Vol 2 / Issue 09 / Jun 09
/Rs 30
Subscriber copy not for sale
PROFITABLE BUSINESSES WITH PRODUCTS UNDER
RE. ONE Which is the Best Business to be in? How to Write a Good RFP Doing Business in Mauritius Essential Oil Beckons? Business of Plastic Cards Opportunities in Heli-tourism The Puppet Makers
entrepreneur of the month/
Mahesh Gupta, Kent RO Systems investor of the month/
Nikhil Khattau, MayďŹ eld Advisors innovation/
Selling toothbrushes with paste dispensers Why does growth plateau? Food for Thought at Suminter India Organics Business Incubator: Nothing to do with chickens! 100 pages including cover
Vol 2 / Issue 09 / JUN 09
BOARD OF ADVISORS C K Prahalad
University of Michigan
N R Narayanamurthy
Chief Mentor, Infosys
Kanwal Rekhi
Chairman, TiE
Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande
Chairman, Sycamore Networks
Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw R Gopalakrishnan
Chairman & MD, Biocon Executive Director, Tata Sons
Philip Anderson
Professor of Entrepreneurship, INSEAD
Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor
ANALYSTS Ambrish Jha Amit Panday Aswathi Muralidharan Binesh Kutty Manu Gupta Vimarsh Bajpai
OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography
SALES & MA Jaideep Mario Gabriel Imran Ali Dayanath Levaj Jagadeesh Kingshuk Sircar
MARKETING Associate VP West West South South South-East Asia
PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Pooja Bharadwaj Assistant Manager, Subscriptions Sarita Shridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at International Print-O-Pack Limited, B-204-206, Okhla Industrial Area, Phase 1, New Delhi-20 Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Living Media India Limited, 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 23/54, Gariahat Road, Ground Floor, Near South City College, Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387241 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 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.
100 pages including cover
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JUNE 2009
/strategy
PROFITABLE BUSINESSES WITH PRODUCTS UNDER
16
RE. ONE
If you thought that a Re 1 note or coin has no value in today’s world of luxury cars and penthouses, then think again
38
Which is the best business to be in?
DARE.CO.IN
/contents opportunities/
34
Essential Oil Beckons? ............................. 24
entrepreneur of the month
Mahesh Gupta Kent RO Systems
What started with his kids falling ill due to jaundice, has now become a company with almost 45% market share in the RO Mineral and RO segment. Mahesh Gupta, a Delhi-based, first-generation entrepreneur, shares his journey from being an employee to becoming a successful businessman
going global/
Opportunities in Heli-tourism ................... 66
Doing Business in Mauritius
Business of Production Houses ................ 70
It only takes three days to form a company in this island nation, thanks to a number of investorfriendly reforms on taxation, residency and labor, making it a good place to do business
strategy/ How to Write a Good RFP .......................... 56 overview/ Understanding Foreign Exchange Reserves ... 78 society/ Nautical Products..................................... 28 The Puppet Makers ................................... 96 event/ Is Globalization on the Way Out? .............. 30 HeadStart Startup Saturday..................... 76
blogs/columns Philip Anderson ........ 14
52 investor of the month/
Nikhil Khattau, Mayfield Advisors
Rupin Jayal ............. 82
Nikhil Khattau is an experienced banker, entrepreneur and private equity investor. At Mayfield Advisors, Khattau focuses on the financial services, retail and consumer services, discrete manufacturing, business services, power ancillary and media sectors.
Anurag Batra ........... 89
based
brand
capital
come
business companies
company
cost country crore customers delhi don’t entrepreneur entrepreneurs experience growth help high idea investment
india like
62
Business of Plastic Cards ........................ 48
indian industry look
make
management market marketing money need number people products second services start team technology think time used value venture want waste work world years
innovation/
90
Selling toothbrushes with paste dispensers The advanced toothbrush looks like any normal toothbrush, but comes with an inbuilt mechanism for dispensing toothpaste
INSEAD/ Food for Thought at Suminter India Organics......... 20 Business Incubator: Nothing to do with chickens! ... 42
NEN / From classroom to corporate: The rise of a student entrepreneur.................................. 86
others / Exchange ............................................... 08 Feedback ............................................... 12 JUNE 2009 5
www.dare.co.in
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blogs/edit
Revival? On the day the full cabinet was finally announced, the Sensex regained the 14,000 mark. What further proof do you want that our business cycles are driven more by sentiment than anything else?
F
or the past month or so there has been a gradual uplifting of the gloom around us. While no one was willing to confirm that things had changed, people
have started getting that ever so slightly hopeful tone in their voices and their actions. Budgets were being made, plans and proposals were being asked for, and while there was a certain jitteriness to these actions, the sense that the worst was over was somehow seeping through. And then came the election results and clear verdict in favor of the UPA. The Sensex went into a mini bull run of about 2,000 points to cross 14,000, and the so-called pundits got busy calculating when the it would hit 20,000 and even a lakh! So, is this the end of the bad times? Is this really a revival? You just need to look at what happened immediately after the election results were out to get a sense of what reality is all about. It took eleven days to finalize the names of ministers, simply because there were too many asking for berths. And in all those days, the Sensex went up and down like a seesaw under the influence of banshees. And on the day the full cabinet was finally announced, the Sensex regained the 14,000 mark. What further proof do you want that our business cycles are driven more by sentiment than anything else? So, for recovery and revival to happen, sentiment has to continue to be positive. Forget performance and facts. On a unrelated note, how did every one, the pollsters, the parties, the media, get their election projections so horribly wrong?
/Krishna Kumar
JUNE 2009 7
Exchange DARE.CO.IN
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• partners • mentoring • funding • guidance • advice • ideas...
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ublished: April 2009
I
have conceptualized the design for a cycle
Priyanka Jha wanted to start a lifestyle magazine,
rickshaw with fatigue reducing features like
for which she wanted to meet entrepreneurs who
treadles, driver’s seat with a back rest, better leverage,
could help her with insights.
improved wheel to ground reaction, canopy for the driver etc. I think all these features in a single vehicle
Response: May 2009
will greatly ease pedaling effort. Further, it is possible
This is regarding a request in the April issue from Priyanka Jha, who wanted to start a lifestyle magazine. I am interested in contacting her to take this further.
to utilize the kinetic and potential energies in a moving load to generate a small supplementary torque to assist pedaling. I have 38 years of experience in industrial design, in various fields. I need funding to develop
Krishna Murthy
and test a prototype in a professional manner. P K Pillai
I
would love to get more information on mango kernel extracts and the process of developing it.
I have been in the cosmetic industry for 14 years
I
have been a DARE reader since the very first issue although this is the first time I am writing to you.
and have been researching on the benefits of the
My compliments for the team for bringing out such an
mango seed.
excellent magazine. I have several ideas on which I want Lemieux
to start my own venture and am looking for investors who can mentor/fund the startup. The business is in
I
represent Olive Touch, a health food supply and
the supply chain and distribution sector. Manas Das
service company. Olive Touch has been operational
for nine months now and has provided services to several corporates and individuals in the form of regular food services and nutritional consultations. The company is differentiating itself from other food services in the manner of food preparation and the amount of attention to detail that is given to
I
have a concept about developing a Enterprise 2.0 based college ERP portal. I am looking for angel
funding/investment for the same. Balaji D Loganathan, Co-Founder & Agile Java Architect, Spritle Software
every serving. We have vastly experienced chefs and dietitians on-board who provide their expertise in the operational and cooking process. At the moment, Olive Touch is looking to expand
social networking site called Tawk. I have also
its operations and setup more central kitchens that
made a community named F.O.R.C.E—Forum of
will help us market our services better. In this regard,
Radical Computer Experts—which is related to
we are looking for investors who can help us grow and
computing, hacking and security. I want help to form
provide us with an impetus to excel in our services.
a team for these projects and to market them.
Bharati
8
I
am a 13-year old webmaster and have made a
JUNE 2009
Abhay
Exchange DARE.CO.IN
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I
• partners • mentoring • funding • guidance • advice • ideas...
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have come across an investment banking company in the US that finances only sustainable
projects. This is important since in these recessionary
I
am looking for an experienced mentor and an angel investor for my management job and
career portal.
times, when funds are scarce, sustainability can
Via SMS
be the first casualty. I am now working part-time for the said company, to seek projects in renewable
W
energies, water management, waste management and CDM projects.
e are seeing a lot of comments, showing interest in opening up
I wish to reach out to project developers in the
a Bloom Health Drinks franchisee. We
above mentioned areas who are in need of financing.
request all such interested entrepreneurs to get
The company finances the complete project and
in touch with us to take it forward. Email us at
all payments start only after the project starts
dare@cybermedia.co.in The Bloom Team
generating returns. The criteria for project selection is that it should be shovel-ready, the off-take contract be reliable and project risks are under control. Ashutosh Agrawal
T
he article titled Business from Waste Paper is very good. It provides a lot of information on
the paper industry and the initial setup. Could
I
have been a regular reader of DARE ever since one of my friends introduced me to it and have been
anyone please help me with details of the approximate capital required to start a paper mill/ paper manufacturing? Also, if initially we start with
very much impressed with the magazine. I am interested in starting an online food ordering
a paper collecting group only? Shiwani
and delivery business with focus on corporates and working individuals. I am planning to start up either in Bangalore or Chennai. I have done some ground work regarding the same. I had already started one such venture a few months back, but was forced to close down due to lack of funds. However, I am still passionate about it and would like to venture into it with the aid of proper funding. There is an immense
T
here is potential for sturgeon farming in India. There are a number of technology companies
that offer assistance to new ventures, the company I work for being one of them. If any Indian company is interested in starting such a venture, we would be very interested in contacting them.
opportunity in this business, especially in a city like
Matt Wells, AquaBioTech Group
Chennai and Bangalore. I had already made some trial marketing for this to gauge the response and was very much impressed with the response for the same. I would like someone to fund my venture or be
wind energy power project of 6.6 MW, costing
an active partner with me. I also need mentoring for
$8.7 million. We are searching for investors—equity
the same.
and debt. Satish
10
W
e have a business plan for implementing a
JUNE 2009
Raajagopal
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• partners • mentoring • funding • guidance • advice • ideas...
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ne of my friends recently provided me with a copy of DARE April-09 issue, after that I
I
am an alumnus of Northwestern University (US) and Sydenham College, Mumbai. I have formulated
purchased May-09 issue and have also gone through
a business plan for an International Web 2.0 online
the web looking for more on DARE.
and mobile media company emanating from India
The seed industry is one of the fastest-growing
that will provide ‘news, entertainment, information
industries in India. Many multinationals have also
and allied feature stories and articles encompassing
ventured into this industry and are investing in
video, text and data communications. The online
research and marketing activities heavily. Currently, the organized seed industry, with a market size of Rs 7,000 crore is the seventh largest in the world. It is growing at a rate of 12-15% without any impact of recession and is still unable to meet the demand of high-yielding products, where the margins are
media company will have a presence in India and ten English-speaking nations. I have developed a business model that will make money from day one of operations. I need an investment of $1million for the first two years of funding. I expect to show profit in the third year. I can offer attractive equity in the startup venture to a suitable investor.
100%-1000%. However, the industry is localized in
Pushpendra Mehta
nature and even multinationals depend upon local companies for their growth. We are looking for VC funding to scale up production
and
harvesting
opportunities
in
I
am a Bangalore-based tutor and have started a website related to online education (math). I am
virgin areas that have tremendous untapped
looking for a mentor and an angel investor for my
business potential, along with serving the farming
project as I lack managerial skills. Sudhir Prasad
community. Mukesh Kamboj, Hyderabad
I
am working in the software industry. I am planning to start a pre-school plus kids activity center in
Pune. I would like to get information on the legal procedure, requirements etc. I am also looking for a
W
e are running an NGO, Zakir Memorial Educational Trust, in Pulwama, Kashmir. The
trust has been working in the education sector since the past six years in the rural areas of the Kashmir valley. The trust wants to extend its future programs into other fields as well. Kindly advice as to what all
partner for the setup. Abhishek
can be the best possible new projects that the said trust can undertake. Wahid
I
am a software engineer from Chennai, working on an idea in the Internet classifieds advertisement
field. I would like to meet mentors who can provide guidance and help me in bringing out this idea to the market.
I
want to start a chain of pre-schools. Though I am not a teacher, I am well educated and want to start
with a model school in Mumbai. I need guidance on regulations for the same.
Srinivasan R
Vikash
JUNE 2009 11
Feedback DARE.CO.IN
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Business From Waste Paper ARTICLE
ance, hard work and mental tough-
ers on a per project basis. Many com-
This article is surely informative
ness. However, I do believe that none
panies are now looking out for hiring
and throws light on the need of the
of the above are substitutes for a good
professionals on a contract/project
hour. There is no doubt that there
product/technology.
basis rather than a permanent full time
lies a huge potential in waste and it
As the current global crisis has
employee. There are many advantages
does good for the planet too! Enter-
proved beyond doubt, even the best
in this method as companies need to
preneurs need to come together for
people cannot sustain a bad business
pay the professionals only on work
this project.
idea. The market would recoil sooner
done basis, they even do not have to
than one would imagine.
spend for office space as profession-
Mayank
I am saying this based on personal
als are willing to work from their home
Hair Raising Business Ideas ARTICLE
experience in painstakingly develop-
office, also companies can try out new
I would like to appreciate the idea in-
ing a software product over the past
job roles in this way before commit-
cluded by you in the article. The idea,
10 years. It is only after development
ting a full-time position. Many compa-
if followed,not only provides a newer
and redevelopment based on field
nies prefer to hire professionals who
aspect to the business area, but also
testing that I believe I can now take
stay at home, for example women, for
adds credibility to it because of the el-
on the competition, however formi-
project-based work, as they are readily
ement of social responsibility added
dable it is.
available and are willing to spend their
I believe the team can be hired,
to the concept.
provided the product/technology is
Good! Keep it up! Sumedha
spare time to utilize their skills and previous work experience.
powerful enough to create its own
Aarthi
market space. I believe that the moHow to Save Electricity in Your Office ARTICLE
nopolistic market advantages and the
Posting from Koothattukulam over a
Global warming is a prominent issue
length of period up to which such ad-
patchy data card connection BLOG
now-a-days, and several TV chan-
vantages can be sustained is critical
Nice post indeed! I am surprised by
nels are focusing on it to improve the
to the success of companies. I believe
the lack of net availability at Kooth-
knowledge of the general public. How-
most startups perish because they
atukulam. Must be one of the off days
ever, its affect will be seen only when
rush to fast in the name of achieving
of the network! The datacard might
we take this important issue into the
quick success.
have behaved wonky, probably beM A J Jeyaseelan
practical realms of our life and think initiative by DARE! Ajay
cause of the rubber plantations from where the web was being accessed?
about how can we save Earth. A good How to Save Electricity in Your Office ARTICLE
The jewelery stores are indeed rep-
It is true that we can do a lot to save
resentative of the scene across the
energy by putting small checks in our
state. Like in other towns, there might
Outsourcing Your HR Department ARTICLE
daily life like switching off the com-
also be the swanky branded umbrella
Many companies take advantage
puter if we are out for a long period
showrooms—Popy, Colombo etc. A
of outsourcing for their business
or switching off the monitor when
truly unique feature of this dear state
as it lowers their operational cost
it is not in use. Saving energy will
that is not found elsewhere.
at the same time hiring a highly
not only save money, but also reduce
skilled IT personnel. Outsourcing is a
the pollution. R K Mittal
trend that is going to boom in the coming years. MarketRaiseCorp
Fire your employees, keep in touch through company website! BLOG
My Dream Team ARTICLE
Nice information! Another growing
I really cannot argue against the im-
hiring strategy is the increasing trend
portance of team, passion, persever-
of hiring freelancers and flexible work-
12
JUNE 2009
Pratap Thoppil
SMS “DARE <your comments, questions or suggestions>” to 56677 or Drop us an email: dare@cybermedia.co.in
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blogs/INSEAD
Why Does Growth Plateau? /Philip Anderson
I
t’s so familiar that is has a name: the “hockey stick.” What is it? The typical growth curve that entrepreneurs project when they forecast how revenues will grow over time. The curve gently rises until it hits an inflection point, at which point growth rises sharply, exponentially. The inflection point usually occurs when the venture achieves “critical mass,” a term taken from nuclear physics. A reactor reaches critical mass when enough atoms are being split to create a self-sustaining chain reaction and a business reaches critical mass when enough customers are signing on that growth begins to build upon itself. Our case this month profiles Suminter India Organics, founded by Sameer Mehra to assemble an endto-end supply chain that allows the company and Indian farmers to capture more of the value created through organic farming. Mehra has joined Endeavor’s global network of high-impact entrepreneurs, a group of several hundred venture founders, who in aggregate have created several billion dollars in revenues from their companies. Mehra believes that Suminter has reached an inflection point in its growth and how well he makes that case to potential investors will determine the success of his next round of venture financing.
14
JUNE 2009
There are good reasons to believe that Suminter can scale exponentially over the next few years. Success stories like Mehra’s encourage entrepreneurs to believe in the hockey stick model—when a venture succeeds, exponential growth along a logistic curve (the “S-curve”) is typically what we observe. But when we step back and look at the aggregate experience as opposed to individual successes, we realize that the growth rate of ventures in aggregate follows a power law. A very small number of ventures experience true exponential growth. Many more start up the hockey stick, but then hit a wall. They plateau—growth levels off well before they expected. The familiar S-curve still applies, but the top of the S arrives far too soon. For every $100 million enterprise, there are dozens that got stuck along the way. They survive and create wealth, which is no mean achievement, but they never real-
All of us have gotten through much of life by detecting faults and eliminating them. But looking for imperfections and blaming them for our failure to grow as fast as we once did can blind us to the real reason why growth plateaus. In the majority of cases we examine, a startup’s weaknesses are not the key factors that retard its progress. Paradoxically, the problem is its strengths
ize what their founders believe to be their true potential. Why does growth plateau? It’s easier to explain the hockey stick that never happens, the growth path that turned out to be a mirage. It’s harder to explain the fate of businesses that experience extraordinary growth for a period of time until they hit a limit beyond which further expansion is much more slow. It’s easy for a professor to say “S-curve growth is normal,” and hundreds of mathematical models yield logistic growth curves. With a few simple assumptions, one can design a simulation that yields an Sshaped growth curve every time. But to say that logistic growth is a statistical regularity doesn’t explain when and why the curve flattens at the top. Our experience at INSEAD counseling several thousand entrepreneurs suggests that venture founders are quite often precisely wrong when they explain to themselves and us why they hit a wall beyond which they could not grow. Their usual instinct is to look for flaws, for weaknesses that explain why growth stopped. Growing a business is difficult, so there is never any difficulty finding any number of shortcomings to blame. They pounce on one or two as the critical bottlenecks that choked off progress and enshrine as a lesson learned, “Don’t make that mistake again.” It’s human nature for us to think that way. All of us have gotten through much of life by detecting faults and eliminating them. It’s a well-known path to excellence, particularly in school. But looking for imperfections and blaming them for our failure to grow as fast as we once did can blind us to the real reason why growth plateaus. In the majority of cases we examine, a startup’s weaknesses are not the key factors
DARE.CO.IN
blogs/INSEAD that retard its progress. Paradoxically, the problem is its strengths. The leadership guru Marshall Goldsmith recently wrote a book whose title is a commonplace nostrum, “What got you here won’t get you there.” It’s a good book and it highlights why people have to grow and change as leaders, because what works in one situation won’t work in others. Socalled “one trick ponies” are limited to environments that favor what they do well. They find a natural niche and are imprisoned within it. With entrepreneurial ventures, however, we can go even further. What got you here not get you there, but moreover, what got you this far is the main thing that interferes with getting to the next level. As long as an entrepreneur and his firm have the courage to face their weaknesses, they can usually be corrected. Admitting to a flaw is the most emotionally painful part, because we are designed by nature to believe in what we are doing. Once a defect is recognized, however, we usually progress as soon as we start fixing it. We gain confidence in a new way of doing things and soon admit that we have hit on a better way forward. In contrast, facing up to the dysfunctional consequences of your strengths is much trickier. First, it is difficult to accept that the very things that helped you overcome your initial travails in a startup are now getting in the way. There is so much evidence that your strengths are the critical success factors accounting for why you have survived and thrived that we tend to dismiss people who suggest these strengths are getting in the way. Because story after story validates what we’re good at, anyone who questions the lessons of experience initially seems crazy. Second, and more importantly, fixing the consequences of a strength is very different from fixing a weakness. Usually, when you correct a defect you soon see progress, so it’s easy to believe you are doing the right thing. Unfortunately, when you start doing differently something that you have
As long as an entrepreneur and his firm have the courage to face their weaknesses, they can usually be corrected. Admitting to a flaw is the most emotionally painful part, because we are designed by nature to believe in what we are doing. Once a defect is recognized, however, we usually progress as soon as we start fixing it done well in the past, you usually see negative progress at first. An old method may have had its limitations, but you had learned how to reach a high level of performance with it. Once you start doing things a new way, you almost always at first experience worse results than before. You have to go downhill before you start going back up, and you must pass through a period where you perform today even worse than you did in the past, taking it on faith that you’ll eventually turn things around. By analogy, let’s take a really bad batsman at cricket—me, for example. If an experienced cricketer gave me almost any advice, I’d immediately see better results. In contrast, what happens when a finely honed athlete, such as a Dhoni or a Sehwag, starts experimenting with his technique? He has reached such a refined level of performance that almost any change will initially bring him down from his peak. Paradoxically, the stronger you are, the more difficult it is to change the things that have underpinned your excellence. Typically, an entrepreneur hits a wall not because of the things he or she does badly, but because of what he or she does well. A particular set of skills or capabilities gets you through the initial phase of a venture where
everything seems uncertain and all hangs by a thread. You learn what you do well, when you win and that learning becomes crystallized as a bedrock belief. Once you reach the limits of winning a particular way, however, it’s difficult to find another way unless you are willing to accept a period of retreat. You have to go backward for a time when you change what has worked so well in the past. I recently counseled a group of entrepreneurs who have done brilliantly for three years because they are outstanding at demonstrating software. Every client they have is someone who was wowed by a demo. Typically, they listen to a client describe a problem, then in exceptionally short order create a program that does exactly what the client wants. A sale results, with cheers all around and a sense of truly satisfying accomplishment. The challenge for them is that you can only get to a certain point with such a sense-and-respond model. At some point, if you want to grow, you have to replicate and that means producing programs that aren’t 100% what the client wants. The smiles are thinner, complaints are louder and it’s hard to tolerate that your former strength— creating extremely happy clients—is what got you to a certain level, but will take you no further. If your business starts falling off, usually the environment has changed or you are doing something wrong. Look for defects and fix them. But when you hit a plateau—you are not regressing, but you can’t resume your former rate of growth—don’t look to your weaknesses. Look to your strengths. Is what got you here the very thing that is keeping you stuck? High-growth entrepreneurs seldom rely on a magic recipe or a perfect business model. What they have in common is the willingness to reinvent themselves and accept the temporary consequences of changing a winning formula. DAR E The author is INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab
JUNE 2009 15
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/strategy
Dabur earns more Rs 135 crore a year, selling digestive tablets and candies at a price below one rupee
Profitable Businesses
with Products Under Re. One If you thought that a Re 1 note or coin has no value in today’s world of luxury cars and penthouses, then think again /Aswathi Muralidharan
W
ho says Re 1 can’t buy you anything? It just takes a pair of observant eyes to find a number of things that can be bought for this paltry sum. To begin with, we were able to count at least 50 items that retail for just Re 1 or under. If you think this is interesting, then the amazing part is that there are several industries that thrive solely on these products. Now just imagine that such products not only manage to recover costs, but also make significant profits! What are the things that come to your mind that sell for Re 1 or less? It
16
JUNE 2009
could be a matchbox or confectioneries like toffees or chewing gums. These are products that we use daily, but have have ever paused to think how these industries earn profits?
The beedi industry For some, the term beedi evokes a feeling of poor health, but it also true that the tobacco industry is a major contributor to the exchequer. India alone accounts for nearly 85% of the world’s beedi production. Despite being such a big industry, the end product that is one beedi stick costs much less than
Re 1! How does it manage to do so? To understand better, we spoke to one such beedi manufacturer, Mangalore Ganesh Beedi, which was started way back in 1940. “Beedi is basically a mass production business,” says G.K. Prabhu, assistant general manager, “We produce almost 6.5 to 7 crore sticks a day against the industry production of 50 crore sticks per day.” When asked about costing, Prabhu explains that it is done on a per-thousand basis. He says, “In the south daily wages are high. It is almost Rs 80 per 1,000 beedis. The mate-
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/strategy rial cost is almost Rs 40 to 50 per 1,000 beedis. Add to this the excise duty and our direct cost comes to about Rs.160. Then comes the overhead costs. Therefore, the total cost is somewhere around Rs 180 to 190 for 1,000. Players generally sell the product for around Rs 220 per thousand to the distributor. The distributor again adds his cost to this amount and sells it to the wholesaler or the retailer for approximately Rs 240. As each packet has a price tag of Rs 7 for 25 beedis, the retailer makes a minimum profit of approximately Rs 40 per thousand beedis by selling it for around Rs 280.” Distribution plays a key role in highvolume, low-price businesses such as this one. Prabhu explains, “We have a vast distribution process, which is much the same as in any other industry. We have distributors in every area throughout India.” Ganesh Beedi has an early mover advantage with a strong market presence for almost seven decades now, but what about the smaller players? “Smaller players who manufacture maybe 1 to 1.5 lakh sticks daily generally distribute their products directly to retailers,” Prabhu says. “This helps in saving costs tremendously.”
