target majority of Internet cafe’s all over India to be our franchises apart from internet users at home who want to learn English speaking. We are also open to partner with an established/upcoming marketing company to market our products globally. Sunjay Aryan, CEO, GDR Media Limited
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SEPTEMBER 2008
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I accidentally got an issue of DARE, and I must say that it really impressed me. I believe there is tremendous scope in having our own power plants; hence I am doing some work on biomass-based business. I do not have any knowledge about processing, supply chain handling, cost effectiveness, and marketing the product. There is a huge opportunity out there as our survey indicates that there is a market for a plenty lot of forest products. I am very impressed by your unique idea of the month, Earthy Goods and
I came to know from
DARE business maga
-
n for lp to obtain bank loa zine that you may he new projects. oiler chicken growing I have a new project. Br trucoiler farm is under cons and marketing. The br . li district of Tamil Nadu tion in the Thirunalve ar about Rs 50 lakhs I am in need of ne for a you please negotiate for my project. Can collateral free loan? Chandrababu Pillai
Services. I am interested in working with them. I also need help regarding biomass related projects, partners and investors because it’s a rural based project. Arthur Karwar
I am in the process of setting up an LPO (Legal process offshoring) in tie-up with a law firm which has over 45 years of legal experience. The LPO is still in the nascent stage. While there are dime a dozen LPOs in India,
an express cargo I am the promoter of We company in Chennai. distribution services d ely only to metros an offer services exclusiv formed). I want to do it is a start-up (newly awareness for my compromotions to create I am looking for guidpany services. Hence, soar higher. ance from a mentor to rvices Nagraj, Sai Express Se
I am looking to capitalize on the sound 45 years experience to gain a foothold in this space. I am looking at UK, US and the Indian markets. I am looking for marketing professionals who would provide me with clients on a commission basis. Further, it would be great if professionals would provide more inputs relating to the LPO domain. Gomathi Krishnamurthy
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SEPTEMBER 2008
nt brick kiln and ce-
I want to start a ceme
shmir. I will be highly ment tile factory in Ka d nce that can be provide obliged for any guida d tion about its scope an by giving me informa t. king the project repor how I can go about ma GH Mohmmad Bhat
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I spent 7 years out of India (5 in US, 2 in Europe) working initially in technology sector and then in development as a management consultant for the United Nations Organization and NGOs. Only recently (6 months back) I decided to move back to India solely with the conviction to do something on my own, to contribute to the growth of India through an enterprise. I have plenty of ideas with me but have been struggling to: 1. Find concrete ways to operationalize them, 2. Understand the way business gets done in India at various levels, and how to go about setting up specific aspects of an enterprise, 3. Access business content which is contextually relevant, and 4. Read about and meet like-minded people who could work with me, and/or keep me motivated. Well, I have only spent a few hours looking into your site but I must say it feels like having found an incredible resource (almost akin to getting your hands on to a lifejacket when jumping into a swimming pool for the first time) Nevertheless, one feature that I could not find on your website was getting connected to other people either through the website or through other websites (such as LinkedIn). Inderpreet Singh Chawla
I
n one of the issues a few months back, I had noticed an article re-
garding “Outsourced CFO” wherein you had also published photograph of a person with name and email address, who provides the aforesaid services. I need to have a copy of that article and I would indeed be grateful if you can help. The purpose is to contact the author of the article for preparation of a presentation and a business plan for a new entrepreneurial project. Virendra Hajela Chairman – Estel Group
T
hank you a ton for the very useful articles and the passion you bring into it to ignite the hidden potential inside people like me who want to start a business. I really appreciate the article on the mango kernel extracts and would like to receive some technical advice required to make it happen. R Dharkhan
T
his is concerning the article on ‘The market for second-hand goods’. You can’t believe how timely this article is for me because about 2.5 months ago I launched my website for good quality seconds called www.seconddealnsteal.com and it’s got almost all the categories you mentioned in this article in addition to some which you’ve not mentioned like showpieces, carpets, lamps, etc. I realized there was a need for this because I found it difficult to sell well maintained furniture in my home when it was being renovated. People wanted things free or the junk dealer wanted to buy it by the kilo. Plus I’ve been lucky enough to spot
deals in really unexpected places...so I’ve created this platform for other people to find their own good bargains. Do check my site out and please tell your readers about it. Manali Rohinesh
I
am a lecturer at K S School of Business Management Ahmedabad. I am doing Ph D in the area of venture capital financing in India with a special reference to Gujarat. I have just read the previous issue of Dare magazine from the library of my college. It is really a very good magazine with lots of information relevant to my area of research. I have written research papers on the theme of entrepreneurship in India. I am also surveying angel investing in India through a questionnaire. I am currently pursuing a study on the preferences of new age entrepreneurs towards financing their ventures in India. I would request you to share the information related to entrepreneurs and venture capitalists in India, (particularly entrepreneurs from Gujarat) and help me in pursuing my research. Bindiya Pathak
I
am interested in setting up an industry for extraction of mango kernel oil in my home town in Tamil Nadu. It will be useful for me if you could provide information as to who will give technology and who can set up this industry in turnkey basis. Rangarajan
SEPTEMBER 2008
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DARE.CO.IN
opportunity/distribution
Guide to distribution business While money could determine the products an entrepreneur gets to distribute, it is his salesmanship, networking skills, and the knack for providing value-added services that ensures lasting success in this business /Vimarsh Bajpai
A
jay Misra (name changed) ran a profitable distribution business of firefighting equipment for ten years before slipping into the red in 2005. When Misra had entered the distribution business, there were only a handful of manufacturers and importers of such equipment in the country, and the Uttar Pradesh government was his only customer. Over the years, he developed good contacts in the state bureaucracy and won some big tenders more than once.
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Supply Chain Flow Chart Manufacturer Wholesale Distributor Dealer Retailer Consumer Manufacturer Retail Distributor Consumer Manufacturer Super Distributor Rural Distributor Village Retailer Customer However, as times changed and competition increased, Misra failed to take note of it. The number of manufacturers of such equipment more than doubled in a decade, while the
size of the market he catered to almost remained unchanged. Misra’s margins slowly started dropping; he did not diversify into other products, failed to provide value-added services, ignored
DARE.CO.IN
opportunity/distribution automation of processes, and relied solely on the government as the customer. He finally closed his shop last year only to take up distributorship of a fairly new product. The face of distribution business has changed over the years. It is no more about just storing your products, and sitting pretty believing that the retailer will come knocking at your door once he is out of stock. Today’s distribution business is about value-added services, understanding the needs of your customers (both retailers and end-users), good networking skills and master salesmanship. “The function of the distributor’s warehouse has changed from being a storage center to a distribution center and now to a value-added service center, creating a unique and vital link in the manufacturer-to-end-user supply chain,” says Prashanth, Managing Director, Lectra Technologies. “The distribution business is a great opportunity for entrepreneurs, and there is a lot of scope for this business to grow. But you got to provide efficient service and have a greater reach,” says Vinod Sambrani, management consultant and trainer.
Roles and Responsibilities The distributor is a key link in the supply chain that starts with the manufacturer and ends at the customer. He plays that important role of “pushing” the product from the manufacturer to the retailer, and in turn makes money. He works at the business-to-business level, wherein he interacts with the retailer and not the end customer. But this can be no excuse for a distributor to plead ignorance when it comes to understanding consumer behavior. This is because, in the end, he is supplying products for the consumer, whose buying habits could make or break his business. Thus, ensuring visibility of his products at the retail outlets is also his concern. “Jo dikhta hai woh bikta hai (only that product sells that is visible),” says a key industry source, who deals closely with distributors at the rural level on behalf of his company.
Skills and Resources Needed for Distribution Business • Good salesmanship • Negotiation skills • Modern-day marketing skills and tools • Networking capabilities • Understanding of market conditions and supply chain dynamics • A knack for providing value-added service • Automation of business processes • Understanding of consumer behavior • Resources – Money, Manpower, Warehouse, Vehicles, etc Manufacturers depend heavily on their distributors for the “reach” of their products, because in today’s cut-throat competition, a customer sitting in a remote village is also on a company’s radar. Therefore, it is the distributor on which companies rely when it comes to expanding the reach of their products. In the case of urban markets, a distributor is appointed at the district level, and he serves the retailers across the district. In case a district is too large area-wise, there could be more than one distributor dealing with the retailers in their specified territories. When it comes to rural markets, the chain gets a little longer. Take, for instance, Bharti Airtel, India’s top telecom service provider, which follows the hub-and-spoke model. It appoints a super distributor at the district level, who in turn, reaches out to several rural distributors sitting at the taluqa
The distribution business is a great opportunity for entrepreneurs, and there is a lot of scope for this business to grow. But you got to provide efficient service and have a greater reach
“
”
— Vinod Sambrani
Management Consultant and Trainer
(town) level. They make Airtel’s products available to retailers in the villages that fall in the ambit of that district. A distributor is expected to have a thorough understanding of the market he operates in. He is usually a local person who has good contacts with the retailers, with whom he has to deal with on a regular basis. He ought to have good salesmanship because only then would he be able to convince the retailer that his product would definitely sell. If need be, he has to provide marketing support through belowthe-line advertising techniques. These include pamphlets and posters. While manufacturers themselves invest a lot on advertising, it is the distributor through whom they roll out attractive consumer schemes and freebies. “A distributor understands customer needs, knows the reality of business environment and is in a better position to anticipate trends and future changes,” says Prashanth. He adds, “Besides playing a critical role in helping the manufacturer expand market, a distributor helps him achieve an optimal logistics operation.”
Successful Vs Unsuccessful Distributor While money does play a key role when it comes to getting the distributorship of a product, it is no guarantee for success in the long run. Sambrani, who has experience in appointing distributors across several consumer and pharmaceutical products, believes that passion, sincerity and hard work are the key movers. “I have always chosen SEPTEMBER 2008
17
DARE.CO.IN the unconventional way of awarding distributorship,” he says, elaborating, “There are several first-timers, who can also make it big in this business, given that they are able to provide value-added services.” “Distributorship can’t be a part-time business,” says the industry source, adding, “You got to devote time and be in the market from 9 AM to 7 PM.” A company expects its distributor to constantly post growth in sales. This requires an increase in investment, for which a distributor must have surplus capital to pick more quantity for distribution. A successful distributor would withstand the pressure that comes from the company level, and convincingly pass it on to the retailer. Here is where a superb salesmanship comes in handy. The success in this business comes from selling more products (volumes) and adding more customers. “In today’s context, it is up to a distributor to create differentiated reach, bring in intelligence and pulse of the market to the manufacturers to ensure that the right products reach the right customers/market in the shortest span of time. This adds value to the supply chain,” says Prashanth. Inventory management also reflects on the distributor’s performance. Failure to source products from the manufacturer even before the retailer calls for it is important. At the same time, overstocking can kill. Thus, regular tracking of inventory would be important to quickly replenish the products that have moved out the shelf. The distribution business runs a lot on credit. Your networking and rapport with the retailers could decide as to when you get your payments cleared. While the telecom business runs on low credit, that of FMCG runs on high credit. This is why the investment rotation in the case of telecom distributorship is high vis-à-vis that of FMCG. A successful distributor would diversify both in terms of products and customers. This helps him keep his business in the black by banking on a high-demand product, if the demand for other products slip. Similarly, most distributors deal with retailers, 18
SEPTEMBER 2008
opportunity/distribution Tips to Entrepreneurs • Choose that product for distribution about which you have some knowledge • Work with customers close enough to understand their needs • Don’t miss any opportunity to provide value-added services • Distribution is a volumes game; the more you sell the more you gain • Maintain a good reputation in the market • Push, reach and visibility of the product can make or break your business • Device innovative marketing strategies to increase visibility of the product government departments and exporters at the same time. Some of them also don the role of the retailer.
Starting your own business? Want to become a distributor of a top motorcycle brand? Here is what the company expects from you (quoted from its Website): “You must have experience in the motorcycle/automobile business, adequate finance and a passion for bikes. This means you must have or create a service infrastructure
Hot Areas to Enter Consumer Durables • Pharmaceutical and Medical Equipment • Clothing and Apparel • Furniture and Furnishings • Automobile • Computers, Phones, and Electronic Equipment • Building material • Sports Equipment • Industrial Equipment • White Goods • Cosmetics • Fuel • Footwear • Paper and paper products Consumer Non-durables • Packaged food • Newspapers and magazines • Toiletries • Chemicals
to provide after-sales service and take care of warranty requirements. We want distributors with as much passion, stability and drive as the bikes we make. So, if you are a dynamic entrepreneur with a sound financial background and a minimum of 1500 sq. ft built-up area in a prime location.” Some industry experts believe huge finance is the prime need to get into this business because after initial setup, over a period of time, the company would expect you to grow at a fast pace. For this, you would need to pump in money. To give an example, a well-known cigarette brand expects its distributor in a state capital to invest Rs 80 lakh as the start-up capital. The high capital infusion is because the brand is an established one, and its name sells. However, this does not stop you from taking distributorship of smaller brands, or even newer brands. As the sales volumes are low in this case, the distributor’s margin is high. Profit margins vary a lot. In the case of telecom products and services, the margins could be from 1.5% to 7%. As for FMCG, these could hover between 24%. Smaller companies can give margins of up to 10%. Several companies give “incentives” to distributors, over and above the margins. It is not advisable to enter the distribution business without any understanding of marketing and sales. In fact, most companies want to be satisfied that the entrepreneur has had some experience in selling goods DAR E or services.
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Rs. 82,700/-*
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ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE D DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAREE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR ARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DARE DAR
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Going the last mile – the power of point of sale /Rupin Jayal
The key question is not whether or not customers can recall the brand, but rather where and when do they think of the brand, and how easily and often do they think of it? (Building Customer-based Brand Equity: Kevin Lane Keller, Amos Tuck School of Business at Dartmouth College and K. K. Davey, Knowledge Networks WARC, 2001)
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magine installing a massive, multi-crore telephone network, but neglecting to provide any telephone connections. Absurd isn’t it? Yet, this is precisely the mistake many brands make when trying to reach out to people. They spend millions of rupees on high visibility and high cost advertising but pay much less attention to the place where people actually make the decision to pick up the brand or not—at the point of sale. There are some companies that have paid attention and have reaped the benefits. Frito Lay, by taking their range of salty snacks out of the dark interiors and crowded shelves of grocery stores and on to racks placed at the entrance of the stores brought
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the brand closer to the shopper’s field of view and in time, to their hearts as well. That one single innovation gave their range of salty snacks a step jump up in terms of sales and consumer preference. What they recognised was that apart from high voltage advertising, how you reach out and touch people when they are actually about to buy, can make a very significant difference between growth and stasis. People view mass media advertising but most often do not participate in it—they are mere spectators. They do not choose the ads they see or read and they very often simply skip over them. However, when they visit the shop, the telecom company outlet or the bank branch, their involvement levels are far higher. This is precisely the point when many brands simply seem to say “Okay, we’ve got you so far. Now we’ll leave you to it.” The last mile connection is lost. But a chorus of protests could break out with marketing professionals pointing out the ubiquitous consumer promotions that most brands indulge in from time to time. What are these promotions actually saying to people? That “things are a bit sluggish” so the brand would like to give you an inducement to buy it. Or that it may not be as good as its competitor so here is an inducement to choose it. Or that
this might not be the season when you would consider the brand or the category so here is some enticement to purchase it now rather than later. Promotions are part of the marketers’ armoury and a necessary one at that. However, very few have the power to actually strengthen a brand’s connect with its audience. So that brings us back to the core issue of finding ways to bring the brand to life at the point where people seek to purchase it. An off-road automobile brand, for example, brought the wild outdoors into dealerships by recreating a camp, complete with tents, etc. In the personal care industry, the presence of promoters significantly increases the sales of the brand versus stores in which promoters are not present. The best promoters do not actually hard-sell their brand but instead start a conversation with the customer to ascertain their needs and advise them accordingly. The customer does not feel under pressure to buy but rather feels that the promoter, and by extension the brand, is there to help her. This can be further strengthened by giving training to the promoters about the brand and the core values it stands for, so that they go beyond just selling products and evolve to winning customers over to the brand. For this, the brand does need to have a strongly differentiating
DARE.CO.IN
/blog core value that can be simply articulated. But should that be the case, the promoter could be a very powerful person to communicate it and if done effectively enough, encourage word of mouth to spread the message. Many times the people present at the point of sale become the brand’s biggest handicap rather than its greatest asset. There are so many luxury brands where sales people are completely unaware of the magic that needs to be created around the brand to make it worth paying so much more for, car salesmen who are unaware of and not terribly interested in the cars they are selling, disinterested telecom service staff who just want to close the deal and move on to the next customer, rather than spending time to understand what the customer needs and advising them accordingly. With the flood of FMCG imported products, people are faced with an array of bewildering choices clustered together on grocery store shelves. Other than being stocked at the retail outlet what do these brands stand for? Other than colourful labels and occasionally interesting packaging, what can people expect from these brands and why should they recall them or return to re-purchase them the next time they go shopping? Apple does not just have sales people in its stores. They actually have brand advocates, people who deeply believe in the brand, are proud of it and take the trouble to find out as much as they can about the brand so that customers feel that they are in the hands of expert enthusiasts rather than paid sales people. Of course, for this you need to have strongly differentiated brand values. But to succeed in today’s highly competitive environment is there really any other way? And there are some categories that can easily lend themselves to the point of sales enthusiasm in the Apple mould. Automobile brands are one clear example. The test drive can become an experience rather than just a routine. There is a Mitsubishi dealer for example who actually expects you to treat the drive test as a test for your
own off-road skills (being an ex-rally driver helps!). There was a salesperson at a mobile handset shop who spent the best part of an hour ensuring that the screen protector film fitted a digital camera’s screen perfectly. Yes, that is right, fitting a screen protector to a product that wasn’t bought from the store in which he worked and wasn’t even a product that the store dealt with. But what he did ensure was that the next time a mobile phone was being considered, his store would be the first stop. We all have anecdotal examples of individuals who go that extra mile to help out, to advise and to create invaluable goodwill for the brand. But can you recall any brand that does this as a matter of course? A brand that, wherever you go, will give you the same unique and positive experience? Some fast-food brands have ritualised elements of service and thus uniformly created a unique experience but these are few and far between. What happens most often is a uniformity of indifference. Service sector brands have the greatest challenge of creating a brand out of intangibles. But they also have the greatest opportunity of truly bringing the brand to life. Every interaction with people creates a brand moment of truth which if handled well comes to represent the brand for those who come in contact with it. If there is a clearly articulated brand credo that has a direct impact on the brand’s customer, this can be codified into a training program and the staff dealing directly with customers can be taken through it. By understanding the credo and the raison d’être for its conviction, rather than mere process knowledge, could be inculcated. This would have two significant benefits. Firstly, it would bring the brand to life for customers when interacting with these brand advocates. Secondly, these advocates would be able to show how the brand is uniquely “right” for the customer and thus enrich its competitive advantage in the mind of the customer. It is said that this is easier for service and durable brands because the
opportunity in each case to engage the customer is so much greater both in terms of time and level of customer interest. However, people of a certain generation would remember the time when Binaca used to have little plastic animals in each pack of toothpaste. People still remember this with a smile and it was such a long time ago. Shell used to print road maps and these were coveted by road travellers thus making the brand more meaningful to people. Recipes are fairly ubiquitous with various brands of foods but how many seek to capitalise on the housewife’s desire to experiment by providing unusual ideas for the product concerned? In fact how many true “food” brands are there, as opposed to individual product-driven brands? When the housewife walks into a retail store what does she see, apart from a plethora of products with names on them? At the point of sale does any branded food product try to reach out to her and bring her into its world? In fact how many food brands have even articulated an overarching brand core or credo? With competition getting more and more intense will her decisions increasingly be driven by the lowest priced product? Are food brands missing out on an opportunity to create a larger and more powerful connect with their customers at just the point when these customers are making up their minds on which brand to choose? Be it an FMCG, durable or service brand, how much effort goes into communicating the brand effectively at the moment of truth, at the point of purchase? This a crucial “last mile” of connect with the brand’s customers. Some brands have made the connection. These brands are getting visibly stronger and building customer conviction and not just behavioral loyalty. For a brand to finish first in the race to a person’s heart it is critical for it to lunge ahead of its competition at this, the final and crucial DAR E decision point. The Author is Director-Strategic Planning at M&C Saatchi. SEPTEMBER 2008
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Do social networking sites have a future? Posted by: Krishna Kumar on Aug 23, 2008
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ocial networking web sites have had an interesting and bumpy evolution. While the concept itself is not entirely new - with classmates starting up in 1995 like I said, the ride has been bumpy. sixdegrees.com, an early pioneer who started up in 1997, was brought out by YouthStream Media networks in the year 2000 for USD 125 million. YouthStream in turn was brought out by Alloy Inc in 2002 for a paltry 7 million! And all that is left of six degrees is a place holder. Facebook, which claims to be the leading social networking platform in terms of unique visitors is a relatively new entrant, starting off in $2004. And today, you have social networks for almost anything, including cats and dogs and no website is deemed complete without “social networking features”. Ning, cofounded by Marc Andreessen of the Netscape browser fame has made creating a social network almost trivial, by allowing anyone to create a social network. Interestingly, Ning was also founded around the same time as facebook, in 2004. Valuations of social networking sites have gone through the roof, with Ning estimated to be worth half a billion dollars, and Facebook valued at 15 billion dollars in 2007, when Microsoft bet Google to pay 240 millions for a 1.6% stake. But revenue streams and more importantly profitability have remained question marks. Most networks have free membership and revenue streams are premium memberships and advertising. Linkedin for example, recently opened itself up to targeted advertising and paid job postings and opened a merchandise store. It is debatable how many social networks can become successful businesses this way. My take - Social networking features will soon become part of almost all applications and web sites and will become no brainers, much like blogs and forums have become- having no intrinsic value in itself, but adding value to the site or application the network is part of, through the content carried or the specific features enabled. It is only a few focused and “valuable to members” networks that will be able to sustain themselves and turn in healthy revenues and profits. The rest would just wither away. Q
Cosmetics: A tinge of entrepreneurship Posted by: Vimarsh Bajpai on Aug 21, 2008
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hile many of my female friends use cosmetic products of Elizabeth Arden and Estee Lauder, two of the world’s most respected brands in beauty business, they know little that a tinge of entrepreneurship goes behind these product lines.