The retailer, on the other hand, makes a slightly higher profit by selling individual sticks instead of a pack. A roadside beedi seller tells us that though this practice does not exist in metros or big cities, in smaller cities and villages this is very common. Showing us different packs of beedis, he says, “Loose beedis are sold mostly in villages and small towns, where you can get four to six sticks for Re 1 depending on the quality. Nowadays, you get a pack of 12 low-quality beedis for as low as Rs 2 in metros.”
The confectionery industry Next on our list is confectionery like toffees, hard-boiled sweets, chewing gums etc that generally retail for as little 50 paisa or Re 1. Here we take the example of Dabur’s Hajmola that was launched in 1973 as a tablet that aids digestion. Today, the product’s popularity is such that nearly 2.5 crore Hajmola tablets are consumed in India daily. According to Rajeev John, senior manager, marketing, with Dabur, “Hajmola currently holds almost 60% of the Rs 225 crore digestive tablets market in India.” This means that Hajmola earns almost Rs 135 crore by selling digestive
tablets and candies priced much below than Re 1! There are several reasons behind the success of the brand. First, Hajmola was, from the beginning, differentiated from other products in the market due to its unique spicy taste. Second, the brand innovates constantly. This is true not only in terms of bringing out new variants, but also in packet size. According to John, “The introduction of Hajmola in the pouch format in the mid-90s increased the consumption occasions by entering into the impulse purchase market. Earlier, Hajmola was available only in glass bottles and was more of an` in-house, on-table consumption product. But the introduction of Hajmola in pouches gave consumers an option of buying and consuming Hajmola on the go, increasing the product’s penetration manifold.” What about the distribution setup? “The Hajmola franchise has successfully leveraged the distribution muscle of Dabur to cover all channels and types of outlets in the FMCG space,” says John. “Dabur has also increased Hajmola’s post-meal association with Mumbai’s famed Dabbahwallahs, a string of dhabas on the key highways
Summer sees refrigrated water pushcarts like these out in bus stands and markets, particularly in North India. Assuming an average income of Rs 300 per cart per day and 20 working days a month for six summer months, this business works out to over Rs 10 crore a year just for a metro like Delhi with 2500 bus stands and a thousand markets
JUNE 2009 17
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/strategy In the south the daily wages are almost Rs 80 per 1,000 beedis. The material cost is almost Rs 40 to 50 per 1,000 beedis. Add to this excise duty, and the direct cost comes to about Rs 160. Then comes the overhead costs. Therefore, the total cost is around Rs 180 190 for 1,000 beedis. Players generally sell the product for around Rs 220 per 1,000 to the distributor, who in turn sells it to the wholesaler or the retailer for approximately Rs 240, and the retailer makes a minimum profit of approximately Rs 40 per 1,000 beedis by selling it for around Rs 280. — G.K. PRABHU AGM, Mangalore Ganesh Beedi
originating from Delhi and even fastfood retail chains.” Besides these, the brand is also being promoted through activations across schools in India touching almost 8 lakh students.
The water business Summer time is boom time for many businesses—one such is that of selling water. As the summer sun approaches, it is easy to spot water vendors situated at all crowded spots such as bus stops, markets, underpasses and more. Most of us have stopped by to quench our thirst at these stalls, or if not that, at least must have given a thought to where to refill water bottles from. But have you given a thought about the nature of the business? Here are some interesting insights. Forty-two-year-old migrant worker Anil Kumar is a native of Samastipur, Bihar. Each year he comes to Delhi for six months from March to August and sells water in a pushcart. On being asked about the business, he says, “Each year, I come to Delhi and work for a company Shakti Rajendra located in Central Market [in New Delhi]. The company rents out nearly 60 water
vending machines during summers. The agreement with them is that they charge Rs 30 per inch of ‘filtered’ water, and in 1 inch there are 40 glasses. I generally buy 10 inches of water from them. Therefore, my profit by selling water is Rs 100 per day.” Anil also sells lemon soda for Rs 8. He says, “For lemon soda, my cost comes to about Rs 6 so my profit is Rs 2. I sell around 25 glasses of soda a day; therefore, I earn around Rs 50 from it. In a day I earn approximately Rs 150.” On the other hand, water pouches are also quite popular with consumers who perceive that they are better in quality than roadside pushcarts. During summers even the local kirana store owners stock water pouches that retail for Re 1 for 200 ml. One such retailer reveals, “I have a sale of 100 pouches a day, which I buy from the distributor for Rs 50.” The retailer sells it for Re 1, earning almost a 100% profit if one excludes the electricity cost for chilling the water. On asked about the quality of water, he coyly says, “The person who packs the water makes a profit of at least 25 paisa after covering all his costs.” We get the point. For those who prefer more hygiene, there are water vendors at many plac-
Dabur has also made Hajmola available with Mumbai’s famed Dabbahwallahs, a string of dhabas on the key highways originating from Delhi and even fast-food retail chains to increase its post-meal association. — RAJEEV JOHN Senior Manager, Marketing, Dabur 18
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es such as the metro stations in Delhi who dole out branded bottled water from 20 liter cans for Re 1. Though they sell other products such as coffee and tea, water is what boosts their sales the most during summer. A quick calculation reveals that they sell 100 glasses of water per 20 liter can, which costs anywhere from Rs 30 to 60 depending on the brand. Since Bisleri retails at Rs 60, they make a profit of Rs 40 per can.
Vegetable sellers Eighteen-year-old Sandeep Kumar has recently joined his uncle’s trade of vegetable vending. His uncle owns a small pushcart that is just enough to display 15 different varieties of vegetables. He mostly has seasonal vegetables, but the things that he stocks up for sure are items like onions, potatoes, tomatoes, coriander and chillies. He explains, “These are the items that that sell the most as they are used in most Indian dishes. I generally buy 5 kg of tomatoes, potatoes and onions, and 1 kg of coriander and chillies daily.” Ask him about the profit margin on each vegetable and he is quick to add, “The money that I make is just enough to feed my family. Items like tomatoes, potatoes and onions are the most in demand. People who come to buy vegetables bargain a lot, leaving us with a meager profit margin of Rs 4 to 5 per kg. On the other hand, vegetables with the most profit margin are coriander and chillies.” Probe him more and he says, “Today’s rate for coriander was Rs 30. Generally when a customer buys vegetables for a significant amount we give coriander and chillies for free, otherwise we charge Re 1. The
DARE/50 things that retail forDARE.CO.IN Re 1 or less
/strategy
Vegetables with the maximum profits are corriander and chillies retail price is Rs 5 for 100 gm, and calculating on that basis we earn up to Rs 50. Therefore, we earn a profit Rs 20.” Besides these, he sometimes also sells lemons for Re 1 each. He says, “Lemons comes at Rs 50 per kg for us. In a kg there are about 50. We generally sell three lemons for Rs 5, but sometimes we sell it for Re 1 when business is low or the lemon is a day old or somebody wants just one lemon.”
Sachets that retail for Re 1 Of late, a number of companies are bringing out smaller packs of their products to attract more consumers. Explaining the logic behind this, Jagdeep Kapoor, chairman of Samsika Marketing Consultants, explains, “Introducing smaller packs has several advantages. One is that it acts as a trial pack and helps attract new consumers who want to try out the product. The second advantage is that these low-priced products are those that are bought frequently, as consumers may
DARE/did you know? In holy cities like Vrindavan and Mathura, you can get coins worth Rs 9 for Rs 10? Pilgrims who visit these holy cities buy these coins for offerings at the temple or giving alms. In fact, not so long ago, you could get coins worth 90 paisa in exchange for Re 1! Cost-per-thousand impressions or CPM is a very common term in Internet advertising. It refers to the cost per 1,000 page impressions in online advertising. The current rate for CPM is around Rs 88 to Rs 440, which means one impression costs about 0.08 to 0.44 paisa!
not buy certain products in bulk due to the affordability factor. The third advantage is that smaller packs also help in increasing penetration, especially in rural markets.” When a new product is launched, a consumer may initially be hesitant to buy a bigger pack. Trial packs are also beneficial when a consumer wants to try another products in the same category, for example, shampoos. Therefore, smaller packs help in generating more trials. “In recent times more and more products are getting into the Re 1 fray to increase trials by consumers, to penetrate the never-used segment and also to increase the frequency of purchase of such products. Therefore, Re 1 is an excellent price point for consumers to try, buy and, if satisfied, rebuy,” says Kapoor.
The hologram industry There are certain products that come cheaper when bought in bulk—one is holograms. In India, the trend of using holograms started in the early 1990s mainly as a measure to counterfeit piracy. Today, a number of industries such as FMCG, pharmaceuticals, computer software and hardware, make use of holograms extensively. In fact, the government of India is one of the biggest users of holograms in India for voter ID cards, driving licenses, passports etc. Pankaj Kumar, senior sales manager of Kumbhat Holographics, says, “Holograms can be quite inexpensive when bought in bulk. The price of a 7x7 mm hologram can be as less as 1 paisa when you order 7 lakh prints. For Re 1 the size can go up to 40 x 40 mm for a minimum DAR E order size of Rs 7,000.”
01. 02. 03. 04. 05. 06. 07. 08. 09. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.
Matches Confectionaries: toffees, gums A glass of water at roadside vendors Stationary: erasers, sharpeners A phone call Kites Shampoo sachets Vegetables: coriander, lemons etc Candles Paper cups/plates Stamps/postcards Use of roadside weighing machines Photocopying Some medicines Waste paper Balloons Golguppas Bindis Stickers Greeting cards Holograms when bought in bulk Screen printing in bulk One mosquito coil White paper sheets Small coconut pieces at roadside stalls Loose flowers Some crackers Rangoli/Holi colors Thread Needles Marbles Chalk Nails/screws Used bottles Some local cigarettes such as Rustam available in Patna Blades Perfume samplers Ice Loose beedis Digestive tablets Chewing tobacco Paper caps Buttons Salt/sugar sachets One online impression of an ad Jam sachets Oil sachets Whistles Toothpicks/earbuds JUNE 2009 19 Use of public urinals
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case/INSEAD
Food for Thought at Suminter India Organics /Philip Anderson
S
ameer Mehra watched as the recently loaded ship disappeared over the horizon, bound for Europe. Its cargo included fresh, delicious organic food products from India that would be sold at a premium to health and tasteconscious buyers. Mehra was proud that his venture, Suminter India Organics, was creating value for more than 7,500 Indian farmers across five states while building up the brand reputation of the country’s agriculture sector. In the five years since the company was launched in 2004, it had grown into a multi-million dollar enterprise that is a classic example of “doing well by doing good.” Now, as the summer of 2009 approached, Mehra needed to ponder how best to develop an enterprise with so many potential growth paths that it was difficult to choose just one or two. Sameer Mehra was born and brought up in Mumbai in what he describes as a “traditional business family.” “My
grandfather was an entrepreneur in the 1930s and 1940s, and migrated to Japan for seven years,” he relates. “He was the first entrepreneur to bring screen printing into India and we were in the textile business for almost fifty years.” Mehra learned about entrepreneurship first hand by being involved in an engineering company the family started in 1994 to manufacture wind turbine generators in collaboration with Enercon, a German company. After graduating from Narsee Monji college of commerce and economics, he earned an MBA from Emory University in the USA and worked in a New York hedge fund for a time before returning to India. Mehra’s international travels fueled his entrepreneurial imagination. He comments, “I frequently visited Germany and I trained in the German company for a bit. I saw the same thing in Europe and the US: a surge in the popularity of stores such as Trader Joe’s and Whole Foods that tap into consumer preferences for food without chemicals or preservatives. I was looking for the next big idea and
I thought organic foods would give me an opportunity to build a global business with massive scale. I got interested in the space as a pure business opportunity, but continue to remain in it because of its triple bottom line: for communities and stakeholders, it is extremely positive environmentally, economically and socially.” Mehra’s idea was to build an Indian-owned supply chain from the farm through to overseas distribution in order to capture more of the value, not only for his company but also for farmers. He soon realized that it was necessary for his new Mumbai-based firm, which he dubbed Suminter India Organics, to operate and control the supply chain end-to-end. He explains, “The unique selling proposition in the organic business is quality. You are promising the consumer a product that is void of any toxins, and that originates at the farm stage. I studied various business models of food companies from around the globe and realized that the way forward was to maximize the arbitrage from owning the whole value chain. Just owning the product or
The unique selling proposition in the organic business is quality. You are promising the consumer a product that is void of any toxins, and that originates at the farm stage — Sameer Mehra, Suminter India Organics 20
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case/INSEAD sales end would not cut it—we have to provide an end-to-end solution.” Mehra decided to focus initially on cotton and non-perishable food such as seeds, pulses, cereals, herbs and spices. Suminter’s approach was to source organic food from certified farmers, then test, steam sterilize, pack and hold products from a central processing unit in the middle of India. Cotton was processed in a facility in Gujarat. Cargoes were shipped out of the ports in Mundra and Mumbai. Mehra chose different levels of vertical integration for his two main markets, Europe and the US. He explains, “In Europe, the organic industry is very fragmented: you have many different countries where different languages are spoken and the consumer base is diverse. Many buyers could not import raw products directly from India because it is too much hassle, so our company gives them what they require at their factory door.” Suminter exports to its wholly-owned Netherlands subsidiary which stores products, breaks them into smaller amounts and sells them to local middlemen, packers and distributors throughout Europe. However, says Mehra, “In the US, four or five big players have enough volume that they can import themselves, so we export directly to these middlemen. Their customers, the organic food stores, have strict inventory management policies, so it is best for us to work through distributors there.” Mehra soon realized, however, that converting a farm that had been operating with pesticides into a certified organic farm required a threeyear conversion process, which would seem risky to many farmers. Therefore, he established connections with the Aga Khan Rural Support Program in Gujarat, which had been promoting sustainable agriculture for five years. “We said the farmers were not getting premium pricing and we could create an ecosystem for them, because we had access to a consumer base.” Mehra recalls. “They tried us out for a year and saw that our work pays off in dollars that go to farmers. Things matured and we grew from there.”
Mehra’s idea was to build an Indian-owned supply chain from the farm through to overseas distribution in order to capture more of the value, not only for his company but also for farmers This relationship was crucial to kick-start the first link in the chain, the source of raw materials. Says Mehra, “We had a lot of difficulties in the initial years until we were able to get trust by partnering with NGO’s who had credibility with farmers. They helped us get into groups of farmers. Once farmers were able to see the benefits of going organic, it became an easy sell. In fact, now more and more farmers want to align with us and we are telling them to go slow because we can only add so many farmers per year.” Eventually, Suminter hired its own force of agents who work directly with farmers. Explains Kanu Anand Gupta, who joined Suminter in 2009 to head business development, “We contract with farmers and help them through the three year process it takes to certify an organic farm. The field staff constantly advises the farmer and there is a lot of testing and hand-holding involved. The value proposition for the farmer is that he can reduce his input costs by 20-30% while improving price realizations by 10-20% if they convert to organic farming. Our objective is to achieve yield parity with conventional farming over time and we think that can be accomplished just by using the right inputs and know-how.” By late 2007, Suminter had gained significant traction and was ready to
look for venture investors. Mehra explains, “A startup needs to take money when people want to give it to you, not the other way around. You don’t look for money when you need it, or your negotiating power will be much lower. In December, 2007 global markets were peaking and valuations were at an extremely high level. There was a lot of liquidity in the system and investors were actively looking for good opportunities. We had proof, that our business would work, and a model in place, so we were inclined to get external funding. That let us bring in people, processes and equipment we needed to scale and go to the next level. We were looking for growth just at the time when valuations were highest and two or three different venture capitalists were chasing us to invest.” Mehra eventually chose to work with Nexus India Capital, which had closed its first fund of $100 million in mid-2007. With offices in Mumbai and Silicon Valley, Nexus focused on earlier stage enterprises, preferring to be the first institutional fund to invest in its portfolio companies. Mehra decided to work with them because he felt the partners would fit well with him and his business. He elaborates, “The critical decision an entrepreneur needs to make for series A financing is about relationships. Your relationship with JUNE 2009 21
DARE.CO.IN an early-stage venture capital firm is nothing short of a marriage and a bad partner means serious trouble. I was able to secure good reference checks on the people behind Nexus and they had good pedigrees. Others offered us better valuations, but the people backing Nexus are the reason why we chose them.” Deciding how much money to raise was a delicate balancing act. Mehra states, “I did a lot of research on why startups fail anywhere in the globe and the most important reason seems to be that they are often under-capitalized from the start. I was very clear in my mind that if I had to dilute my holdings, I would try to capitalize the company so it could survive for two or three years and become a sustainable business that could build itself up. We added up how much we wanted for capital expenditures, working capital and the right debt-to-equity ratio and originally looked for that amount. However, we realized we would have to dilute ourselves a lot more to raise that kind of money, so we scaled down the amount. Still, you have to dilute a lot; industry benchmarks suggest that series A venture capitalists won’t take less than 30-40% of the equity.” Accordingly, in December, 2007, the series A round closed at $3 million. At about the same time, late in 2007, a small investment bank that Suminter had discussions with while raising their Series A financing recommended him to the managers of the newly-established India offices of Endeavor, a US-
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case/INSEAD based nonprofit organization founded to support high-impact entrepreneurship in emerging markets. Endeavor had developed a solid reputation and had a glittering international board of advisors and partners. In each country in which it operates, Endeavor is funded by a local board, which in India includes Hari Bhartia, Managing Director of Jubilant Organosys; Ashish Dhawan, Founder and Senior Managing Director of the well-known private equity firm ChrysCapital; and Sanjay Nayar, CEO and Country Head for Kohlberg Kravis Roberts & Company. Says Endeavor’s Entrepreneur Services Manager Ami Malaviya, “We met Sameer when we were scouting for high-impact entrepreneurs in India. Endeavor has spread out a network of banks and large corporations that have innovative companies in their supply chains. They show us their pipeline of small and medium enterprises they have looked at. When someone like Sameer comes to our attention, the first round of due diligence is done by staff who meet with the entrepreneur; visit his company; visit customers, and so on. The second round involves interviews with senior leaders in the Indian business community to understand the candidate as an entrepreneur. If he is green-lighted, an entrepreneur is interviewed by our local board of directors. Sameer passed all these hurdles and went to Turkey in June, 2008 for interviews with senior business leaders who are on Endeavor’s board in various countries.
They debate the candidates they have seen, and it takes a unanimous vote for someone to be selected as an Endeavor entrepreneur.” In June, 2008, Mehra was announced as the first Indian entrepreneur chosen to join the Endeavor Global Network, joining over 300 entrepreneurs from 11 different countries. As a consequence, Endeavor provided him 1:1 mentoring; sent him to global workshops; facilitated introductions to venture capital firms; and provided advice in areas such as legal affairs and human resources. Says Mehra, “Endeavor heard about me through a banker and they approached me. We went through several meetings, and I was quite hesitant at first because I had just raised our series A funding and didn’t have the time or inclination to go through a similar process. However, I was convinced they had a global platform for mentoring entrepreneurs to scale up their organizations. I’m glad I went through the process. There is some vindication
Suminter’s approach was to source organic food from certified farmers, then test, steam sterilize, pack, and hold products from a central processing unit in the middle of India
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case/INSEAD when world-renowned leaders say you are making a difference with a unique business model that is a beautiful story and that can be scaled. It’s always lonely at the top, and I often wonder whether I am doing the right thing, taking the business forward in the best way. Succeeding in becoming an Endeavor entrepreneur boosted my confidence and helped me keep going ahead.” His association with Endeavor has also brought some tangible benefits to Mehra. He elaborates, “They bring a lot of networks so there is a lot of cross-learning. They also generate credibility. When people hear we are Endeavor entrepreneurs, it has a huge impact. You get a lot of press coverage, global recognition, and investors hear of you through various avenues. If you go through the grind and are selected, it affects what people think about you. We were able to get a Stanford MBA to work on the entry strategy for some products we are launching in the US. And I am close to the Endeavor India management team; we talk day to day. They are very intelligent individuals, and being able to bounce ideas off people like that is an experience entrepreneurs must have. You need an ecosystem around yourself of intelligent people you can talk with who bring fresh perspective.” 2008 represented a year of transition for Suminter. Mehra comments, “When Nexus funded us, we were able to bring in experienced individuals from industry. They came from the traditional food space, and we explained the nuances of organic trade. Now everyone is up to speed, and we have a team in place that can handle this business for the next couple of years. Growth is all about people, processes and systems, and people are number one. We want to grow our talent pool while I take a back seat operationally to focus on business development and resource acquisition. I think the founding entrepreneur should provide resources and direction while operations are handled by front-line people.” By spring, 2009, Mehra’s primary concern was scaling the business the best way. According to Gupta, Sumint-
Mehra soon realized, however, that converting a farm that had been operating with pesticides into a certified organic farm required a three-year conversion process, which would seem risky to many farmers er’s revenues were about $5 million in March 2009, and the firm hoped to reach $15 million by March 2010, despite the difficult economic climate. Mehra notes, “As you grow, your problems grow. The major challenge now is how to scale up the business while maintaining intact our sense of mission. We have to ensure that as we grow, we don’t cut corners on quality, ethics, and ensuring that the customer is treated as the most important person out there. I tell the troops we can never forget that at the end of the day, the customer keeps us in business. We have to come out with better ways to serve customers and maintain quality. We need to remain focused on the basics that took us from $100,000 to $6 million. How to maintain those basics when you become a larger organization is the key question for us.” One key scaling constraint was the need for field staff to work intensively with farmers. Says Gupta, “The key role in this organization is the field officer, who frequently visits farms and builds relationships with farmers. Turnover is a problem and we have to introduce structure to reduce our dependency on specific people.” Adds Malaviya, “Due to Indian land laws, farmers have between two and five acres of land, so it’s really tough to manage day-to-day inputs. It takes a lot of work.” Adds Gupta, “I think the major challenge next year is becoming a big
company. The organization structure is very dependent on Sameer. We need to be more structured and more professionally managed, since the biggest risk as you grow is compromising quality. We also need more real-time tools to analyze pricing along different cycles in the harvest.” Although the market for venture investing was dim in most geographies, Mehra wondered whether it was time to raise another round of capital to fuel rapid growth. Notes Gupta, “The way harvest and procurement work, you need a lot of working capital for this business. We don’t have many fixed assets, so there is not a lot to collateralize loans.” However, Suminter had raised its first round of capital in an extremely favorable private equity market. Would it be wiser to conserve funds and wait for another bull market in venture financing? If Suminter raised more capital, what growth path should it pursue? Several alternatives lay open. One would be to expand the farming base beyond the 48,000 acres and 7500 farmers in five states from whom Suminter sourced raw goods. Another would be to expand the product range beyond cotton and a small set of foodstuffs, perhaps into higher-value perishable products. Yet another would be to make selected acquisitions downstream in the distribution end of the value chain. Summarizes Mehta, “The company has now reached an inflection point. We can scale up and make this into a $100$150 million company over the next five years, when we should be ready for an IPO if we choose. From day one, I have wanted us to become an institution, not an entrepreneur-driven business. We are clear that we want to be a listed company that maximizes stakeholder wealth created, not just shareholder wealth.” The key questions facing him were whether to grow organically or to inject more capital and accept further dilution, while in either case allocating resources carefully to the most promising growth path. FOOD FOR THOUGHT AT SUMINTER INDIA ORGANICS CONTD. ON PG 84 ç JUNE 2009 23
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opportunity/oil
Essential Oils: A Gateway to Several Opportunities Essential oils have always been used by the fragrance, food and pharmaceutical industries and also by paint, pesticide, mining and petroleum industries. Of late, interest in it has surged because of the new-found popularity of aromatherapy, which believes peculiar aromas of these oils have curative effects /Ambrish Jha
A
concentrated, hydrophobic liquid containing volatile aroma compounds obtained from plants is referred to as essential oil. It is so-called to indicate that the oil is the fragrant essence of the plant from which it is extracted. It is generally extracted by distillation, though other methods like expression and solvent extraction are also used. Technically speaking, oils obtained through the process of solvent extraction are known by different names like oleoresins, concretes and absolutes, depending on the solvent used for extraction and the plants from which these are obtained. For
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instance, oils obtained from spices are generally called spice oil. This piece will not differentiate between these terms, but will instead explore the existing scenario and the opportunities this industry has for new and existing entrepreneurs.
plants that may be seasonal or perennial. Oil can be extracted from any part of plantsâ&#x20AC;&#x201D;from leaves, ďŹ&#x201A;owers, fruits, roots etc. Whatever the source of essential oils, they have complex compo-
Major oils from India
Common sources
Lemon grass
Cinnamon
According to industry sources, more than 3,000 essential oils are known. Out of these, some 300 are used for commercial purposes on a regular basis. These are obtained mostly from agricultural plants, some from wild
Jasmine
Mint
Ajowan
Angelica
Artemisia
Caraway
Celery seed
Citronella
Coriander
Corn mint
Cumin
Eucalyptus
Frankincense
Ginger
Patchouli
Sandalwood
Turmeric
Cedar wood
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opportunity/oil sitions, containing alcohol, aldehydes, ketones, phenols, esters, ethers and turpenes in varying proportions. In India 75 essential oils are in use on regular basis, says Vishnu Das Ranga, director of Nesso (Naturals and Essential Oils Private Limited), a Mysore-based company dealing in essential oils, floral absolutes and incense sticks. Nesso produces some 12 types of essential oils like patchouli oil, eucalyptus oil, mint oil and floral absolutes. The most commonly used essential oils are, however, lemon grass oil, peppermint oil, patchouli oil, clove oil, rose oil, lavender oil, geranium oil, mint oil, vetiver oil, jasmine oil, rosemary oil, clove oil, cinnamon oil, citronella oil, eucalyptus oil and palmarosa oil. India is a major player in the field of essential oils (including oleoresins, spice oils, concretes and absolutes), and different oils have different leaders. Nesso, for instance, says Ranga, is one of the leading companies in floral absolutes. India is the dominant supplier when it comes to oleoresins —herbs and spice extracts—supplying around 80% of the world’s requirements. Demand in oleoresins has kept on rising on the back of the new trend to use more natural products.
Uses Essential oils are used quite extensively in the fragrance and cosmetic industry, flavoring and food industry and pharmaceutical industry. It is
There is competitive pricing in the market. There is not much of scope for new players [in the traditional segment]. New players should focus on organic [essential oils] products and use biotechnology effectively to get a foothold.
— Vishnu Das Ranga Director, Nesso also used in paints, in the manufacturing sector, mining and house cleaning products. According to a report by the National Research Development Corporation (NRDC), the total demand for essential oil is roughly split between the fragrance industry (60%), flavor industry (20%), and pharmaceutical industry (20%). Essential oils have been in use for thousands of years. They have been
Users Major users Cosmetic and toiletry industry (fragrance & perfume industry) Flavor & food industry Pharmaceutical industry Other users Aromatherapy Paint industry Mining House cleaning products
the primary source of perfumes in the ancient civilizations of Egypt, India, Greece and Rome. There is, in fact, historical proof that there were machines for obtaining essential oils from plants in Mesopotamia 5,000 years ago. While the Romans associated essential oils with wealth and success, in India ayurveda recommended essential oil massage as a health treatment. Aromatherapy has started becoming popular in recent times and essential oils are used extensively in spas. Several chemical substances identified in essential oils have been found to possess anti-bacterial, anti-fungal and anti-parasitic properties. Demand for essential oils in the form of oleoresins have kept on increasing in developed countries (and even in developing ones), along with the tendency of food retail chains to introduce spicy snacks with distinctive tastes of chillies, onions and ginger in their food items without actually handling these.
Economics of essential oils The economics working behind essential oils has three components. First, the cultivation of herbs and plants used to extract essential oils; second, the actual process of extraction of the oils; and, third, the marketing and actual sale of these oils. Different plants have different oil content and they differ in their sales also. For example, according to the National Institute for Chemical Pharmaceutical Research and Development, Romania, world production of coriander oil in 2003 was estimated at £6 million and the essential oil content of dried coriander is 0.15% to 1.7%. In contrast, market for lavender oil was estimated at £5 million and the essential oil content of the two types of lavender varies between 0.55% and 1.5%. There is major emphasis laid on the cultivation aspect as the subsequent yield of essential oils depend entirely on the quality of cultivation. According to a report of the NRDC published in the early years of this decade, the cost of cultivation of herbs in developing countries per hectare comes to around US$ 500 to 1,000. In compariJUNE 2009 25
DARE.CO.IN son, revenue per hectare is estimated at around $3,000 to 6,000. This demonstrates how beneficial the essential oils business can prove. Ranga, however, says it is virtually impossible to reach a figure for the whole sector. Different crops have entirely different cycles and products are also sold at varying prices. These oils have rates varying from Rs 200 to Rs 2.25 lakh for a kilogram, he says. There is no set pattern of procuring crops either. Manufacturers can have contract farming in place to fulfill requirement, but for some herbs they rely on wholesale market supply, according to Ranga. He adds, “For some others, backward integration of farms also exists. Most of the distillation units are located at places where these plants are grown.” It is easy, therefore, to perceive there is no single leader across the sector. Some may be producing more of rose oil or sandalwood oil, while others may focus on lemongrass oil or mint oil and yet some others on vetiver oil or eucalyptus oil. “Even mint is of four different kinds and eucalyptus of two kinds,” Ranga says. According to Ranga, “It is difficult to reach an overall figure for production and sale.” This explains why statistics are hardly available for the industry as such. As far as economics of extraction of essential oils from plants is concerned, it depends a lot on the set-up, capacity and design of distillation units. With some precautions, the same distillation unit can be used for extracting essential oils from different plants. According to a study conducted by the global market research firm Frost and Sullivan in 2006, the rise in consumer demand for natural food products, coupled with the associated need for flavoring compounds from natural sources, have provided a major boost to the essential oils and oleoresins market. Frost and Sullivan estimated that the market size of Europe and the US for essential oils would grow to 666 million by 2009, with the actual volume consumed by the two in 2009 being 105,800 tons. 26
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Prices of essential oils Essential oils Ajowan Angelica Root Basil Ginger Lemongrass Palmarosa Betel leaf Pine Davana Valerian root Turmeric Sandalwood Vetivert oil Cardamom Eucalyptus
Price (Rs./kg) 450-550 25,000-30,000 600-675 3,800-4,200 550-650 800-925 28,000-32,000 80-100 40,000-45,000 40,000-45,000 700-800 60,000-65000 27000-32,000 8,500-9,500 400-600
SOURCE: Journal of Essential Oils Association of India.
According to the United Nation’s COMTRADE database, global imports of essential oils stood at $2 billion in 2005. As listed by them, the top ten import markets in 2005 were the USA ($391 million), France ($199 million), the UK ($175 million), Japan ($152 million), Germany ($117 million), Switzerland ($103 million), Ireland ($75 million), China ($65 million), Singapore ($61 million) and Spain ($61 million). The fastest-growing markets, based on import spending between 2000 and 2005 include Vietnam (14% per annum), Poland (35%),
Nigeria (16%), Turkey (25%), South Africa (14%), Indonesia (14%), Saudi Arabia (14%), India (19%), Spain (13%), Singapore (35%), Switzerland (14%), and Japan (13%). While India is a major exporter of many essential oils; it also imports from several countries. Figures from the Nahva Seva Port, Mumbai between December 2008 and March 2009 show India to have imported a number of essential oils from countries like the US, Brazil, the UK, China and Indonesia. It imported aromatic chemicals worth over Rs 6 crore from the US during this period through this port alone. At the same time, India also exported essential oils to several countries, including to the US, the UK, China, Argentina and other European countries.
Future A study conducted over a decade ago in 1996-97 had estimated the demand for essential oils for the year at 14,900 tons. The growth rates it estimated then were for domestic and export markets at 9 and 25% respectively. The demand and supply gap was then projected at 8,000 tons. Since then the number of players have swelled not just in India, but overseas also. Ranga says it is difficult to guess at the actual produce and supply. What is perceived, however, is that there is a good demand for essential oils. “There is intense competition in the market now,” says Ranga. “Pricing is very competitive and the scope for new players in the market is not quite bright.” However, he points out that the new entrants have plenty of opportunities in the organic oil segment. Demand for organic products is rising these days, he says. Though no special certification is required for setting up distillation units for producing essential oils, an organic certification will definitely be advantageous. If someone still wants to pursue the traditional segment of the business, one must adopt new biotechnology innovations to make a mark. Ranga believes entrepreneurs more willing to adopt and accommodate new technologies will emerge leaders in the long run. D A R E
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/society
Nautical Products Roorkee, a city in Uttarakhand, is dotted with many big and small manufacturers who produce nautical decor products /Aswathi Muralidharan
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oorkee, a gateway to the holy city of Haridwar in the hillstate of Uttarakhand, is also well known for its nautical products market. The city that boasts an Indian Institute of Technology (IIT), is dotted with many big and small units that produce high-quality engineering equipment tucked away anonymously in its winding lanes. Leaving aside engineering instruments, the manufacturers also produce several products such as compasses, telephones that have an antique look, sand hourglasses and more that serve decorative purposes. DARE met a player in this business, Gaurav Verma, who has been into this for almost 16 years now. Tracing back the history, Verma says, “In Roorkee these equipment are being manufactured for several decades now. My grandfather started this business way back in 1950. At that time, we used to manufacture drawing and survey equipment. But then with the technology of automation coming up, that business died a slow death. It was then that we decided to venture into the decorative nautical replica market.” Today, his firm, Roorkee Instruments (India), manufactures a variety of products ranging from different types of compasses and telescopes to clocks, telephones and even armor.
The business In Roorkee, while some players specialize in manufacturing the spare parts for these instruments, there are 28
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/society others who do just the assembling and selling. Verma belongs to the second category. Explaining the nature of his business, he says, “There are a number of units in Roorkee that manufacture parts for these equipment. We buy these parts from those manufacturers in bulk and assemble it in our unit. Our unit has seven workers.” Verma’s products are mostly exported, though not directly but through exporters. “Nearly 99% of our products are exported,” he says. “For export purposes, the products are produced in bulk on the basis of orders. Clients give their specifications or a sample product based on which we complete the order size.” On being asked about the global slowdown, Verma says, “The ongoing recession has taken a heavy toll on my business. As we deal mostly with decorative items and depend heavily on exports, we are facing a severe dip of almost 50% in business. The spending power of people abroad has
come down drastically.” Sitting at his temporary stall in Dilli Haat, his brother Praveen, adds, “This is also one of the reasons behind why we have also started looking at the domestic market.” For catering to the domestic market, Verma’s company participates in different exhibitions across the country. According to him, there is considerable demand for his products in the domestic front as well.
The demand Verma’s products have a good demand abroad, especially due to their antique look. Most of his products are exported to countries with seaports or beaches. His brother shows us two antiquelooking copper compasses, one with a Titanic motif and another with Robert Frost’s famous poem Miles to Go Before I Sleep inscribed on it. Comparing domestic and international clients he says, “Though my products are exported mainly due to their decorative value,
in India, they sell due to their utility purpose. Here, they do not go for its antique value.” He jokingly says, “Bahar ek garhi ki ittni value nahi hai jittni ek compass ki hai [In the international market a clock may cost much lesser than a compass].” His products have a price tag raging from Rs 100 up to Rs 30,000. On being asked about the peak season, he says, “There is no peak season for us as such. There is a slightly higher demand for our products during the Christmas season in the international market. In India, there is no particular season as we have just started.” Besides the compasses, hourglasses and station clocks, his company is witnessing demand for armors. He says an armor may cost anywhere between Rs 25,000 to 30,000. In a year Verma makes a local sale of approximately Rs 10 to 15 lakh, and also manages to pocket nearly US$ 10 to 15,000 per month by displaying his products on e-bay. DAR E
The ongoing recession has taken a heavy toll on exports of decorative items. The overall dip in my business, I would say, is as much as 50%.
Sample Product List Compass
Station clocks
Keychains
Telescopes
Sand hourglass
Telephone
Sundial
Brass sextant
Weather vane
Praveen Verma Roorkee Instruments JUNE 2009 29
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Is Globalization on the Way Out? The DARE-IBM four-city Roundtable on opportunities and challenges in LPO witnesses keen interest from entrepreneurs willing to grab a pie of this fast-growing sector
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t couldnâ&#x20AC;&#x2122;t have happened at a more opportune time than this â&#x20AC;&#x201C; a four-city event to mark the opportunities in legal process outsourcing (LPO), an industry that is barely five years old, but growing faster than many other sectors. With a recession sweeping the developed world and bankruptcies and layoffs becoming the order of the day, courtrooms, law firms and legal departments are overwhelmed by the number of cases that have come up to haunt them in the last one year. This has led to a sharp increase in the outsourcing of legal work to cheaper destinations such as India. The jury is still out on the exact size of the LPO industry, with estimates varying from US$ 40 million to US$ 150 million. It is believed that by
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Srikant PV
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Country Marketing Manager, General Business, IBM, India
Sanjay Kamlani Co-founder and co-CEO of Pangea3
Arihant Panti
Ritvik Lucose
Poonam Chothani
CEO, Bodhi Global
Co-founder, Rainmaker
Founder, LawQuest
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Navtej Saluja
Pankaj Parnami
Vice-President, Evalueserve
Director, KPO Consultants
Vincent Devasia
Rituparno Mukhopadhyay
Country manager, LawScribe
Head Mid Market Business (North India), IBM, India
2010 this may touch anywhere around US$ 1.5 billion. The LPO events that happened in Mumbai, Delhi, Bangalore, and Chennai between May 5th and 15th saw the best brains in the business gathering under one roof to share their experiences and dole out tips on starting and scaling up the LPO business. A host of issues relating to regulations,
capital and manpower requirements, technology groundwork understanding client market, and moving up the value chain came up for discussion. One of the most common questions that came from the audience was about the requirements for starting an LPO business. While there was a general consensus about the opportunities of more business coming into In-
Sanjay Bhatia
Balachandran Lakshminarayan
Sunil Mathangi
Head of Operations, SDD Global
Manager Marketing (South), General Business, IBM, India
COO, Sarva Solutions
dia, there were diverse views on what it takes to enter it. Some of the panelists agreed that it takes only a laptop and a contact in the US to get going, while others believed that it is not such a cakewalk after all. If one were serious about starting and growing an LPO business, it is important to understand the client market that is quite demanding in terms of quality and turnaround
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event/report
Vinod Kumar
N. Senthil Kumar
Deputy General Manager, General Business, IBM, India
General Manager, LawWave
Tariq Akbar CEO, Legalease
time. So just having a cousin or an uncle in the US or UK may not help; instead, meeting with attorneys there to get a clear sense of what they want is of prime importance. Thus, the cost of starting an LPO business varies depending upon the kind of work (lowend or high-end), the team, the cost of premises and technology. Getting your first customer is the most crucial part of this business. Most panelists agreed that they had to run that extra mile to get their first client, which in some cases was a low-end job. However, they slowly but steadily moved up the legal service value chain. This was from legal research writing to document reviewing and deposition summaries to patent-related work. The panel also discussed the various business models that a newcomer can look at. One of the challenges that the industry faces relates to manpower training. It takes on an average of three months to deploy a new recruit on the shop floor. There have been calls for regulations for this industry as well. Some questions relating to the definition of LPO came up during the discussions. While investor interest exists, it is mostly restricted to the growth stage and not the startup stage. The industry, meanwhile, may see consolidation, as smaller players are at risk of getting lapped up by the big ones. 32
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Sakthivel Venkatraman Managing Director of operations, Cobra Legal Solutions
In Mumbai the keynote address was delivered by Sanjay Kamlani, co-founder and co-CEO of Pangea3. The other keynote speakers were Vincent Devasia, country manager, LawScribe in Delhi; Sanjay Bhatia, head of operations, SDD Global in Bangalore; and Tariq Akbar, CEO, Legalease, in Chennai. The panel discussions that followed were particularly beneficial for the members of the audience who pitched in with their comments, questions, and suggestions on the nitty-gritty of this business. In Mumbai the panel comprised Arihant Panti, CEO, Bodhi Global,
Poonam Chothani, founder, LawQuest and Ritvik Lucose, co-founder, Rainmaker. The Delhi panelists were Navtej Saluja, vice-president, Evalueserve and Pankaj Parnami, Director, KPO Consultants, besides Devasia of LawScribe. The panelists in Bangalore were Sunil Mathangi, COO, Sarva Solutions and Sanjay Bhatia of SDD Global. The Chennai panel witnessed Sakthivel Venkatraman, managing director of operations, Cobra Legal Solutions, N. Senthil Kumar, general manager, LawWave and Tariq Akbar DAR E of Legalease.
DARE.CO.IN an we begin with a genesis of the Kent RO System?
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To begin with, Kent RO Systems is not my first business venture. I graduated in mechanical engineering from IIT Kanpur and then did my master’s in petroleum from the Indian Institute of Petroleum, Dehradun. I joined Indian Oil after that and worked with them as a manager in their technical services department for about 10 years. In 1988, I realized that I needed to do much more than just a job. I had some brilliant ideas for petroleum products and I decided to quit Indian Oil to work on those. That was the beginning of my first venture, S.S. Engineering Industries, which was started with a meager investment of Rs 20,000. This company has been in the business of manufacturing innovative oil flow meters and oil testing kits. Even today, this company is a profitable business with an annual turnover of Rs 5 crore. Kent RO System happened in 1999 due to an incident in my family. Both my children fell sick due to jaundice, which is a water-borne disease. At that time I was not using a water purifier in my home and after this incident I started looking for one. I soon realized that none of the purifiers available back then met the standards I was looking for. So I decided to make one of my own—an RO purifier—by importing components from abroad. When I saw how well the purifier was working and how helpful it was for me, I thought of launching it out in the market. Today, Kent RO System has a much bigger turnover at Rs 25 crore as compared to Rs 5 crore of S.S. Engineering, my
/bio
MAHESH GUPTA KENT RO SYSTEMS What started with his kids falling ill due to jaundice, has now become a company with almost 45% market share in the RO Mineral and RO segment. Mahesh Gupta, a Delhibased, first-generation entrepreneur, shares with us his journey from being an employee to becoming a successful businessman I was able to convince those people, the other people would follow. It was only after the first year that I bought a place to put up my factory.
What was your first taste of success then? My first taste of success came when the first two pieces of my oil testing equipment were sold for Rs 5,000 to a company in Hyderabad.
entrepreneur of the month first venture. Hence, more people know me as the founder of Kent RO Systems than my first company [chuckles].
How difficult was the decision to quit Indian Oil and start a business of your own? I had the desire to do something innovative and earn a living that was much better than what I had at Indian Oil. It was a tough decision as I was doing well at Indian Oil and was progressing fast. I was the manager of technical services there, which is a position of certain prestige. People used to envy me and in fact were surprised when I decided to quit all of a sudden. My family resisted my decision too, initially, as financially there could have been a lot of risks involved with taking such a decision. I had no prior experience in doing a business, but I had dreams and I was determined to fulfill them. Looking at my passion and determination, support from my family started coming in. When I started off, I had been working in the garage of my house. I had to take care of everything, including being the peon, typist etc all by myself. I had to let my ego dissolve at that time. I did not want to approach any of my contacts because I didn’t want anyone to feel like they were doing me favors. I knew that if my product was truly valuable I will be able to convince people I didn’t know to buy it. Once 34
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Was there any failure that you learned from? I don’t consider failures as failures, but rather as experiences that I learned from. I never regretted any of them. For instance, I don’t come from a finance background, which is really important when you are running a business. But I never looked at it as a setback. I decided to learn by experience and today I am good at finances and whatever knowledge I have has been accumulated over a period of time. Same goes for negotiation, sales etc.
What has been the biggest challenge in your entrepreneurial journey? The biggest challenge that I have constantly faced and in fact am still facing today, is finding the right talent. It is difficult to find someone great who will be ready to work for a small company. So I had to bring my expectations down and train people to get the best work out of them. I took it up as a challenge to train them and to bring them up to the standards I was looking for.
Coming back to RO Systems, how are your products positioned in the market? What makes Kent RO different from other water purifiers is, first, its technology. It uses a reverse osmosis process, fol-
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DARE.CO.IN lowed by an ultraviolet process, which is followed by a system to retain essential natural minerals in the water. This product is patented. Technologically, it offers a great advantage as it removes dissolved impurities like salts and heavy metals, while retaining essential minerals. Other RO purifiers don’t retain the mineral content. Also, the UV process in Kent RO kills the bacteria that pass through the membrane. Of course, other than technology we also differentiate our products in terms of performance, servicing, branding etc. Over the past few years, a number of competitors have come into the RO segment. I have had competition from Eureka Forbes, Whirlpool, Phillips etc, but my product still performs the best. It has an X-factor that is difficult to quantify to the public. We have the same components as other manufacturers, but it is that slight modification in the way we use these components that gives us an edge over the others. Today, a major chunk of our business comes from household consumers. We have noticed the demand comes more from homes than offices. I created a competent marketing team that approached institutions that would be interested in ordering the product. But the problem with most of corporate purchases is that they don’t differentiate on quality and go for the lowest prices.
/bio Ozone Dental Jet, Kent Purified Water Dispenser, Kent Water Softener etc. In terms of our turnover, they don’t contribute more than 2 to 3%, but it is coming from the high-end clientele where people are looking for innovative products, have disposable incomes and are not looking at expenditure, but rather at the value they are getting. These products remove insecticides and pesticides from fruits and vegetables and when people see the demonstration they consider buying it. However, such products do have a hard time gaining market acceptance. Educating the masses is not an easy task. It has to happen by word-of-mouth. It has been ten years since we have launched the RO water purifier and yet people have a very basic knowledge of the advantages of owning one. In fact, people in small towns don’t even find the need to own a regular water purifier. When we show them the kind of impure water they are drinking they are shocked. Because of this lack of awareness, people just don’t see this product as an essential commodity yet. But that has been the trend. It took about 40 years for people to understand the necessity of owning washing machines and refrigerators in their houses in India. RO water purifiers will perhaps take some time as well before people start to think of it as a must have.
How do you deal with the Chinese onslaught in this segment? How did you go about launching your first product in India? What is the R&D that goes behind making of products? The first product that we produced was a simple under-thecounter RO purifier, which was popular in foreign countries. But within two years I realized that that product would not succeed in India. First, back in 1999 very few homes in India had modern kitchens. Second, we Indians have very different cooking habits. Our kind of cooking, which includes making chapatis and frying, requires intricate cleaning of the entire kitchen. Therefore, under-the-counter RO purifiers and counter-top purifiers were not feasible in India. That is when I manufactured a purifier that could be mounted on the wall of the kitchen. This is the first time such a concept was introduced to the world. Then I kept on innovating the purifier by including UV filters and control systems. Recently, we have modified our purifier to have a computerized control system so that an alarm rings whenever you have to change the filters. I would say that innovating our product from time to time has been the mantra for our success. In my opinion, it is extremely important to spend on R&D to keep coming up with products that are different from the competition. Our R&D team keeps looking at new ideas and studying the requirements of the market and we try to create a product accordingly. To find out the needs of the market, we conduct surveys, followed by lots of debates and discussions.
How are your diversified new concept products doing in the market? We have had many innovative products rolled out in the market, such as, Kent Ozone Vegetable & Fruit Purifier, Kent 36
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It is true that there are lots of Chinese water purifiers that are much cheaper than my products. I would say it all boils down to quality and faith. You see, even though my products are the costliest in the market, we sell the largest quantity as well. That is because we have been able to brand it in a way that people are attracted. Apart from this, we provide good servicing to our customers. In business once a space is recognized in the market, you will see many players entering it. It is unrealistic to expecting to obtain and retain 100% share. You have no choice but to deal with such threats. How I deal with this is situation is that I innovate my products year after year. If my product offers the same features as the others, I wouldn’t be able to price it really high on just branding alone. For instance, last year we did not have a computer control system in our product, but this year we do. Today, the onslaught is not such a threat as I am able to innovate a product that puts me in a different category altogether. It is not always about price; it is about value for money. You need to understand consumers’ need, then have a good combination of price, technology, branding etc. Then you need to have the muscle power to play the game. For instance, look what happened to Indian television manufacturers such as BPL, Onida etc. When the Koreans came in with their Samsungs and LGs, these manufacturers fell. My strategy is going for a niche market with low volumes. For the Chinese, they target high-volume products with low margins. As for multinationals from countries such as Korea, the water purifier market is too small at Rs 1,000 crore to be of great interest to them. We manufacture about 14,000 to 15,000 purifiers per month, which is a very small market for them to enter full on.