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Elizabeth Arden (1878-1966) revolutionized American society in the early part of last century by introducing cosmetic products at a time “when the only acceptable place to wear makeup was on the stage.” A nurse by training, Arden learnt beauty techniques in France around 1912, and later returned to the US with her own products. Similary, Estee Lauder (1906-2004) began her company by selling a skin cream developed by her chemist uncle, and “the desire to bring out beauty in every woman.” She soon became a household name in the US. In 1998, Lauder figured in the TIME magazine as the only woman among the twenty innovators who changed how the world works. Closer home, Shahnaz Husain has made a mark for herself around the world with her range of herbal beauty products and services. In a free-wheeling interview with DARE, Husain talks of her challenges and business model. Q
Core competence and the buggy whip company Posted by: Krishna Kumar on Aug 18, 2008 ll of you would have heard the classic story of the buggy whip company, in discussions of core competence. Originally propounded by CK Prahalad and Gary Hamel, the thesis of core competence of corporations gained wide circulation and the buggy whip company case was a classical example used to explain it. In brief, the question posed was: during the transition from horse drawn carriages to motor cars,
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DARE.CO.IN what does a company that manufactures horse whips do for survival? The expected answer was that the company has to realise that it is in the transportation business and its core competence is in driving accessories; and it has to change with the times, manufacturing accessories for the new generation of drivers’ needs. In his 1994 book, “The rise and fall of strategic planning”, Henry Mintzberg raises an interesting question: What of the buggy whip company had concluded that it was in the business of flagellation and not transportation? Consider Wilkinson Sword. Started to make swords, the company transitioned into making razors in 1898. A case of getting the buggy whip question right! Like this 1997 article in the McKinsey Quarterly (free registration) points out, “In order to reap the benefits of core competences, companies must first be able to define them....A few companies already have a true core competence and can focus on sustaining and enhancing it. The rest must catch up by first identifying and then developing their own-or risk missing out on a key structural competitive advantage” Q
Thank God! There is competition Posted by: Vimarsh Bajpai on Aug 13, 2008
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ompetition can be good. It can force you to introspect and improve. A voice soaked in humility greeted me yesterday when I rang the local taxi stand, a stone’s throw from my home in New Delhi. It was a pleasant surprise given that till last year, I had become used to the brash tone of the local cab drivers demanding unreasonable fare, and that too with an obliging connotation. Thus, when I came to know of radio cabs last July, I couldn’t help but take a quiet pledge, never to call the local cab drivers again. But yesterday (August 13) was an exception. All the major radio cab companies (Easy Cabs, Delhi Cabs and Mega Cabs) pleaded helplessness with getting me a cab for an early-morning drop to the railway station the next day. The reason: “Sorry sir. We are booked till about 11 AM tomorrow.” It was with a lot of unease that I had called the local taxi stand but was happy to hear a polite voice, for a change. I first asked to confirm if a cab could be made available to me the next morning. The guy on the other end assured me that the car would be at my door at 5 AM sharp. “We have a plenty of cabs with us. So, you don’t have to bother,” he affirmed. Do more people now prefer radio cabs to the local taxi service? I thought. I am not an exception then, I guess. Today morning was even more pleasant. Although the cab that arrived was an Ambassador but the driver was dressed in an impeccable white. He was punctual and courteous. He helped me with the luggage and held the door for me. During the short commute, I asked him what he thought of radio cabs, and if they have had any effect on his business. He didn’t say yes or no. But did give a couple of reasons as to why his service was better than that of a radio cab. “Sir, these (radio cabs) charge a lot. Also, if you were to forget any valuables in my cab, you can be sure to get it back, as you know where I live. How can you track these guys,” he said proudly. Good elevator pitch, I liked it. Thank 28
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God! There is competition, I said in my mind. At least, it has disciplined the cabbies at my local taxi stand. Now they have a benchmark to measure themselves against. Hopefully, the tourists during the upcoming Commonwealth Games in the city would not have bumpy rides anymore. Q
Abhinav Bindra, India and the quest for more Olympic gold Posted by: Krishna Kumar on Aug 11, 2008
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bhinav Bindra finally became one in a billion by winning an individual Olympic gold medal for India. Great! But the more important question is how to continue winning at this level? Enough has been written about how this country of a billion plus has failed to produce even a single Olympic gold medalist and about the few who almost made it. And I am sure that complete careers will now be made out of writing about Bindra. One look at the past record of our various sports associations and the sorry state of our various stadia and training infrastructure, no one in their right minds would expect the government to do what has been impossible for them so far. That brings to my mind a simple question: Can a profitable business be made out of winning Olympic medals? My guess is, it can be done. You only have to look at the business success of the IPL (Indian Premier League - cricket) to see a possible business model for this.
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DARE.CO.IN Let me explain how. The next summer Olympics will have competitions in 28 disciplines. Let's choose four of these (other than Hockey and shooting for obvious reasons) to concentrate on. My choices are fencing, volleyball, archery and boxing. Why these four? Two reasons. First, they are spectator sports and two, barring fencing they are all areas where India has done reletively better on the Asian stage and with fencing, I am hoping to draw on our tradition of martial arts. Let me take fending as the example to explain the plan. Much like the IPL, we need to build a series of televised tournaments around the country that will pay the players well and also keep the sport top of mind amongst the people. But unlike the IPL, the teams will be on long term contract and significant investmenst will be made in their training and in the stadia to hold tournaments, with the 2012, 2016 and even 2020 (for which Delhi wants to bid) Olympics as targets. Income sources? Sponsorship for the teams and individual players, gate collections from the tournaments, sponsorships for the tournaments, share from TV income, merchandising... in short, all the income sources that the IPL so effectively used. If each of these businesses can generate even a 100 crores a year, compared to the 1200 crores the IPL is expected to make, these four sports will “earn” almost as much the government spends on all sports every year. On a 3 Olympics horizon that is 1200 crores per sport and if 75% of this is ploughed back into the sport, I am sure that we will have a few more Indians as Olympic champions. PS: If you take up this idea, do remember my all expenses paid trip to the Q
three olympics.
Control or scale? Posted by: Krishna Kumar on Jul 31, 2008
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here are these two entrepreneurs I have known for many years now,
right from the beginning of my previous role. They come from a small town, but even in those days, they used to make some terrific software; software that were breakthrough products in many ways. Unfortunately, they never made it to the big league. Some years back, I remember asking them; You are creating good stuff.... why dont you recruit more people? Why dont you scale up? You know, become really big, take on the world; create more fantastic products...? The an-
Which brand is your dog? Posted by: Vimarsh Bajpai on Jul 27, 2008
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lazy afternoon discussion with my colleagues (Binesh, Shilpi, Mohita and Vijay) last Friday made me realize how truly engrossed I am in the work that I’m doing – writing for DARE. Over the last one-year that I have spent with this wonderful magazine, certain words that I hear, speak, read or write every day, have now become an inalienable part of my lexicon. Here is a small list: entrepreneur, startup, entrepreneurship, opportunities, venture capital, angel investor, private equity, markets, business, brand, risk, motivation, challenges, innovation, seed capital, funding, IPO, exit, team and hiring. I’m sure there are many more but can’t think of too many right now. Coming back to the chat that effortlessly shifted towards pet keeping, we discussed rabbits, birds, dogs and cats. While some voted for cats as ideal pets, others vouched for dogs. Wasting no time, our designer, Vijay, was quick to bring his dog into the discussion, praising him left, right and center. After a while, I couldn’t resist asking “Which brand is your dog?” Errr….”brand?” shouted all my colleagues in unison, leaving me red-faced and apologetic. See, I always have DARE on my mind. Is my boss reading this? It’s a different issue, however, that we preferred to call the Indian street dog “unbranded” as we shared a hearty laughter. Vijay promptly corrected us. “A local brand,” is how he would prefer to classify such dogs. Q 30
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swer really surprised me at that time. —”We do not want to lose control.” These days, I come across many entrepreneurs who share that thought. Right now, even as I am writing this, I am IMing another friend who has finally turned entrepreneur, another one man show! A terrific programmer, this guy (a demi God in certain developer circles) finally started off on his own; but just refuses to add people so that he can scale - not even one. He says his ambitions are minimal and that he cannot manage people; that he has come a long way from where he started. There are many such wizards out there, who have wonderful ideas, possess wonderful skills or have created wonderful products. But they prefer to operate in small circles. I cannot help but wonder -- If only some of them would scale up...
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opportunity/retail
Business of Luxury Stores Around two million Indian households spend about $10,000 per year on luxury and premium products and service. Should you be in this space? /Shilpi Kumar
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e live in strange, paradoxical times. On one hand there are talks of high interest rates and inflation afflicting the Indian economy. And on the other, we are seeing luxury brands such as Louis Vuitton, Gucci, Jimmy Choo and Burberry arriving in India, with malls, like the UB City mall in Bangalore and DLF Emporio in Delhi, dedicated to super luxury brands, being launched. According to KSA Technopak, the market potential of the luxury and premium segment in India is around $18 billion and expected to grow three times as much in the next ten years. Estimates also demonstrate that 1.8 mil-
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lion Indian households spend about $10,000 per year on luxury and premium products and services. That’s an interesting statistic in the light of the current fears of a global slowdown. As far as you can make out from the demand, the “luxury” factor is spilling into all sectors, including housing, travel, automobiles, apparel, jewelry and even food (think caviar!). DARE explored a small segment of the luxury sector— home furnishing and accessories—to find out more about this business.
Defining the ultimate luxury So, what does luxury mean to an Indian home maker? Well according to Sidhant
It becomes really difficult to sustain a business in retail if you are outsourcing your products. When you are manufacturing your own products and have exported them for so many years, it becomes easier to run such a business in the domestic market as well — RADHIKA KAPUR Owner, Area
Lamba, owner of Strot, an exclusive furniture and home accessories label, “Strot customers usually like the horn inlays as well as detailing with mother of pearl, decorated marble, granite or accented wood which is an inherent part of the furniture of the store.” For Episode, which deals in sterling silver and silver plated items, the buzz is mostly for deities, especially Ganesha, as well as sterling silver clad on glassware and porcelain. The prices for sterling silver can go as high as Rs
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opportunity/retail SACHIN JAIN
Senior Brand Manager, Lladro Boutique
The luxury home segment is definitely here to grow, especially because of the psychological and cultural factors associated with home in India. Most of the pujas happen at home, and even when we want to socialize, most of us prefer inviting people to our homes, rather than outdoors
Customer Profile According to Sachin Jain, senior brand manager of Lladro, a typical customer for luxury home products is around 35 years of age. He is someone with a high disposable income and has already consumed all aspects of a luxurious life—a luxury watch, diamonds, luxury car, luxury home, etc. It is only after money has been invested in all these aspects of life, does one look into indoor luxury. Here is a quick glimpse at the clientele of a few other luxury home décor stores: Episode - Industrialists, designers, architects, wedding planners, event managers, celebrities etc. Foyer - Architects, interior designers, hotels, corporates Area - Dual income families, embassies, builders, interior designers Strot - Business mammoths like Essar, Airtel, Birla Group, Spice telecom, world class hotels, BPOs 25 lacs and around Rs. 10,000 for the silver plated range. For a brand like Foyer, which has a range of high-end home furnishing and décor items, such as bed spreads, tableware, cushions, lamps, vases, etc, it is their pure gold and silver range of products, as well as their ceiling lamps (Rs 35,000) that depict the ultimate in luxury. In the future they even plan to retail high-end paintings. Area, another up-market lifestyle store, has glass items from Poland, Slovakia and Turkey that are extremely popular. “Our cushion covers and rugs are the most purchased items since we play around with a lot of textures and styles. A lamp
from Poland that costs Rs 8000 is one of the most expensive items we sell,” says Radhika Kapur, owner of Area. Lladro, a brand of The Spa Group, deals in Spanish porcelain figures and art forms. The cheapest product you can get there are candles that cost Rs 2000! And with a whopping Rs 71 lacs, you can get the Queen of the Nile, a five feet recreation of a magnificent Egyptian sailing vessel. Says Sachin Jain, senior brand manager of Lladro, “The Spirit of India collection that includes Ganesha, Radha Krishna, and Goddess Lakshmi, etc are the best sellers, and range from Rs 65,000 to Rs 2.5 lacs.”
You need to look beyond customer footfalls Each of these luxury stores gets an average of around 60 customer footfalls everyday, but the conversions are only at around 20-40%. “Conversions are fairly low with luxury brands as they do not fit everyone’s requirements. Customers have to think hard before buying such costly items, especially in the case of home décor because unlike jewelry or a watch, which can be worn, these items take longer to connect with,” says Sachin. Sidhant also agrees, “These products are more aspirational than functional. Not everyone who comes to these stores ends up picking something right away. Clients might have to think over it and use up their savings for it.” The revenue generation of such stores, therefore, is usually not just relative to the number of footfalls. Lladro has a niche clientele with whom they have built intimate relations over the years. “Our marketing department thoroughly concentrates on customer relation management, which makes it easier for us to walk into these customers’ houses to recommend a product and cater to their requirements,” SEPTEMBER 2008
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The spending potential of consumers has increased tremendously in the DARE.CO.IN last few years. We are having a retail revolution and every one wants to buy high quality products and don’t mind paying a premium for that. The spending potential of consumers has increased tremendously in the last few years. We are having a retail revolution and every one wants to buy high quality products and don’t mind paying a premium for that
opportunity/retail
— ANJALI JAIN
Co-founder & Director, Foyer
says Sachin. Strot’s signature style and interior concepts, on the other hand, can be seen in world class hotels, with Hotel Diplomat in Delhi, which has recently been revamped being a premier example. Their interior design department also specializes in offering solutions for customers’ homes. Deepak Whorra of Episode also feels that profitability gets limited due to the high costs of these products, especially in a market that is still evolving. However, they have carved a niche for themselves, especially in the corporate gifting market. Regular interaction at ground level allows them to deliver according to customer design inputs and preferences. “Our revenue generation is not only footfall centric but is more from a uniformly distributed sales—retail, corporate and other bulk sales— throughout the year,” says Deepak. Foyer also provides design consul-
These products are more aspirational than functional. Not everyone who comes to these stores ends up picking something right away. Clients might have to think over it and use up their savings for it — SIDHANT LAMBA Owner, Strot
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tancy and complete home styling and customized furnishing solutions to architects, interior designers, corporates and hotels. It also offers corporate gift solutions with exclusive designer packaging. In order to keep their store footfalls intact, however, Anjali Jain, co-founder and director of Foyer, has a different strategy. “In order to ensure that everyone who drops in their store has something to carry back home, we have a few products, like candles, potpourri, drawer liners and room fresheners that can cost as little as Rs 100. In fact Foyer’s fragrance range is one of the best-sellers,” says Anjali. Radhika of Area follows a similar model. The price range starts from a mere Rs 20, with which you can purchase a napkin. “I don’t want customers to walk in, appreciate my store and then walk off empty handed because it just isn’t affordable. I need to make
business, not create just a feel-good atmosphere,” says Radhika. Therefore, although Area does cater to builders and interior designers, revenue through walk-ins is their utmost focus.
You need to have an impeccable reputation Another trend that we noticed with most of the home luxury brands is the fact that they are backed by companies that have been in the business of exporting luxury goods for years now and have created an elite image for themselves. It is this experience and reputation that helps them in running exclusive luxury stores as well. Lladro, for example, established in 1953 in Valencia, Spain, is a world-class luxury brand known for its high quality porcelain figures, with presence in over 120 countries. Strot, on the other hand, is a luxury brand of Continental
DARE.CO.IN
opportunity/retail
DEEPAK WHORRA Partner, Episode
Furnishers that has over six decades of experience in development and customization of furniture. Episode has a family lineage that can be traced back to 1882 when the Whorras used to supply custommade silverware and mementos to the European army officers. “This, combined with our exposure to designing, developing and supplying to renowned international brands like Armani, Ralph Lauren, Lambert Sabbatini, Vera Wang, Peter Jones, etc, helped us achieve the consistency in quality that a luxury brand should reflect,” says Deepak. Similarly, Foyer is a brand of Renaissance Creation that has been dealing in exporting high-end furnishing to retailers in the European market for about eight years now. “Being exclusively into exports and catering to a very distinguished clientele across the world, we wanted to now look for market penetration in India, as well, as these luxury products aren’t as readily available here,” says Anjali. Area also started as an export house about 20 years ago, supplying to all the fashionable brands like Zara Home, John Louis Home, Selfridges & Co, etc. They only decided to venture into the national market around two years ago. “It is difficult to sustain a business in retail if you are outsourcing your products. When you are manufacturing your own products and have exported them for so many years, it becomes easier to run such a business in the domestic market as well,” believes Radhika.
Rentals—a major challenge to face Yes, this is the biggest challenge to overcome in this business. Retail space rentals are ridiculously high, almost at par with international standards, whereas the sales are comparatively much lower. Because the brand is positioned in such a way, the location of such stores has to be on premium properties, where the rentals are skyrocketing by the day. As a result, the retail space is compromised on quite often. There is, however, a way to work around this problem. “Even if you have a small space to work with, stack your products in such a way that it gives the illusion of it being more spacious. Also, throw in a lot of different designs and colors in your display, so it attracts attention instantly,” says Radhika, who although has her own property, faces the challenge of variation is store sizes. For brands like Episode and Strot that appoint craftsmen for production, a major challenge could also be delivering to consistent parameters. “Sometimes we have to discard several pieces to get the best output” says Deepak.
Scope: Flourishing days to come The fact that this business doesn’t get affected by inflation is quite an advantage. This is because it is the brand, design, quality as well as the presentation of a product that lures a customer into purchasing a luxury item. Ultimately it is about lavishness and indulgence, rather than functionality, so price is hardly a criterion. “Inflation does inject in our own production costs,” says
Our revenue generation is not only footfall centric but is more from a uniformly distributed sales- retail, corporate and other bulk sales- throughout the year Whorra, “but as a matter of policy, we maintain consistency in prices, unless changed frantically.” We got extremely promising feedback on the future of luxury market in India. “The spending potential of consumers has increased tremendously in the last few years. We are witnessing a retail revolution and everyone wants to buy high quality products and don’t mind paying a premium for that,” says Anjali. According to Whorra, “High incomes, coupled with international exposure have resulted in an increasing desire to possess luxury products. Even if 5% of our population strives to buy luxury products that makes it 22 million.” “A few years ago we read that after the Americans, the biggest buyers of luxury products in UK were the Indian travelers. And that was a few years ago,” continues Whorra. So, as the latest buzz has it, luxury is definitely here to stay and there is no better time to DAR E enter this segment than now! SEPTEMBER 2008
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strategy/IT
NET Gain: Revenue Models on the Web
As entrepreneurs increasingly find the Internet a lucrative business opportunity, what are the different ways to earn revenues beyond advertising?