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/bio Other than conventional advertising, what other channels have you used to reach the market? We engage in all kinds of retail activities. We do promotions in retail outlets. We advertise in print and electronic media. We send our marketing team to go and educate customers. We started in 1999 and people didn’t recognize our brand at that time. Therefore, we decided to go do some campaigning and thought about the best way to put money in the media. To get the best value for our money and attention of the consumer, we decided to get a celebrity to endorse our brand. A celebrity also gets the masses to believe in your product. We were looking for a brand ambassador who would be a housewife with a genuine appeal and also someone who wasn’t endorsing too many other brands. That is how we shortlisted Hema Malini. When she became our brand ambassador, our visibility definitely increased and we grew substantially after that.
as a business model could also be seen as a potential opportunity area by aspiring entrepreneurs. There is also a demand for entrepreneurs to get into component manufacturing. Even we do not do 100% of the manufacturing ourselves. We tend to outsource component manufacturing to other players. Funding seems to be a problem area with aspiring entrepreneurs. It used to be hard to procure back in the day. Even today, many entrepreneurs fail due to lack of funds, despite having abundant angel investors, venture capitalists and bank loans for entrepreneurs etc. Most of them are unable to attain funds simply because their ideas are not innovative enough. Hence, it is extremely important to carve a niche and then have passion coupled with faith. I, for instance, have always been innovative with my products; I never really faced huge competition or problems when it comes to funding.
What about your growth plans? We have grown gradually and not overnight. For the first two to three years we were only a Delhi-based company. Then we expanded by taking the distributorship and franchisee model to Haryana, western UP, Punjab and then slowly to the whole of northern India. Later, we expanded into western India, then eastern, and now after a span of 10 years, we are finally expanding in south India. SUCCESS MANTRAS/ We are also looking at exporting and are finding new ways to penetrate different areas. As of now we are present in most A, B, C cities, but there is scope for much more. We need to have a presence in towns as well and need to have a stronger presence in the cities we already exist in. Quite honestly, we do not have a sales force of 6,000 people like our competitor Eureka Forbes. However, we will keep increasing the sales force and reach every nook and corner of the country. As for manufacturing units, I have two factories in Roorkee and our third factory (1 lakh square feet of covered area) will tentatively be ready by October 2009.
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How has the slowdown affected your business? Do you have any strategy in place? We saw early signs of the ongoing global slowdown last year. We noticed a fall in the number of customers approaching stores and also postponing their decision to spend on water purifiers. Our main product is in the range of Rs 14,500 and we would love to bring it down to less than Rs 10,000. However, disturbances in the ecosystem do not allow us to do that. For instance, the crude oil prices keep going haywire—it affects us. Plastic prices have gone erratic—it affects us. Advertisement tariff has gone up, while the visibility rate has gone down. There are hundreds of television channels now, but the price for 10 seconds of advertisement keeps going upwards. So, while we grew at a rate of 100% in the previous years, we planned for a growth rate of 40% last year and were able to grow only 20%. This year again we are targeting 40%. The key strategy now is to further innovate on products. For instance, we have now come out with a low-cost water purifier (Rs 2,400). With this product targeted at the masses, we hope to achieve volumes.
THINK BIG. BE SINCERE IN YOUR THOUGHTS. DREAM!
Any offshoot business ideas in this segment that aspiring entrepreneurs can use? One of the areas that aspiring entrepreneurs can get into with regard to this industry is servicing. It is going to be a big business in the future. Water purifiers are like chemical plants in your home with filters and membranes that need regular servicing. Also, although the water purifier industry is considerably small, water is India is deteriorating fast and the growth of this sector is bound to happen. We also require entrepreneurs that can educate people and sell water purifiers to consumers. So marketing
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Finally, how much personal time do you get? Well, it all boils down to how passionate you are about the business. In my case, my personal life had to be sacrificed to a great extent. Fortunately, my wife and children have always been very understanding. When I do get some time away from work, I am socially very active with the Art of Living group. I like spending time with that organization’s DAR E activities. Back in home, I like to relax and sleep. JUNE 2009 37
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Which is the best business to be in? Posted by: Krishna Kumar in middleman, internet, Google AdSense, Google, fisherman, fish market, fish, content, business risk, business chain, Big Bazaar, Adwords on May 21, 2009 rrespective of which industry you are in, the best business to be in, in terms of share of the pie, is that of the middleman. The producer takes most, if not all, of the risks associated with the product and ends up with the smallest share of the pie. The retailer, whose role is largely limited to making available the product where the customer wants it, gets a small percentage of the final price paid by the consumer and takes only minimal risks. Even that is sometimes not there because in most cases, unsold stocks are returnable. It is the middleman, whose role is often limited to reaching the product to the consumer in the quantity and packaging that they want, who keeps the lion's share of the pie. Let me give you some extreme examples. Some time back, on a weekend evening, I was at a beach in South India. The Sun was just about to set and a couple of thousand people had gathered along the beach strip to watch. Just before the orange orb of the Sun dipped below the horizon, a small boat with local fishermen came ashore and a fairly large crowd gathered around. Being the curious type, I too joined it. The fishermen had netted two dozen fairly big fish—a variety that you would buy for upwards of a hundred rupees a kilo in the local fish market—each weighing ten to fifteen kilos. Having secured their boat, the fishermen started selling the fish there and then itself. And the asking price was a paltry five hundred rupees a fish. So, there it was, fish that would cost a thousand to thousand five hundred rupees once it reaches the city market and is cut into smaller pieces, was being sold fresh off the sea for one-third the price! Obviously, there would be a huge crowd eager to buy up the fish in no time. Right? Now that is the funny part. There was a crowd alright, but no one was buying. It took the fishermen quite a while to finish off the catch, and that too, after the average price had come down to four hundred rupees per fish! If the same fish were to be stored in ice and carried to the local market the next day, where it would be cut up into smaller pieces (the person who cuts charges five to ten rupees per fish), it would have sold out in next to no time at a thousand rupees, if not more! The fishermen would not have taken them to the market. They do not have the time, the skills or the ability to do so. They would have sold all the fish to some middleman (at an even lesser price than five
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/http://www.dare.co.in/blogs.htm from the hundred rupees, as they were selling in bulk) who would have made all the money. Let me now move to an example from the other extreme. The Internet. Who is the biggest middleman on the Internet? Google! Before I tell you how Google plays middleman, I am sure that you do not have any arguments about whether Google makes money off the Internet or not! So, how is Google a middleman on the Internet? In two ways. First, people (like me writing this blog entry in the middle of the night and posting it over a patchy Internet connection from the middle of nowhere) spend a lot of time, money and energy creating content that they put up on the Internet. Remember that almost nobody (other than porn websites) make money from content put up on the Internet. Along come the Googles of the world and index all this content and show it up when someone searches for information. And like any other middleman, the search engines make money by putting in ads into the search pages. Google goes one smarter than the other search engines and keeps on increasing its take by making advertisers continuously up the money they pay Google by creating a continuous bidding process. They have an good name for this. It is called AdWords. Thus like any good middleman, Google makes it easy for consumers to find what they want (information), where they want it (in their browser) and pockets all the money made in the process, giving nothing to the original producer (of the content). If anything, they make some producers pay for displaying their content up front, before the others. And that is only half the story. Turn this model on its head (or extend it, if you please) and you have AdSense. There are a lot of people who have content—Remember that Google and other search engines by themselves produce almost no content—and would like some ads on their pages. But they have no sales force that would go out and sell ads. And then there are the folks who would like to put their ads in those content pages, but do not have the wherewithal to reach out to all those content creators. Enter Google AdSense, which plays matchmaker between the two. And like any good middleman, Google keeps most of the money put in by advertisers into AdSense. And they make advertisers put in more and more money by using the same bidding process as in AdWords. Do not get me wrong. I am not saying that middleman or Google for that matter are evil. No way. There are two points that I am trying to make. First, whether we like it or not, middlemen are an integral part of all business chains. There is almost no way we are going to get rid of them. And second, given an option, it makes more sense to be a middleman than the producer or the retailer, because that is where the money is. If you look around, you will see that businesses at either end of the chain—producers and retailers, tend to gravitate towards replacing existing middlemen and becoming middlemen themselves as they seek cost efficiencies and better profits. Remember the huge full page ads that Big Bazaar ran some time back? The ones about the huge volumes of merchandise they buy directly or produce—so that it does not pinch your wallet. This is exactly what Big Bazaar was doing—becoming the middleman along with being retailer.
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Could Twitter help in making help desks mobile? Perhaps, yes Posted by: Binesh Kutty in twitter for business, Twitter, tech support, mobility, helpdesk, @woopra, @shekharg, @ serverbeach, @relianceworld, @anilchop, #T4B on May 22, 2009 here was this interesting conversation going on between @shekharg and @anilchop on twitter today. Shekhar was weighing pros and cons of 'Twitter for businesses' (tagged: #T4B). Anil made a remark where he said, “Twitter could make the help desk more mobile.” Come to think of it, that remark did make a lot of sense. For instance, I have been following the tweets of @serverbeach and @woopra on my account, since our site is hosted on ServerBeach and we are using Woopra as one of our analytics tool. It has been beneficial for me as I get to know about their update activities, promos etc. So while previously I used to give grief to the IT department about Woopra not connecting; now I know when and for how long the analytics tool is going to be offline. For the guys at Woopra, getting this across to their thousands of users is just a matter of tweeting through SMS, Internet enabled phone or Internet on PC. This potentially avoids thousands of help desk queries, perhaps. That is my take. Now I have had my support issue with @relianceworld, where they first replied to my tweet asking me for my contact details and pulling a disappearing act on me. But that is a different story. If a business is ever so inclined, I think, Twitter as a medium to make help desks more mobile should click. Please feel free to agree, disagree, or add your opinion—by either commenting here or joining the conversation on Twitter. If you are a business and want to join in on the Twitter craze, you might want to start by reading articles such as this one: 50 Ideas on Using Twitter for Business.
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Healthcare: Living in two different worlds Posted by: Krishna Kumar in public sector, private sector, patient, hospital, health care, doctor, automation on May 24, 2009 ometime back I was invited to moderate a panel discussion on the needs for the healthcare industry. There were about a hundred doctors and healthcare administrators present in the room, from both government and private hospitals. No sooner had the discussions started than one point was abundantly clear. We were talking about two different sectors, not one. The public and private sectors were completely different; as different as chalk and cheese in their objectives and their outlook. Let me take some examples of this difference. In taking these examples, I am not making any judgment about one against the other. I am just
S
DARE.CO.IN highlighting the differences. Besides, I have relatives and good friends on both sides. The single biggest concern of the government sector was in managing the huge crowd of patients that was coming to them; to ensure that each patient got the required care and advice with a minimum of waiting. On the other hand, the key concern of the private sector was quality of care and support services, including work flow. One of the points we discussed there was about hospital automation. The private sector placed automation fairly high up in the list of things to do and identified patient records and and billing as the key objectives of any automation attempt. The public sector was clear that automation was not one of their key priorities, possibly because none of the available automation solutions addressed their needs of handling their patient volumes. Similarly, for the public sector more emphasis was on maximizing the utilization of existing equipment than in getting the latest equipment, while for the private sector, having the latest equipment was a key need and market differentiator. I could go on and on. But it was abundantly clear that any one wanting to work with or in the healthcare industry across both public and private sectors will have to keep this key difference in mind if they want to be successful.
Doing business in the Arab world Posted by: Vimarsh Bajpai in Yemen, World Bank, Tunisia, Saudi Arabia, Oman, Mohamed Ghassan Shaikho, Lebanon, Jordan, Gulf Cooperation Council, GCC, FTA, Free Trade Agreement, egypt, Doing Business, Bahrain on May 21, 2009
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had the opportunity last month to interview the Ambassador of Bahrain to India, H.E. Mohamed Ghassan Shaikho. The envoy was extremely welcoming both in his words and actions. Drawing upon the historical ties between India and Bahrain, he insisted upon Bahrain's liberal business environment and its investor-friendly approach towards Indian entrepreneurs and businesses. That Bahrain is serious about trading across borders is reflected in its positive overtones at the Gulf Cooperation Council (GCC) that is keen on negotiating free trade agreements (FTA) with India, China, the EU and some other nations. Bahrain has an FTA with the US, possibly its biggest trading partner. "Running a business in Bahrain is cheapest in the Gulf region," the envoy said focusing on a number of incentives that entrepreneurs can benefit from. Bahrain has set up industrial economic zones where businesses can get land to construct their own facilities. These zones are close to sea ports making it easier and faster to reach the potential market. While this may sound like a marketing pitch for Bahrain, there is no denying the fact that the Arab world is making it easier to do business in. Bahrain is an example of the number of steps that Arab countries are taking on a number of parameters such as starting a business, JUNE 2009 39
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DARE.CO.IN dealing with permits, property registration, availability of credit, investor protection and cross-border trading. A recent report by the World Bank's Doing Business Project acknowledges that doing business in the Arab world is becoming easier. The report takes a close look at the regulatory business environment in 20 Arab economies in West Asia, North Africa and SubSaharan Africa. It has lauded 13 Arab countries for their "impressive" 31 reforms, out of which 29 made it easier to do business. Two made things difficult. It seems 'starting a business' was top on the minds of Arab establishments that eased the regulations on this front. Ten of the 20 Arab countries "simplified their startup procedures and reduced costs." Prominent among these are Egypt, Jordan, Lebanon, Oman, Saudi Arabia, Tunisia and Yemen. The report finds that "Yemen's move is one of the boldest reforms this year as its minimum capital requirement was among the highest in the world." The story on Doing Business in Bahrain appeared in the May issue of DARE.
Fried chicken and porotta: A cottage industry in Kerala Posted by: Krishna Kumar in union, thattukada, tandoor, porotta, kerala, cottage industry, chicken on May 20, 2009 n my previous post, I had mentioned porotta and fried chicken. Fried chicken to the Malayalee (as the Keralite prefers to be called, after the mother tongue) is what tandaoori chicken is to the Punjabi. The method of preparation is similar, but for the final step. While the Punjabi bakes the chicken in a tandoor, a clay oven, the Malayalee fries it in oil. And porotta is not the paratta you get in North India. Porotta is made out of a dough made of maida, oil and the white of eggs, coiled and flattened to look like an Uttappam (made famous by the many Udupi restaurants all over the country). This is then cooked by heating on a tawa smeared with oil, much like an Uttappam is. Finally, the hot porottas are gathered together and beaten by hand to loosen up the coils. Depending on who makes the porotta and where, they could be as soft as candy or as hard as leather (no, I am not joking) and it could come in various sizes and thickness.
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Come evening and an entire cottage industry springs up along road sides across the length and breadth of the state, with makeshift tables becoming shops (called thattukada— literally table top shop) making and selling fried chicken and porotta. And giving them competition are the regular hotels and restaurants, albeit with a twist. Maybe to get the aroma of frying chicken out, maybe to make it more visible, these regular restaurants get their stoves out from their kitchens by evening and place them out in front, right next to the entrance and start dishing out the states favorite dinner dish. So, in a way, it is more of a level playing field for both makeshift "thattukada" and etablished hotels, than one would imagine. If you happen to take a train ride across the state, you will get a different version of this combination. You will get packed porotta and egg curry at the platforms. Coming back, these thattukadas—the dusk to midnight hotels—do not limit themselves to just porotta and chicken fry. In the true spirit of entrepreneurship and diversification, they keep adding to their portfolio. Thus, you can expect to get dosa (more like uttappam than masala dosa), chappati, idli, tea, egg omelette etc at these shops. Typically, the batter and the other material including the marinated chicken pieces are prepared at home during the day and transported to the venue of the makeshift shops by evening. And by dusk, they are busy dishing out the hot stuff! Actually, the thattukada is not a recent phenomenon nor did they start off with chicken fry. They started off with dosa and egg omlette, if my information is right, or possibly something else. The transition to chicken fry and porotta is more recent, at least in the southern half of the state. Nobody has a number on the number of thattuada hotels in the state. Some of them just seem to whiter away after some time and new ones repalce them all the time. And in a state where there is a trade union for anything and every thing, I would not be surprised if the thattukda owners and the thattukada employees have their respective unions. But I have not heard of a strike (or hartal, which is the new word they use after the state high court banned strikes called bandhs) by these unions. Possibly the urge of entrepreneurship is much more stronger, or given that this is Kerala we are talking about, I could simply be wrong! PS: In case you are wondering, No, I am not stuffing myself with the stuff. DAR E
SMS: “DARE <your comments, questions or suggestions>” to 56677 Email: dare@cybermedia.co.in Website:
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/INSEAD
Business Incubator: Nothing to do with chickens! A business incubator is not about chickens, but it has everything to do with ‘hatching’—hatching the dreams of entrepreneurs into stable businesses.
/Irawati Gowariker and Philip Anderson
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. N. Shreejith nominated by a leading business publication, as one of ‘India’s Most Promising Entrepreneurs’ is a shining example of well-hatched dreams. In an interview, Shreejith states that challenges of starting an innovative venture were overcome only because his venture ROPE was incubated at Rural Technology and Business Incubator (RTBI) located in IIT, Chennai. Business incubators like RTBI provide resources to young companies, helping them survive and grow through the vulnerable start-up period. According to Poyni Bhatt of Society for Innovation and Entrepreneurship (SINE), IIT Mumbai, “A business incubator plays the role of an accelerator to start-up ventures”. While 4000 incubators exist worldwide, the incubation model is adapted to meet a variety of needs from fostering commercialization of university technolo-
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gies to increasing employment in economically distressed communities to serving as investment vehicles. Bhatt, Chief Administrative officer of SINE, one of India’s major incubators, notes that, “Various incubators have different focus areas as a value additionsome focus on high quality physical infrastructure, some on technology support, some have higher strength in providing academic and research inputs and so on. At SINE we try to focus both on infrastructure as well as soft support like business advisory and mentoring, access to business network, facilitation for funding, and also experience sharing between the incubates”. Before we get into the depths of the role of business incubators, let us step back to the 1950’s Watertown city in New York, where it originated. An exodus of manufacturing industry to the South and the West coast of the US
made this city face considerable job loss. An incubator serving local poultry-growers closed down too. This vacant building was refurbished by then Mayor Frank Mancuso, to encourage entrepreneurs to use the building as a place to get their businesses started. To encourage entrepreneurial activity at any cost, Mancuso, now known as the ‘father of business incubators’ charged
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/INSEAD
Today, business incubators don’t just offer affordable rental space, but also, onsite support services and technical assistance minimal rent for this warm workspace and provided access to a telephone. Even with such limited resources, a number of new start-ups emerged from the building, and the program was successful enough to attract the attention of the local press. When asked, “What is going on here?” by a media person, Mancuso replied, “I don’t really know what to call it…we used to incubate
chickens in here, and now I guess we’re incubating businesses”. With focussed efforts to beat downsizing today, the US President Obama symbolises the modern-day Mancuso. Obama’s recent announcement to fund a national network of business incubators to the tune of $250 million has brought the spotlight back on business incubators.
(including financial and legal advice) until the entrepreneur eventually ‘graduates’ or leaves. JUNE 2009 43
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/INSEAD India has over 40 business incubators as per 2007 figures compiled by the National Entrepreneurship Network (NEN). Commenting on their potential to spur economic growth, Pravin Gandhi of SeedFund and governing board member of SINE, points out that, “It is necessary to raise awareness amongst the entrepreneurial community about ‘What Business incubators Do’ and ‘What Incubators Don’t Do’ “.
What Business Incubators Do?
We were working, living, eating with fellow entrepreneurs. There are similar stage companies around you and although each venture is unique in its own right, most of the early stage problems are similar if not the same. You learn from each other's mistakes. And finally, the backing of a corporate group like Nirma gave the venture a lot of credibility— it helped a lot in getting co-founders for my venture. — Govind Agarwal Founder, Anaxee Technologies 44
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Today, these facilities don’t just offer affordable rental space, but also, onsite support services and technical assistance (including financial and legal advice) until the entrepreneur eventually ‘graduates’ or leaves. “The attributes of a good incubator”, as Bhatt of SINE mentions, “are a combination of infrastructure, process and people designed to nurture start-up (with potential of high growth) businesses. Also, the totality of the incubator makes it a network of individuals and organizations from which one sources technologies. That is why you find most incubators associated with academic and research institutes, although there are some private incubators backed by VCs or industries too”.
Key elements of a successful business incubator I N C U B A T O R
Innovation & Entrepreneurship Networks and collaboration Competitiveness Understanding the Roles: PublicPrivate Buy-In Access to resources Technologies Outreach Review: Monitoring and Evaluation
SOURCE: infoDev Asia Regional Workshop 2006
Bhatt summarizes the role of business incubators as, “A shared officespace facility that provides its incubatees with a strategic, value-adding intervention system through mentoring, business assistance and monitoring. Thus new venture development process is facilitated, while simultaneously making ventures aware of major
risks and minimizing the cost of potential failures”. Leo Mavely, founder & CEO, Axio Biosolutions, agrees. He recalls, “I joined NirmaLabs right after my graduation as I wanted to know what it really takes to be an entrepreneur. This much-needed awareness was provided through the 7-month grooming program offered by the incubator. It introduced me to the basics of marketing, finance, legal, technology and team building. This experience came handy when I started Axio Biosolutions after spinning off from the incubator in 2008”. Leo’s Axio Biosolutions was started to provide quality and affordable life-enhancing medical solutions and he is convinced that, “The initial seed fund provided by NirmaLabs to develop a proof-ofconcept gave the much needed financial security to carry out product development. And, access to a wide network of entrepreneurs, technocrats, academicians, suppliers helped me build my initial core team to raise further rounds of finance and find other associates for the company”. Before summing up the role played by the incubator, Leo reveals that Axio’s first product-a medical device dressing to stop profuse traumatic external bleeding- is going to be a first-of-itskind in India. “Dot points to summarize the incubator’s role for me would include Awareness & knowledge about running a start-up, Mentoring, Validation of idea, Funding, Space to operate and Network”, Maveli adds. Anaxee Technologies Pvt. Ltd. is another incubated company, which features in the list of Nasscom IT Innovators 2008 for a new biometrics technology based on vein pattern recognition. Anaxee Technologies has its hands full now developing a product in the Access Control and Security industry. Founder of Anaxee, Govind Agarwal recollects the advantages of being an incubatee, “A committed seed fund from Day 1 built a financial safety net during the initial year of our venture. NirmaLabs helped us concentrate on product development and we weren’t wasting precious time planning for
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/INSEAD office furniture and arranging basic infrastructure. We just got started!” Agarwal lays a great emphasis on the business incubator ecosystem, saying, “We were working, living, eating with fellow entrepreneurs. There are similar stage companies around you and although each venture is unique in its own right, most of the early stage problems are similar if not the same. You learn from each other’s mistakes. And finally,” Agarwal avers that, “the backing of a corporate group like Nirma gave the venture a lot of credibilityit helped a lot in getting co-founders for my venture”. In five years, NirmaLabs has incubated 8 projects, spun off 7 companies of which three have received VC funding. Dr. Madhu Mehta, former Chief Architect of NirmaLabs has valuable tips for incubator managers alike, as he explains, “NirmaLabs had a unique model. The goal was to seek out technically or managerially qualified people with entrepreneurial aptitude and help them become entrepreneurs. We had six months of grooming, to help them understand the nuances of technology entrepreneurship, followed by three months of work put in by them - to explore fertile ground of their expertise, to identify a very good value proposition, build a team with diversified skill set, and develop a full blown business plan (with our help) for a review by independent body of experts, for selection for incubation. Selection implied support for 12 to 18 months, with progress review every six months, full project funding up to Rs 20 lakhs to develop the value proposition to bring it to proof of concept, and association with mentors. Beyond proof of concept, our model expected teams to spin off through external funding”, he says. Dr. Mehta also candidly shares that, “One lacuna we identified was the need for bridge funding to get the project to production ready state with proven beta customers, so that chances of VC funding could be at attractive terms.” What Business Incubators Don’t Do? Applying the rule of elimination, we asked the two graduate clients to look back at their experience to help
deduct what other entrepreneurs like them should not expect to get from business incubators. Agarwal succinctly shared the following self-explanatory pointers: 1. Idea 2. Spoon-feeding on product development 3. A free flow of funds 4. Guarantee for success 5. Solution to all problems 6. Future venture funding 7. Responsibility for any kind of failure Dr. Mehta observes that, “We in India sometimes have a tendency to operate out of “wishful thinking” which can be a cause of mismatched expectations. For example, we expect that since we have enrolled in a reputed school, we must get highly paid jobs. Some incubator clients get confused thinking, “now that the incubator has selected us, it will make us succeed”. While setting expectations right, I often draw a parallel with the US constitution, which guarantees only the pursuit of happiness- not happiness. Similarly, NirmaLabs does not make you an entrepreneur, nor does it guarantee you success. I repeatedly have to say that we facilitate the pursuit of technology entrepreneurship and hence pursuit of success-not success”. Bhatt of SINE has a similar observation to share. “Important thing for incubator graduates to understand is that an incubator will not substitute their core founding team or the executing team. At the end of the day, it is the company, their core team and other functional employees who have to run their businesses”. Asked if a formal orientation program can tackle this expectation mismatch, Bhatt replies, “SINE does not have a written menu of its offerings, and therefore we do not have any onetime formal orientation programme. We address these issues as a process, which begins at the time when a founding team approaches SINE to discuss their ideas/ technologies. Depending
I joined NirmaLabs right after my graduation as I wanted to know what it really takes to be an entrepreneur. This much-needed awareness was provided through the 7-month grooming program offered by the incubator. It introduced me to the basics of marketing, finance, legal, technology and team building. This experience came handy when I started Axio Biosolutions after spinning off from the incubator in 2008 — Leo Mavely Founder & CEO, Axio Biosolutions BUSINESS INCUBATOR: NOTHING TO DO WITH CHICKENS CONTD. ON PG 74 ç JUNE 2009 45
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opportunity/cards
Business of Plastic Cards A gradual shift of transactions from cash to cashless, loyalty shaping up as an effective marketing tool and an evergreen demand owing to the regular wear-and-tear, standard plastic cards offer a lucrative opportunity for consideration /Amit Panday
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he 1990s witnessed heavy wallets filled with paper money and coins. With time, the weight was accounted for by the number of plastic cards that became preferred over cash. The use of these cards became so predominant that the volumes have become an industry in itself. Cards have made our lives unthinkably easy. And it is not just our debit or credit cards, but also several loyalty cards for availing discounts at a retail outlet or for swiping at the petrol pump or for the membership of a bookstore or any other club—the list goes on.