T
here has always been a big question on the role of the Internet in business. While no one questions its disruptive influence, there have been questions on how exactly the power of the Internet can be converted into hard cash. The crash of the first wave of Internet companies and the failure of their valuation models only helped to sharpen the question rather than to provide answers. Is it a market place? Is it the media? Is it the message? The second wave of the Internet business revolution is upon us and these questions are still largely unanswered. The standard answer to the question of Internet revenues is advertising and the standard example and enabler is Google and its AdSense program. But by now, it is obvious that plain vanilla advertising, particularly the type mediated by advertising networks like AdSense cannot sustain and make profitable all types of Internet businesses. For this article, we analyzed the existing revenue models and specific examples of web businesses to figure out how they seek revenues. We have looked at a mix of businesses that weathered the early crash as well as some that are part of the new wave. 36
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/Aswathi Muralidharan Established Revenue Channels The three major revenue channels commonly used on the Internet are products and services sales, ad space, and affiliate marketing. Products and services sales: Depending on the type of website, revenues are earned directly through the sales of goods and services or as a commission on the sale that happens on the hosting site. The I-Cube 2006 study by the Mobile and Internet Association of India estimated the Indian e-commerce industry to be worth Rs 9,210 crore at the end of 2007-08. According to the report, the top reasons given by consumers for buying online were savings (time and effort), convenience, variety, discounts, and quick reviews. The study also reveals that the online travel industry is the most
E-COMMERCE MARKET Market Size for the Year Online Travel Industry Online Non-Travel Industry - e-tailing - Online Classifieds - Pain Content Subscription - Digital Downloads
2006-07
5,500 1,580 850 540 20 170 Total B2C/ C2C e-comerce Market 7,080 SOURCE: I-Cube Study 2006. Note: Figures are estimated
used e-commerce activity, and the nontravel part includes e-tailing, online classifieds, paid content subscription, and digital downloads. As for services sold online, there is the model of basic membership for free and paid premium services. For example, marriage sites like simplymarry.com allows you to register for free but you can contact other registered members only upon payment of a fee, job portals such as Naukri and Monster have extra services like resume making, sending your resume to consultants, etc. that comes at a price. Selling advertisement space: In the early days of the Internet, text and banner ads were popular. Banner ads consist of static or animated images, even audio and video elements at times. This form of advertising gradually evolved to contextual advertising, which refers to the inclusion of ads adjacent to relevant online content. Compared to text ads, this has a major impact on the revenues, being more targeted. For example, if a user is viewing a website pertaining to sports then he sees ads that are sports-related. Another form of advertising gaining traction is behavioral advertising, which refers to targeted advertising based on the user’s surfing behavior. In this type of advertising, the scope of earning revnue is higher. Internet ads generally follow the cost per thousand impressions (CPM) and pay per click (PPC) models. A CPM model is where an ad is charged for every 1000 impressions served. In other words, when an user opens a page that features an ad, an impression is recorded and the advertiser is charged. On the other hand, a PPC model is one where advertisers pay when a user actually clicks on the advertisement. Affiliate Marketing: It is a (in Rs Crores) practice that enables websites 2007-08 to generate leads/sale through 7,000 the promoter site where the ad 2,210 is placed. This is based on cost1,105 per-lead or cost-per-sale mod820 el. In other words, a merchant 30 pays a commission to the affiliate only when he makes a sale 255 through that affiliate. 9,210 However, according to Mrityunjay Mishra, Director, Juxt-
DARE.CO.IN
Strategy/IT Consult, “Revenue models existing offline are possible online as well. The Internet is just another medium, but the basics of doing business are the same.”
resume service that develops resumes for job seekers and flashes them across to consultants.
eBay.in Naukri.com
EVENTS
Info Edge launched Naukri.com in 1997, when the Internet was still a novelty in India. Today, its net sales is worth approximately Rs 1,964 million. The website has several revenue channels including job postings, resume database, and branding solutions, targeted at its three target audience—job seekers, corporate and consultants. Most of the websites’ revenues come from its corporate clients and consultants. It provides job vacancy posting services to its corporate customers under several categories, including “hot vacancy,” and “classified listing” Under the hot vacancy section, the client can display his company info, candidate info, logos, etc. without any space constraints whereas classified listing has a limited space capacity. The client is charged depending upon the service package. Another innovative service provided by the website is the subscription to its resume database, Resdex, which is claimed to have a collection of 1.3 crore resumes. The clients are charged either on the basis of periodicity or usage for using this service. Naukri.com's branding solutions create pop-ups and banners displaying customer name and logo, which are linked to various microsites. It also sends mass job alert emails with branding of those who take up branding solution options. Besides these, contextual ad sales form a small part of income. These ads may not necessarily be about recruitment. For example, the site displays ads by educational institutions. It also has a
eBay.in earns revenue mainly through listing fees, final value fees, and ads. The registration on eBay sites is free but when a product is up for sale, a listing fee of Re. 1 is charged to display the item for a period of seven days. When an item is sold, the website charges a final value fee, which is a commission on the product selling. However, both these fees depend on the category under which they are listed. According to Deepa Thomas, Senior Manager, Corporate Communications & Pop Culture, eBay India, “Final value fee is different by product categories—for technology category we charge a 1% commission, for books movies or music category product a 6% commission is charged (but no listing fee is charged because products in this category do not sell that easily), and for lifestyle and collectibles a 5% charge is levied.” In addition to these, eBay also allows users to create a virtual eBay shop for a price starting from Rs. 249. The store, which has a dedicated URL, can list a users’ logo, company information, products, etc. Advertising is another avenue of sales for the company. Besides displaying banner and display ads, the company presents text ads in partnership with Google. eBay.com has several other services, the prominent among them being PayPal and Skype. PayPal enables individuals or businesses to “securely, easily and quickly” send and receive payments online. This service has grown approximately four folds from $12 billion in 2003 to $47billion in 2007. On the other hand revenues of Skype, an internet telephony software, grew at 96% from $98million in
HOW ARE THEY MAKING MONEY? Naukri.com • Job Postings • Resdex (resume database) • Branding Solutions EBay • Fees n Listing Fees n Final value fees • Ad Space • PayPal • Skype LinkedIn • Premium Subscriptions • Advertisement Sales • Job Postings • Enterprise Solutions Google • Adwords • Adsense • Google Search Appliances • Google Earth • Google Apps Rediff • Advertisements • Subscription Services n Rediffmail Pro n Rediffmail Enterprise n Rediff Plus n Rediff Business Solutions • Rediff Mobile services • Rediff Shopping Wikipedia • Donations
The List is Only Indicative
Q3’07 to $115 million in Q4’07.
Google.com Google garnered revenues of $5.37 billion for the quarter ended June 30, 2008, representing a 39% increase over second quarter 2007 revenues of $3.87 billion. It generates income primarily through its advertising programs AdWords and AdSense. Google AdWords, a PPC advertising program, allows advertisers to present sponsored links at the instant the people are looking for information related to the advertiser's business. Advertisers create ads and bid for keywords, and their ads are placed as sponsored links on Google-owned websites or its network websites. On the other hand, Google AdSense is an ad serving program enabling website owners to place contextual ads on their websites. These ads generate revenue on either a PPC or CPM basis.
25,000
Handshakes
with Targeted Communities SEPTEMBER 2008
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strategy/IT What do you think is vital to stay competitive in the market today? In the current internet boom, end users’ expectation from new service put a lot of pressure on time-to-market and innovations. In such a scenario, the key is creating and evolving scalable and high quality products. The internet today is media-rich (voice, video, etc), as opposed to being plain text back then. This requires re-visiting the product architecture constantly.
Info Edge launched Shiksha.com, an educational portal, in June 2008. What MD & CEO, InfoEdge (India) Ltd. revenue model does it follow? Shiksha.com follows the classifieds model of Naukri.com and 99acres.com. Education providers, for a price, can list details of their institute, courses and events with us. In return, we provide them with listing, branding and innovative solutions like presentations etc. As for the education seeker – the service is free. We are currently addressing only the K-12 + segment.
Sanjeev Bikhchandani
What are the potential revenue streams for an internet business today and the likely ones in the future? Advertising (impressions, clicks, etc), subscription, ecommerce, lead generation, services, transaction fees, referrals… the list is huge. The company also has several paid products and services, such as Google Search Appliances, Google Earth Pro, Google Earth Plus, Google Enterprise Solution, and Google Apps. In Q2'08, approximately 97% of the company’s revenue came from its advertising initiatives. The rest (3%) came through licensing and other revenues. However, despite being a minor part of the total sales, these services garnered revenues worth $181 million for the company.
LinkedIn.com
ONLINE
LinkedIn the business oriented social networking site has four revenue streams— premium subscriptions, ads, job postings and enterprise solutions. The company has a range of premium services including Personal Plus, Busi-
ness, Business Plus and Pro account for individuals who want higher services. The site capitalizes on its extensive user base by selling ad-space, the sales from which comprise an estimated 25% of its revenue. It has two specialized advertising products, one for large advertisers with big budgets ($25,000+) and for small to medium advertisers looking for deeply-targeted text ads. LinkedIn’s job postings, priced at $195 for a standard 30-day listing, are very popular with recruiters because firstly it enables finding passive job seekers and secondly because referrals from their employees are highly valued.
Rediff.com Rediff's major source of income is ads, which account for approximately 76% of
SEPTEMBER 2008
Wikipedia.org Wikipedia is one of the largest online encyclopedias, which has a database of over 25 lakh articles in English. The content of the website is free, and can be written and edited by everyone. The site is the seventh most popular website, according to Alexa’s ranking. However, the site is ad-free, does not sell content and neither does it indulge in affiliate marketing. Then ever wondered how Wikipedia makes money or sustains itself? The Wikimedia Foundation, which owns Wikipedia, relies on donation from its users. The Internet offers a myriad of ways to earn money, depending on your business objectives. The term success is not defined in the web—things that spell success for a particular business may not hold true for another. In the long run, the key to be a net entrepreneur is to be alert of Internet trends, and create innovative and flexible DAR E products and services.
1 Million
Eyeballs Through 12 Websites
www.ciol.com 38
the revenues and the rest comes from its fee-based services. It has a variety of subscription services such as Rediffmail Pro, Rediffmail Enterprise Pro, Rediffmail Plus and Rediff Business Solutions, which allows services ranging from creation of own domain names to extended storage space. The company also has a Rediff Mobile service that offers mobile phone users in India value added services (SMS services like astrology, jokes and downloads like ringtones, wallpaper). Besides these, the company has several e-commerce platforms such as Rediff Shopping, Auctions (which the company cliams to enable sellers to sell their products at dynamic prices based on supply and demand), and Rediff books (an online book store that claims to have more than 2 million books from over 4,000 authors).
INNOVATION
DARE.CO.IN
Alternative therapy products based on cow urine Patented products based on cow urine help in the treatment of AIDS, cancer, skin ailments, heart diseases, diabetes, blood disorders, respiratory disorders, and many more such diseases. They also make a great business idea /Binesh Kutty
I
n 1998, Dr. Virendra Kumar Jain, a renowned cow urine therapist and registered medical practitioner, brought back the lost tradition of consumption of cow urine, which has natural disinfectant and antiseptic qualities, in the form of a business. While many may get put off at the very thought of it and raise questions, the Government of India (the patent office) had awarded him a patent for his discovery and innovation of cow urine therapy and therapeutic ayurvedic consumption. Dr Jain’s son, Vivek Jain, who is an engineer by qualification and MD of the business group, spoke to DARE about this unique business.
Genesis of the innovation
PUBLICATIONS
It all started when Dr Jain’s mother was diagnosed with cancer. After seeking allopathic treatment at Tata Memorial Centre, she was given about 15-20 days more to live. As a last resort, Jain started treating her with cow urine therapy, which he had studied earlier. Vivek Jain recalls, “In about 9 days the swelling on her legs started reducing rapidly. Within 3 months, tumors in her body reduced considerably.” It is after this that he started further R&D in this area by hiring several experts and
came out with capsules and syrups for various diseases. This initiative started as a social service, through which Jain started treating various patients. Eventually, a business model was made off of this.
Implementation of the idea
Dr. Virendra Kumar Jain
First, various experts in the field of ayurveda, as well as BAMS registered doctors and allopathic chemists were hired. They were trained further for specialization in cow urine therapy. The team then started research on various combinations of different ayurvedic herbs and cow urine. Following ayurvedic scriptures and old Vedas, which documents certain combinations that give good results for cancer, coupled with their own R&D, they first came out with products for cancer. Similarly, formulations were derived for a host of other diseases such as asthma, diabetes, etc. Dr Jain then went on to get a regular pharma manufacturing license for ayurveda. Eventually, he also procured a good manufacturing practice (GMP) certification for the pharmaceutical company, along with ISO certification. He also set up a clinic in Indore with
many doctors attending consultationcalls. After a detailed telephonic consultation, and if required, procuring case papers through fax or courier, suitable medicines prescribed for the disease are couriered to the patient. So where did the funds come from? Says Vivek, “The initial capital was raised using our own funds, coming in from other businesses we run, like our business of manufacturing biofertilizers made out of cow urine and cow dung.” Initially, direct-marketing happened due to word of mouth and humongous publicity in the media. This brought in a lot of patients for treatment. For the sake of customer orientation, minidocumentaries were made showing how this therapy works for various diseases, and also featuring testimonials of patients who had been benefited by the treatment at Dr Jain’s. Eventually,
Vivek Jain
1.4 Million
Readers
Across 15 Magazines SEPTEMBER 2008
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INNOVATION
DARE.CO.IN
TELEVISION
advertising was done in newspapers and TV channels such as Aastha, Sahara Samay, Zee Jaagran, etc. This exercise attracted a lot of patients from abroad, especially from the United States, United Kingdom, and certain Asian markets like Thailand and Malaysia. Besides this, online marketing and promotions were done using search engine marketing and advertisements on the web. As of now, Dr Jain’s clinic is looking for expansion riding on a franchising model. Vivek elaborates, “The consultation, treatment, and medicines will soon be available locally across the country. We right now have franchised presence in 9 cities, including Delhi, Mumbai, Bangalore, Jaipur, Gwalior, Baroda, etc.” So far, Dr Jain’s clinic claims to have treated more than 4 lacs patients across the globe. In the clientele abroad, about 10-15% are said to be non-Indians. The typical profile of Dr Jain's customer includes middle and upper-middle class patients, who are looking for alternative therapy while undergoing their current allopathic treatments. Most of the clients come in from big cities, such as Delhi, Mumbai, and Bangalore. And then, there are patients from many remote villages, who come in to get treated at Dr Jain’s clinic even before going the allopathic way. Word-of-mouth, it seems, is hard to stop in Dr Jain’s case. Today, there are about 100-150 patients who call in daily. Most of these calls (60-65%) are from new patients. The conversion rate of these calls again falls in the 60-65% range, as most of the customers who call up have already made up their mind to go for this alternative treatment, while others call just to know more about the therapy.
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Strengths One of the key strength is the remedial nature of ayurveda, in this case formulations of cow urine coupled with medicinal herbs, which has no side-effects. “For instance, we can assure 100% control of a disease like asthma in 12 months,” says Vivek, “Right now, even allopathic medications cannot give you this assurance.” So is there a conflict of thought or treatment when it comes to allopathic and ayurvedic treatments? “Our medicines are tested, approved, and can be taken while continuing allopathic treatment,” informs Vivek, “In many cases, better results were achieved when our medicine was consumed alongside the allopathic treatment that our patient was undergoing.” Allopathic treatment for life-threatening diseases such as cancer, as we all know, could last for a patient's lifetime. The treatment costs run up in lakhs of rupees. However, in the case of cow urine therapy, the monthly spend on medicines for cancer is around Rs 1,500 – Rs 1,700. The average pricing of medicines at Dr Jain’s is around Rs 1,000 per month. The timeline for treatment is mostly around a year.
alternative therapy parallel with allopathic treatment, there is a huge scope,” claims Vivek, “For instance, there are about 60,000 crore patients waiting to be tapped in just the case of asthma. We need to be able to scale up to tap this huge market, and we are looking for funding for the same.” Besides this, there is a scope for coming out with a range of cosmetic products using cow urine. For instance, a person suffering from skin ailments could use a soap bar that has cow urine as an ingredient in it. Similarly, shampoos can be made to treat scalp diseases like dandruff, scaling, etc. Furthermore, Aryan customs and scriptures have documented elephant urine, goat dung, and bird droppings as some of the other fecal ingredients of ayurvedic medications. Even this could be explored for commercial potential.
Threats As Vivek Jain puts it, “There is no competition, at least from an organized sector perspective, as of now. Moreover, we hold the patent till 2020, so we do not see any existing or immediate threat in our line of business.”
Weakness
What the future holds
It is ironical that the key strength is also the key weakness of this business. The stigma attached to the consumption of a urine product is something that is hard to get rid off. Even though these capsules and syrups are sweet and odorless, convincing a patient to consume these is extremely difficult.
Dr Jain plans to get his products to undergo clinical trials as per the allopathic norms, to get more recognition and acceptance by governments as well as the medical science community. “We are also planning to start over 1,000 specialty care centers across the country, covering many cities, towns, and villages,” says Vivek, “such that the consultation, treatment, and medicines can DAR E be provided at their doorsteps.”
Opportunities “Since many patients are looking for
8 Million
Knowledge Viewers
INNOVATION
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Handshakes, Eyeballs Readers & Viewers Empowering the Knowledge Nation
SEPTEMBER 2008
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DARE.CO.IN
funding/strategy
Alok Mittal
Managing Director Canaan Partners
Alok Mittal is an entrepreneur turned Venture Capitalist. He co-founded JobsAhead.com, which was acquired by Monster.com. He was a private investor and a founding member of the Indian Angel Network before joining Canaan Partners as Managing Director to lead the India operations. Previously, he led the technology practice at Baring Private Equity Partners India.
Y
ou were one of the first investors DARE spoke to for a story (How to tap private equity, October 2007). That was exactly a year back. A lot has changed in the last one year; at that time everything was looking great, now there are clouds in the horizon. what has happened in the last one year from your perspective? By and large what we were doing then is what we are doing now. So, in that sense, there is consistency in what we think are opportunities. If you look at the overall trends that are driving investment in India, those are unchanged. India is still growing at a fast pace. India’s labor cost advantage remains unchanged. There are concerns about the dollar appreciating and inflation. But even after we factor all that in, it is still an attractive geography to provide services from. There had been concerns about slowing down of the credit market this year,
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funding/strategy and a possible slowdown in consumer spending. But the trend remains unchanged. Consumer spending is increasing. Growth of interactive media, Internet and wireless is as strong as it was last year. If you look at the basic drivers of why we got into the market, those have not changed. In the short-term, there are challenges that have come up. Some sectors have become more attractive because of that and some sectors have become less attractive. In short there is a fine-tuning. But the overall case as to why we are in the market, what opportunities we think exist; that remains. From the entrepreneur’s perspective, has anything changed? For the early stage entrepreneur, I do not think a lot has changed. It is equally easy or difficult to raise money as it was a year back. From the VCs point of view, if you look at investment amounts and the number of firms in the market, there was a sharp increase from 2005-2006 in 07. This
who gets to exercise what degree of control. The fact that the mortgage crisis is there and that it is expanding into a full-grown consumer credit crisis is now very well known. I don’t think the Internet and mobile companies particularly in the early stages would get affected that much. I think the secondary impact will be on later-stage companies. India is still a high-risk high returns market. Offshoring businesses, including software services and BPO, and on the higher ticket side, I anticipate some liquidity crunch. But I don’t see the domestic set of opportunities which are not very capital-intensive including Internet and wireless getting affected. Do you see any new types of entrepreneurship streams opening up? There was talk of biotech, mobile software. .. In Biotech I see more of incremental growth. Clean tech, I see more as an incremental growth. If there is policy support on clean tech, it might lead to discontinuities and
investor of the month was because a lot of us were doing our first investments (in 2007). 2007 vs 2008 in my view was more of consolidation. Last year, the industry invested somewhere between $800 million and $ 1 billion. I think, this year it would be a similar amount – may be 10% more or 10% less. Again that it is not going to be trendsetting in either direction. The next phase of growth from a capital availability standpoint is a couple of years down the line when we look at our portfolios to see where we have reached. So, as far as entrepreneurs are concerned they will see steady availability of capital this year. As far as valuations go, I agree there was frothiness in the market last year as far as series B was concerned. Series A valuations have been more stable. There is talk of a US recession. Will that have an impact on venture investments in India? Technically there is no recession right now. Some also feel that the cost of letting the US economy slip into a recession is just too high to let it happen. It is then a question of
opportunities. Internet, I see, as incremental growth. There are a couple of discontinuity points on the mobile data side, which can lead to disproportionate increase in usage. It is always hard to predict which way they lead but the discontinuity is visible. In energy deployment I see some significant jumps happening. But they might not necessarily translate immediately into clean technology. Switching to an entrepreneur point of view: There is a serious debate amongst entrepreneurs on when should they approach a investor. Should they come at the project stage, idea stage, should they come with a prototype? These are two aspects to this. On one side, when does an entrepreneur need a VC? On the other, when does an entrepreneur look attractive to a VC. The first question is very old. It varies from business to business depending on capital requirements . We do more than just capital, but capital is still 70-75% of the reason why an entrepreneur comes to a VC. If the needs of capital are such that banks are going
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43
DARE.CO.IN to meet it, I don’t think people will take venture capital as venture investment is costlier. I think the second point is more interesting: when does an entrepreneur become interesting for a VC? The most significant parameters are simple ones. Is there a large market? And is there momentum behind the company - which can be team-driven or market-driven,? Where a lot of confusion happens is in defining what is a large market? If it is a 50 million dollar market, which might go to 300 million in the next five years, it is interesting. An existing market of a billion dollars where there are some discontinuities; is that a large opportunity? India is more of a growth market. We are mostly in 40-50 million dollar markets and till we go to 300 million, we can be an early mover. The second is momentum. Many entrepreneurs think, ‘let me get momentum and then I’ll get capital’. The hard part is sometimes you can’t get momentum without capital! From our viewpoint, there has to be something exciting in a company for us to get in. Either it has to be a great team, or there has to be some structural barriers to entry that an early mover can put across. Or it has to be a model which is globally proven but has not happened in India. 80% of VC investing is based on a proof of concept. 20% is "I love this team". I would be willing to make a bet without the proof of concept if I am sufficiently excited by the team. So you don’t wait for the product to mature? Investors like me are definitely not late stage investors. So to that extent we are not looking for a company to build their products and client base. That means an entrepreneur should very clearly know whom they are targeting for funding? Absolutely. There are clear early stage players, seed stage players and late stage players in the market. By and large most of the players are not shy of saying what their focus is. I am for example, very clear that 80% of what I want to fund is early stage. I will do a few seed. The confusion happens when we say we’ll do an opportunist Series B investment. People might hear it as we’ll do Series B all the time. I think people need to read those words a little carefully. The second is the sector preference. Within the Internet sector, for example we are not very hot on advertising oriented projects. We are more for transaction models. For example if I were to see a project for online education or personal finance, I would be excited about it. But if you want to be the next portal for the advertising professional, I might not get excited. Some other fund might be. The good part is that all funds are marketing savvy these days and they like to talk about what they want to invest in, what are the areas they are concerned about. Do you use intermediaries? We don’t proactively engage intermediaries, but we do receive proposals and we are happy working with them. 44
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funding/strategy Who are these intermediaries? Investment banks mostly. CAs and lawyers have also started acting as investment intermediaries, but it is an early trend. In more developed markets, they play a more significant role but certainly not in India right now. Would a recommendation from an intermediary have more weight? Do they do some veting before they send it to you? Depends. Over time an intermediary gets multiple opportunities and we get a sense of how much their recommendations are aligned to our business. From our process standpoint everything that lands on my desk, I look at it and figure out if I am interested or not. The place where weightage comes into play is where the intermediary comes in and says it is a great team, and I trust that intermediary. In such a case, whether or not I like that plan I will meet with them. Typically, investors are shy of talking about what they do, what they are interested in. You have been fairly visible and vocal about what you want to do. You have even done things like entrepreneurial challenges to get more opportunities. Is this planned or did it just happen? It is definitely planned. We are focused. I don’t have a risk in saying I am early stage. I am not excluding stuff that by the way I want to look at. If I am genuinely focused about what I want to do, I don’t have any problem articulating it. That only helps us. I don’t want to do infrastructure and I am very clear about it. Firms that tend to be more diversified obviously cannot make such a statement because they do not want to exclude deals in other areas by saying that I do only this. We realize that there are very few funds in the market which have that focus, and we want to make sure that we are known as a fund which has that focus. I think that the second level of this whole thing is investment themes. Saying, within the internet, is it the ad-oriented model that you are going to back, or is it the transaction oriented model that you are going to back; you think e-commerce is hot or not. We have been seen articulating our preferences to insure that entrepreneurs who are interested in these spaces know that we are looking for them. Let me finish with a question that we discussed 12 months back…over the year has your involvement with your investee companies changed or has it remained the same? The issues change, the time spend does not necessarily change. At an early stage, for example, we are thinking about what will we do with the product so that it gets most sticky. Once you establish the product that issue goes away and you are trying to see what control processes need to be in place. So the issues change over time but our degree of engagement with entrepreneurs by and far, DAR E remain the same.
DARE.CO.IN
opportunity opportunity /education /education
Classrooms get a digital make-over After changing the way we work and play, technology is now changing the way we learn /Sreejiraj Eluvangal
D
eepti Gulati is halfway through IIM-Indore’s Executive Program in Applied Management. The course, conducted on weekends, helps her juggle her education and her career as a finance professional at the Bangalore office of Thomson Reuters. Every day, Deepti settles down in her chair for the three-hour evening class.
Higher learning However, this is not the usual evening class. For starters, only about a dozen of her classmates actually sit in the same room in Bangalore as her. The rest are spread across the country, in similar classrooms in different cities. The teacher too, is usually sitting hundreds of miles away in Indore or Delhi. However, like a normal classroom, she can ‘see’ the teacher and the teacher can ‘see’ her. She can even interrupt the teacher’s lecture by ‘raising her hand’, through a mouse click. “I might have considered joining a full-time MBA course,” says the 26year-old, “But for personal reasons, 46
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I cannot be away from my job. I can’t take a break. Of course, it’s tough to get into an IIM.” Welcome to the classroom of the future. At NIIT’s Imperia ‘classroom’, ace professors can teach literally hundreds or even thousands of students at the same time, whether they are sitting in Delhi, Mumbai, Guwahati or Patna. “Learning happens because of many factors: because of what the instructors say, because of the questions students ask and because of the interaction between the students themselves,” says Udai Singh, executive VP at NIIT and the man in charge of Imperia, its ‘virtual classrooms’ initiative. Udai’s design of the 22 Imperia classrooms reflects this belief. Each student has a computer with a webcam. Unlike the classical e-learning, where interaction tends to be more one-sided due to the broadcast mode or recorded programming; here, the students and the teacher are joined together by a 1.2 Mbps video link. “Everyone wants to learn from an
expert. Good instructors motivate and encourage you to learn. At the same time, we realized that such inspirational teachers are always in short supply. They are not able to reach out to as many students as they would like to,” Udai explains. NIIT, which started operating such classrooms a year-and-a-half ago, is of course not alone. It was the US-based communications provider Hughes Network Systems that pioneered the concept of virtual classrooms in India, in 2002. Starting with just 128 students for a virtual classroom course from IIM-Kozhikode, Hughes now has 3,500 students at its 120 franchisees across the country, doing a variety of courses from IIT Delhi and Bombay, IIM Calcutta and XLRI, among others. Another strong player that also offers courses from the IIMs and IITs, is the Chennai-based Everonn Systems. Everonn, which has most of its live classroom network in its partner schools and colleges, has around 400 learning centers in the country.
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opportunity/education
Most of the courses offered by these learning networks are of short duration, mostly in management, workplace skills or training and value-add areas, such as chartered accountancy training and project management skills. Bangalore-based 24*7 Learning, a relatively new entrant, however offers a full-fledged B. Tech (Engineering) course in tie-up with various engineering colleges.
And back to school Technology is not just influencing delivery of education at the post graduate level. Indeed, except for Hughes, these courses were mostly launched in the last two years and together account for only a few thousand students. A more lucrative opportunity lies at the school level. “Everything in our society is changing, except the schools,” says N Sivakumar, VP at Everonn. "There, we still have a blackboard with white chalk pieces. And these are the schools which are preparing the next generation. The students of today are more used to the visual media, not books, but we still teach with only books and blackboard,” he adds.
According to industry estimates, India has around one million schools, with around 225 million students and just 20,000 colleges. Out of the one million, around 60,000, or 6%, are privately owned. Out of the remaining 940,000 government or government-aided schools, only around 30,000 have been brought under various computer-aided education schemes sponsored by the government. The split between the government schools and private schools has also led to the emergence of two types of markets. On the one hand are the relatively well-off private schools and on the other, the technologically challenged government-sponsored ones. “The school market is seeing a lot of sedimentation,” says Abhinav Dhar who heads the schools business unit at Gurgoan-based Educomp Solutions, a company working in the technology-assisted education segment. “As a result, there is a lag between different classes of schools. Ten years ago, private schools were setting up computer labs. They have now moved on to plasma TVs and projectors in the classrooms. However, the government schools are just starting to put up computer labs. At the other extreme, under our O3 program, we are upgrading around 30 to 40 schools to a system where each student will carry a laptop to the classroom,” he points out.
Another big difference between the post-graduate or working professional (PG plus) market and the school market is that of the business model. Almost none of the specialist education companies have tried to offer supplementary teaching materials for the core courses at colleges and universities. Instead, most of them have tried to attack the PG plus market by offering small, supplementary courses, mainly due to the lack of uniformity of syllabus for the main courses. However, at the school level, course material tends to remain uniform, though the language of instruction may change. As a result, unlike the higher studies market where learning networks mostly offer short-duration courses, the school level is all about enhancing the core course through digital aids. As a result, while the technologyassisted learning in higher education is a consumer business, at the school level, the customers are the schools. “At the school level, it is not about delivering scanned copies of the textbooks,” says Dhar of Educomp, “It is about adding another dimension. For example, when the teacher is telling the students about how the blood flows in the heart or how a DNA replicates, it is difficult to understand it by looking at a small picture in the text book. Now imagine showing a 3D animation on a plasma screen or a projector while the teacher explains it!” SEPTEMBER 2008
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DARE.CO.IN ROHIT KUMAR
President at Educomp
There is a difficulty with marketing such tools. If it were a local product, you can put up hoardings. But for an online product, it is difficult to promote it without advertising on mass media Another difference between the PG plus market and the school market is the emphasis on content, rather than networks and infrastructure. Unlike the higher education market, the learning networks such as Educomp and Everonn are investing into creating digital content—animations, videos, question banks, activities, etc. The charging method is also different. While consumers are directly charged in the higher studies market, for schools, it is the institutions that are charged, either on a per student basis or on a per class basis. The charge includes the cost of infrastructure, such as plasma monitors and networking, as well as content and teacher training. “Whether it is for government schools or private ones, the companies enter into long-term contracts, usually of three to five years, during which time the school pays them a fixed fee per month per student or class,” says Sulabh Agrawal, a research analyst with Mumbai-based Angel Broking who tracks the education sector. “In the government sector, according to the numbers I have seen, the average realization per school is around Rs 17,500 per month, since they have only one classroom with 10 48
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opportunity/education to 20 computers. For private schools, it increases to Rs 150 and above per student per month.” According to Agrawal, the cost of setting up the infrastructure and the interest on the investment account for less than half of the fees paid by the schools to the companies. “Fifty to sixty per cent is the cost of content and services such as training the teachers on how to use the tools,” he points out. These numbers also give an insight into the market potential. At Rs 17,500 per school per month, the government school sector itself is worth a whopping Rs 20,000 crore per year. The market has been tapped only to the extent of around 30,000 schools or about 3.15% so far. Assuming an average of 500 students per private school, that market comes to another Rs 5,400 crore per year. Compare this to the turnover of the biggest company in this sphere Educomp - Rs 262 crore for FY 08. “This is a sector that is likely to see a lot of new players,” says Agrawal. “Net profit margins of 30% are very tempting,” he predicts. “However, the per school revenue figures will come down drastically in the future as players start to take advantage of the economies of scale, particularly by recycling content,” he adds, pointing out that most of the players in the schools segment are still investing heavily into building up a content repository.
Even at home and office The third piece in the technology-assisted learning market is the ‘at home’ business. This segment cuts across the spectrum, from homework assistance and home tutoring for school kids to CAT preparation for IIM aspirants. This segment involves both software and content-based services, such as Educomp’s Mathguru.com which plays back recorded steps of solving math problems from textbooks, to one-to-one tutoring services such as Learninghour.com. The two approaches—softwarebased and live tutor-based—have had mixed success so far. The tutor-based at-home learning or remote tutoring however has had
better luck of the two, though most of the students are in the US. “In India, the mindset is that I would rather send my child to a tutor in the neighborhood than have him learn online from someone I don’t know,” says Rohit Kumar, President at Educomp, which owns the remote tutoring site Learninghour.com. He also points out that such services, which charge $15 (Rs 640) per hour and upwards, also lose their biggest advantage in India—cost arbitrage. “You can have a tutor come to teach at that price in India. This, however, works for the US market because it is much more difficult to get private tutors there. However, over three or four years, if tutors start using this to supplement face-to-face sessions, it may gain acceptability here.” The sector has seen the emergence of players like the Bangalore-based Tutorvista.com, which charges $100 per month for unlimited access to live tutors and the Chennai-based Tutors Worldwide, besides Educomp. However, online software-based learning through reading, doing questions, etc. has found the going tougher in India. “The Indian mindset is not tuned to getting learning online,” says Kumar of Educomp, who also oversees its online offerings such as mathguru. com. Mathguru works on a subscription model. “Very few people in India like to buy content online. The parents’ mindset is you have to go to a coaching class to learn. Another difficulty is in marketing such tools. If it were a local or city product, you can put up hoardings. But for an online product, it is difficult to promote it without advertising on mass media.” Concerns over copyright and redistribution also heighten the difficulties of ‘at home’ learning. “With a highspeed broadband connection, it may be possible for our students to attend a virtual class such as Imperia from their home, but the institutes have concerns about what happens to the content being streamed to the student. Being in a classroom managed by us takes care of this aspect,” Udai of NIIT, which owns the online portal Egurucool.com, DAR E points out.
DARE.CO.IN
opportunity/manufacturing
Agricultural Equipment Business Manufacturing, export and distribution opportunities in post-harvest equipment beckon entrepreneurs even as other farm products also hold great promise /Vimarsh Bajpai
I
n the last decade, Buhler, a global manufacturer of grain milling, sorting and handling products, has been witnessing a geographical shift in demand for its products. While the US and Europe remained the mainstay for long, it is China and India that are now the demand hubs for its products. The company, which launched its India operations in 1992, has since expanded its facility in India and ramped up the workforce. Another equipment firm, Satake, a Japanese major, has been witnessing similar trend.
But the presence of big firms such as Satake and Buhler has not had much effect on local manufacturing. Many small and medium enterprises operate at full capacity across the country. Take for instance, S P Khandelwal of S S Milling and Engineering. He sells grain cleaning and sorting equipment to flour mills, energy foods producers and snacks companies. He boasts of clients such as Bikanerwala, Priya Gold and Modi Flour Mill. It is the price factor that helps entrepreneurs such as Khandelwal survive the
onslaught of the global majors. “Products sold by organized players are expensive while my products are lowcost,” he says. Farm equipment companies, both big and small, are fighting tooth and nail to grab the larger share of the lucrative India market, despite the fact that the agriculture sector’s share in the GDP has fallen over the years. This notwithstanding, the farm equipment sector, that is a key support for agriculture, has been growing at a brisk pace and is projected to touch
Type of Equipment Seed / Sapling
Plant
Produce
Post Harvest
50
Tractors Levelers Ploughs Dozers Scrapers Drill Seeder Planter Dibbler Trans-planter
SEPTEMBER 2008
Shovel/Ploughs Harrow Tiller Sprayer Duster
Harvester Thresher Digger Reaper Sheller Sickle
Seed Extractor Dehusker Rice Sorter Polisher Specific Gravity Separator Huller / Dehuller Cleaner Grader Dryer
DARE.CO.IN
opportunity/manufacturing Quick Points Global demand for agricultural equipment to rise 3.8% per year through 2012 to $112 billion Demand for agricultural equipment in India is projected to increase 6.3% per year through 2012 to $7.9 billion Fast pace mechanization of agriculture in China and India to drive demand Easy availability of farm loans, low interest rates, and contract farming also helping the sector grow in India
will continue to strive to increase productivity through further automation and replacement of older equipment and of draft animals used during various stages of the farming process,” says The Freedonia Group. “In addition, rising wages in many of these countries as well as large scale migration to urban areas will necessitate the replacement of human capital with fixed capital,” it adds.
High manufacturing costs abroad makes India a low-cost production base
The Opportunity
Lucrative export markets beckons India manufacturers
With a long value chain that spans across the agricultural cycle, Indian entrepreneurs have a host of opportunities to explore. These include equipment involved in land development, tillage, seedbed preparation, sowing and planting, plant protection, harvesting and post harvest activities. Besides manufacturing, distribution and retail opportunities in postharvest equipment are a plenty, and entrepreneurs could explore this area. As the cost of post harvest equipment is very high, a good margin exists for distributors of such products. There is plenty of scope of India becoming a low-cost manufacturing destination for foreign players. Some companies such as Agricon are already harping on it. “We are shortly commencing production of forged shovels which are mainly for European market. Also due to high cost of production in other countries, they are discounting producing such tools and are outsourcing from India or China. So in time to come we are quite optimistic that constant demand should persist,” says Dharia.
Distribution of established products also makes good business sense Challenges include poor monsoon, rising steel prices and competition from China and low-cost manufacturers $7.9 billion by 2012, according to The Freedonia Group, a US-based market research firm.
Growth Drivers A couple of factors are driving the growth of this sector. These are mechanization of agriculture, increase in contract farming, easy availability of farm loans at low interest rates, and migration of laborers from villages to cities. Mechanization of Indian agricultural has been a major booster. The continuous increase in the consumption of power for farm sector and the corresponding reduction in the use of animal and human power is a clear indication that more and more machines are being deployed. A study by KPMG, done for India Brand Equity Foundation (IBEF) throws up some interesting observations. It says the share of animals as the source of power for the agriculture sector declined sharply from 45% in 1971-72 to less than 10% in 2005-06. Similarly, the share of human beings as the source of power for the farm sector reduced to a little over 5% in 2005-06 from 15% in 1971-72. Alternatively, the share of tractors as the source of power grew from less than 10% in 1971-72 to over 45% in 2005-06. Electricity consumption by the farm sector has grown from 0.30 KW/hectare in 1971-72 to 1.50 KW/
hectare in 2005-06, the KPMG-IBEF study says. “The demand for farm equipment is growing because more and more Indian farmers are opening up to mechanized agricultural practices in place of traditional farming methods,” says Bharat Dharia of Agricon Industries. “Also, the government is encouraging farmers by offering loans for procuring latest equipment at very low rate,” he adds. Agricon manufactures agricultural implements such on hoes, shovels and pickaxes. The company is into 100% exports, and has seen the demand for its products grow in the last couple of years. “Besides benefitting from rising incomes, farmers in developing regions
The demand for farm equipment is growing because more and more Indian farmers are opening up to mechanized agricultural practices in place of traditional farming methods
“
”
— Bharat Dharia
Agricon Industries
The Market Although dependent heavily on monsoon, the demand for farm equipment has only risen over the years. “India comprised a $5.8 billion market for agricultural equipment in 2007, third largest in the world behind the US and China,” says The Freedonia Group. “India is the world’s second largest four wheel tractor producer behind China on a unit basis (output of around 305,000 units in 2007). The production cost for one tractor in India is less SEPTEMBER 2008
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opportunity/manufacturing
World Agricultural Equipment Demand (in $ billion)
120
100
112.1
93.2
80
60
40 24.6 25.6 19.2
20
17.6
20.3
13 5.8
7.9
5.5
7
0 Global
China
SOURCE: The Freedonia Group
than half the level found in developed countries, which has enabled India to become a significant net exporter of lower horsepower tractors,” it adds. The market penetration of tractors and other farm equipment is still very low. This clearly implies enough scope for growth. The KPMG-IBEF study draws a parallel with the consumer durables and auto sectors saying that when there is a low market penetration, coupled with availability of high quality, high technology products and ease of financing, the market booms. “With shipments of $5.9 billion in 2007, India also maintains a significant agricultural equipment industry and is a modest net exporter of farm machinery. However, most output is sold domestically,” The Freedonia Group says.