The plastic card market The Indian plastic card market can be classified into various categories. Dominated by the banking sector, requirements include commonly used credit as well as debit cards. There are other premium cards as well, which banks issue but only to select customers. According to industry figures, there are around 135 million plastic payment cards, which include all debit and credit cards, in circulation. The number of debit cards clearly dominate credit cards, but in parallel, an increasing number of youth shopping with facilities like interest-free fiftytwo-day extension of credit by banks, promise a slow but gradual increase in credit card usage in the coming times. It is believed that there are 27.5 million credit cards in circulation. 48
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The big driver for plastic in the banking sector is debit cards. Banks for some time now have been pushing customers away from branches and toward ATMs and call centers, particularly for lowvalue transactions in order to keep their costs down as their business scales. This is what has driven the increase in debit cards. If you have been using ATMs for some time now, you will have seen a change in profile of ATM users, from the affluent and middle classes to the less affluent and even laborers. In a country of a billion people, there are 27.5 million credit cards. Even if we assume that each person has only one credit card, this is 27.5/1000 = 2.75% of the population. Obviously, the growth opportunity for credit cards is also tremendous. The estimated number of payment cards in India by 2010 is 210 million, out of which 169 million would be debit cards. The average life of these cards is considered to be three years. “Banks are fairly prompt in redeeming credit/ debit cards once they become useless owing to regular wear and tear. Such redemption is usually done at a nominal charge of Rs 100 per card,” says Bhavesh K., research analyst (banking sector), Sharekhan. This means that there exists a perennial demand for cards, apart from the regular growing requirements in the industry. In a recent development, ICICI Bank along with mCheck—a mobile payment
DARE/quick points Largest consumption: Banking sector Other major sectors: Airlines, hospitality and retail 135 million: The number of payment cards in circulation in India 210 million: Estimated number of payment cards by 2010 169 million: Will come from debit cards 40 million: Will come from credit cards 27.5 million: Estimated number of credit cards in the country US$ 14.5 billion: The worth of the above 100 million: Multipurpose pre-paid cash card users in India, generated in last five years 100%: Annual growth rate for pre-paid cash cards 550,000–: Frequent flyer base of Air India, each of whom has been issued a frequent flyer (loyalty) card. 120 billion: Worth of oil sold by Indian oil every year through plastic cards 1.1 million: Of the above are cobranded cards with Citibank 1.2 million: Pre-loaded debit cards Recession-hit German brothels are now offering discount and loyalty cards too
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opportunity/cards solutions provider—has announced that it will be issuing mCheck VISA credit/debit cards to its customers. The card can be used to perform transactions like bill payment, payment of insurance premiums, money transfer and buying air tickets against the customers credit/debit card account. Hence, more of such customized electronic cards are expected to come up and would be a driver to look forward to. The telecom sector also demands heavy requirements of plastic cards. Every new connection sold sells a plastic card along with a SIM card attached with it. The plastic cards in this case are use-and-throw ones. Speaking in figures, India has a wireless connection of base of more than 300 million. Then there are loyalty cards that can be either membership cards, exclusive
discount cards or privilege cards. Loyalty cards enable certain services, like a membership discount or other perks to loyal customers that are not offered to infrequent shoppers. The concept of loyalty cards is at a nascent stage and growing. “Most of the loyalty cards are discount cards in India, whereas [usually] a loyalty card is not just merely a discount card. It offers various other privileges to its customers that are not available otherwise. Like an airlines loyalty card offers a status of being a preferred flier, access to VIP lounges across airports, free magazines and other publications and many other services,” says Rajesh Ghatge, executive director and COO, 141 Sercon. Retail is an emerging sector issuing loyalty cards to attract customers. Hence, a loyalty card from a bookstore
Types and uses of cards Magnetic swiping banking cards (credit cards, debit cards, insurance cards) Loyalty cards (promotional cards, membership cards, discount cards etc) New mobile connections (use-and-throw plastic card attached with a SIM card) Cash cards (ItzCash cards, Done cards) Corporate identification (electronic swiping cards etc) Smart cards carrying information (driving licenses, green cards, passports etc) Cash-cum-loyalty cards (i-mint)
Opportunity Areas Card manufacturing Card design Card printing Laminating Embossing and encoding PIN generation Pre-paid cash services can offer discounts on purchases, space for unlimited reading hours and other rewards. On the part of companies, it is noticed that they are using loyalty cards as a strategic marketing tool to lure the customers into repeated purchases from the same brand(s). For example, some ICICI Bank debit cards are co-branded with Hindustan Petroleum (HP), while some Citibank cards are co-branded with Shopper’s Stop. The benefits of co-branding are two-fold. From the issuer’s perspective, the cost is shared amongst the brands participating, along with an increase in their reach. For customers, the number of offers increase with two or more than two brands on a card, while brand attraction and loyalty builds up trust. Hence, a loyalty card holder of a multiplex would like to make repeated visits as he or she is offered many other services in the form of hospitality beyond the movie watching experience. This trend is picking up as both customers as well as companies are maturing with time owing to the acceptance of these privilege or loyalty cards. Due to the convenience they provide, pre-paid cash cards have also gained a lot of popularity in the last few years. Cash card companies like ItzCash and Done Cards have seen their membership base grow in leaps and bounds in recent years. They function like any regular pre-paid card that can be used in making purchases at discounted prices till the time the balance falls to zero. The biggest advantage is that they can be found at any local retail multi-utility shop. “Multi-purpose prepaid cards in India have more than 100 million users,” says Naveen Surya, managing director, ItzCash. “This user JUNE 2009 49
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opportunity/cards
Growth Drivers Low penetration of plastic card services Penetration of retail banking Penetration of organized retail Local availability of pre-paid cash cards Safety and convenience
stream service of its kind when it was introduced in 2006. Another example of cash-cum-loyalty cards would be smart cards. Some such cards are the ones issued to daily users for commuting in a local or a metro train. These are pre-paid cash cards that provide daily commuters a preferred status through redundancies like the daily queuing up for tickets. Amongst other categories from where the requirement of plastic cards come are government traffic departments, as well as private and public companies. Driving licenses and green cards have transformed into the shape of plastic cards, while same kinds are used for corporate identification in companies.
Short life of plastic cards Privileges offered on loyalty cards
Manufacturing cards
Use of plastic cards as a marketing tool
There are certain industry technical standards that are followed while manufacturing these plastic cards, such as flexibility, flammability, toxicity etc. Roughly, there are four stages involved in the manufacturing and customization of plastic cards. First, printing is done on big plastic sheets, which in itself is of three types—digital, offset, and screen printing. Second, lamination work is done through heating. Third, punching the big plastic sheet into small pre-designed card sizes, followed by embossing and encoding work for customization. The equipment used in the cardmaking business are expensive and usually imported from Japan or Italy. A screen printing machine would cost Rs 1 million onwards, while a digital printing machine would cost Rs 15 million onwards. A laminating machine starts from Rs 300,000 and can go up to Rs 50 million depending on its size and capacity. A standard punching machine costs around Rs 2 million. On the other hand, there are equipment available that can customize a blank white plastic card in no time. These card printers come for around Rs 200,000. A card used for banking purposes would be having an entirely different make-up as compared to one used as a smart card while commuting in a local train. The difference can be in thickness (in microns), magnetic striping, design
Upgradation of technology base is achieved with limited services offered by the card companies and in a span of the last five years.” He further adds that the expected annual growth rate in the next five years or so is more than 100% year-on-year. Another recent trend shows an internal usage of these cards at high-end shopping malls. For example, the popular Select City Walk and DLF Place in
Major Players Venture Infotek Card manufacturer, other card solutions Electra Card Services Credit and other prepaid card solutions Done Card Payment card solutions Loyalty Research and Solutions Cash and loyalty card solutions New Line Enterprises Card manufacturer CardTech Card manufacturer and equipment supplier Kapsons India International Card manufacturer Plasto Cards Card manufacturer, security system provider, software solutions 50
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Saket, New Delhi, are promoting the usage of pre-paid cash cards in their food court areas. The food courts issue pre-paid cash cards to the customers for monetary values like Rs 100, Rs 200, Rs 500, Rs 1,000, and even more. The customer buys a card of a suitable value and then gets them swiped against their purchases. Service charge of 15% are levied if the entire value of the card is utilized. If the value is not completely utilized, then the remaining amount is returned without any services charge. Cash-cum-loyalty cards have also picked up in recent times. The i-mint card from the ICICI Ventures-backed Loyalty Solutions and Research (LSRL) is one such example. It promotes loyalty to its members by offering them rewards on the basis of points earned on their purchases. Hence, it is an investment-driven reward program that encourages the card holders to purchase more. They have a network of merchants and participants at the national and local level, all connected to gain customers. i-mint gained popularity in no time owing to its association with ICICI Bank, Airtel, Hindustan Petroleum, Air India, Make My Trip, Lifestyle and more, and was the only main-
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opportunity/cards and embossing etc. Usually, the entire manufacturing job is taken care of by the manufacturer themselves, who is also the card issuer to demand sources like banks and companies. But at times some of it is delegated to smaller players who are specialists in their services, such as punching large plastic sheets into small-sized cards, card design or embossing, PIN generation etc. Hence, there are opportunity areas surrounding the plastic card industry, including end-to-end solutions for the management of card transactions.
Growth drivers The demographics of India stand to play a crucial role in the forthcoming demand of plastic cards. Banks rapidly expanding their operations into even smaller towns with retail banking take the lead in promoting the use of debit/credit cards aggressively. Recent reports claiming that debit cards outnumber credit cards substantiate the argument. As Surya puts it, “Despite a penetrating growth in the consumption pattern of these cards, when it comes to payments in credit/debit cards, they are used only for close to 3% of retail transactions by the consumers. The remaining 97% retail transactions are done in cash.” These figures show the scope of the expanding use of plastic cards in the future. The local availability of pre-paid cash cards is another crucial growth driver. “Locally available mobile connections, tolls and transit passes and DTH subscription cards are specific to
Challenges Numerous local manufacturers Violation of industry standards in manufacturing at the local levels Inferior quality plastic cards imported from China Low average expenditure per card Absence of technological support for e-transactions in smaller towns and rural areas Credit card frauds Low usage of debit cards in smaller towns
their respective industry segments, but are widely adding to the usage of plastic cards even further,” adds Surya. Digital convergence, convenience and other safety concerns form another interesting factor. With visible socio-economic changes and increasing income levels of the middle class in the country, consumer spending has increased. Also, e-transactions are picking up, driving the use of plastic cards on a large scale with time. A card also offers safety along with convenience to its users who are not required to carry cash in large amounts. On the same lines, use of cards in the form of loyalty or strategic marketing tools by various companies is also being accepted increasingly. Companies luring customers in the form of discounts and other privileges by offering cards are expected to become more prevalent in the times to come.
Challenges Currently plastic card manufacturers are mushrooming at local levels. This has led to a regular violation of industry standards in manufacturing. Also, the market for this industry has a large number of players that import plastic cards from China. According to industry sources, since importing these cards from China is much cheaper, many vendors do that to cater to the growing demand for such cards. Usually cards imported from China are inferior in quality and their average life is considered to be much less than three years. “Due to the increasing number of manufacturers in the plastic card space at the local level, the quality of the final product is compromised,” says Hemant K. Jain, CEO, Newline Enterprises, a Mumbai-based plastic card manufacturer. “Because of this, other genuine plastic card vendors stand to lose. In my view, the demand for these cards is not increasing at the speed at which the local level manufacturers are mushrooming.” Low average expenditure per banking card is another challenge. The average goes down due to the huge population base using banking services. As against this, only a limited share of
Cash to cashless is still a long journey. Debit, credit, cash and loyalty cards are definitely going to play an important role in transforming transactions. — Naveen Surya MD, ItzCash total banking customers have credit or debit cards with them. Also, customers from smaller towns and rural areas with debit cards in possession still prefer to make cash transactions. On the other hand, the technological support for enabling e-transactions at the point of sale are absent in such areas too. Credit card frauds and low usage of debit cards in smaller towns pose a relatively small threat to this space. However, these challenges will not affect the growth of the plastic card industry. As Bhavesh says, “The economy works in a cyclical manner. During bad phases the risk of default rises. As credit cards are an unsecure loan for banks, interests rates remain high. Banks tend to slow down in offering credit facilities to the customers owing to the exposure of huge risks. These operations regain their previous speed once the economy recovers.” “Cash to cashless is still a long journey. Debit, credit, cash and loyalty cards are definitely going to play an important role in transforming transactions,” DAR E concludes Surya. JUNE 2009 51
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funding/strategy
Nikhil Khattau
Managing Director, Mayfield Advisors Nikhil Khattau is an experienced banker, entrepreneur and private equity investor who has built and invested in companies in India for the past 12 years. At Mayfield Advisors, Khattau focuses on the financial services, retail and consumer services, discrete manufacturing, business services, power ancillary and media sectors in India. Mayfield has closed its first India-dedicated fund of US$ 110 million. 52
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funding/strategy
D
o you invest across sectors or are you focused
We are still looking to invest. The reason we are seeing more
on some?
deals is because more and more entrepreneurs are seeing
We invest across three themes. The first is infrastructure
this as an opportunity, that while people are waiting and
ancillary. We are not going to invest in roads, ports and
can raise money, there is an opportunity for great business
bridges. But we very much believe in investing in the shov-
in a downturn. When there is a slowdown, it is always the
els business, the builders behind all that. So we have done
best time to invest.
that. We have invested in Geodesic Techniques, which is in the infrastructure ancillary business. The second area we invest in is consumer. In this we will
Isn’t it true that during this downturn you are able to get a larger pie for less money?
not look at big-box retail; we will look at niche specialty
If it was purely that, then fewer entrepreneurs would be
retail and we look at consumer services. We have invested
showing interest. The way we look at this is that it is got to
in Genesis Colours, which is specialty retail and we have
be win–win for both the entrepreneurs as well as for the VC,
dome Paymate, which is a mobile-based payment platform.
and if not, then the equation is not there. We are looking to
We have also invested in Bharatmatrimony.com, which is
set a value that is fair for both sides, and where we can build
the consumer sector.
a long-term relationship with the entrepreneur and create a
The third area in which we invest in are globally compet-
value over a period of time.
itive Indian companies. We have invested in a a company called Servomax, which has power-saving and power-con-
What stage of companies do you invest in?
ditioning equipment. We have invested in Tejas Networks,
We are a venture growth fund. We look at businesses that have
which has an optical fiber network. These are the areas we
got traction in the market and now need money to grow.
investor of the month invest in, also because we had experience investing in these
How are your investee companies dealing with
areas, and we understand them.
the slowdown? We have invested in three from the Indian fund. We also
How much of the US$ 110 fund is still lying waiting
have four other transactions in India from our global fund.
to be invested?
I think, by and large, what our entrepreneurs have done is
We have only invested in three deals. So the bulk of the fund
remain careful. From October last year when credit became
is yet to be invested.
difficult, everyone started managing their cash very carefully. We have seen tremendous growth across the portfolio
How have you reworked on your investment strategy giv-
which reflects the underlying situation. If you look at large
en the current economic slowdown?
public-listed companies in India, you have seen growth in
We took a very hard look at our investment strategy, given
the sectors I have been talking about and that is reflected
what is going around in the world right now. The conclu-
very strongly in the size and scope of the companies that
sion we came to is that India still continues to grow. The
we have invested in.
rate of growth may have changed, but if you look at the two of the three deals we have, they are infrastructure and con-
Have you pumped in money in any of your portfolio
sumer. Companies that are in infrastructure ancillaries will
companies?
do continue to grow. Consumer companies still continue
No, we have not. At the moment, the businesses are
to grow. We think our basics are pretty much intact. We are
doing alright.
looking to do as best as we can and its business as usual. What is the minimum ticket size of your investments? Are you still getting business plans and are you open to
Our sweet spot is anywhere from US$5 million to15 million.
investing in the current economic scenario?
We will do smaller than 5 million if we think we can put 5
We are seeing more deals today than we have in the past.
million in a period of time. JUNE 2009 53
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funding/strategy
How long do you plan to be invested in these companies?
quickest has been a month and the longest has been five
We would want to stay invested for three to seven years.
months. It depends on the company, whether it is ready with the information, the stage of the company, how
What kind of returns do you look at?
familier we are with the industry, how ready the company
We don’t have a fixed formula. Depends on the company,
is etc.
growth, stage and potential return. We are a venture fund. We do look at venture-type returns. The benchmark for
How closely are you involved with your investee
venture is typically 3x cash-on-cash return for the fund. On
companies?
the deals, it has to be higher.
We are pretty much involved. We get involved with strategy, hiring decisions, financing decisions, all of them.
What kind of exits do you look at? As a VC you look at this question right in the beginning.
There is a perception that when investors come in, they
We look at IPO, strategic, financial and secondary. We also
try to call the shots. How do you allay such fears?
work very closely with our portfolio companies and entre-
This is why the quality of the management team is very
preneurs in trying to decide what the exit should be.
important. This is because we would never know business better than the promoters. We do not get involved
Isn’t IPO the preferred exit route?
in day-to-day business. Where we get involved is typically
Not necessarily. You might find strategic exit preferable. De-
five areas. One is strategy because we get involved with so
pends entirely on the business. For example, if you have a
many companies on a strategic level that I think this is one
We took a very hard look at our investment strategy, given what is going around in the world right now. The conclusion we came to is that India still continues to grow.
business that is highly profitable but relatively small, you
area where we can add value. Second area is hiring. Three
may never get an IPO for that, but there may be lot of peo-
we get involved with opening doors with relationships.
ple who may be very keen to buy it and are willing to pay
Four we get involved in M&A situations. Finally we get
top dollar for it.
involved in mentoring. Day-to-day running of business is not where we get involved in The best way to allay fears of
How much focus do you lay on the management team
prospective investee companies is for them to talk to our
that is running the company?
portfolio companies.
That is probably the single most critical piece because we are minority investors, the quality of the management team
What are some of challenges that you face in your role as
and the entrepreneur is critical. They got to have the vision.
an investor?
They got to have the ability to scale the business and have
I think the biggest challenge in an emerging market like In-
execution capabilities.
dia is that it is a highly dynamic market, both fast growing and also fast changing. You suddenly get to see competition
How much time does it take on an average from the dis-
that you did not initially think of and get the management
cussion stage to the closing of the deal?
team to change things accordingly. India being a dynamic
Of the seven deals that we have done in India, I think the
market is both an opportunity as well as a threat.
54
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DAR E
Early stage businesses are an engine for innovation in any growing economy. There is a long proven benefit of partnerships that more established companies have formed with such businesses, in order to promote them, provide them go-tomarket channels, development and deployment support, product integration opportunities, and the like. This helps large companies propagate their partner ecosystem, and augment their offerings with the latest innovations, without necessarily having to drive all of it in-house. It also gives them early access to innovations that might be candidates for strategic relationships at a later point in time. At the same time, such partnerships bring immense value to startups who are seeking efficient ways to build and market their products. TiE Delhi, along with Canaan Partners & Microsoft, is pleased to create a forum to connect early stage innovators with potential corporate partners. The forum would provide a platform for corporate partners to familiarize themselves with product & technology development among some of the leading early growth companies in India. Attendance is by invitation only.
Are You Interested? If you are an established company interested in interacting with innovative early growth companies to build relationships with business or strategic viewpoint, send us an expression of interest and we would revert to you at the earliest. If you are an innovative early growth company in internet, mobile, wireless, software domain with more than $1M revenue, send us your brief profile before 10th June 2009.
Write to us at – manish@tienewdelhi.org
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strategy/IT
How to Write a Good Request for Proposal (RFP) When you seek vendors to take on outsourced work on your behalf, it is important that both you and the vendor are on the same wavelength. When you ask multiple vendors to quote for the same project, it is imperative that all vendors are quoting to the same requirements and speciďŹ cations. A well-drafted RFP goes a long way in ensuring that these happen /Krishna Kumar
A
request for proposal or RFP is the modern name for a bid or tender document, asking prospective vendors to bid to provide goods and services, mostly services. The term RFP is used most often in the tech industry. The government and associated sectors still prefer the term tender. An RFP is required when there is more than just price ďŹ xation involved in a deal. Typically, RFPs are sent out for project-oriented work that may involve requirement analysis, design, execution, training, management, upgrades and so on. Most organizations will have to generate RFPs at some stage of their existence. Some may need to do it frequently and some only once in a while. Large and established organizations will have standard formats for preparing an RFP or a tender document. This article is aimed at startups and other organizations that do not generate RFPâ&#x20AC;&#x2122;s routinely, but nevertheless need to create one for that big project.
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When do you need a detailed RFP? You need a detailed RFP when there is a large service component in the offering you are seeking. If what you are seeking is a standard off-the-shelf component like a pump or a bus, then your RFP can be short and to the point, setting out the basic specs and the number of items you need and asking for price quotes. Service elements like customization, installation, training, management, servicing and maintenance, modifications during lifecycle etc introduce variables that different vendors would execute differently using different resources, components and even technologies. That is where you need a detailed RFP. One of the key objectives of an RFP document is to make these widely differing offerings comparable on as common a set of parameters as possible, so that you can make an informed choice. The other key objective, of course, is that you communicate as clearly as possible to prospective vendors, your requirements, reducing ambiguity to the minimum. A good RFP document is one that will clearly set out what
you expect the vendor to deliver and under what conditions and time frames. It will also tell the prospective vendor why you are seeking the goods and services set out in the RFP and what your objectives with it are. This will help the vendor understand your needs better and to align their offerings with that need. An RFP document also sets out your process and time lines for finalizing a vendor and wherever possible, expected budgets. This provides the vendor with the clarity required for how best to marshal his resources and even whether they have the ability and the willingness to take on your project. Finally, an RFP is one of the most detailed communications that will go out from your organization to current and prospective partners. Thus, it is an important tool in creating an impression about your organization in them. To that extent, a complete and well-written RFP that is neatly and professionally presented goes a long way in producing a professional image about your organization.
Before you start writing the RFP An RFP is not something that you wake up one fine morning and start writing. A lot of homework has to be done to understand what exactly is it that you need and what the market offerings are before you start writing an RFP. You need to also understand where all your requirements differ from standard market offerings, because the RFP after all is about filling those gaps. An RFP document is a combination of the technical, financial and legal requirements, communicated well, of your project. So, it is highly advisable that a team of people bring these skills (yes, including English skills) into writing an RFP rather than leave the responsibility to some junior techie (or senior financial expert for that matter).
viding holiday-related services, primarily holiday packages to exclusive destinations. Our website is our primary interface with our customers, who come from across the globe. It has to attract prospective customers, retain existing ones and enable transactions and feedback from them. We expect to do 500 transactions a day at an average value of Rs 10,000 a transaction. We expect to grow this five-fold in the next two years,” is a much better statement of business need and not only tells prospective vendors what your business looks like, but also gives them an idea of the the scale and scope of what they are expected to do, as well as other players they can compare you with.