Challenges “My business depends a lot on three factors — monsoon, farm loans to our 52
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India
2007
US
2012*
customers and the cost of raw material,” says D N Patil, who runs a farm equipment manufacturing company, Amkita Agro, in the Aurangabad district of Maharashtra. Thus, he was concerned when the State Bank of India, the country’s largest public-sector bank, announced last month an embargo on its farm loans. However, the bank was quick to do a volt-face after coming under attack from several quarters. Indian farmers are heavily dependent on loans from private and publicsector banks and agri-cooperatives to buy farm equipment and implements that are needed across the agriculture cycle. “Ever since major public-sector and private sector banks started giving loans to buy farm equipment, our business has grown,” says Patil. “Easy finance will help drive the growth of the farm equipment sector. When loan proposals stop, the total market for farm equipment goes for a toss,” he adds.
Western Europe
Africa / Mideast
* Projected
The cost of iron and steel, the major raw materials for these equipment has gone up sharply in the last one year. This has pushed up the manufacturing cost of equipment, bruising margins of both big and small manufacturers. “The raw material (steel) cost has shot up dramatically by about 40% but because of competition, we cannot increase prices, thus our margins have suffered,” says Khandelwal. However, Patil had to increase the price tag of his products in view of the rising input costs. “The plough that we used to sell for Rs 20,000, is now being sold for Rs 60,000. This is because of the rise in steel prices,” he says. Ma n y o f t h e f a r m e q u i p m e n t manufacturers DARE spoke to talked of increase in local competition over the last few years. They claimed that many a times buyers ignore quality in favor of low-price of a product. Thus low-cost manufacturers could spoil DAR E the party.
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opportunity/broadcasting
Is the time right to launch a community radio station? With the government opening the floodgates of community radio licensing, here is a look at how effective the medium is at empowering people and promoting economic activities /Aswathi Muralidharan
N
Photo Courtesy: DHAN Foundation
agapattinam, a coastal district in Tamil Nadu, was one of the worst affected by the tsunami in 2004. The region stood speechless as the killer waves invaded the town and retreated, taking with them nearly 6,000 lives. As the city limped back to normalcy, there was a need for a common platform that could allow the community members to interact better with each other. Sensing this need, the Development of Humane Action (DHAN) Foundation, which aims at bringing educat-
ed youth into the development sector, launched a community radio called Kalanjiam Samuja Vanoli in 2007. This was launched with financial assistance from the United Nations Development Programme (UNDP) and technical assistance from VOICES, another NGO, as part of its ICT initiatives. Today, Radio Kalanjiam airs programs on various topics, ranging from disaster preparedness to marine education, which is produced with the help of the local people. The programs
are very popular and effective because their content reflects the educational, developmental, and socio-cultural needs of the community and are delivered in the local dialect. This has put the development process on a fast track. According to P Krishnamurthy, Team Leader, Kalanjiam Samuja Vanoli, this kind of development would not have been possible with other media because they are either commercial or state-run, and provide limited space for the voice of the community. Kalanjiam Samuja Vanoli, India’s first radio station on disaster management, was set up with a capital of Rs 6 lakh. This included the cost of the audio production facility (studio, equipment for recording, editing and furnishing) and transmission equipment (tower, transmitter). The operational cost of the station is about Rs 18-20,000 per month, which constitutes allowances to the volunteers, money for production material, travel and training, etc. The success of Radio Kalanjiam reflects the power that this grassroots level medium still holds despite the country’s swift migration towards satellite television and the Internet. If this is the power of this medium even before the government’s new community radio policy has materialSEPTEMBER 2008
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ised, it is not hard to imagine what impact it will have when its full potential is realised.
A community radio is a radio service for the community, of the community, and by the community. Just like groups in the mainstream, marginalized groups have their own communication needs. Their need for information and the language in which the information is required differs not only from the mainstream but also from region to region and community to community. Spreading knowledge and conveying information to such groups through the print media is not very effective due to poor literacy levels, and TV is an expensive medium. Moreover, these forms of media are biased towards the urban audience, ignoring the needs of those living in the hinterland. Given these issues, radio is considered to be the perfect medium of reaching out to such groups. Another important reason as to why a community radio (CR) promotes development is the fact that it develops participatory communication, which is a powerful tool for bringing about change and empowering people at the grassroots. A case that could explain this better is of a community radio that was set up in 1998 by the Deccan Development Society (DDS) in Medak, a backward district in the Telangana region of Andhra Pradesh. DDS set up the radio station because it believed that rural, non-literate people have as much to teach the rest of the world as they need to learn. In Medak, farmers have established complex and biodiverse ecological systems, have a good knowledge of herbs and plant medicines, and raise a variety of livestock with a full understanding of animal care systems. However, they could not spread the knowledge among themselves for the benefit of other community members because they were illiterate and did not have a platform to do so. To overcome this, it was essential for people to have their own means of expression. Radio came to their help. The society opted for radio as a means of communication, 54
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Photo Courtesy: DHAN Foundation
Effectiveness of Community Radio
CRS Policy In A Nutshell Who is eligible? • Non-profit organizations, civil society and voluntary organizations, state agriculture universities (SAUs), ICAR institutions, Krishi Vigyan Kendras, registered societies and autonomous bodies and public trusts, with a proven record of at least three years of service to the local community What is the structure of a community radio? • Should be designed to serve a specific well-defined local community • Should have an ownership and management structure that is reflective of the community that the CRS seeks to serve What content goes on air? • Developmental, agricultural, health, educational, environmental, social welfare, community development and cultural programs • 50% of the content ought to be generated with the participation of the local community Transmission • Should cover a radius of 5-10 km, for which a transmitter having maximum effective radiated power (ERP) of 100 Watts would be adequate • Height of antenna should be more than 15 meters and less than 30 meters Funding and Sustenance • Applicants eligible to seek funding from multilateral aid agencies, subject to FCRA clearance under Foreign Contribution Regulation Act, 1976 • Maximum duration of advertising is restricted to 5 minutes per hour of broadcast “because of our rich aural culture, the fascinating stories that people can tell, the amount of knowledge and information they have and the way they can horizontally share with each other. And the radio makes it possible for them to transcend the physical space limitations in sharing their stories and
information,” explains Satheesh Periyapatna, Director of DDS. In India, there are several reasons why NGOs are opting for CR. For instance, TERI plans to launch Kumaon Vani – Apan Radio Apan Batein, for an altogether different reason. According to a survey conducted in Kumaon in
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opportunity/broadcasting
remotest corners of India can bid for radio stations of their own. In fact, at a National Consultation on Community Radio for practising and potential Community Radio Operators in India, held in March 2007, it was announced that 4,000 community radio stations could come up in India over the next few years. Photo Courtesy: DHAN Foundation
The Business Aspect
Approximate Cost Involved Set Up
Costs
Audio production facility (studio, equipments for recording and editing and furnishing)
2,00,000
Costs of transmission equipments – tower, transmitter
4,00,000 Rs. 25,000 Rs. 20,000 18-20,000/month
Bank Guarantee for Licensing Annual Subscription Fee for the Frequency Operating Cost (8 associates and 15 volunteers)
Based on the example of Radio Kalanjiam
April 2007, radio emerged as the second most popular medium after television. However, the region has a rigid topography and adverse climatic conditions that restrict communication. In such a scenario, radio proved to be the best medium of communication. The power of radio to build communities had long been ignored in India. However, realising the power of the medium, the government has approved the community radio policy. Even before the new policy came into being, NGOs used to air community radio programs through All India Radio (AIR) and FM channels. According to Sona Sharma, JD (Advocacy & Communication), Population Foundation of India (PFI), “We have produced programs and aired it on AIR, and then at the community level we have done what is called narrowcasting.” She explains that in order to make the programs more effective, PFI has partnered with NGOs who work at the field level in villages. These
NGOs gather listener groups of about 20-30 people and identify a leader. The leader discusses the issue before and after the programme is aired. This way it becomes much more interactive and entertaining than just listening to the program. Community radio has become the new buzzword in development circles lately, due to the government’s approval of the new Community Radio Policy. This policy is being viewed as a big leap forward by NGOs because community radios are cost effective, easy to operate, and reach members of a given community in their language.
The New CRS Policy In India, till now only commercial players with deep pockets such as Radio Mirchi and Big FM could get broadcasting licenses. However, with the new policy in place, it can be expected that several self-help groups, and marginalised people, residing in
The new community radio policy allows limited advertising and announcements relating to local events, local businesses and services, and employment opportunities for a duration of 5 minutes per hour. While the government is clear in its policy that a community radio cannot be used for ruthless commercialization, but it does give leverage for a small advertising slot. Although too small, the slot should be used by the local businesses to air their marketing pitches. After all, no social development can sustain without a thriving economic activity. This could also be a big boost for village entrepreneurs and artisans to reach out to their customers in the vicinity. All the talk about rural entrepreneurship would be meaningless without giving a fair chance to villagers to exploit business opportunities. A community radio can go a long way in fulfilling this need. It could also be used to hold discussions on entrepreneurship. Other economic activities can also flourish. For example, at the village level, a community radio can be used to announce the prices of items of daily use, and any fluctuations in them. Also, the prices at which companies would want to buy from the farmers directly. It would not harm to take a leaf from ITC’s e-Choupal model, in which the villages can ignore the middlemen and sell their produce at lucrative prices. The other way round, companies dying to tap into the rural market could find a friend in community radio to reach out to remote areas. With competition heating up in the urban market, consumer goods companies are leaving no stone unturned in expanding their customer base in DAR E rural areas. SEPTEMBER 2008
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WATCH OUT! common mistakes entrepreneurs make
Starting up a company works better if you learn from the mistakes of others 56
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/Sreejiraj Eluvangal
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tarting up a company is no picnic. Veterans go by the adage, if anything can go wrong, it will. Even if you have a world-beating product, people may just not take you very seriously or partner you. “One of the biggest liabilities for a startup is just the newness,” says Professor Suresh Bhagavatula of the N S Raghavan Center for Entrepreneurial Learning at IIM Bangalore. Bhagavatula, who deals extensively with young companies as part of his role at the centre, believes that a startup, besides all the folly of its founders, is beset by ‘natural forces’ that go against such. “Nobody really believes you will survive and hence are unlikely to deal with you even if your products are good. This is similar to gravity and friction, natural forces that dampen success.” Yet, aren’t there factors within the control of the entrepreneurs that can be fixed to increase the chances of success? Entrepreneurs point to three kinds of mistakes that a young entrepreneur is more likely to make that impact his chances of success. They relate to wrong expectations from self, from the others in the company and from the market itself.
Self No. 1 on the list is to do a self-analysis. This is also perhaps the easiest step, since the main requirement here is some honest introspection.
“If you have a passion, then you will build something first, then start a company,” suggests 24-year-old Vijay Rayapati, who lost his savings of around Rs 6 lakhs this year after his online food-ordering-software firm collapsed. Vijay points out that like many wannabe entrepreneurs, his primary motivation was to ‘be an entrepreneur’, which was not enough, he states. “I used to think - ‘Larry and Sergey did it, Dell did it, Ellision did it; why can’t I?” he says. “It is good to get inspired from great people’s lives but what we are missing here is that whether you are doing it with a passion or a desire. If you have a passion then you will build something first then start a company. I had only a desire to be an entrepreneur lacking a real passion to drive me ahead,” he looks back at his venture. So, how do you know whether you are ready to take the plunge or not? Vijay, who split his time between his ‘regular’ job and his startup, suggests the ‘all or nothing’ test. “I didn’t quit my job because maybe I was scared of failure. This attitude led to my failure and made me bankrupt. Before you
VIJAY RAYAPATI
I did not quit my job because maybe I was scared of failure. This attitude led to my failure and made me bankrupt. Before you plan a startup company ask yourself a thousand more times whether you are really prepared or not? Even if you have a small doubt, don’t start. plan a startup company ask yourself a thousand more times whether you are really prepared or not? Even if you have a small doubt, don’t start.” “Otherwise, during difficult times, your mind will think ‘why should I take so much pain when I have such a paying job. I am earning Rs 70,000 per
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DARE.CO.IN VINAYAK HEGDE
We underestimated the challenge of being able to sell an extremely new technology. We first had to educate the customers. We didn’t know how big the market was, how to target our product. If we had, we could have targeted the solution in a better way and the results may have been different. month from my job, why should I walk one km for saving Rs 15 for the company?” he points out.
Team It’s not enough for you to be crystal clear and be possessed by an idea. The team plays an important role and many enterprises fail because of the differing expectations of the partners. Abhishek Singla graduated from IIT Kanpur in 2004 and worked at a software company for one and a half years. Like many with the ‘entrepreneurial itch’ he was constantly on the look-out for partners he could team up with to start a company. “I used to discuss many ideas with friends. How can we resolve the ideas and make a business model out of it?” he says. “We discussed different products, but I couldn’t form a team. I soon realized that good people don’t just come out of a well paying job and 58
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strategy/startups join a startup. Nobody was sure,” he remembers. Things came to a head when Singla was offered a more lucrative job by a big firm. “Just as I was about to take up the offer, a senior who was working with me at the first company suggested that I join him and his friend to start a company to make software for educational institutions. I had to make a quick decision, so I said yes.” The venture went well, landing a five-year deal with an educational institution that paid Rs 6-7 lakh per year. The ‘beginner’s luck’ however soon ran out. “We could not close other deals after that and the other partners started reconsidering their options. They had expected four or five deals in the first year. “My working partner was under a lot of financial strain. So he said ‘let me try out a job for some time’ and I was to take care of the company. However, his involvement dropped significantly after that. I started asking him ‘are you in or not?’ Since the product was meeting the burn-rate, we even got some VCs willing to invest in us, but my partner was not sure about going in for such a long-term commitment to the company and that was the end.” “A startup is like a love marriage,” says Vibhore Goyal, co-founder of university hiring portal Cocubes.com. “When you are in love you tend to keep your expectation low, be very adjusting and up to some extent, try to fit in. Similarly, when you know the founders as friends, you only tend to see all their good points, accept their opinion with a much more open mind and make a lot of assumptions about how they will respond in a particular situation. “However, this may change once you get married. Starting your venture is the stage after marriage. Every decision you make will affect not only you but everyone involved and that included founders, investors and teammates,” he points out. While Abhishek points to his haste in joining the team for eventual mismatch of expectations, Vibhore’s friend and co-founder Harpreet Singh has this advice on how to keep the re-
lationships healthy and grounded: “Be upfront each day, each moment. You don’t like something, say it, you have divergent views, discuss. That is the key to make it work. Small disputes each week lead to a healthy life-long relationship.” “Initially, when you talk about your plans for the company, your commitment to it, etc., you talk in the air,” says Abhishek. “After some time, a communication gap can come in. People’s perspective changes, they don’t think the same. Try to put everything on paper, including the extent of everybody’s commitment. Perhaps my biggest mistake was that I did not spend enough time with my would-be partners to know them and their plans.” Another issue of team dynamics that frequently crops up as a problem, according to professional investor and mentor Sanjay Andandaram, is the entrepreneur’s attitude towards co-workers. “Due to our cultural baggage, when we think of a company, we think of a control-oriented business—the boss sits behind the cash counter and gives directions. The notion is ‘I am the boss, everyone else reports to me’. Like in general society, we don’t like to speak up against someone, there is an inhibition to challenge the hypotheses propounded by the boss. The process of debate, the freedom to challenge assumptions; those are the hallmarks of a company that wants to create ideas. It should not be a one-way communication,” he points out. Start-ups, where the answers are not always obvious and the level of experience often too shallow, work better when the ideas and criticisms flow in all directions, agrees Suresh Bhagavatula of IIMB. “We Indians are culturally averse to give good criticism and we take criticism personally. Our tendency is to say ‘it’s good or nice’ [even if it’s not],” he points out. He also suggests getting feedback and suggestions from as wide an audience as possible before starting off. “We tend to hang out with others similar to us. This is bad for strategy. For example, entrepreneurs who are in the
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strategy/startups IT domain require diverse information that their competitors do not have. Opportunities come when you transcend boundaries. These networks also help entrepreneurs overcome ‘bounded rationality’ - each of us have limited knowledge and we take decisions based on this limited knowledge.”
The Market Besides checking yourself and getting to know your future team, it is also important to do a reality check on your conception of market and the customer. Startups make all kinds of mistakes when assessing the market and their growth prospects. Vinayak Hegde thought he had seen the future in 2002, when he and his friends launched a firm specializing in ‘thin clients’ – a cost-effective way to provide many computer terminals by centralizing storage. Along with two fellow students and a professor, he set out trying to convince companies and institutions to go for the ‘thin clients’ rather than investing in full-blown computers for each of their employees or users. Two and a half years later, the company was wound up as it ran out of cash. “We thought because the technology was compelling, the savings were obvious, we would not face many problems,” he says now. “But we underestimated the market. We underestimated the challenge of being able to sell an extremely new technology. We first had to educate the customers.” “We did not look carefully enough at the business part of it, the receptivity of the market to such a product. We didn’t know how big the market was, how to target our product. If we had, we could have targeted the solution in a better way and the results may have been different,” he says. “We were focussing only on one big deal,” says Aayush Puri, veteran of Universityhiring.com. “When that did not work out, we did not have enough money or people to reorient our business.” Universityhiring.com was built around a Web platform that made it easy for corporate organizations to reach out to colleges and universities
for placement. In August 2006, Puri and his friends were banking on the Hyderabad-based Jawaharlal Nehru Technical University to give them their first business. “Almost everything was done. The higher authorities had more or less given the go-ahead, but then the university was bifurcated into three and our project was put on the back burner. We were banking on that single deal to get us around 250 colleges at one go. The only other option would have been to approach the colleges individually, which we realized, we did not have the resources to do. We were not ready to do that,” he says. While Vinayak’s team misread the market and Aayush’s underestimated the marketing demands, for Amit Gupta and his four friends, who started Internet security company UbiQTech in 2004, demand was the least of the problems. “In 2006 and 2007, we were amongst NASSCOM’s top India’s innovator list,” says Amit. “Armed with this we went to VCs. There was positive response from many VCs. They liked the team, technology and everything other than our lack of brand. In our case, we had built our own OEM customer’s brand. “Many of these VCs confirmed immediate investments, if UbiQTech takes over OEM operations and runs the same, which we were capable of. Having tasted solid success, our OEM customer was in no mood to do this and unwilling to discuss. That shook us, as we felt that we had built the business in partnership and spirit, beyond the written agreement we had with our OEM customer. The resource crunch resulted in loss of steam and we had to sell out to another company.” Amit blames the failure to anticipate how the business would evolve and its impact on the resources requirements for the eventual decision to sell out. “We had entered into a five-year exclusive agreement with our main customer. That just tied us up. While signing up we couldn’t visualize the impact. There should be a finance person or finance focussed person on board, who can bring in the financial
AMIT GUPTA UbiQTech
Many VCs confirmed immediate investments, if we take over and run the OEM operations, which we were capable of. Having tasted solid success, our OEM customer was in no mood to do this. That shook us, as we felt that we had built the business in partnership and spirit, beyond the written agreement we had with our OEM customer. The resource crunch resulted in loss of steam and we had to sell out to another company. strategy and focus regularly,” he says. Vijay Rayapati says, short of a well-rounded team with marketing and technical experts, having a mentor would go a long way in bringing back the balance in domain expertise. “If you are a tech guy, you think ‘I can build the product and sell it’. Most don’t understand that knowing how to build the product is not good enough; you also need to understand how to run a business and the market in which you will be operating. If none of the founders understand these two things as well, chances of success are slim. If you don’t have business or market experience, you must try to find a mentor who has successfully managed DAR E a business,” he says. SEPTEMBER 2008
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hat are the challenges in sustaining and running a century-old organization?
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It has a lot to do with innovation and changing with the time. From a century-old compan, which was more in the ayurvedic space, Dabur has been transformed to a more urban company. We have to keep innovating and bring out products that are relevant to today’s environment. For example, Vatika, Gulabari, Real Fruit juices, etc, which are the need of the hour. To be able to do all this, it is crucial to have good teamwork, a motivated team that delivers on goals, and you have to serve as a catalyst for the team to be successful.
What steps did you take for modernization? What were the challenges faced in bring about changes? To begin with, I have an engineering background. Before I started handling Dabur, I had worked with Colgate-Palmolive for three years in New York. I brought in all the learning that I got there to Dabur. I looked at the layouts of all our factories, and spotted where we could make our production more efficient. Besides this we did some project studies in areas such as possibilities of reducing hours in production. Since our distribution is across the country, we also evaluated the logistic part of everything. While at this, we looked at the best way to distribute any product and which product should be sourced from which factory, in terms of looking at differences, costs, certain taxes in different states, etc.
entrepreneur of the month
AMIT BURMAN DABUR INDIA
He is the fourth-generation promoter of a century old and tremendously popular company – Dabur. Amit spoke to DARE about the challenges he faced, the opportunities that he sees, and more…
What I tried to do with the company, in short, is bring in more efficient systems and processes into place. As for how the organization took these modernization steps—there were people who had been in the company for long, and were used to doing things in a certain set way. It is very difficult to change people’s mindset in this regards. To overcome this challenge, we ran a comparison between both, conventional ‘as per my experience’ perspective, and a more system-and-facts based decision-making model, on computer-generated programs. This let the organization clearly see realistic and practical answers to the questions raised with regards to modernization. Furthermore, my father, GC Burman, who was running the organization at that time, was aware of and was open to implementing the systems and processes that were happening around the world. He was very happy that we were looking at taking those modernization steps. Over the time, we as entrepreneurs have moved out of the dayto-day operations of the company, and the organizational affairs are now run by professionals. Fact-based decisions are now taken based on various purchase software, or logistics software, or the SAP and ERP systems that we use. A lot of these modernization steps have helped everyone in taking the right decisions. SEPTEMBER 2008
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What were the challenges faced in getting Real compete the likes of Pepsi and Coca Cola? First of all, we have had the first-mover’s advantage in this segment. I saw the need gap for packaged juices in the country. In India, juice drinking has always been a form of gaining nutrition, and the concept is not something that is alien to the people here. Everyone makes juice at home; there are countless fruit juice stalls in every nook and corner of the nation. We just provided them a healthy way of consuming it, and removing the seasonality out of it. We were the first ones to bring them juices that were hygienically packed with six months of shelf life, and contained no preservatives. The challenges we faced in the juice segment had a lot to do with consumer learning research and exercises. If you look at all our products, we have been ahead of time. We don’t just have mango, orange, and pineapple juices; we have litchi, pink guava, soya, mixed vegetable and lot of other very Indian juice products. Considering this, we have been ahead of these foreign multi-nationals, in terms of product innovation, delivery, and such. How have we brought out products that these corporations did not even think of? That is because we have the knowledge of dealing with fruits and vegetables and blending a mix that suits the Indian consumer. During the rolling out phase of Real Juice, the challenges that we faced were more on the lines of procurement and distribution. You know how fruits and vegetables are transported and processed in the country. So there were a lot of rejects upon procurement. Then there was the issue of how to best distribute these products such that they reach all the retail shelves, and still maintain the freshness. Now, however, we are well-oiled and have overcome all these challenges.
we felt a need to come up with a distribution system to deal with this product. Since a distribution system always works at a critical size, the question that we faced was whether Real Juice could sustain the distribution system in the first couple of years? The answer was no—it would take nearly five-six years. Then it became a question of getting into products which the consumers needed and were not available. This is the reason we came up with different cooking pastes for the Indian housewives to aid them in cooking and so on. The organization was excited about Real Juice, but the other products were not seen as having much potential. Moreover, since Dabur was not in the food business earlier, there was a bit of resistance. But with the success of Real in the beginning, we let these products ride on a float basis, and this is when everybody started seeing the potential. It is then that more marketing spend and advertising went behind these products, and the companies went out in a grand way with these processed food products.
I can see drinks as a segment that is really catching up with the people because of the price point, and that it should grow at about 40% per year. I think this area is going to get very fragmented, and a lot of niche will be explored in this segment
You are accredited for foraying Dabur into the processed food business. How did the organization take it? I had an idea that processed food is a big opportunity in the country. Hence, we gave these products a shot and used the existing distribution system that Dabur had. We did this because we were already in the food based business, in terms of distributing Dabur Honey, Sharbat-E-Azam, and more. Hence, Real Juice was more a product-based foray. Moving on from there, we saw the category growing. However, we also saw the limitations for this category because of the shelf-life of Real Juice as a product. Therefore, 62
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What were the challenges Dabur faced in gaining market acceptance in the processed food segment?
We had products such as Honey and Gulabari, which were already in the food segment. Honey, for instance, at that time was used as a medicinal product. However, if you see our advertisements today, it has moved away from a medicinal product to more of a food product. People are now using it daily, for example in their morning tea and as a spread on toast. This transition has brought about honey being used as a food product to about 95%, and the rest remains in the medicinal consumption segment. This is how we moved from ayurvedic business to being in food business too. Our tagline is “For the health and well-being of every household”. Fruit juices simply fit into the same category. Above all, anything coming from the house of Dabur meant that the product is genuine, has the best ingredients, and gives best value for money. Therefore, the acceptance of Real Fruit Juice was easy, thanks to Dabur’s impeccable reputation.
How much does the popularity of Chyawanprash help in other businesses of Dabur, and how much of the same popularity is a limitation for other businesses of Dabur? Chyawanprash, being a 100-120 year old product, definitely helped a lot. It helps us in telling the consumer that Dabur is a master in ayurvedic and herbal products. And that, in any product that we come out with in this area, efficacy
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would not be a problem. Chyawanprash’s popularity never was a limitation for our other businesses.
Lal Dant Manjan, Awla Kesh Tel, Chyawanprash, Janam Ghutti, Real Juice… different brands with even more different positioning. How do you manage it? The challenge is in knowing your consumer segment right. Also, you have to develop the right kind of communication, advertisement, and promotion for these different segments. This means understanding what the consumers’ aspirations are, and identifying what are the benefits that they would like to see in our products. From our point of view, we do very different things for Real, which is very much of an urban brand. Chyawanprash and Awla Kesh Tel ride between urban as well as traditional. The advertisements on air will be the same. But then, we supplemented them with radio advertisements, wall paintings, et al, which are done in a very different way in the rural areas as compared to urban cities.
For a century-old organization, how easy was it to decide phasing out of products, and at the same time getting the organization to accept it? We have close to 450 SKUs and 200-odd brands. The ayurvedic department, I would say, is the incubator for all the products we have. If you go back in the past, Hajmola tablets used to be called KB Tablets, and used to be in our ayurvedic department. We saw that the consumer is eating the product for reasons other than just for digestion. We then changed it to a more palatable name—Hajmola, gave it good funds, promotions and so on, and then went over the counter (OTC). Similar is the case with Pudin Hara, Chyawanprash, and so on. In these products that used to be ayurvedic and herbal based, we had seen success at the incubator stage, and then we moved them out of the ayurvedic department. Basically, we did not have problems of having to phase out products in that area. It is the hair care, skin care, and such products that we have had to phase out. These are the areas where we launch products and give it full marketing support for six months or so. If we do not see it being successful, we either decide if the bundle SEPTEMBER 2008 63
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/bio analyzing its usage, and so on. In a five-year horizon, we try and analyze how a product will fare, even when we are in the test phase of a product. It is then that we decide on whether to pull it back or roll it out. Another way of gauging the success of a product is by doing a full-bundle test launch in specific cities, because it would be difficult to pull back if we go pan India before a proper commercial testing of the product. As for phasing out of products, it is really a cut-and-dried decision in terms of profit and loss.
Where do you see processed fruit juice industry going from here? I think the area that is growing tremendously is the drinks area. (A drink in this context means, anything that has about 10% of pulp, e.g. Frooti, Minute Maid, Tropicana Twister.) While the juices will grow at about 25% per year, I can see drinks as a segment that is really catching up with the people because of the price point, and that it should grow at about 40% per year. I think this area is going to get very fragmented. With the Pepsis and Coca Colas of this world doing huge campaigns, the market will grow and there will be a lot of niche that will be explored.
When it comes to OTC products, what are the challenges faced here? What is it like in the international market scenario?
MANTRA/IF YOU HAVE
A DREAM, YOU NEED TO HAVE A TEAM THAT IS MOTIVATED. START WITH SELLING THE DREAM TO YOUR TEAM, FOLLOWED BY MOTIVATION, AND FINALLY PUT ALL THE INGREDIENTS AROUND BY WORKING AS A CATALYST FOR THEM TO BE SUCCESSFUL. that we put it out with was wrong and should be re-looked at, or the product was not ready for consumers to accept. We have not had much of phasing out of products. We do a lot of research before a launch in terms of focus groups, discussions, putting a product in a consumer’s home and 64
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The only challenge here is getting the communication, advertisement, promotion, and the whole distribution bundle created. We already have the FMCG distribution and logistics in place, which we use to promote these products. In terms of distribution, we have a team together looking only at these ayurvedic OTC products and the way to advertise them. They go for more of serious advertising than frivolous. The international market demands tweaking and packaging of the products differently, and this is a challenge. For instance, plain awla oil will not work there. It needs to be mixed with certain other ingredients, which may be very country-specific. A case in point, with meswak being very famous in the Muslim nations, we have Meswak toothpaste for them. Further, if you look at some of our oil or shampoos, we mix cactus juice, olives, and the likes of it depending on the country we are targeting the products for.
Looking forward, what is the legacy that you would want to handover to the next generation? The key legacy I was handed over was paying attention to the consumer and getting the market research right. The legacy that I would like see handed down is the use of innovation with technology. The time has come when we need to research our products very well before we put them out in the market. There is nothing called monopoly in the market out there, there are too many products out there. For the next generation, international market and globalization is the big key, and we need to see how we can ride that trend to make our products made relevant in the European and DAR E American world.
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/global opportunities
Business opportunities in Finland The country offers superb R&D facilities, a highly educated workforce, and access to markets in northern Europe
/Vimarsh Bajpai
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/global opportunities
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hen IT major Wipro Technologies acquired Finlandbased Saraware Oy for Rs 146 crore in 2006, the deal helped Wipro break into high-growth segments such as secure communications. It was also part of Wipro’s strategy to move closer to its clients in the Nordic region by getting local people to service its customers better. Saraware was an excellent fit. The 21-year-old Finnish company had competence in the areas of radio networks and secure mobile platforms and had 200 people working for it. Wipro is among a host of Indian companies that have landed in Finland for almost similar reasons. TCS
has had its presence in Finland for the last 10 years. Infosys, Sasken, Tooltech and Zensar are among the other Indian companies. Although majority of the firms are from the IT sector, there are exceptions. MJ Biopharm acquired a Finnish firm Medipolis GMP in the middle of January 2007. While most Indian firms have preferred to take the M&A route, only a few have gone in for greenfield projects. “We have seen this quite a lot. Seventy percent of the deals that we are doing are M&As and only 30% are greenfield operations. Seems to be so that M&A is the easiest way into the market,” says Jari P. Ängeslevä, Investment Director, ICT Cluster, Invest in Finland.
DARE/country facts Area Average Temperatures Population Population Density Labor Force National Language
GDP per capita
338,000 Sq Km 13°C (Summer) / -2°C (Winter) 5.3 Million 17.4 persons per sq km 2.86 million Finnish (91.2%) and (Swedish 5.46%), English spoken by 82% of the population 31,866 Euros
DARE/doing business Ease of…. Doing Business Starting a Business Dealing with Licenses Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business Source: World Bank
2008 Rank 13 16 39 127 17 26 51 83 5 7 5
2007 Rank Change in Rank 14 1 22 6 38 -1 128 1 16 -1 21 -5 49 -2 78 -5 5 0 7 0 5 0
DARE/opportunity areas • • • • • • • • •
Information and Communication Technology Clean Technology Biotechnology Agriculture Food Processing Waste Water Treatment Mining Paper and Forestry Pharmaceutical
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/global opportunities What are the key sectors where Indian entrepreneurs can enter? So far, 80% of the interest from Indian companies in Finland has been in the information and communication technology sector. We already have the big names of Indian IT companies there. Now we have the second-tier companies coming as well. Finland is very much a high-tech country. The second area where we are now focusing is clean tech. We can see India is very much in need of this kind of technology. We have got the scope in Finland and you have the scale in India. We have got the technology and you have got this huge market opportunity. We have already seen a couple of investments in wind energy in Finland from India. Also, we have seen interest in the e-waste recycling business. When it comes to waste water treatment issues and potable drinking water issues, we have tap water whose quality is probably the best in the world. Finland has a lot of ground water but we are also using a lot of surface water. Another sector where we haven’t seen much interest from India but a lot from other countries is mining. Finland currently has the biggest gold mine in Europe. Also, there is a lot of potential for uranium. We have a lot of Canadian and Australian companies in mining business. We also haven’t seen much interest so far in the paper and forestry business from India.
Many Indian businesses feel Europe is a tough market because of the linguistic and cultural differences. Your comments on this. English is very widely spoken in Finland. It is taught in schools from the third grade. Investment Director, Invest in Finland Finland is a bi-language country by law. So, Swedish language is very widely spoken. Therefore, from Finland you can also handle the Swedish market. You can also handle the Russian market. Russia is now the Finland’s biggest trading partner. When it comes to culture, we are very modest, punctual, and honest. Finland is the least corrupt country in the world. You don’t even try to bribe officials. The whole system is very transparent, and there is no room for corruption. Government deals are very transparent. Dealing with Finnish companies is very easy; you don’t need complicated agreements but trust.
Jari P. Ängeslevä
What kind of R&D support do companies get? Finland doesn’t give any national-level tax benefit for foreign companies because we treat everybody equally. For example, if you are an Indian company and you want to do R&D, our government would fund up to 50% of the operational costs. Around 3.5% of the GDP is being spent on R&D. All in all, we spent around 5 billion Euros on R&D, of which half is from the government and half from the private companies. Our government is committed to raise the expense on R&D from 3.5% to 4% of the GDP. Finland is determined to stay on high-tech track because that’s the only way to survive in global competition. We have very well educated people, and they do high-tech work. Therefore, R&D is build for the future in Finland, not the manufacturing business. We are already seeing a lot of manufacturing companies moving out of Finland to countries where cheap labor is available. Nokia, for example has 15,000 people in Finland, in R&D alone. This is more than 70% of their total R&D workforce. Even though Nokia has a design center in India most of the product is made in Finland. Are labor laws stringent in your contry? Hiring and firing in Finland at the European Union level is probably the easiest thing to do. But certainly you have to keep in mind that we do have pretty strong unions in Finland, and we do have certain laws that companies need to follow. We have around 37.5 official working hours in a week. But a lot of people work overtime. Productivity in Finland is one of the highest in the world. We are even more productive than the US. How easy is it to start and close a business? It is pretty easy to start. The registration fee for a limited liability company is only 330 Euros. The initial capital you need is 2,500 Euros. The registration process takes just one week. The closing of the company is also easy. You have to tell the authorities that the business is closed, you close your books, and that is all. Most of the process is electronic. What kind of interest are you seeing among Indian companies for Finland? Are they more inclined towards acquiring firms abroad? This is an Indian phenomenon. Indians want the results immediately. They are also very cash-rich right now. This means, in practice, that they can go and pick up the best companies. In our business, we have seen this quite a lot. Seventy percent of the deals that we are doing are M&As and 30% are greenfield operations. It seems to be that M&A is the easiest way into the market, and a very Indian way—a rampup-the-business type of approach. I like that because Indians are very straight- forward in their approach. How does your agency help Indian businesses? We are a professional consulting service. We are the customer’s business development office in Finland. Finding business facts, players in the market, what are the market opportunities, how much does it cost to recruit people, what is the cost of establishing the company, etc—we do all this. We are government-funded. We don’t charge from our customers. But all the private sector services that we recommend are chargeable. 68
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/global opportunities Indo-Finland Trade 2002-03
2003-04
2004-05
2005-06
583.48
2006-07 609.31
388.81 270.09 204.69
199 111.27
194.16
143.54
71.14
Note: All figures in US$ Million Source: Ministry of Commerce, Government of India
DARE/major items of export from India to Finland (2007)
DARE/major items of import from Finland to India (2007)
• Articles of apparel and clothing accessories
• Telecommunications and sound recording equipment
• Textile yarn, fabrics and made up articles
• Machinery for special industries
• Metals
• Electric machinery and parts
• Iron and steel
• Paper, paperboard and articles
• Electric machinery and parts
• Power generating machinery and equipment
• Organic chemicals
• Non-ferrous metals
• Footwear
• General industrial machinery
• Miscellaneous manufactured articles
• Iron and steel
• Furniture and related parts
• Metalliferous ores and metal scraps
• Telecom, sound recording equipment Source: Finnish National Board of Customs
Why Finland? Finland is literally a gold mine. The country has the world’s largest gold mine, and the sector has already caught the attention of several American and Canadian companies. However, Indian firms are yet to focus on this area. Finland’s highly educated workforce makes it the cynosure of all eyes. Over the past decade, the number of R&D personnel in Finland has grown from 40,000 to nearly 80,000. This makes over 2% of the overall labor force,
• Instrument and apparatus Source: Finnish National Board of Customs
which is the highest figure among all the OECD countries. The number of doctoral degrees has similarly doubled in the past ten years. A close coordination between the academia, businesses and universities makes it unique when it comes to getting the right people for your business. As the domestic market in Finland is small, one has to start thinking international from day one. Most Indian companies make Finland a hub for their access to the countries in Northern Europe. It has Sweden in the west,
Russia in the east, Norway to the north and Estonia to the south. Finland’s logistics network with neighboring countries is excellent. It has 78,000 km of roads, with two international highways—the European Route E4 in the north-south direction and the European Route E18 in the east-west direction. There are also nearly 6,000 km of railway lines, a huge network of waterways, canals and sea lanes, as well as 24 airports serving air freight and pasDAR E senger traffic. SEPTEMBER 2008
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Mr. Krishan Kalra, Secretary General, PHD Chamber of Commerce and Industry
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event/DARE-HSBC
CEO Summit on Global Opportunities T he Hyderabad seminar was an interesting experience. For starters, it rained cats and dogs. The rains that started half an hour before the seminar had not stopped by the time I was boarding the flight back the next day. My thanks to all the CEOs and MD's who braved the rains and made it to the seminar. We had a very interesting panel discussion, that invarialy kept on coming back to China. In his earlier piece in DARE, Phil Anderson argues that you cannot have a high growth venture without having a presence in China. Almost all our participants seemed to share a similar feeling and wanted to engage with that country. But there were questions; and there were fears. There were those who wanted to figure out how to find opportunities in China and there were those who were being contected with orders, but wanted a mechanism to verify the antecedents of the companies placing those orders. There were a couple of horror stories also that were shared; of cancelled orders and of shipments that were empty boxes.
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event/DARE-HSBC Since a Sr. VP from HSBC Bank was on the panel, it was only natural that there were many questions on foreign currency hedging, LCs and the like. We will be carrying a detailed report on the event in the September issue. Meanwhile, here is a quick summrary of the key conclusions. 1. Exercise caution in engaging with new foreign trade partners. A visit and face to face meeting is best. If that is not possible, try to verify their antecedents through chambers of commerce, Indus-
Mr. Surath Sengupta, Sr.Vice President, HSBC
Mr. Anand Saklecha, Anand Saklecha & Co
Mr. P. Balaraman, Asst. Director, Pharmaceuticals Export Promotion Council
Mr. Ramesh Loganathan, VP (Products) & Center Head, Progress Software Development
Mr. K.V. Jagannnath, Managing Director, Choice Solutions SEPTEMBER 2008
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event/DARE-HSBC try associations, your bank or ask for references. 2. Try to route your engagement through an established intermediary in India or abroad (Honkong for China, as the rules arebased on English laws) and reduce risks. 3. Small and medium businesses should not look at currency hedging as a source of profit. Rather, they should look at hedging as a way fo protecting their rates. 4. Try and include the cost of export insurance in your costs so as to reduce export related risks. 5. For imports from a new party, will they accept Bank Guarantee instead of LC (letter of credit) for the initial shipments? Our next seminar was at Indore on the 13th.
I
ndore was a different audience, different concerns, a set of different questions. The proceedings for the evening were started off with a Keynote address by Prof. Prasanth Salwan of IIM Indore who explored the changing nature of international business and identified the key drivers of trans-national enterprise. Most of the questions during the panel discussion were around specifics. How to identify new contacts? how to follow up for tricky payments? How to handle changed duty structures? And so on Key learnings: Engage actively with trade and export associations. The associations not only bring in business enquiries, but also provide
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Because HSBC understands that time is money
In global business, hours and minutes have replaced weeks and days. That is why HSBC is geared to turning around your trade-related transactions as quickly and as smoothly as possible, enhancing supply chain efficiencies. Contact HSBC Trade and Supply Chain today to see how our solutions can help you.
email tradeservices@hsbc.com click www.tradeservices.hsbc.com For more details or queries contact: North, Sameer Jain, 9899999028, sameerjain@hsbc.co.in l Karnataka, Aman Singla, 9945213327, amansingla@hsbc.co.in l South (AP/Ker/TN), Renuka Sridhar, 9962153888, renukasridhar@hsbc.co.in l West, Pradeep Sharma, 9819271077, pradeepsharma@hsbc.co.in l East, Hara P Goswami, 9830688907, haragoswami@hsbc.co.in
Issued by The Hongkong and Shanghai Banking Corporation Limited, which is incorporated in the Hong Kong SAR with limited liability.