Step 2. Defining the scope of work and duration Step 1. Defining your business need
Once the business need is defined, we move on to what exactly do you need the bidder to do? Do One of the major pitfalls of an RFP arises out you have a design that you want them to of this combination of needs—techniexecute? Or is design part of what they cal, financial and legal. The document Service elements are supposed to do? Are they supposed could well turn out to be a treatise of introduce variables to create and hand over to you or are technical, financial or legal requirethey expected to run it for you? What ments, leaving out the original reathat different vendors would about training your personnel to son for which it is being crafted —the business need. execute differently using different work with it? And documentation? One of the important factors that So, the first step to writing a resources, components and many people forget to include in good RFP is to define your busitheir RFPs and then end up payness need as clearly as possible. even technologies. ing extra for transferring from your “Create a web 2.0 website,” is short current setup and systems to the new and sweet, but defines no busiThat is where you need a one. Let's say that you are creating the ness need. “Create a website that will detailed RFP RFP for that holiday packages site we enable users to search and buy holijust spoke about. Do you have an existing day packages as well as review them,” is site that has content that has to be transferred equally bad. “We are in the business of proJUNE 2009 57
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will help set your expectations. What level and to the new one? If yes, will the new vendor have caliber of vendors can you afford? You may to do it or will it be the responsibility of want the best in the world to build your someone else? If transferring content A good RFP application. But what if your budgets is part of the RFP, what are the condiallow only for tier-two or tier-three tions for the transfer? For example, document is one that vendors? Third, when you indicate you could want existing URLs to will clearly set out what you a budget, you are giving a clear be preserved so that your search picture to vendors on what your engine rankings and search enexpect the vendor to deliver expectations are and depending gine marketing efforts are not on how realistic your budgets wasted. You may want links from and under what conditions and are, how well versed you are with the outside world to be preserved time frames. It will also tell the the project and its requirements. or otherwise gracefully handled and so on. prospective vendor why Similarly, what is the end point Step 4. Who should be invited at which the bidders role ends? Is it to quote? you are seeking the goods even supposed to end? Is that point This is a very critical question, and and services defined in time or as a milestone or as rather than focus on which names, we a combination of both. For example, “this will focus on which class of players should contract will end with the completion of the be invited to quote. Naturally, you would be new travel portal and migration of all existing content looking for vendors with experience in delivering and links”. Or, “this contract for creating and managing all similar projects. But it does pay to keep a look out for newer technical aspects of a travel portal is initially for two years players with the ability to deliver. Newer players will not and is renewable at the end of that term.” When the bid- only give you better pricing, but will also be able to devote ders role ends, whom are they supposed to handover to? more top management resources to your project. On the What all are they to handover at such end point? Example other hand, you need to ensure that the bidders are not so “On completion of the project, the vendor is to handover raw that you end up doing their work for them. all management, control and documentation of the system If you decide to invite bidders from across industry tiers to our internal technology team and get a proper sign off (to take an example from the software industry, if you were from them.” to invite say a global top 3, an Indian top 5, an Indian top 100, a local software firm and a set of freelancers to bid for the same project) you are setting yourselves up for confuStep 3. Defining the budget Many organizations prefer to leave this unstated and to sion, if not disaster. For a small project the top tier players handle this during negotiations. There are benefits to this will not respond (unless there is the carrot of a larger one at approach—the most obvious being that you do not have to the end of it), and for a large one the freelancers just would not be able to scale or provide the organizational spend time and energy figuring out how much the support for. Also, the cost structures and desystem will realistically cost—and the exlivery expectations from these players pectation is that with multiple vendors are so widely different that there can quoting, the quotes will tend to be be no comparison between them. around a figure that is the actual Depending on the complexity market cost for the project. But of your project, your budgets sometimes, this can go crazy. I and your service level requirehave seen responses to RFPs ments, you need to choose from similar vendors that the appropriate tier of venvaried by as much as 90% in dors to bid for your project. the quoted prices! Another thing that you need There are other arguto keep in mind is that large ments too in favor of at least vendors tend to subcontract defining a budget if not actuparts, if not all of the work, ally stating it in your RFP. The and could end up just doing first of these is that the more project management. In many you investigate the market to complex projects, including inarrive at a realistic budget, the frastructure projects (buildings, more your knowledge about potenroads, bridges, ports, software infratial offerings, vendors and their costs. structure etc), you many not have any This helps you subsequently during the other option. negotiation stage. Second, this investigation
An RFP has 5 key elements
Overview and scope of the project Vendor qualification
Technical and functional specifications
Financial considerations Legal framework
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Key elements of an RFP An RFP has five key elements 1. Overview and scope of the project 2. Vendor qualification 3. Technical and functional specifications 4. Financial considerations 5. Legal framework We will now examine each of these in detail.
Overview and scope of the project This is where you tell a prospective bidder about yourself, your business need for the project, an overview of what all it entails and the expected deliverables from the vendor and the project itself. As this section is about you, it is easy to get carried away, filling it with irrelevant achievements, awards and biodata of key personnel. Desist. For all that you can provide links to your website. Keep this part simple, elegant and to the point.
for evaluation of their technical bids. Vendors whose technical bids pass muster will have their financial bids evaluated and the lowest bidders will then be called for negotiations. Or you could say that all bidders who bid and qualify will be called on to make presentations about their solutions and for negotiations. Or you could, in cases where the technology is the same and is being defined as part of the RFP, say that only the lowest bidders will be called for negotiations and so on. In response to this section, the vendor may choose to do what you were told to desist from in the previous section. Some vendors will try and kill you by the sheer weight of material they provide to prove their credentials and suitability for the project in hand. The way out of having to wade through all that is to ask specific questions in a questionnaire format.
Technical and functional specifications
This is the core of your RFP and will in all probability be the largest section. There is always a debate on how much to disclose. I am This section sets out what qualifications are required in a vendor who wants to bid for your project. Given that in personally on the side of disclosing as much as possible, so most cases you are going to be inviting selected vendors to that there is no need for back and forth communication, with different bidders getting different bid, do you need a vendor qualifipieces of information and no room for cation section? Yes, of course. Even over provisioning or under provisionif all vendors bidding are known to ing, both of which will work to your you, you may not know their cadisadvantage. pabilities for the current project. It is possible that you are defining So, it is essential to set out the rethe technologies, the designs and the quired vendor qualifications. You loads and asking the bidders to exemay need your vendor to prove the cute according to design. It is possible ability to take on a project of this that you are providing one or two of scale or show expertise in having these elements and asking the bidders handled work of a similar scope. to create the rest as part of their bid You may need your vendor to have or the project itself. The less the infora certain financial size (turnover mation you provide at this stage, the for the last three years or number more the confusion and the more the of permanent technical and project variety of options you will get, leadexecution staff ) or to be located in ing to confused decision making. For a given geography. You may ask for example, if you just specify that you a list of previous similar work and want a road made from point A to for references from past clients. An RFP is a point B, different vendors would asYou may also set out disqualificasume different material—mud road, tions, if any, for example, vendors combination of the gravel road, concrete road, bitumen who work with your competitors surfacing, different loadings—single should not bid. technical, financial and lane, double lane, six lane and even In this section you should also different distances, leading to comspecify as clearly as possible how legal requirements, plete confusion in decision making. you will go about choosing whom So, in this case, you need to provide to award the project to. You could communicated well, enough design inputs. “A four-lane bitufor example say that you will follow men topped road is to be built from point a three stage process to shortlist parof your project A to point B as per the alignment given in ties for final negotiations—Vendors who the attached map. This road should be built as qualify as per clauses given are shortlisted
Vendor qualification
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will be made and how the exchange rates will per relevant Indian standards for the followbe calculated, if applicable. You will specify ing loading conditions,” or the actual dehow billing will be done—one time billsign itself in order to get bids that are The way you ing, billing against achievement of decomparable with each other. present the RFP has fined milestones, time-based billing, If you are not in a position to equal monthly payments and so on, provide the design and if the dea big role in the image as also in whose name the bill will be sign is also part of the project, raised and to whom and where it will then enough data should be proyou will be creating about be submitted to. vided so that all bidders design the level of clarity and You also need to set payment exto similar specs. “The current pectations correctly—for example, expected load on the website for professionalism in your "payment will be made 45 days after holiday-related services is 5000 receipt of your bill at our office, subunique visitors per day. We expect organization ject to defined project milestones being 500 of these to transact at the site achieved.” You may also want to specify how and each transaction to have an average you will make the payment—By cheque payvalue of Rs 10,000. In two years, we expect able at par, by bank transfer, by bankers cheque, by these numbers to go up five times.” In case you are just providing the data required for de- charge to a credit card and so on. In case of cheque or draft, sign, then you need to ensure that all the data required for you could even go to the extent of setting down the mode of design is provided. In the holiday website example, are you delivery—“Cheque in the name of vendor will be couriered going to host photos and videos of the destinations? How from our office within 45 days of clearance of your bill by many? What size? How many downloads do you expect? Are the projects division.” SLA penalties are also defined here. Actual SLAs may be you going to be doing newsletters? How many? At what frequency? In the example for the road, what is the rainfall in defined as part of the technical specifications. If you are not the area like? Does the area experience flooding? How many very sure about it or if there is a wide variation amongst vendors quoting for the project, you may leave it to the vendor bridges of what span and class is required and so on. Functional specifications is another set of inputs you to define SLA terms and penalties for breach. In this case, need to provide or explicitly ask the vendor to create. Ba- you have to explicitly state so. "As part of the bid the sesically, this is what the user experiences. In infrastructural lected vendor will define (subject to mutual acceptance) acprojects, this will be the peripheral works—the lighting, the ceptable SLA levels and penalties for breach of the same.” It is the rare project that stays exactly to originally paints, the embankments, the landscaping, the sidings, the landings and so on. In software parlance, this is called the stated work. There is no way you can estimate beforehand URS or user requirements specification—the screens, the all that is required to be done. Variations will happen as the project gets executed that will take the deliverables navigation, the work flow and so on. As part of the technical specifications, you will also indi- from the vendor beyond what was agreed to initially. In cate the tests that will be done at various stages during the the software industry, they even have a nice term for this project, including the final acceptance tests. In infrastruc- —change request. A change request means extra billing tural projects, these by themselves can become a volumi- for the vendor. And if your RFP and project documents are not carefully done, the vendor could actually make a killnous appendix. Another important element to be defined here are the ing out of such change requests. So, if your RFP includes service level agreement (SLA) levels. These will obviously the project deliverables, you have to ensure that at least vary on a case to case basis. You should also define how 85-90% of your needs are covered. Equally important, the these SLAs will be measured—usually by third-party meas- mechanism for arriving at the costs for such change reuring agencies or tools or by tools to be provided by the quests and for future additions and deletions will have to vendor. Penalties for breach of SLAs are detailed along with be part of the RFP. It can be as simple as stating that this mechanism will be worked out during actual negotiations other financial parameters. (and remember to actually do so) or you can set out the actual mechanism for doing so. Financial considerations If you know for sure that there will be some future addiThis is the place where you ask the bidder to quote his price. Depending on the complexity of the project and the dis- tions/modifications, but are not sure about the quantum, crete elements involved, you could ask for a break up of the then you should ask for unit price quotes for each of them. If brought out items and services are a major compoprice for the different elements of the project like design, training, management, break-fix and so on. Besides just the nent of your project costs and if the vendor is doing nothprice, you will specify many other related issues in this sec- ing but buying and supplying them, then, you need to take tion. Given the global nature of companies, you may need a hard look at how to cost for them. Remember that for all to specify the currency or currencies in which payments brought out items, the vendor may be adding a manage60
JUNE 2009
strategy/IT ment fee and on top of that there a service tax (which may be offset-able). That brings us to that inevitable item—taxes. Taxes can be a significant add-on to your project costs. So, your RFP has to be clear on whether the quoted prices are inclusive or exclusive of taxes. In the case of multi-country transactions, this could get even more complex.
DARE.CO.IN
Presentation
The way you present the RFP has a big role in the image you will be creating about the level of clarity and professionalism in your organization. A wellwritten and professionally-presented RFP is easy to create. Just follow these steps. First of all, the RFP should be neatly divided into the five sections defined earlier (though not necessarily in the same order) with elements of one not runLegal framework ning into another section. Thus, RFPs (and their response) for parts of the technical or financial large and complex projects, requirements should not come like say the outsourcing of a under, say, legal requirements. telco’s network provisioning Second, identify each clause or management for a decade with a heading that clearly states will have legal clauses runwhat that clause is about and ning into hundreds of pages It is the rare uniquely number each clause attached to them. Even if your and sub-clause so that vendors project is no where as comproject that stays can easily refer to an item by plex, it is still desirable to have exactly to originally stated clause number rather than quote a basic legal framework includit back in full. ed in your RFPs. This could be work. If your RFP and project Provide a table of contents right as simple as stating the effecin the beginning, listing each item, tive jurisdiction—“All disputes documents are not carefully its clause or sub-clause number arising out of this project shall and the page number. Most modbe subject Indian laws and done, the vendor could ern word processing packages to the jurisdiction of the High actually make a killing out can automatically create a table of Court of Karnataka.” You could contents for a document based on also provide for dispute resoluof changes in scope styles you apply to headings. Enable tion mechanisms and arbitration page numbering in the document so that methodologies as may be required. it is easy for anyone to navigate through the Non-disclosure agreements are also clauses and sub-clauses of your document. part of the legal framework. If you are disclosing Provide enough clear space between sections and clausproprietary or confidential information in the RFP itself, then a non-disclosure agreement about the contents of the es for understanding. Ideally start a new section in a new page and if a new clause is starting at the end of a page, RFP should be signed before the vendor receives the RFP. You should include information on how the contract can move it to a new page. Create a cover page (first page) that sets out what the be terminated during its course and what is expected of the vendor in case the contract is so terminated. This could in- RFP is for. For example, “RFP for building a holiday packagclude handover of all project documentation and other ma- es web portal and maintaining it for a period of two years,” and the name of the organization sending out the RFP. The terial, transfer of project administration to a new entity etc In some instances, an escrow agreement will be part of first page should also give the name and contact details of the legal framework. Escrow agreements come into the pic- the person to be contacted for clarifications and the procture only when there is a maintenance obligation on the ess for submitting bids. You could also indicate your budget vendor. An escrow agreement is about entrusting proprie- on the cover page. Finally, documents tend to get distorted when opened tary vendor information relating to the project, like designs, source code, list of material used etc required to keep the in a different word processor or even a different version of project up and running, into the custody of a third party. word processor. So, it is preferable to send out the RFP to This information will be released to you if the vendor ceases the vendors as a pdf document. Most word processors can to exist or is otherwise unable to fulfill their obligations un- save to pdf format or you can use software like primopdf DAR E and print your document as a pdf. der the contract. JUNE 2009 61
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/going global
Doing Business in Mauritius It only takes three days to form a company in this island nation, thanks to a number of investorfriendly reforms on taxation, residency, and labor, making it a good place to do business /Vimarsh Bajpai
B
etting big on Mauritius’ potential as a medical tourism destination, Fortis Healthcare, a leading hospital chain, made a significant buy earlier this year. The Indian company, in a tie-up with CIEL, a Mauritian firm, picked up a controlling stake in Clinique Darne, the largest private hospital in the island nation. A couple of months after the deal, the buyers announced big expansion plans for the hospital and pledged to improve the quality of service. The occasion was marked by the presence of Mauritius’ prime minister, Navinchandra Ramgoolam, whose government has taken significant steps in the last four years to make the country a more attractive destination for foreign investors. Four years ago, when the country’s dominance in sugar and textiles started to dwindle, the govern-
62
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ment was quick to unleash a host of reforms to boost the economy. The government’s efforts have been bearing fruit. According to the World Bank’s Doing Business Report 2009, Mauritius improved its rank by five places over the past year to land at the 24th position on the overall parameter of doing business. It ranked first among African nations on the doing business indicator. No wonder then that a number of Indian companies across sectors have made a beeline for Mauritius, making the most of the country’s liberal business environment. Prominent among these are the Binani Group, a diversified industrial house, and SREI Infrastructure Finance. The Binani Group is reportedly installing a 0.5 million ton cement grinding unit in the country, while the SREI Group is in talks with the Mau-
ritian government on infrastructure development.
Why Mauritius? “Mauritius has always been a very investor-friendly country, especially for Indians who particularly feel at home here, both socially and culturally, given that a large majority of the population is of Indian origin,” says Baljinder Sharma, director and CEO of Singhi Advisors, the investment banker involved in the Fortis acquisition in Mauritius. Singhi has advised several large Indian firms in the IT services, telecom, tourism, education, healthcare and real estate sectors. In many of these sectors, the company has made its own investments alongside Indian firms. The country boasts of a democratic polity and political stability that contributes significantly to the continuation of
//going going global global
DARE/key sectors n
Tourism
n
Agriculture
n
Manufacturing
n
Medical tourism
n
Information & communication technology
n
BPO/KPO
n
Financial services
economic policies. Besides an educated and bilingual workforce, a highly skilled pool of professionals and world-class infrastructure make it a preferred destination for Indian businesses. While doing business is easy in Mauritius, it is also highly competitive, which experts caution against undermining. “Local entrepreneurs, including a minority of people of French origin, a sprinkling of Chinese, and Gujarati Muslims who arrived on the island over a period of time, have successfully exploited commercial and economic opportunities as they arose. They dominate the tourism, textile, real estate and the financial services sectors,” says Sharma.
Starting your own business This is one of the strongest points that favors Mauritius’ position as an investor-friendly country—the fact that it
DARE.CO.IN What steps has Mauritius taken to reassure investors in these times of economic slowdown? Over the past two or three years there has been a new government. It has taken a number of steps to consolidate the fiscal situation in Mauritius, reducing debt to GDP ratio, reducing fiscal deficit and disciplining government expenditure. On the other hand, a number of measures have been taken to improve the business environment in Mauritius. Taxes have been capped at 15% for corporate as well as individuals. We have liberalized access to Mauritius for professionals. Today they can easily go and live Rajiv Servansingh in Mauritius if they work in the country, Regional Director, Mauritius Board as well as for investors who can settle of Investments in India down in Mauritius rather easily now. All these measures have helped us in containing the effects of the crisis. It is also true, however, that we are suffering. Our GDP growth has come down from 6.5%. We expect it to be 3.2% this year. We have suffered mostly in our export sector, particularly garments. There has also been a slowdown in export of services. This is regarding our tourism industry, where we were having a growth of 10 to 12% yearly, but that growth has slowed down last year to around 2 to 2.5%. What are the new opportunity areas for investors in Mauritius? If you have to make a distinction between emerging and traditional sectors in Mauritius, basically the traditional sector would be agriculture (mainly sugar), tourism and government manufacturing; and in terms of emerging sectors we are looking at BPO, ICT, ITeS, medical tourism, which is leveraging our position in tourism. The fact that we are well positioned in the European market, for example, and what we think would be ideal is to marry this reputation that we have as a tourism destination with expertise from India in the medical field. We think that if you can marry these two, we can have a good medical tourism industry in Mauritius. We are also looking at the knowledge industry. The African market is still very much untapped. Do you think it is one area where Indian entrepreneurs can benefit? What we are selling to Indian companies is Mauritius as a platform between India and Africa. Basically, Mauritius is an African country. Although we are not part of the African continent, we are politically an African country. We are part of the African Union etc. This provides a number of benefits for companies that are manufacturing in Mauritius for exports to Africa. We believe (also my personal belief) that Africa is probably going to be the next big destination. It is one of the untapped areas of the world. How is the tax regime favorable for investors? We have capped taxes at 15%, both corporate and individual. Dividends are not taxable. There is no restriction on foreign exchange movement. These are some of the benefits of doing business in Mauritius. How much does it cost to start a business in Mauritius? In terms of renting an office or renting industrial space, if you compare it to Mumbai, we are certainly cheaper. In terms of industrial space, we are still a bit cheaper than India. Labor costs are a little bit more expensive than India. Although I find that in the past three years that I have been in India, even labor costs there have been going up sharply. Electricity costs are exactly the same in both countries. We have also made things very easy. You can set up a company in Mauritius, wholly owned by Indians, within three days. You don’t have an obligation to have a Mauritian partner, as JUNE 2009 63
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/going global
you have, for example, in Dubai. In Mauritius you can set up a 100% Indian-owned company within three days. This will cost you maybe Rs 4,000 to 5,000.
INDIA-MAURITIUS TRADE
How easy is it to close your business? Nothing in the law prevents you from closing your company. But there is a process that one has to follow. It is similar to firing an employee. Nothing in law says that you cannot fire an employee. The thing is, the law says how you do it and that is all. Is it easy to hire people and lay them off? We have modernized our labor laws. We haven’t had a strike in Mauritius in the last 10 years. The labor market is regulated, but it is not overregulated. You can keep temporary labor. You can also import labor. You can bring in professionals to work in Mauritius. This is something we have made easy. In which sectors do you see more interest from Indian entrepreneurs? I must tell you honestly. In Mauritius in the tourism industry it is our policy to go for the high end of the market. So when we are looking at foreign investors, and given that it is a small island, we want to maximize the use of land on the coast, so we go for big companies. But over the past two or three years, ITC Welcom has set up a company in Mauritius. We have had interest from Grand Hyatt. Big Indian companies like Taj and Oberoi are already present in Mauritius. What are the sectors where you would like to see more action from Indian entrepreneurs? I am looking at ICT, BPO, medical tourism and financial services (we already have Bank of Baroda and SBI; we would like to see some private players too). In the medical space we have done quite well. We have got a number of speciality hospitals that have come up. Fortis has recently purchased a clinic. Education is one of the major areas. Using Mauritius as a platform to have African students to come and have Indian education in Mauritius. The faculty will be Indian, the course content Indian. Are there any sector-specific incentives there too? We have done away with these. We used to have them, but then we decided about three years ago to remove those. We had a situation where corporate tax was 35%, while in some sectors there was no tax, in yet others it was 15%. So we decided it was far simpler to create a level playing field. We have now reduced it to 15% for everybody. 64
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Note: All figures in US$ Million Source: Ministry of Commerce, Government of India
DARE/doing business Ease of
2009 Rank
2008 Rank
Change in Rank
India
Doing business
24
29
5
122
Starting a business
7
8
1
121
Dealing in construction permits
36
37
1
136
Employing workers
64
64
0
89
Registering property
127
157
30
105
Getting credit
84
102
18
28
Protecting investors
11
11
0
38
Paying taxes
11
12
1
169
Trading across borders
20
16
-4
90
Enforcing contracts
76
73
-3
180
Closing a business
70
69
-1
140
SOURCE: World Bank Doing Business 2009 Report
only takes three days to set up a company and you don’t even need a Mauritian partner to start a business. This will cost you around Rs 4,000 to 5,000, says Rajiv Servansingh, regional director of the Mauritius Board of Investments in India. The cost of real estate is lower than that in Mumbai, he adds. The cost of running a business in the country is also competitive compared to that in India.
This is probably the reason that Sinhgi Advisors has “ambitious plans” for itself and its clients to deepen their investments in Mauritius. Besides healthcare, IT-ITeS and the financial sectors, the education sector is also seeing brisk activity. Sri Ramachandra Medical Center is on its way to start a medical college in Mauritius, while the Mumbai-based D.Y. Patil University is DAR E also doing the same.
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Huge Opportunities Remain Untapped in Heli-tourism
opportunity/tourism
Helicopters have generally been perceived as something of use only by the armed forces, political leaders and corporate honchos. This trend is witnessing a gradual change of late. The use of helicopters by religious and leisure tourists have started opening up huge opportunities in the sector /Ambrish Jha
I
magine a verdant countryside, complete with a stream of crystal clear water and no signs of pollution and crowds. You think of taking along your 4X4 vehicle for reaching this place, for you will have to cross hilly terrain and streams of water. But what if your trusty 4x4 isn’t capable of getting you there either? Cut to another scenario. You want to visit places like Haridwar, Rishikesh, Kedarnath and you have only a day to do that. With no option of using commercial flights, it seems impossible. The solution to both problems lies in helicopters. Helicopters have, in fact, become an essential part of tourism in various parts of the world—Australia, New Zealand, the USA, the UK, South Africa and Kenya being some prominent examples. It has, however, remained untapped, or at best under-tapped, in India for one reason or another. This piece is an effort to look into the opportunities that exist in the field of helitourism in India.
Modus operandi Helicopter tourism is in its infancy in India. Bulk of the demand comes from corporate clients. Captain Puri of Air Charters India (a division of Stic Travels) says the demand for helicopters is more from Delhi compared to other metro cities. These heli-tours are most66
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Potential Places (India) North-east
Uttarakhand
Andamans
Lakshadweep
Kerala
Karnataka
Jammu & Kashmir
Goa
Rajasthan
Himachal Pradesh
ly to places like Jaipur, Agra or religious places like Kedarnath and Badrinath in Uttarakhand. “There are people who want to go to Agra in helicopters to see around the city even though it may be cheaper to land at the airstrip there by a plane,” he says. Captain Puri says that helicopter tours in India are mostly overnight trips, where the chopper takes tourists to the destination, makes a night halt and flies them back. Madhusudan Rao of Akinos Flights, Hyderabad, says the demand for sightseeing and returning the same day is also there. Choppers, according to industry sources, can be chartered for anything from Rs 70,000 to Rs 2.5 lakh, depending on the aircraft chosen and the number of hours of flying involved. However, major industry players like Deccan Aviation sell heli-tourism packages of two to three days’ duration for places like Hampi, Belur and Mysore for Rs 2 to 4 lakh. In India, helicopter seats are generally not on sale except in some
religious sectors. One has to charter the whole machine, unlike in foreign countries, Rao confirms. “We sell the complete machine, and do not do business on a per-seat basis as is the case in foreign countries,” says Puri. “You fly one person or four persons, the charges are going to remain the same.” Helicopter packages to religious places like Vaishno Devi and Amaranth are available on per-person basis. A Punjab-based travel company, for instance, offers different kinds of packages on the Katra–Sanjichhat sector for a visit to Vaishno Devi for prices ranging from Rs 1,600 to Rs 16,777 per person. The travel company also claims on its website that helicopter tourists get preference in getting darshan at the main shrine. Helicopter companies do, however, need landing permissions from local administration at every place their choppers have to land. If the helipad is owned by private parties, they have to seek their permission as well. Sometimes clients seek permission for landing at certain places and the charter companies merely provide the choppers.
Types of helicopters Different kinds of helicopters are deployed by charter companies. Rao’s
DARE.CO.IN
opportunity/tourism
Helicopters used for tourism in India Helicopter Bell 212 Bell 206 (Different variants available) Bell 407 Robinson R22 L3 Long Ranger (Different variants available) AS-355F Twin Ecureuil Chetak
Manufacturer Bell Helicopter Bell Helicopter
Capacity 15 7
Bell Helicopter Robinson Helicopter Bell Helicopter
7 2 6
Eurocopter
6
Hindustan Aeronautics Limited
7
company, for instance, uses charters with carrying capacity of two to 12. Deccan Aviation has some choppers that can accommodate up to 14 people. Usually single-engine helicopters are used for tourism purposes as they prove cost-effective. However, the type of helicopter to be deployed on a particular sector depends a lot on the topography—altitude, temperature and weather conditions. Some of the helicopters used in India are Bell 212, Bell 206, L3 Long Ranger, AS-355F Twin Ecureuil, Robinson R22, Augusta, Bell 407 and Chetak.
Potential in India With a diverse topography, India has immense potential for encouraging
and sustaining helicopter tourism. It can be a panacea for various tourismrelated problems for potential areas like the north-east, Uttarakhand, the Andamans and Lakshadweep. Tourists—domestic or foreign—are dissuaded from traveling to these places as a lot of time is lost in traveling alone. In comparison Rajasthan, with lesser diversity, attracts far more tourists. A lot of credit for this should go to the easy accessibility to this state. A surge has been seen in the number of pilgrims to Amarnath, Kedarnath and Vaishno Devi after Pawan Hans company started operating passenger services to these places. Similarly, the number of adventure tourists to India has also started increasing largely because helicopters have made it possible for them to access areas for skiing. Solang in Himachal Pradesh, for instance, has seen an increase in the popularity of heli-skiing (which is essentially skiing in areas not accessible by chairlifts). The Andamans are accessible by flights and so is Lakshadweep. But these flights are costlier than the other op-
tion—of using ships—and is also quite time-consuming. Tourism to these areas can increase manifold if helicopters are deployed. These would be cheaper than air tickets and at the same time, faster than ships. Helicopter tours of the Golden Triangle—comprising Delhi, Agra and Jaipur—have also gained in popularity in recent years. Rao says his company has managed to sell only four to five heli-tourism packages in its eight months of operations. “Demand for heli-tourism comes mostly from corporate clients,” he says. “So far our bulk business has come from renting choppers to political parties and corporate players. However, heli-tourism seems to have immense potential.” According to industry sources, the market size of heli-tourists in proportion to the entire tourist population in the country is negligible. Kerala Tourism Development Corporation started such services in association with Deccan Aviation in 2006. Packages like “Capital by Air,” “Backwaters by Air,” “Around the Hills,” and “Shoreline Flights” were started by another tour company. But
Helitourism: Indian factsheet Most popular destinations Rate of chartering helicopters Rate for Katra–Sanjichhat flight (for Vaishno Devi) Fleet of civilian helicopters in India Market share of helitourism in overall tourism Number of helicopters Karnataka plans to deploy on the Mangalore–Karwar and Hampi–Bijapur circuit
Vaishno Devi, Kedarnath, Amarnath, Golden Triangle (Delhi–Jaipur–Agra) Rs 70,000 to 2.5 lakh (depending on the type and number of flying hours involved) Rs 1600 per person one-way 150 (expected to rise to 600 in the next few years) <1% 20 JUNE 2009 67
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opportunity/tourism
these initiatives failed to attract many tourists. One of the managers working with this tour operator says, “Heli-tourism packages were not financially viable for most tourists. Helicopter tours will become popular once the issue of pricing is sorted out by private players with government help.” He says the market share of heli-tourism in overall tourism is less than even 1%.
Government initiatives The central government has now also lent voice to the cause of heli-tourism in the country. The civil aviation secretary, M Nambiar, was quoted in the media saying that the government of India was contemplating serious measures to give a huge boost to the helicopter tourism sector hitherto totally neglected. He was also quoted recently by news agencies as saying, “The country has great potential for helicopter tourism, but requires just the right impetus to show growth and performance-oriented results.” He said, “Separate corridors for helicopters and helipads in Delhi and Mumbai are on the priority list of the civil aviation ministry. India has a fleet of 150 civilian helicopters in the country as of now, which is expected to rise to 600 in the next few years.” Nambiar did agree that high operational costs were proving a big deterrent in attracting tourists. He talked of making efforts to sell tickets for different helicopter packages in foreign countries. Karnataka has also started working on projects to popularize heli-tourism as its minister for infrastructure development and tourism, G. Janardhan Reddy, was quoted in newspapers saying 20 helicopters would be purchased and put into service in the coastal corridor from Mangalore to Karwar and the Hampi–Bijapur circuit. The minister also said that a heli-tourism project would be launched in the state on the lines of the US-based Grand Canyon tourism venture. The Jammu and Kashmir government is also working on plans to boost heli-skiing in the state.
The future Helicopter tourism may not have kicked off in India the way one would have 68
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Helicopters: A Comparison Chart Helicopters
Price (US$) Operating cost/hr (US$)
Empty weight (kg)
Maximum Maximum Maximum all up weight range cruise (MAUW) (kg) (km) (km/hr)
Robinson R-22 Beta II (single-engine piston)
230,000
112
389
623
333
178
Enstrom F28F (single-engine piston)
310,000 (est.)
140 (est.)
745
1,182
422
180
Robinson R-44 Raven I (single-engine piston)
320,000
165
655
1,091
639
209
Schweizer 333 (single-engine turbine)
900,000
230
568
1,159
574
194
Bell 206 B3 (single-engine turbine)
1,100,000
–
779
1,455
693
204
Bell 407 (single-engine turbine)
2,400,000
–
1,206
2,273
611
246
Agusta 119 (single-engine turbine)
3,300,000
–
1,433
2,726
667
267
MD 902 (multi-engine turbine)
4,000,000
660
1,534
2,841
476
248
EC 155B1 (multi-engine turbine)
7,500,000
–
2,625
4,930
791
265
S-92 (multi-engine turbine)
18,000,000
–
7,670
12,045
1,111
283
SOURCE: www.helicopterindia.com
liked, but all interested parties—the government, private players, tour operators, and aviation charter companies —know its huge opportunities. Private players are discouraged because of poor response from tourists and the reason for their reluctance is the high price of chartering helicopters. Wherever seats are sold on an individual basis to tourists, helicopter tourism has picked up. Religious tours in Amarnath, Kedarnath, Badrinath and Vaishno Devi are a testimony to these. Private operators need to charter their machines on a per-seat basis, but this is possible only when the
government plays its part. Permission for landing should be made liberal and more and more helipads should be allowed to be built. Private players and the government must act in unison to make sure helicopter tickets are also on sale in foreign countries for inbound tourists. Tourists who fear losing a lot of time in traveling to remote areas would then be inclined to consider a visit to India. The number of tourists to India would definitely surge on account of this, not just in already popular destinations, but also in DAR E relatively inaccessible areas.
t t h Ma
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opportunity/media
R
With an ever-growing demand for television content, pampered Indian audiences remain dissatisfied. An existing demand of content from an umbrella of over 450 channels currently, it stands as a lucrative opportunity as even more channels are in the offing /Amit Panday
emember getting up early morning on Sundays to watch cartoon shows like Duck Tales and The Jungle Book on DD Metro? When our fathers and grandfathers would wait for 9 o’clock national news bulletin every night on Doordarshan (DD)? When TV shows like Ramayan, Mahabharat, Karamchand, Byomkesh Bakshi, and Dekh Bhai Dekh have filled our childhood days? Fast forward into the present and we have shows like the Big Boss series, Indian Idol series, Khatron Ke Khiladi, Balika Vadhu, and MTV Roadies. Television airtime is bloating with soaps, news content, advertisements, movies, and the recent favorite – reality shows. With ever-increasing viewership and options at our disposal, content generators stand to gain. On the contrary, time spent per channel is decreasing, thereby increasing the competition between channels to retain their audience.
The Indian media and entertainment Market: Past and present A recent study on the Indian media and entertainment (M&E) industry by
the Federation of Indian Chambers of Commerce and Industry (FICCI) and KPMG estimated its size to be around Rs 584 billion for the year 2008. It is interesting to note that four segments within the M&E industry, namely, television, films, music, and animation, covers an astonishing share of more than 64%. Hence, these four segments account for about Rs 375 billion in the industry. It all started with 1982, the year in which content was presented in color format nationally. The event was the live telecast of the Independence Day speech by then prime minister, Indira Gandhi, followed by the live coverage of the Asian Games on DD held in the same year. It created a furore in broadcast programming in India. To add to that, another “live” coverage of the Gulf War in 1991 marked the entry of transnational broadcasters to India. It was CNN that came to India and became a part of Indian homes. Coverage of the Gulf War showing Iraq’s invasion of Kuwait during India’s early satellite telecast days drove people television-crazy. This influenced Indian
The Business of Production Houses 70
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opportunity/media news services to modernize their facilities, and CNN has in fact lent its expertise to train DD’s news arm, including its international satellite news channel. To substantiate the craze, in 1983, television signals were available to just 28 percent of the population; this had, reportedly, doubled by the end of 1985 and by 1990 over 90 percent of the population had access to television. Present-day biggies like NDTV and TV-18 started as production houses. The former produced a news show by the name of The World This Week. They began lobbying for a slot with DD and their patience paid off. That’s when NDTV made its debut in 1988. The timing was perfect. NDTV’s coverage of Tiananmen Square and the fall of the Berlin Wall was pathbreaking in Indian television reporting and gave it brand recognition. That got them a slot for a daily news bulletin and big sponsors such as the Tata Group.
DARE/quick facts The size of the Indian media and entertainment (M&E) sector was Rs 584 billion in 2008. Around 64 percent (Rs 375 billion) of the Indian M&E industry is occupied by four segments, namely, television, films, music, and animation. A production house can produce a television show, an advertisement, social and corporate documentaries, feature films, animation, sports shows, etc. International media house CNN was behind the “live” telecast of the Gulf War in 1991 in India. Broadcast programming in colored format picked up with Indira Gandhi’s speech on Independence Day in 1982 and the Asian Games conducted by India the same year. In 1983 television signals were available to just 28 percent of the population; this doubled by the end of 1985, and by 1990 over 90 percent of the population had “access” to television signals. NDTV and TV-18 were production houses when they started. Currently, Indian audiences watch over 450 channels. According to industry estimates, there are applications for more than 150 new channels lying with the government for approval.
Later NDTV produced India’s first live televised coverage of the country’s general elections which increased the viewership rapidly. The change in the country’s televised media was welcomed. What’s more, as foreign broadcasters such as the BBC and Star TV looked to expand their operations in India, they turned to NDTV for content. India’s face-off with liberalization was hand in hand with the revolution that had begun in the broadcasting media. The diversification in the telecast content along with the penetration of the cabling facilities increased viewership in leaps and bounds. The year 1991 witnessed the launch of Star Plus, while Subhash Chandra made his entry with Zee the very next year. This was followed by Sony, Asianet, and Sun TV for programming across the country. These power houses soon realized that entertainment programs were occupying the centre stage in programming strategies, and advertising had come to be the main source of funding. TV-18, another production house of those times and the biggest media conglomerate currently in India, started off with an entertainment magazine named The India Show in 1993. Star provided them with this platform. In no time, TV-18 became a leading content provider to almost all the major satellite channels such as the BBC, Star Plus, Sony Entertainment Television, Zee, MTV, and Discovery. From two channels prior to 1991, Indian viewers were exposed to more than 50 by 1996. Software producers emerged to cater to the programming boom almost overnight. Some talent came from the film industry, some from advertising, and some from journalism to fill in the places required. Currently, with more than 450 television channels at our disposal, Indians are said to be the most pampered audiences in the world. According to the industry estimates, there are another 150 applications lying with the government for approval.
What is a production house? A production house is an organization
that looks after the pre- and post-production needs along with the shooting set-up. A production house can be involved with the production of content like television news, television soaps, commercials (advertisements), social and corporate documentaries, feature films, reality shows, animation, music videos, and sports footage. A production house not just caters to the content demanded within the M&E industry, but also to high-profile personal or public media events and functions such as launch parties, fashion shows, awards, and ceremonies. A wide spectrum can be seen in this space with name like UTV generating content from news to commercial flicks. On the contrary, not to forget the houses like Kapoor Studios from the city of Kanpur, which work for the local schools and NGOs while making motivational films for them. An amateur can start a production house with just a handycam and a personal computer with reasonable configuration. To start with, Adobe Premier Pro can prove to be quite handy as an editing software. Setting up facilities for a production house can cost from a few thousands to millions of rupees, with no end to the complicated equipment and software available in the market. Currently, given the market situation, the business of a production house can be operated in roughly three formats: 1. A self-owned production house with adequate facilities and manpower in place: This includes big players like UTV that cater to all requirements of producing news content to commercial movies. Reliance’s Big Entertainment and Pyramid Saimira are among others. 2. Equipment partly owned and other requirements outsourced: This includes a model where some part is produced in-house while rest is outsourced with hired equipment and manpower. For example, the Delhi-based Purple Line Productions hires the studio space of A.K. Studios for its production work on a regular basis. JUNE 2009 71
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opportunity/media Challenges High cost of setting up Less growth in TV advertisement revenues Lobbying for the slots with media houses Manipulated figures of cable subscribers
Opportunity Areas Animation News content Music Feature films Social & corporate documentaries Ad films Sports content Television content like daily soaps, reality shows, adventure shows, etc. SOURCE: Various reports
3. Complete outsourcing: This model includes production work done with all the equipment and manpower outsourced.
On the other hand, when the channel approaches the production house, they come with broad ideas. The latter then gets back to them with details on how the idea could be carried out with respect to pre- and post-production work, including shooting schedules. Depending on the inputs received, both the channel and the production house sit together to formulate a mutually agreed concept and the route to carry out all activities. “But there are times when we do informally pitch for ideas too,” says Gautam.
Trends in production of content How does a production house get business? It is usually a two-way business. Either the production house approaches the channel with their idea, or the channel approaches the production house with the job role grossly defined. The latter happens if the production is known by the people in the industry. For new entrants it is likely that they pitch their ideas to the channels and other broadcast media owners. “The process of building and establishing a name in the industry takes years of dedication and hard work. It only happens once you are recognized with the kind of work you have delivered,” says Amitabh Gautam, owner, Dream Catchers, a Delhi-based production house that has produced travel and food shows such as Around The World In 85 Plates, Lock, Stock and Two Smoking Tikkas, and Chakh Le India, for NDTV GoodTimes. They have also produced shows for National Geographic. 72
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According to the recent FICCI–KPMG report, the Indian M&E industry is set to experience a compounded annual growth rate (CAGR) of 12.5 percent between 2009 and 2013. Within the industry, segments like television is set to witness a CAGR of 14.5 percent; film production, on the contrary, is expected to see a CAGR of only 9.1 percent, while the music segment is expected to grow by 8 percent during the same period. On the other hand, production of animation content is expected to grow at a staggering CAGR of 17.8 percent. “Television in itself offers a humongous scope for good content,” says Gautam. “I am bullish about sports content, adventure sports and the reality shows.“ Recent developments show that there is a huge demand for news content catering to the many news channels that have popped up over a short period of time. Many regional news channels outsource the generation
of news content to local production houses. Such production houses produce city-specific news content and sell it to these channels. This not just saves huge networking costs for these channels, but also works as a source of revenue for local production houses. On the other hand, the format of reality shows has been so well accepted by the Indian audiences that today we have an entire channel dedicated to such shows running 24 hours a day. General entertainment channels (GECs) have mushroomed in huge numbers, and their content needs have to be fulfilled. The robust growth in the number of production houses and in the sizes of already established ones is a clear-cut indicator of the same. For example, Miditech, one of the biggest production houses in India, generates and produces shows for various channels ranging from shows for children like Galli Galli Sim Sim to reality shows like Indian Idol 4 and MTV Roadies, to soaps like Saara Aakash and others. On the other hand, sports content dominated by cricketing leagues like Indian Premier League has emerged as another huge opportunity. Even in times of recession, there is no dearth of sponsors lining up for the event and channels for telecast rights. Another trend noticeable lately is that due to the stiff competition in this space, almost all the production houses have started delivering content of different nature, like a social documentaries or ad films. A “never-sayno” culture has developed amongst these production houses who claim to deliver everything under the umbrella of production activities, even animation, which requires a completely different set of skills and equipment.
Growth drivers The biggest growth driver in the demand for television content is narrow-
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opportunity/media Growth Drivers Narrowcasting Regionalization Internationalization Digitization Organized funding Liberalizing foreign investment regime SOURCE: Various reports
casting. Low media penetration within the interiors, combined with the growth of niche segments within the sector is an indicator of untapped potential. From news content growing into niche spaces like regional news, sports news, entertainment news, and business news to television shows turning a completely independent platform for reality shows into a full-fledged channel shows an unquenchable demand for content to be televised. Apart from narrowcasting, regionalization is another factor consistently demanding more content. It has led to the increased use of local and regional languages. Hence, in the interiors of many states news content to general entertainment programs in local languages are viewed more than national shows. For example, regional channels in eastern Uttar Pradesh areas have come up with a local language Bhojpuri segment. The language in itself has established a market for content generation. There are general entertainment shows produced, feature films made, and other talent shows being made that are telecasted nationally and are doing very well. Regionalization has led to the penetration of media and a craze for entertainment programs to such an extent that we have city-specific entertainment and news channels. All big broadcasters have channels in local languages, like Zee Gujarati, Zee Marathi, Network 18’s Marathi news channel, IBN Lokmat, and more. Strangely, on the other hand, internationalization is also a big growth driver for the Indian media industry. Media companies are looking beyond national boundaries to generate revenues. This is evidenced by the large Indian popu-
lation that lives in foreign countries. Feature films grabbing significant share from overseas markets is a healthy sign that television content from India is in demand. NDTV Arabia and NDTV Malaysia are some examples. Finance and funding options have become relatively more organized than before. With the government relaxing foreign direct investment (FDI) norms, the industry has witnessed increased investment from various sources. FDI in both film and advertising segments is permissible up to 100 percent in the automatic route without any other conditions. Meanwhile, even corporatization has picked up within the industry, with already established giants buying out stakes in other media houses. Digitization as a factor cannot be ignored as a growth driver. It has directly resulted in a better viewing experience. Major beneficiaries have been television, movies, and music. Conversion of analog into digital has reduced the costs by huge margins, inversely pushing up the number of copies or prints released in the markets, and hence working actively against the piracy of movies and music. Penetration of DTH and IPTV is further strengthening the organized distribution of television content. Thus, factors like increased access to television programs and better quality streaming is going to push up the average daily time viewers spend watching television.
Challenges Not many challenges stand in this space at the grassroots level apart from
Emerging genres across sectors Sector
Niche genres
TV
Programming Reality television Talent hunt Game shows Mythological shows Channels Lifestyle Spiritual Children’s channels Entertainment news/Page 3
Film
Low-budget movies Horror and children’s genres Remakes and sequels Movies adapted from books
Animation
Mythological themes
SOURCE: FICCI-KPMG M&E Industry Report 2009
the fact that setting up a production facility might require some costs to be incurred. Lobbying for ideas with established media houses can be another let down. According to an industry source who wished to remain anonymous, lot of references are used while offering content or lobbying for slots. At the macro level the slowdown has gripped the entertainment industry as well. With companies cutting costs and their advertising budgets going down, the sector is undoubtedly feeling the effects. Apart from advertisement revenues, another major source of income is from subscriptions. Broadcasters would face losses if they did not receive revenues for providing services to the masses. Hence, the persistent problem of under-declaration of subscribers by DAR E the cable operators continue. JUNE 2009 73
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/INSEAD
ç BUSINESS INCUBATOR: NOTHING TO DO WITH CHICKENS CONTD. FROM PG 45
We in India sometimes have a tendency to operate out of “wishful thinking” which can be a cause of mismatched expectations. For example, we expect that since we have enrolled in a reputed school, we must get highly paid jobs. Some incubator clients get confused thinking, “now that the incubator has selected us, it will make us succeed”
One lacuna we identified was the need for bridge funding to get the project to production ready state with proven beta customers, so that chances of VC funding could be at attractive terms. — Dr. Madhu Mehta Former Chief Architect of NirmaLabs 74
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on their clarity about their potential start-ups and their expectations from SINE, we address various issues on a case-to-case basis. That said, our message to them is very clear- execution of business plan and running a venture is the entrepreneur’s job. Start-ups alone will be responsible for making and selling their products/ services. SINE’s role is to act as a facilitator- provide them business advice or put them in touch with the right set of the people who will help them in their venture, but SINE can not manage their businesses”. Reflecting on his past experience as an incubatee, Leo Mavely sets the record straight on three counts. “You have to have a feasible idea and a team in place. You cannot expect those from an incubator.” Referring to the seed funding received, Mavely carefully spells out a caveat, “Most incubators provide initial seed fund for product development. They don’t provide you the next round of funding required for commercialization. They will, however, connect you to potential investors who might be interested in your project”. And with his initial product development in the life-sciences do-
An important thing for incubator graduates to understand is that an incubator will not substitute their core founding team or the executing team. At the end of the day, it is the company, their core team and other functional employees who have to run their businesses — Poyni Bhatt Society for Innovation and Entrepreneurship (SINE), IIT Mumbai
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/INSEAD MYTHS ABOUT BUSINESS INCUBATORS
….AND THE REALITY
By going to an incubator, success for the venture is ensured
A combination of factors such as quality of the people, products/ solutions or services and the market segment that graduates target coupled with their execution capability will ensure the success. Incubators accelerate the process of the new venture development
Incubators will provide the funding that they need
On incubation, funding does not happen by default. The maturity of the team and their business strategy alone will get them funded. Incubators facilitate (directly or indirectly) the funding process in deserving cases
Incubators are supposed to provide solutions to all the business problems faced by companies
Incubators’ role is that of a facilitator. They provide guidance or direction, business support and access to business network in addition to office space. It is the company that has to deal with various business situations
Find Answers To These Questions Before Joining A Incubation Program
main requiring specialised facilities, Mavely tries to make prospective incubatees aware of limited facilities, which most university-based incubators compensate by providing access to university infrastructure resources. “Besides wet-lab workspace, we needed a common facility of basic testing/characterization/ formulation equipment. And to get regulatory approval, the product has to be manufactured in a pilot clean room facility. These infrastructure requirements are so specific that, most incubators do not invest in creating such facilities unless they have a priority sector of operation. These were not available at the NirmaLabs incubator, but we managed to pull it off by utilizing the infrastructure at Nirma University campus with its technology, life science, pharmacy labs. So we used that workspace for our initial product development. Following that, we relied on contract manufacturing facility of established biotech companies for regulatory purposes.” These observations were effectively wrapped up by Bhatt as she busts a few myths about business incubators.