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event/DARE-HSBC
peer to peer networking which can be used to verify new business contacts. Get yourselves enrolled in the mailing lists of foreign embassies, you will know what the trade focus of various countries are, when trade delegations are coming and what expos are scheduled among other things. When entering into an export deal, always build in a force majeure clause in the contract to take care of sudden changes in regulations, duty changes, etc. Prof. Prashant Salwan, Chairman, International Business Area, Indian Institute of Management, Indore
Mr. Ashok Jaiswal, President, AIMP
Mr. Surath Sengupta, Sr.Vice President, HSBC
Mr. Gautam Kothari, President, Pithampur Audhyogik Sangathan Mr. Dipak Kalani, Chartered Accountant, Kalani & Associates 74
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/blogs
Slow Growth and Inflation: Bad News for the Incumbents T
he growth of the Indian economy has slowed down and is likely to decelerate further. The government has curbed exports, eased imports, tightened money supply and hiked interest rates. Yet inflationary fires continue to rage. Although the long term future is far from bleak, in the short run the picture appears rather gloomy. It is certain that the political impact of the current state of the economy will not favor the incumbent regime in the coming months. For the first time since the country became politically independent more than six decades ago, India’s gross domestic product grew by an average of almost nine per cent each, for four years in succession. In the past, India’s GDP had grown fast in particular years but this was usually preceded (and often followed) by a year of negligible (or even negative) growth. The late Professor Raj Krishna had coined the phrase “Hindu rate of growth” to highlight the fact that the Indian economy had grown by an average of only around 3.5 per cent right through the decades of the 1950s, 1960s and 1970s despite specific years of high growth. From the 1980s onwards, the growth rate picked up and then accelerated during the 1990s. It is nobody’s case that India would slip back to the era when the economy grew very slowly. It should also be realized that growth in itself means little or nothing unless it is accompanied by the creation of job opportunities and the benefits of growth benefit the underprivileged. The Prime Minister and the Finance Minister are today being criticized (privately by even their own party members) because many of the market-friendly, neo-liberal economic policies that have been followed in the past have not been considered sufficiently “inclusive”. Dr Manmohan Singh’s economic policies were attacked in May 1996 as well after the Congress fared badly in the general elections. What is clear at present is that the Indian economy will grow by less than eight per cent during the current financial year that ends in March 2009. The Prime Minister’s Economic Advisory Council has placed this figure at a more precise 7.7 per cent, although the Reserve Bank of India as well as the Ministry of Finance are of the relatively optimistic view that the growth rate could still be maintained at eight per cent. This optimism stems from the belief that this year will witness record agricultural output despite the floods in many areas of north and north-east India and inadequate rainfall in parts of central India. The government is also hopeful that buoyant farm production will dampen inflationary expectations before the festive
/Paranjoy Guha Thakurta
season. However, such an expectation may not materialize for more than one reason. At the time of writing in late-August, the official rate of inflation as measured by the wholesale price index (that is a rather imperfect indicator of the cost of living) had crossed the 12.5 per cent mark, the highest level in the last 13 years, that is, since May 1995, the last year when the current Prime Minister served as Finance Minister in the PV Narasimha Rao government. The current inflation rate is unlikely to come down substantially because of what number-crunchers describe as a “base effect”. Since the index is being compared point to point or the value of the index on a particular Friday is being compared with where the index was a year ago, the position of the index 56 weeks earlier matters a lot. Since inflation was at a particularly low level in the second half of 2007 and had touched a low of 3.6 per cent in December, the rise in the index this year is certain to be high in the coming weeks and months. The PM’s Economic Advisory Council has warned that the inflation rate could touch 13 per cent in the coming weeks. Another reason why the inflation rate may come down is related to what economists call the “demand pull” factor—the government has decided to increase the salaries of 5.5 million government employees (including police personnel and those from the defence services) by an average of 21 per cent, more than what had been recommended by the Sixth Central Pay Commission. More than the salary hike, these employees will be paid salary arrears for a period in excess of two and a half years. What will happen is that a sum of roughly Rs 13,000 crore (or 60 per cent of Rs 22,000 crore) will suddenly reach the hands of this section of the population, and not surprisingly, much of the money may be splurged during the coming festive season. Even if those belonging to the urban middle classes understand that much of the inflation that has been witnessed in the recent months is of the imported variety, specifically on account of high world prices of crude oil, they are also aware that their real rates of return on investments in banks and most financial instruments have turned negative since nominal rates of interest are lower than the inflation rate. The economy seems to have entered (at least, temporarily) a vicious cycle: high interest rates threaten to further slow down industrial production and growth has had to be sacrificed at the altar of inflation control. There is no doubt that high food prices is going to be the single most important issue that would influence the electorate, not issues such as political stability, communal harmony or, for that matter, ‘energy security’ in the form of the nuclear DAR E agreement with the United States.
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. SEPTEMBER 2008
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Best Businesses of the future, found today NEN launches TATA NEN Hottest Startups – India’s first community chosen awards for startups
I
ntroducing the young startups of today’s India: Youthful, energetic, gutsy, high on innovation and promising change. And celebrating this spirit of dynamic entrepreneurship is TATA-NEN Hottest Startups, India’s first community-chosen awards dedicated to showcase and reward young businesses that are passionate, world-centric, high value, high growth, and out to make a difference. Launched at the end of August, TATA NEN Hottest Startups aims to
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showcase the largest number of high potential startups in India, from across all geographies and industries – spanning sunrise industries like Information Technology or Biotech, to more well-established sectors like manufacturing or agriculture. Says Laura Parkin, Executive Director, National Entrepreneurship Network: “Every startup is a story – so we believe that the Awards will amass some of the greatest stories of today.”
What is a “Startup”? ‘Gazelles’ was a name coined by David Birch, an MIT researcher in the 1980’s for high-potential, high-growth companies - companies that deserve special attention. Why? Because, research across several developed economies has shown, these companies, representing only 5 per cent of all startups, end up creating over 66 per cent of net new jobs. In India today, there is more scope for starting these companies than ever
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Criteria for participating startups The company must be 5 years old or younger; headquartered in India; and is a stand-alone. It would add to the ‘hot’ factor if the company is: • Clearly innovative in its product, operations or marketing • Capitalizing on an unexpected opportunity or solving a tough problem • Gaining traction and doing well while doing good • Combining passion and opportunity before. Yet despite the opportunities, this type of startup remains underrepresented according to research performed by Amar Bhidé of Columbia Business School and K. Kumar of IIM Bangalore. “The goal of TATA NEN Hottest Startups is to provide visibility and support to such high potential companies. We also hope that these Awards, with the special open structure, will enable people to see and appreciate the number, diversity and value in the many startups blossoming in India today,” says Parkin.
Structure of the competition: engaging the public Inspired by the hugely popular TV reality shows like Indian Idol and Big Boss which put the viewer in the driver’s seat; and the open source knowledge-sharing platform of Wikipedia – the format of TATA NEN Hottest Startups is contemporary and community driven. No more behind-closed-doors nomination and selection of winners; anyone can nominate deserving startups. A combination of people’s votes and expert rating would decide the winners. While expert ratings lend
credibility, the voting process engages the community and gathers public support for innovative companies. (More details in Box)
Support to winners Winners receive both publicity and significant business support. HT Mint, DARE and others will profile the shortlisted companies and the winners. IIM Ahmedabad, IIM Bangalore, Microsoft, and NEN will provide business support to the Shortlisted Startups and Winners of TATA NEN Hottest Startups. Support includes specially designed courses for the winning teams, possible admission to incubations, and access to funds of over Rs 50 lakh for each Winner. “In the end, every startup should benefit – it’s hard to gain visibility if you’re a startup. TATA NEN Hottest Startups will hopefully give each and every nominee a serious boost,” adds Parkin.
Partners and Supporting Organizations The program is launched by NEN in association with the TATA Group. “The
TATA NEN Hottest Startups Awards: Selection process • Nomination: People are invited to nominate high potential startups. Information on nominated startups will be available on www.hotteststartups.in • Shortlist: People’s votes (online and via sms) and expert ratings together determine the comprising 30 startups. Voting runs parallel to the Nomination process. Shortlist to be announced in November • Campaign: Shortlisted startups get to make their case to the community. These profiled startups are showcased online for the final voting in November and December. • Voting: The community selects the top 5 Winners in December.
TATAs have been innovative in the Indian landscape since the last hundred years, be it the country’s first luxury hotel, world’s thinnest watch or the path-breaking Tata Nano. Innovation being the germ point for entrepreneurship, we believe that TATA NEN Hottest Startups’ focus on innovation matches with our own philosophy of entrepreneurship in India. We believe that it will create a larger impact on the current entrepreneurial community that dares to try,” says Romit Chatterji, Senior Vice-President, Corporate Affairs, TATA Services Ltd. Helion Venture Partners and Seedfund are the Major Partners. Says Kanwaljit Singh, Co-founder, Helion Venture Partners: “Hottest Startups is a unique, one of its kind program with the ability to create excitement and awareness around entrepreneurship among today’s youth like never been done before. We are very excited to be a part of this program as we passionately believe in promoting entrepreneurship.” According to Parkin, TATA NEN Hottest Startups started as an interesting idea for a smaller scale endeavor, but quickly grew in scale and scope, thanks to the enthusiastic and warm response from the entrepreneurial community. TATA NEN Hottest Startups has over 25 organizations as partners, including 376 NEN academic institutes, Microsoft, TiE, Proto.in, Open Coffee Club, Startups.in, Kickstart.in, Webyantra, Smart Techie, Pagalguy, Cool Avenues, MBA University and many more. “We’ve been delighted at the overwhelming response from the community. Certainly, it seems that the time is right to engage people in a celebration of the courage demonstrated by entrepreneurs who step into the unknown world of startups. We are expecting that TATA NEN Hottest Startups will improve the ecosystem for entrepreneurship by changing public’s perception of startups, and redefine them as hot,” believes Parkin. More information on www.hottestDAR E startups.in More articles on www.nenonline.org. Content provided by NEN SEPTEMBER 2008
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blogs/opinion
The calling of an entrepreneur Entrepreneurs are very driven individuals who have a moving target all the time /Anurag Batra The reason I am asking this funda-
In my case, the honest answer is
mental question of why should some-
that I got fired and had no job, so when
one become an entrepreneur is some-
an opportunity to be an entrepreneur
thing that I wish to seek an answer to.
came along, I thanked God and took
Perhaps the answer lies in trying to
Why am I, as an entrepreneur who
fame? Is it money? Is it the opportu-
genuinely believes entrepreneurship
nity to make a difference to the lives of
is all about action, execution and mak-
others and to the environment around
ing things happen, philosophising?
you? Is it a bit of a self-serving phe-
Why should an entrepreneur, or for
nomenon? Or is it serendipity—some-
that matter a human being, be interest-
thing that just happens?
ed in philosophy? Isn’t philosophy fit
In truth, the answer may be all the
T
above, and more. his is a very philosophical me
the plunge.
find what drives an entrepreneur. Is it
Entrepreneurs
only for fools, or is it merely academic trifling and hair-splitting in search of
driven
unobtainable knowledge? Or perhaps
as this is something I think
individuals who have a moving tar-
are
very
philosophy is mostly a set of false il-
about a lot. Why become an
get all the time. I asked myself this
lusions from the past—sophistries
entrepreneur? What is so compel-
question, in the larger context of life,
designed to comfort one’s desires by
ling in the fabric of an entrepreneur’s
saying what is the purpose of life? Ul-
wishful thinking and presumption—
DNA that compels him to explore
timately, entrepreneurship is no dif-
that these days have been replaced by
this path? Surely, there is security in a
ferent than life.
science and mathematics?
job, and it is more than just for mak-
About six weeks ago I was in a lec-
I can be fairly brief about why phi-
ing money that an entrepreneur pur-
ture by a successful entrepreneur in
losophy ought to be studied in some
sues entrepreneurship. It is akin to
the media and the education busi-
sense and why the opinion that it is
a painter painting, a sculptor work-
ness, who was lecturing on leadership
useless trifling, hair-splitting or in
ing on a sculpture—it is more than
and management. It set me thinking
search of unobtainable knowledge is
just the task at hand, the pleasure of
on why the entrepreneur was lectur-
inappropriate.
working on something that they want
ing about it. Of course, somewhere it’s
Philosophy provides insights and
to do. Sometimes, it is much simpler,
about the need for self actualisation
thumb rules to entrepreneurs and in-
like when the mountaineer was asked
(from Maslow’s Hierarchy of Needs),
spiration and role models to emulate.
why he was climbing the mountain, he
but as a fellow entrepreneur I start-
So why be an entrepreneur? Hon-
simply said, “Because it’s there!” In es-
ed to question my reasons for being
estly, I have not yet been able to an-
sence, the painter would cease to exist
an entrepreneur.
swer that. Maybe by the time I write
if he did not paint, so the real question, so eloquently phrased by Shakespeare, is “To be or not to be?” There is a saying “I love Plato but I love truth more.” Being an entrepreneur, for the most, is all about finding truth. Truth, in turn, is an everlasting and enduring sentiment and institution and so is entrepreneurship. 78
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“
What drives an entrepreneur? Is it fame? Is it money? Is it the opportunity to make a difference to the lives of others
my next column for DARE I will have some answers.
DAR E
Anurag Batra is real life, first generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. When he is not busy writing such columns, he can be reached at anuragbatrayo@gmail.com. Anurag is the co founder and editor-in-chief of exchange4media group which includes exchange4media.com.
DARE.CO.IN
/straight talk
Angels want skin in the game
NEN asks the Experts: How much does the entrepreneur have to invest? His savings? His house? And what about after getting Angel funds – can the entrepreneur start taking a salary? Padmaja Ruparel Indian Angel Network e have seen situations where everything goes well, but the entrepreneurs have put in a market salary for themselves in their business plans. That’s a downside; the Angels are not very happy.
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I think entrepreneurs need to be ready for boot strapping –they need to be ready to put skin in the game. 80
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/straight talk
We look for entrepreneurs who have said that their spouses are working, or they have family businesses that can hold them up, or they have savings that they can help out with. We are assuming, of course, that the entrepreneur owns the majority of the company, so whatever he may invests, in terms of cash and forgone salary is his investment in the company, and will benefit him in the end.
NEN: When can an entrepreneur start taking a salary and why? Sridar Iyengar Bessemer Venture Partners n all the deals I have invested, the entrepreneurs have gone through enormous salary sacrifices. Some of them have not taken money for a couple of years; they have lived on their savings, because they have believed so much in their idea. That shows a commitment and discipline which I would expect. I think when the VC funds come in, then yes, please take a salary commensurate with a company of that size and your position in that company. But in the Angel funding stage, it’s all about getting to those milestones as quickly as possible, so the VC funds will come in. You have got to make the money work. So I would expect that the entrepreneurs would live on the absolutely minimum, enough to get by. And there is no question of ‘I need to get my holidays, I need to do this and I need to that’. That puts you off, because your money is not being used for the right purpose.
I
NEN: How important is it to invest one’s time and money before going to an Angel? And how much should the entrepreneur accomplish? R. Ramaraj The Chennai Fund t our last deal screening session, all the Angels were very keen to look at the entrepreneur more than the idea, wanting to see the amount of passion, commitment: are you still in your job or have you given that up? How much bootstrapping have you done, so what’s your skin in the game? It’s an important indicator of commitment.
A
More NEN Straight Talks on www.nenonline.org
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Preschool and Nursery business: Franchise or start on your own?
Photo courtesy: Apple Kids
opportunity/education
How should you venture into this business currently worth Rs 4,004 crore? Estimates are that by 2010 this business will address 126 million tiny tots in the country! /Shilpi Kumar
D
id you know that around 50% of a person’s ability to learn is developed in the first four years of their lives? Lina Ashar, founder of Brainworks and Kangaroo Kids Education, elaborates, “This is a critical period in a child’s life when specific types of learning take place. The brain is especially receptive to stimulation in the area of language, for example, during the first three years. Therefore, children that are exposed to speech (talking, reading, singing, etc) on a regular basis, exhibit language skills that far exceed those with little verbal stimulation.” Lina, along with many specialists in the educational field are now pitching this concept and stressing towards the importance of preschools in a child’s life. Even parents are realizing the significance of building a foundation for their kids, thanks to tough competition that exists nowadays with regards to school admissions. They no longer resort to the neighborhood play schools
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or day care centers but are on the lookout for preschools with a reputed name and infrastructural facilities for their child’s overall development. Several preschool chains have already opened up in the past few years to cater to the requirement. But with around 126 million children expected to be in the age group of 0 to 4 by the year 2010, according to the United Nations Population Division, the demand for preschools in the organized segment could be on the rise like never before.
A Rs 4,004 Crore Industry According to reports by brokerage firm CLSA Asia-Pacific Markets, the preschool industry in the country is currently estimated to gross about Rs 4,004 crore ($985 million). The report also indicated that the largest chain of preschools in India comprises of just 550 schools, less than 4% of the total market potential of 15,000 preschools. This is primarily because most preschools in India fall in the unorganized
Running a preschool Essential Factors • Ayahs - 1:10 ayah student ratio • Choosing the right neighborhood for setup • Day care and activity center for extra-curriculum • Distinct teaching methodologies (traditional, Montessori, cognitive, etc) • Extensive and ongoing teacher training • Initial brand awareness gimmicks • Large open spaces • Parent involvement • Positive word of mouth • R&D team • Small batches- 1:10 teacher student ratio • Standardized ambience for all franchisees (infrastructure, course and supplies) sector. Says Lina, “The business of running preschools has tremendous potential in India as it is still highly unorganized and often lacks a standardized curriculum, infrastructure and quality. Given that it is lucrative,
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opportunity/education and there is still a quality gap, there is scope for several organized players to get into this business.” According to Sarita Sayal, Director of Mother’s Pride, which enrolls around 10,000 children annually, “Driving this growth are several social factors, like the increasing number of double income nuclear families who desire to enroll their kids in the best of schools and fear losing out on the rat race.”
Setting up the preschool The business is said to be low on investment and high on returns, with a break-even period within the first two years of operations. “If one plans to use the franchising model only, the investments are lower, since you only need to spend on curriculum development, nationalized marketing and teacher training. Starting your own school, however, is more capital intensive, since the cost of property refurbishment, toys and other equipment is high. Excluding brand building costs, we can safely assume around Rs 15 to 20 lacs per school,” says Lina. Trishna Kids, a preschool chain launched in Hyderabad, just about a month and a half back by Triumphant Institute of Management Education (TIME) is looking at an investment of around Rs 30 crore for around 200 schools over the country in the next three years. Playing equipment, teaching supplies, interiors and transportation for children are significant investments. Besides this, one also has to pay attention to qualified teachers and staff. Says Jayesh Nair, Head of Trishna Kids, “Often, the quality of teachers suffers if the franchising model is adopted. To deal with this, we only appoint teachers who are well experienced and qualified in dealing with children. We have a separate team that trains teachers throughout the year to keep them abreast with teaching techniques” says Jayesh. Many preschools also invest in a day care for children. Most schools that are running such centers get any where around 50 to 100 children annually, from both within the school and outside. Madhulika Bhupatkar, Director of Little Pearls, an initiative by the house
of Pearl; which also runs the Pearl Academy of Fashion, says “A day care center is definitely a secure option for many working parents. Our day care provides all the facilities that a child would typically require throughout the day. It is equipped with a sterilizer, refrigerator and microwave to cater to these needs. A full time nurse for the babies ensures that we have a well-trained personnel taking care of them.” Apart from academics, parents are also paying a lot of importance to extra curricular activities these days, wanting their kids to pick up an instrument, dancing or a sport as early as possible. Therefore, investing in an activity center that has programs in dance, music, art and craft, drama and speech, storytelling and other outdoor games for the children is of utmost importance. So, could setting up daycare or activity centers be an opportunity in itself? Possibly. But as Sarita puts it, “Running a day care is a very delicate business as the children involved are very young. It is best if an entrepreneur joins hands with a preschool. He can make use of its experience and also get business easily.” Last, but not the least, according to AL Deivanathan, CMD of Apple Kids Education, a considerable chunk of your initial investment should also go towards generating brand awareness. “Besides advertising in newspapers, we also advertise in magazines like Woman’s Era and channels catering to children like Cartoon Network and Pogo.”
A day care center is definitely a secure option for many working parents. For instance, we provide all the facilities that a child would typically require throughout the day. We have a sterilizer, refrigerator and microwave. Also, a full-time well-trained nurse ensures that the baby gets proper care. — MADHULIKA BHUPATKAR Director, Little Pearls
LINA ASHAR
Founder, Brainworks
Starting your own schools is capital intensive, as opposed to franchising, since property refurbishment, toys and other equipment costs are high. One school would cost you around Rs 15 to 20 lacs, excluding brand building costs Depending on how well the business is doing, you can cut down on this cost over time. This is because a majority of the parents depend on word of mouth (i.e. other parents) while selecting a preschool. If your reputation is good and you manage to generate a positive word of mouth, the word spreads easily. We also got in touch with some parents to tell us about some of the other requirements while selecting a preschool. Rakhi Pathela, a housewife, whose son just passed out of Mother’s Pride this year says, “Finding a school that was in the neighborhood was important.” Bimal Uppal, a police officer, with a working wife, also agrees, “The only thing that stopped me from sending my daughter to one of these schools is the distance factor. I didn’t feel comfortable about sending a three-year-old so far away from home and eventually settled for a playschool close to home.” Jayesh also seconds this notion. “No one wants to drive for an hour for a three-hour school. It doesn’t make sense.” Therefore, ensure that you choose the right locations to set up your chain of preschools. Both Rakhi and Bimal also stressed on the importance of large and spaSEPTEMBER 2008
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opportunity/education
cious classrooms, as well as outdoor areas. “Most preschools as of now are within the four walls, with not enough space attributed to an open area for the kids to play and move around. This is extremely important for the child’s overall grooming,” says Jayesh.
Like many existing preschools in the organized sector, you can also adopt the franchising model to achieve rapid growth. Also, as more and more parents are on transferable jobs, this would ensure that the child just has to shift to another branch of the preschool, rather than leaving it. “Franchises enable not only sharing of expenses, but also knowledge, experience, brand image, as well as technical expertise,” says Deivanathan. While on the lookout for franchisees, most preschools have a minimum land requirement of around 1000 square feet and a franchisee fee of anywhere around Rs 4 to 40 lacs, depending on the location. The royalty fees, which is on the total fee generated by the school in a year, can range
JAYESH NAIR
Head, Trishna Preschools
Photo courtesy: Mother's Pride
Following the franchising route
Different Teaching Methodologies Traditional - Emphasis on bookish knowledge, lectures, homework and tests. Montessori - Teaching according to the child’s initiatives. The method discourages tests and grades and believes in feedback through skills, activities or a narrative of the child’s achievements, strengths and weaknesses, etc. Waldorf - Takes its cues as the child develops. Till age seven the child is a creature of will, from 7-14 years the feelings predominate and from 14 to 21 years, the thinking capacity is the strongest. Stress on artistic elements like song, color, kinesthetic, etc during elementary days. Sri Aurobindo and Mother - Follows the philosophy of ‘Free Progress’. Each child develops in a spontaneous and self directed process. Alternative: Children learn at their own pace. The environment is fluid with little hierarchy. It may not follow the national examination system. Learning is not only for knowledge but also to build character. International: Focuses on IQ, EQ and SQ for all-round development of child. A blend of technology, culture and innovation is used for teaching. It is learning by doing. SOURCE: http://www.lifepositive.com/mind/education/alternative-education/education.asp, http://en.wikipedia.org/wiki/Montessori_method#Concepts and http://www.waldorfanswers.org/Waldorf.htm
In franchising model, the quality of teachers often suffer. Hence, we only appoint qualified teachers who are well-experienced in dealing with children. We have a separate team that train them with teaching techniques, throughout the year. 84
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anywhere between 15% and 30%. After selecting a franchisee, ensure that there is a similar ambience, supplies and infrastructure in all the centers. A training program for the franchisees should be set up for this. Apple Kids, that has over 160 centers all over India and claims to be the largest preschool chain in South India, provides its franchisee with staff recruitment and training, transport, gymnasium, effective promotional material and even takes care of advertising. It also provides books, uniforms, shoes, activity charts, school bags, crayons, diaries, lunch boxes and water bottles to the children. “With an investment of Rs 6 lacs and annual loyalty fee of 30%, we set up the entire school just within ten days,” says Deivanathan.
But entrepreneurs should be very alert when following this model, because it might just appear that with such little investment requirement for franchisees and the desire to scale up rapidly, the quality of education will most likely suffer. Jayesh’s advice with regard to this model is, “Ensure that the prospective franchisee has enough experience in the educational field, has reasonable financial resources and has a passion for working with kids. Since, the franchisee doesn’t deal with the company directly; it could lack quality and a professional approach.”
Having a different approach With more and more players looking to get into this business, attracting potential clients towards your school can
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opportunity/education SARITA SAYAL
Director, Mother’s Pride
Our founder Sudha Gupta researched on psychology and needs of children before chalking out a scientific curriculum. Even the parents are educated about parenting through books and seminars. We invest a lot of time, energy and money on R&D be a difficult task. So, how can this be dealt with? Simply put, like any other startup, either do something different or do some things differently! Trishna Kids, for example, can boast of their quality of teachers that have been well experienced in teaching for over seven years.“The reputation of TIME itself as a leading coaching institute for competitive exams such as CAT, GRE and TOEFL, sets us apart from the rest,” says Jayesh. Apple Kids, on the other hand, boasts of its ISO 9001:2000 certification from International Certification Services, accredited by the joint accreditation system of Australia and New Zealand. “Our curriculum, syllabus and methodology are at par with the international standards,” says Deivanathan. When asked what sets Mother’s Pride apart, Sarita says, “Our founder Sudha Gupta did an extensive research on the psychology and needs of children before chalking out a scientific curriculum. That is the reason we constantly innovate and stay abreast of all other schools. Not only children but parents are also educated about parenting
through books and seminars. We invest a lot of time, energy and money in research and development.” Little Pearls also knows exactly how to attract those little delicate darlings to their school. Their school has a doll house, kitchen and a children dress up room. “We also look at holistic development through well-planned activities such as art and craft, yoga and taekwondo and computers. Each of these activities helps the child develope motor skills as well as creativity and imagination,” claims Madhulika. Lina claims that Brainworks has one of the most compelling value propositions in the industry today. “Firstly, we have a strong understanding of the preschool business, thanks to Kangaroo Kids and have partnerships in key areas such as book publishing. Secondly, we have our professional management team, Better Value Brands, which is in place to spearhead this venture. Last but not the least, we have the marketing and creative strength of Star TV channels, as they are our media partner.”
AL DEIVANATHAN
CMD, Apple Kids Education
A considerable chunk of your initial investment should go in generating brand awareness. Besides newspapers, we advertise in magazines like Woman’s Era and TV channels for kids, like Cartoon Network and Pogo
of education, it was hard to convince parents at first,” says Deivanathan. We also asked Madhulika of Little Looking at the Challenges One of the biggest challenges that this Pearls what has stopped them from industry faces at the moment is aware- branching out so far. “I think the chalness amongst the parents about the lenge we face today is the availability importance of preschool education. and readiness of quality teachers to be “Parents usually plan, research and a part of such a setup. Preschool educasave up for their child’s higher studies tion requires teachers to have very spebut not preschool education,” says Sa- cific competencies apart from an inherrita. Parents are not convinced about ent passion for children; thus making it a rare combination to shelling out Rs 35,000 to get.” Keeping the teacher Rs 50,000 a year on pre- Preschools in India student ratio low (around school education. Apple Kids Education 1:10) so that every child G e n e ra t i n g b ra n d Brainworks Learning System can get individual attenawareness and trust can tion could be tough when also pose as a challenge. EuroKids International there is such a scarcity of “It took me at least three Kangaroo Kids Education qualified teachers. years to make parents be- Kidzee So, how can you deal lieve in our service. In InLittle Pearls with this problem? Many dia, everyone wants their housewives with MBA, kids to know everything Mother’s Pride B.Ed or a PhD degree can at the age of three. If the Sunshine Preschools make good teachers, proneighbor’s child knows 20 Shemrock vided they get the right rhymes, they expect their Trishna Kids training. You can also tie child to know the same. Do you know of more up with teachers teaching Since we aren’t following preschools worth menin primary or secondary the traditional curricu- tioning? What is their lum and are following USP? Share your insight schools, to work with you at www.dare.co.in on a part time basis. D A R E an integrated method SEPTEMBER 2008
85
Organizations DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
Aastha ....................................................................... 40
Frito Lay ..................................................................... 22
Pharmaceuticals Export Promotion Council .............. 71
Agricon Industries ...................................................... 51
Google ....................................................................... 26
PHD Chamber of Commerce and Industry................ 70
AIMP .......................................................................... 74
Gucci ......................................................................... 32
Pithampur Audhyogik Sangathan .............................. 74
All India Radio ........................................................... 55
Hotel Diplomat ........................................................... 34
Pogo .......................................................................... 83
Ambassador .............................................................. 28
HSBC......................................................................... 71
Population Foundation of India .................................. 55
Amos Tuck School of Business.................................. 22
Hughes Network Systems ......................................... 46
Prof. Prashant Salwan ............................................... 74
Anand Saklecha & Co ............................................... 71
IIM - Bangalore .......................................................... 57
Progress Software Development Private Ltd ............. 71
Angel Broking ............................................................ 48
IIM - Kozhikode .......................................................... 46
Renaissance Creation ............................................... 35
Apple ......................................................................... 23
IIT - Kanpur................................................................ 58
Reserve Bank of India ............................................... 75
Apple Kids Education ................................................ 83
Indian Premier League .............................................. 28
Sahara Samay ........................................................... 40
Area. .......................................................................... 33
Infosys ....................................................................... 67
Saraware ................................................................... 67
Bharti Airtel................................................................ 17
International Certification Services............................ 85
Sasken....................................................................... 67
Bikanerwala ............................................................... 50
ITC ............................................................................. 55
Satake ....................................................................... 50
Binaca........................................................................ 23
Jawaharlal Nehru Technical University ...................... 59
Shell........................................................................... 23
Brainworks and Kangaroo Kids Education ................ 82
John Louis Home....................................................... 35
sixdegrees.com ......................................................... 26
Buhler ........................................................................ 50
Kalani & Associates ................................................... 74
Star TV....................................................................... 85
Burberry..................................................................... 32
Kangaroo Kids ........................................................... 85
State Bank of India .................................................... 52
Canaan Partners ....................................................... 42
Knowledge Networks WARC ..................................... 22
Strot ........................................................................... 32
Cartoon Network ....................................................... 83
KPMG ........................................................................ 51
Tata Memorial Centre ................................................ 39
Choice Solutions ....................................................... 71
KSA Technopak ......................................................... 32
TCS ........................................................................... 67
classmates.com ......................................................... 26
Larry and Sergey ....................................................... 57
TERI .......................................................................... 54
CLSA Asia-Pacific...................................................... 82
Lectra Technologies ................................................... 17
The Spa Group .......................................................... 33
Coca Cola .................................................................. 62
Linkedin ..................................................................... 26
TIME .......................................................................... 26
Dabur India ................................................................ 60
Little Pearls ................................................................ 83
Tooltech ..................................................................... 67
Dartmouth College .................................................... 22
Lladro......................................................................... 33
Trishna Kids ............................................................... 83
Deccan Development Society.................................... 54
McKinsey ................................................................... 28
Triumphant Institute of Management Education ........ 83
Delhi Cabs ................................................................. 28
Medipolis ................................................................... 67
Tutorvista.com ........................................................... 48
Dell ............................................................................ 57
Mega Cabs ................................................................ 28
UB City mall ............................................................... 32
Development of Humane Action (DHAN) Foundation ........ 53
Microsoft .................................................................... 26
UbiQTech ................................................................... 59
DLF Emporio ............................................................. 32
Ministry of Finance .................................................... 75
United Nations Development Programme ................. 53
Dr Jain’s clinic ............................................................ 40
Mitsubishi................................................................... 23
United Nations Population Division............................ 82
Easy Cabs ................................................................. 28
Modi Flour Mill ........................................................... 50
Valencia, Spain .......................................................... 34
Economic Advisory Council ....................................... 75
Mother’s Pride ........................................................... 83
VOICES ..................................................................... 53
Educomp Solutions.................................................... 47
N S Raghavan Center for Entrepreneurial Learning .......... 57
Wilkinson Sword ........................................................ 28
Ellision ....................................................................... 57
NASSCOM ................................................................ 59
Wipro Technologies ................................................... 67
Episode...................................................................... 32
Netscape ................................................................... 26
Woman’s Era ............................................................. 83
Everonn Systems ...................................................... 46
NIIT ............................................................................ 46
YouthStream Media ................................................... 26
Facebook ................................................................... 26
Ning ........................................................................... 26
Zara Home................................................................. 35
Foyer.......................................................................... 33
Nokia ......................................................................... 68
Zee Jaagran .............................................................. 40
Freedonia Group........................................................ 51
Pepsi .......................................................................... 62
Zensar ....................................................................... 67
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SEPTEMBER 2008
People DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
Aayush Puri ....................................... 59
Louis Vuitton ...................................... 32
Abhinav Bindra .................................. 28
Madhulika Bhupatkar ......................... 83
Abhishek Singla ................................. 58
Manmohan Singh, Dr. ........................ 75
Al Deivanathan .................................. 83
Marc Andreessen .............................. 26
Alok Mittal .......................................... 42
P Krishnamurthy ................................ 53
Amit Burman...................................... 60
P. Balaraman...................................... 71
Amit Gupta......................................... 59
Peter Jones........................................ 35
Anand Saklecha ................................ 71
Pramod Shahney ............................... 91
Anjali Jain .......................................... 34
Prashant Salwan, Prof. ..................... 74
Ashok Jaiswal .................................... 74
PV Narasimha Rao ............................ 75
Bharat Dharia .................................... 51
Radhika Kapur ................................... 32
Bimal Uppal ....................................... 83
Raj Krishna, Prof................................ 75
CK Prahalad ...................................... 26
Rakhi Pathela .................................... 83
Damodar Shahney............................. 90
Ralph Lauren ..................................... 35
Deepak Whorra.................................. 34
Ramesh Loganathan ......................... 71
Deepti Gulati ...................................... 46
Sachin Jain ........................................ 33
Dipak Kalani ...................................... 74
Sanjay Andandaram .......................... 58
Estee Lauder ..................................... 26
Sarita Sayal ....................................... 83
G.C. Burman ...................................... 61
Satheesh Periyapatna ....................... 54
Gary Hamel ....................................... 26
Shahnaz Husain ................................ 26
Gautam Kothari ................................. 74
Sidhant Lamba .................................. 32
Giorgio Armani .................................. 35
Sona Sharma .................................... 55
Harpreet Singh .................................. 58
Surath Sengupta................................ 71
Henry Mintzberg ................................ 28
Suresh Bhagavatula .......................... 57
Jari P.Ängeslevä ................................ 67
Udai Singh ......................................... 46
Jayesh Nair ........................................ 83
Vera Wang ......................................... 35
Jimmy Choo....................................... 32
Vibhore Goyal .................................... 58
K. K. Davey ........................................ 22
Vijay Rayapati .................................... 57
K.V. Jagannnath................................. 71
Vinayak Hegde .................................. 59
Kevin Lane Keller ............................... 22
Vinod Sambrani ................................. 17
Krishan Kalra ..................................... 70
Virendra Kumar Jain, Dr..................... 39
Lina Ashar ......................................... 82
Vivek Jain .......................................... 39
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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
56677 dare@cybermedia.co.in
DARE.CO.IN
society/hawkers
Two Cart Strategy helps vegetable vendor reduce losses W
hoever said, “do whatever your heart desires” couldn’t have been more precise. Though it’s hard to digest that the desire could be as humble as becoming a vegetable vendor, but even that, when done with passion, can be a fulfilling career. When 15 year-old, elementary-level educated Damodar Shahney, dreamt the customary dream of making a fortune in Delhi, it didn’t take long before reality hit hard. Two years of toiling in factories, steel plants and mills for a meager Rs. 2500 a month made
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/Mohita Nagpal him look for an opportunity beyond the clutches of labor. On a visit to his uncle, an idea struck him. It took an observant mind to identify the need of a vegetable vendor close to the residents in the developing area of Delhi. So with an initial capital of Rs. 4000, Damodar became an entrepreneur—a vegetable vendor. The initial investment included a pushcart on which he decoratively displays 20-25 variants of vegetables, a weighing machine, a kerosene lamp and a few florescent colored baskets that scream for attention even from a distance.
DARE.CO.IN
society/hawkers For Damodar, a resident of Naharpur area in North Delhi, the day begins early at 5 am. A 20-minute bumpy ride in the bus and he reaches Azadpur mandi, the hub of fresh vegetables in Delhi, where he spends the next seven hours. Buying best quality vegetables is half the job done. Equally important for his business is buying the right quantity so as to avoid wastage. The challenge is to buy only such quantities that can be sold in a day, so that he does not have to sell stale vegetables the following day. Potatoes, tomatoes and onions see the highest demand, so he picks up 25 kg of each. However, high demand also means that bargaining is the maximum for these items! So, profit margins are lowest at around Rs 4 per kg. Next come capsicum, ladyfinger, cucumber, and lettuce in the 15-20 kilo range; but profits are marginally higher at Rs 46 per kg. It is vegetables like ginger, garlic, lemon, and coriander that spell money for the business. People buy as low as 100 gm of these items; so profits are as high as Rs10 per kg. But at the end of the day it hardly makes any substantial difference, as he is able to sell just at best 3 kg per item of these.
The two-cart strategy The next phase begins at 4 pm. Welcome to the Rohini market; a place with generous competition around. It takes more than decent selling skills for Damodar to make good. And that “more” is the two-pushcart strategy. Ten footsteps away from his pushcart stands another vegetable vendor, Pramod Shahney. The similarity of surname is no coincidence; they are brothers. And no, they are not rivals playing out some family feud. On the contrary, it is a well-planned strategy. According to Damodar, his USP is that he sells the freshest vegetables in the market. Forty percent of his customers are regulars who prefer buying from him because of this. The leftover vegetables become a little stale that cannot be seen on his pushcart the following day. Enter Pramod and his pushcart. He sells the leftovers at break-even prices, thrice a week. This way, Damodar does not have to compromise on his USP, wastage is reduced and his younger brother gets precious on-the-job-training. Sprinkling water on the vegetables every few hours to give that fresh out of farm look is the mantra every vendor swears by. However, Damodar goes a step further and ensures that his pushcart has the most eye-pleasing arrangement of vegetables as well. Thirteen years of experience and Damodar definitely has some customer understanding. Profit margins depend entirely on who is buying. So when
someone sends their domestic help to buy vegetables, its boogie time and tomato is pitched at Rs 22 per/kg. He says that the men lack bargaining skills as he gets Rs 20 per for the same kilogram of tomatoes. Younger ladies don’t quite create a big fuss either, so Rs 19 is a reasonable expectation. But when it comes to middle-aged women, he might be forced to sell graciously at Rs 17! Weekends are bad days for Damodar. Weekdays see a turnover of anywhere between Rs 1500-Rs 2000 per day, but on the weekend, it could be as low as Rs 500 per day because of the weekly markets in nearby areas. Damodar says that vendors in these markets offer cheaper prices as they buy vegetables of mixed quality. But he loses customers on those days anyway. Any business has costs but luckily Damodar’s expense heads are limited. Capital costs first. The pushcart was a one-time investment. It cost him Rs 3500 some ten years back. A new one now would cost double. The balance, costing Rs 500, can work for two years, though he thinks it is advisable to change it after a year and a half. The plastic baskets, which cost Rs 10 each, scream for a change after six months. The jute sacks needed to cover the vegetables come at fifteen rupees a piece and he buys six every week. Operating cost starts with a battery-operated lamp that is rented for ten rupees a day, a cheaper option compared to the earlier kerosene lamp at Rs 25 per day. Transporting the vegetables from Azadpur is not cheap and takes hundred rupees a day. Lastly, 300 gm of polythene bags that cost around Rs 10 per 500 gm round up his costs. After all this, was the change worth it? Damodar has no regrets. He now manages to save around Rs 4000 a month after paying house rent and taking care of other personal expenses. Compared to this, his earlier job got him just Rs 2500 all inclusive. Take his brand new Nokia 2300. According to him, owning that mobile would have never been a reality had he not followed his heart ten years back. The phone is not just an impulse purchase. Home delivery is next DAR E in his plans. SEPTEMBER 2008
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