TRACK RECORD • How well is the program performing? • How long has the program been operating? • Does it have any successful graduate companies and if so, how long have they been in business independent from the incubator? • What do other clients and graduates think of the program? GRADUATION POLICY • What is the program’s graduation policy, i.e. what are the incubator’s exit criteria? • How flexible is the policy? • How long, on average, have clients remained in the program? (Incubators typically graduate companies within three years.) QUALIFICATIONS OF MANAGER AND STAFF • How long has the current staff been with the program? • How much time does staff spend on site? • Have they had any entrepreneurial successes of their own? • Do they actively engage in professional development activities or are they a member of a professional/trade association to keep them up to date on the latest in incubation best practices? SOURCE: National Business Incubation Association (NBIA)
Making the right match: Incubators screening prospective clients must not be a one-way process, according to the National Business Incubation Association (NBIA). Urging entrepreneurs to meticulously screen incubators too, NBIA has worked out a punchy checklist to help prospective incubatees identify the right incubator program. N. N. Shreejith, Govind Agarwal and Leo Mavely found the right match
in their incubators. When it comes to dreams, the three have the unique advantage of counting their ‘chickens’ DAR E before they hatch! With her rich media background, Irawati Gowariker has led strategic communications for the IT arm of HSBC and ANZ in India. Irawati now ‘dares’ to go beyond large multinationals to tell the story of some Indian entrepreneurs. Philip Anderson is INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Centre for Entrepreneurship and Director, 3i Venturelab JUNE 2009 75
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event/report
Flavor of the Month: Online, Analytics and Entertainment The May edition of Startup Saturday witnessed diverse themes, from entertainment to analytics
T
he fifth Headstart Startup Saturday was a three-city event held in the political capital Delhi, the financial capital Mumbai and the IT capital Bangalore. The Delhi event was organized at the American Center and had a mixed attendance of entrepreneurs, professionals and aspirants adding up to more than 50. There were three speakers at the Delhi event—Ankit
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Maheshwari of Instablogs, Saurabh Bhatia of Vdopia.com and Sarabdeep Singh of Fachak, all of whom spoke about their online startups and their entrepreneurial journeys so far. This was followed by an Entrepreneurial SoapBox. This interesting event was on a first-come-first-served basis and five entrepreneurs were invited at random and were given two minutes to speak about their ventures. Then
the floor was thrown open for discussion, wherein the participants shared their problems. The Mumbai event was held at the S.P. Jain Institute of Management and Research, with entertainment as the theme. The first presenter was Sunil Nair of Nautanki.tv—a company that helps people find and enjoy premium video content whenever, wherever and however they want it. Next to speak
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event/report
were Rahesh and Rupesh from Bookmyshow.com. They traced their journey as entrepreneurs and shared the factors that enabled them to witness almost 40% growth from the past year. The next speaker was the much-awaited personality of the day—Gul Panag, one of the first stars from the Indian film industry to have a website. Post lunch, Dale Bhagwaga, a PR professional in the entertainment industry took the
stage. He spoke about his own story, starting as a music reviewer for a local Nagpur newspaper, going on to becoming a journalist and chief sub-editor in Mumbai for Cineblitz and then starting his PR agency 12 years ago. The Bangalore event was a housefull session held at the North Pergola, Indian Institute of Management, Bangalore. The event witnessed a turnout of almost 110 people. The theme be-
ing analytics, there was a mix of young and experienced people from a variety of fields. The talk began with Anunay, who spoke about Marketelligent.com, right from the time they were incubated at the NSRCEL, IIMB. This was followed by Partha from AnalyticsQuotient.com, who are primarily into the FMCG domain. he spoke about how to have a focused approach to basic situations in decision making and how a combination of scientific and an artistic approach leads you to business insights. The next to speak was Kallol Borah, one of the founding directors of Headstart.in. He highlighted the activities of Headstart and described the efforts of the volunteers in five cities of India. After the networking and coffee session, Nitin Godawat from Decidyn and Madan Pandit from Textualanalytics.com spoke about some basic and futuristic topics on analytics. A talk on the incubation facilities provided by the NSRCEL was the concluding event, where A. Suryanarayanan, COO of the center, guided the audience through the activities at the NSRCEL. The enthusiasm of the audience was visible from the fact that the hall was occupied well beyond an hour of the schedDAR E uled completion of the event. JUNE 2009 77
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/overview
Understanding Foreign Exchange Reserves How does a country's foreign exchange reserves affect businesses, with a special focus on India and China /Manu Gupta
F
oreign exchange reserves in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions held by central banks and monetary authorities. They are something like family ornaments—not in regular use, but in case of an emergency (like a currency crisis, for example), they are an extremely good fallback to have. Again, like with ornaments, some countries like China, India, Japan and Korea
keep on accumulating lots of it, while others like the US and UK maintain a steady state, while yet others like Germany have actually seen a decline in forex reserve levels.
ports, payment of interest, repayment of loans and repatriation of investments and profits. The difference stays on to build up the reserves.
Who maintains forex reserves? How are forex reserves built up? Building up of forex reserves is actually a complicated picture, but can be simplified as follows. Foreign exchange comes into a country in the form of investments, payments for exports, loans and bilateral aid among other things. It goes out as payments for im-
The monetary authority and central bank of each country, like the Reserve Bank of India (RBI), the Federal Reserve of the US and the People’s Bank of China, maintain the forex reserves of the country. Then there are other big investment funds that some countries like Abu Dhabi and Singapore maintain. Many argue that these should be included in the forex reserve count. India has also been speaking about setting up such an investment fund.
Why forex reserves?
SOURCE: Department of Investment Services, Taiwan, IMF, RBI and Central Bank of China
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These are maintained primarily to protect a country’s domestic currency from losing its value or, in other words, to avoid a currency crisis. Just like other goods, a country’s currency can lose its value when demand for it falls or when there is excess supply of it. Such a situation may arise when investors do not want to stay invested in that country and want to transfer their funds out of that country or from the currency of that country. For example, suppose due to any reason a foreign investor wants to sell out his equity holdings in Indian companies and want to transfer these funds to the USA. In this case, he or she would convert the Indian rupees received by selling the equities into US dollars. If a large number of investors do this simultaneously while the reverse (fresh investments by foreign in-
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/overview vestors into Indian equities) is not happening, it will lead to a fall in the value of the rupee. Which is to say, it would lead to the depreciation of the Indian rupee against the dollar and there is a net outflow of dollars. Sometimes this depreciation (or need for devaluation) could be large in magnitude. Such instability in exchange rates and loss of confidence in the currency have an effect on the economy. So to avoid such sudden changes and to maintain confidence in the currency, reserves are maintained. Forex reserves are also maintained to achieve some level of exchange rates. These levels are determined based on the policies and objectives of the country. Generally, developing economies, in order to increase exports and decrease imports, try to keep their exchange rates low (so that a given sum of foreign currency can buy more goods from them) and the value of their currency low and in order to do so build up reserves. Forex reserves are generally deployed in low-risk liquid assets having sovereign guarantee. Reserves are often advanced as loans to other countries, other central banks, Bank for International Settlements and highly rated foreign commercial banks. Foreign exchange reserves are also used to manage liquidity in the system.
creased from a mere $19,553 million in March 1994 to $309,723 million in March 2008, and then fell to $253,000 million in March 2009. One of the reasons for such a trend is India’s fundamentals, which made its corporate sector highly profitable and new investment opportunities kept coming up. This attracted foreign capital into the country. The general build-up of forex reserves is also due to the large inflow of foreign investors. These investors come into developing or emerging economies as a result of the increase in availability of finance and credit for investments. The best opportunities were often found in these economies characterized by high interest rate regimes and large profitable/returns. For example, fundamentals and returns in the Indian economy is still far better than many others. The recent dip happened because of the selling of US dollars by the RBI to contain depreciation or fall in value of the Indian rupee. Primarily, the RBI has to do so because of the increasing (negative) gap in the balance of trade. That is, to balance the increase in import costs (mainly because of burgeoning price of petroleum, which peeked in July 2008) given dismal
growth in exports. Selling of equities by foreign institutional investors (FII) also contributed to it. Also, there were outflows because foreign investors who invested in India were required to clear their liabilities or payments and losses abroad made during the ongoing slowdown. In order to clear their losses, funds were arranged from other economies. Capital flight and hence reduction in reserves happen not only due to the needs or policies of the host, but also take into account the supply side, the interest of the foreign investors and their position. Another reason for fall in reserves is the appreciation of the US dollar visa-vis other currencies. This can be explained with the help of the following example. Suppose India has reserves worth $100, half in $ and half in euro. Lets assume for simplicity that $1 = 1. Now suppose there is appreciation of the dollar vis-a-vis the euro and new rate is $1 = 2. Now the reserves that India has will have reduced and would be worth only $75.
Developed countries Developed countries in comparison tend to have lower forex reserves. The reason for not accumulating large re-
Developing nations Emerging and developing economies are racing to attract foreign flows as they are limited. It is done primarily on the belief that this will lead to increase in investments and their ability to import, which would overcome domestic supply constraints in their economy and will insure them against crisis. China has the largest forex reserves in the world. India, Korea and Brazil are also building up huge forex reserves. India’s foreign exchange reserves have in-
SOURCE: Department of Investment Services, Taiwan, RBI and Central Bank of China
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/overview
serves is that their currencies are often reserve currencies themselves and, therefore, are highly liquid, so there does not exist that high a precautionary motive for them. Also these economies have export sectors that are not driven by exchange rates. So they do not have to manage their exchange rates in order to support their domestic industry. However, Japan is an exception to this trend. Compared to the other developed nations, Japan’s dependence on exports is very high. The reason why it accumulates forex and has the second highest reserves in the world after China is to prevent the yen from appreciating, thereby incentivizing its export sector. Also, Japan’s history of having lost two World Wars and having to live with the limitations (particularly on militarization) imposed by its eventual victors may have an important role in this Japanese mentality.
Cost of reserves There are costs associated with maintaining these reserves. Investments made by foreign funds in a country tend to earn much higher returns than what a central bank gets by investing its reserves. For example, an FII coming in earns much higher rates of return by investing in equities, but the government earns only a nominal (or very low) rate of return by investing in debt instruments of other central banks. Forex reserves are kept in highly liquid assets in order to fulfill needs of foreign exchange when it arises. The government cannot invest these reserves in projects or physical infrastructure. So there is an opportunity
cost of holding the reserves. The reserves also impact government policy negatively in the sense that it has to consider the effects of policy changes on its reserves. For example, in October 2007, Securities and Exchange Board of India (SEBI) came up with a new ruling regarding participatory notes and FIIs, but were forced to make necessary amendments because of the threat of FIIs pulling out. There is also another significant management activity, which is referred to in economic terms as sterilization. Suppose an investor wants to invest in India and brings in US dollars. However, in order to buy assets in India, they need to make payments in rupees. So they exchange their dollars with RBI for rupees, which they then put into the Indian economy and purchase assets. In this whole transaction, the quantity of Indian currency (money supply) has increased in the Indian economy. To negate this increase in money supply, the RBI can issue debt or bonds to mop up that amount of currency from the system. This method of reducing the increased money supply in market is called sterilization. However, generally interest rates are relatively higher on such bonds and debt relative to what the RBI earns by investing reserves. Also, partial or incomplete sterilization could lead to inflation.
Impact of reserves on businesses As far as businesses are concerned, in the short run they definitely benefit from larger forex reserves as they can access more liquidity if there is ineffective, partial or no sterilization. Increased liquidity also creates demand in the economy. Due to build-up of
such reserves, volatility in exchange rates is often checked, which provides a conducive environment to businesses. Stable exchange rates allow exporters and importers to engage in futures contracts. Also, the expectation of the currency and the economy being crisis-proof raises confidence among investors. However, this can have repercussions as well. Often businesses are badly hurt when there is a bursting of bubbles in asset markets. Inflation is also not good for businesses in the medium to long run. The government may not also be able to provide adequate support to businesses due to net loss of earnings. There may be cuts in subsidies, investments and other expenditure, which may have an effect too.
China versus India The large reserve position of China could effect Indian businesses in two ways. It may put pressure on the Chinese yuan to appreciate. This may allow an opportunity for the Indian export sector to expand as Indian businesses can tap into the share of Chinese export businesses. Also, in such a situation India could increase its exports to China. However, at the same time Indian importers who are importing from China may be on the losing side. On the other side, such large reserves held by China make it more investment friendly and the Indian economy may not see that much foreign direct investment. Indian businesses in that case may not enjoy linkages that might have come through DAR E those investments.
SMS: “DARE <your comments, questions or suggestions>” to 56677 Email: dare@cybermedia.co.in Website:
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/blog
Brand Conscience
/Rupin Jayal
O
ur conscience is a real irritant. Just when we are about to have some real fun, get some longawaited revenge, show our absolute dominance or vanquish a long-term foe, this little voice kicks in and suddenly the victory begins to feels hollow, the need for revenge gets diluted by compassion and our dominance does not seem so absolute anymore. As we move into a new world, things are changing fundamentally within us and far faster than we can imagine. Apart from a non-white US president, in our own neighborhood the landscape is changing too. The electorate actually gives one party a real mandate, instead of being driven by purely local self-interest or social factors. A longstanding war seems to be coming to an end. Governments that turned a Nelson’s eye to extremists are now pursuing them with what seems to be real intent. Rebels willingly become part of the politics of democracy instead of trying to undermine it. In the rest of the world, “green” issues are beginning to take an ever-increasing role at the center of many economic revival packages. People seem to be tired of unrelenting consumerism fed by debt and what seemed to be an insatiable appetite for the good life. Temperance may just be winning over avarice. It seems as though as the minds of people of the world get more connected, the “conscience muscle” gets strengthened. This muscle may be re-
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inforced by the force of circumstance, the fear of a greater lack of sustainability and a future that seems increasingly unpredictable, but the fact is that the collective mind of people, rather than retreating into isolationism or the politics of race and violence, seems to be veering toward creating a world with a collective conscience. So are brands reflecting this? Are their actions going beyond tokenism while seeking to engage in a very real way with people? This does not refer to intelligent or innovative responses to the current economic downturn or utilizing the move toward green to create products that will appeal to the increasingly vociferous group that is seeking more environmental-friendly solutions to their everyday needs. The question is, are brands actually showing the leadership that they have done in other spheres such as technological advancement and creating new categories where none existed in the area of building a conscience? Brands are no longer just names for things. By their content, personality and actions, brands actually impact a far larger domain than just the aspiration, acquisition and ownership imperatives of people. Media brands represent points of view on the political spectrum. Brands such as Virgin and Apple reflect the social attitudes of those who choose them and not just their aspirations. Insurance brands do not just talk about safeguarding one’s future, but also reflect our social attitudes such as individual versus collective, how we view the future, what we are seeking as people rather than just as consumers etc. For example, ICICI’s approach toward retirement, from being “the golden years” to becoming an escape from the demands of a working life, reflected a change in the way we perceive our so-called “productive” working life and the role of “retirement”—retirement from work, but not from life. However, given their access to knowledge both in terms of technology and
their knowledge about people through exhaustive research, it is time for brands to turn reflection into leadership. Some brands have played that role in the past through innovations that changed the way people interacted with a particular category. Swatch changed the meaning of a plastic watch; Walkman made music very personal; Virgin got people to buy a philosophy first rather than just a product or service; Saturn reflected a different relationship between people and their automobile brand imbuing it with greater honesty, transparency and collectiveness; and Snapple and Ben & Jerry’s provided a contrast to the hyperbole of traditional brand posturing. But all these were usually with reference to category codes or emerging trends amongst large enough groups of people. Leading brands today have access to the kind of information, knowledge, insight and ability to communicate that can enable them to play a much larger role in people’s lives. It isn’t a wild coincidence that the most recent presidential campaign has been compared to the strategy and tools employed in marketing a brand. His use of a pithy and evocative “base line” to encapsulate his “brand promise”, the way channels of communication were harnessed, network marketing methods, driving word of mouth etc are all the tools of the brand marketing trade. Even in India the winning side in the latest political grand prix attributed its success in no small measure to a smart messaging and marketing strategy. Marketing has permeated almost every sphere of life. Even the decisions we make about who we choose to rule us are significantly impacted by marketing methodology. In our lives marketing begins to play a role right from the school stage—in the activities that kids do in school and very importantly, when they try to sell a school initiative or during school elections. Today, we are all brands trying to get the best deal for ourselves in the career marketplace. People increasingly turn to marketing “experts” to help
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/blog them position their businesses, take advice on how to move forward with their careers and understand the emerging economic environment. Possibly, the Keynes and Friedmans of the future will be marketing gurus. Maybe economic thought will assimilate more of the expertise of human behavior that drives marketing that seems to have eluded it so far when it claims that people are essentially rational. Behavioral economics already seeks to do that. Far from the role of marketing diminishing, it is actually becoming all-pervasive and is no longer just the domain of traditional marketers. Clearly, if the role of marketing is becoming more powerful and pervasive, then the role of its greatest creation— brands—should become more impactful in the lives of people rather than just in the domain of aspiration and consumption. If that is the case, then given the challenges we face and the uncertainty of the future, brands need to become beacons of practical conscience. This means, at the most basic level, creating brand conscience keepers who are not tied down by an obsession with quarterly results, but by the welfare and interests of the people who prefer the brand. It means an automobile brand that insists that its owners have the requisite skills to drive responsibly and safely. A food brand that spends a significant portion of its revenue building awareness about responsible eating habits and creates infrastructure that contributes to education even at the school level so its adherents are discernibly healthier than its competitors. It means redefining competition itself. Anyone who watched the most recent season of American Idol would have seen the two finalists as totally committed competitors, but who also exuberantly celebrated each other’s success. When they sang together they complimented each other and created a performance that transcended them both individually. Sure, some would say that this was a competition and not the “real” world, but winning meant contracts, the launch of what could be a hugely successful career, immediate
recognition as an artiste and the leapfrogging of many, many years of struggle. Surely it doesn’t get any more real than this? Yet competition did not mean a gladiatorial contest, but instead it became a celebration of two very different “brands” of talent. So will the brands with a conscience in the future treat competition differently? Will the nature of competition itself change? Clearly, insatiable greed for growth has not really brought long-term stability and prosperity. Enough has been written about the financial sector and the dividend from its greed. Other sectors are saddled with huge over-capacity that may never be utilized. Yet other sectors are increasingly becoming commodified as people see less and less differentiating value. In the future, brands that lead by a fundamental drive to create a more livable world, a world governed more by a conscience than just the economics of aspiration, will be the brands that endure. They may not grow prodigiously quickly, but they will not crash spectacularly either. They will help form public opinion and not merely reflect it. They will shape the future rather than try and predict it. To build a brand conscience there are some principles that should be considered: 1. Measure, evaluate and mediate the real impact of the brand in people’s lives and on the environment. Credit cards deal with expenditure, debt and interest. They also deal with affordability, the management of income and prudence. Credit card brands that truly see themselves as becoming an important part of a sustainable lifestyle rather than as a means of profitably fueling consumerism will have a conscience. Washing machine brands that use water, release detergent, consume electricity can have a powerful role to play in influencing how people treat these scarce or polluting resources. Microwave oven brands that not just encourage, but vociferously proselytize healthy eating with functions, knowledge and alliances with “good for you” food brands to further the cause would be brands with a conscience.
2. Evaluate the nature of competition. Who is your brand’s competition— not just other brands, but other categories as well? Is there room for ‘cooperation’—can alliances be formed so that people benefit? Can, as a start, the waste that cut-throat competition implies be reduced—not just for reasons of economics, but because it would benefit the environment and hence the people who inhabit it? 3. Have a brand conscience keeper— maybe this is the role for the head of the company. This role implies driving the brand’s responsible behavior, it means not taking a quarterly view of the brand, but having a commitment to a longer-term vision and acting accordingly. It means trading immediate profits for long-term dividends because if brands do not do so, reality can strike suddenly, with increasing ferocity and without warning as we have seen most recently in the world economy. 4. Build brand conscience internally— within your organization and reward conscience keepers. For that a ‘charter of conscience’ has to be created and adhered to as assiduously as are the rules of the company. The charter must evolve over time to ensure that the brand maintains leadership and its conscience does not become a reaction rather than proactive action. 5. Ensure that brand conscience is inherent in the core values of the brand and not an add-on. Hence, for example, for a food brand the health of its “flock” is inherent to the brand. For durable brands, the way they use natural resources becomes inherent to the brand. For an automobile brand responsibility, safety and the safeguarding of the environment becomes a paramount concern and forms a critical part of the brand’s core. Just as our conscience isn’t something we choose to have when it is convenient, but actually forms what we refer to as our character, so too conscience should not be reduced to a brand attribute, but DAR E be a part of the brand’s DNA. The author is Director-Strategic Planning at M&C Saatchi.
JUNE 2009 83
DARE.CO.IN ç FOOD FOR THOUGHT AT SUMINTER INDIA ORGANICS CONTD. FROM PG 23
Mehra made the decision in spring, 2009 to seek a series B financing round targeted at about $6 million. Gupta explains, “We want this to last a couple of years, and we did a top-down analysis on the margins required and the kind of investment we foresee in the business.” Adds Mehra, “We arrived at a cash requirement that will allow us to get to the two-year revenue targets we have set out.” Mehra then expects to raise a series C round in 3-4 years before going public. Although many private equity firms are conserving cash to help existing portfolio companies, Mehra believes that enough good investors are looking for sound companies with a proven track record to make possible a new injection of growth capital at a reasonable valuation. A top priority for scaling is using automation to help field officers cover more ground with less effort. Mehra
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case/INSEAD remarks, “India is one of the world’s largest markets for mobile telephony and it has strong software development teams. We are working with mobile companies and software developers to create handheld devices for our field officers that can track where they are and help them capture data from farmers that can be uploaded to a central database. We want to create a control room to monitor the activities of our field officers and understand from the data what information and realtime assistance farmers need.” New capital will be used to strengthen the supply chain rather than expand the company’s geographic footprint in India or its product range. Gupta explains, “We won’t venture into new products soon. Our business model is to focus on products where India has a comparative advantage. Buyers are globally connected, so it is a competitive playing field. Perishable products are a different game where logistics, timing and shelf life are critical, and
we don’t think we add value there. The idea is to excel and be the market leader from India where we have competitive advantages and can cross-sell to existing customers.” Add Mehra, “We will employ an adjacency growth model. If customers ask for adjacent products, we’ll build the necessary supply chains.” Additionally, both Gupta and Mehra believe the time is right for carefully selected acquisitions. Mehra says,
One key scaling constraint was the need for field staff to work intensively with farmers. Due to Indian land laws, farmers have between two and five acres of land, so it’s really tough to manage day-to-day inputs. It takes a lot of work.
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case/INSEAD “There are many acquisition opportunities out there, especially in Europe, where the landscape is so fragmented that we can service existing customers while getting bigger footholds in other markets. In the US, we have to be careful not to stamp on the toes of our existing customers.” Adds Gupta, “We would be looking for opportunistic acquisitions and we will finance those separately. Our strategy is to acquire an organic brand for which we can provide the produce. We can acquire a brand or a customer in Europe and cross-sell our products through that customer, helping them take advantage of cost advantages moving backward along the chain.” Finally, and perhaps most importantly, Suminter intends to establish a wholly-owned non-governmental organization (NGO) to maximize the livelihoods of the farmers and communities it serves. Says Gupta, “There is no conflict between maximizing shareholder value and farmer welfare. With
There are many acquisition opportunities out there, especially in Europe, where the landscape is so fragmented that we can service existing customers while getting bigger footholds in other markets
grant support and Suminter putting in money, we can use our relationships and farmer base to improve lives.” Mehra summarizes, “I’m extremely passionate about the people we are working with in rural India. They have been very far below the poverty line for decades, and we can make a big difference in their lives. We will contribute part of our profits to our own NGO and will also seek external money. It’s about strengthening your supply chain. Once farmer loyalty is there, it will take years for other companies to emulate our supply chain, and that will be our competitive advantage going forward. We want to gain the 100% loyalty of farmers who are contractually unfettered by giving them so much love and direct economic gain. They face infrastructure issues in their villages, and by developing communities and making people aware of the environmental impact of what they are doing, we can improve DAR E everyone’s entire livelihood.”
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From classroom to corporate: The rise of a student entrepreneur It’s never too early to start a venture. Shashank ND of Naabo Solutions paves the way
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hashank ND is as busy as a successful entrepreneur should be. As the founder of Naabo Solutions, a web technology company that offers tailor-made IT solutions for the healthcare industry, he is steering his two-year old company to hit its annual target of 500 health clinics by 2009end. His company, headquartered in Bangalore, is all set to scale up, with 10 full-time employees, 75 clients in its kitty and Rs 15 lakh in turnover. This is not just another startup story. What makes Naabo’s story special is that Shashank is still a student! Just appeared for his final year engineering exams, majoring in IT at National Institute of Technology, Surathkal, Shashank started his entrepreneurial journey when he was in his second year, doing what he knows best—coding.
How it all began Shashank’s first steps towards an entrepreneurial career started in 2006, when he joined the newly formed NEN Entrepreneurship Cell in campus. The E-cell EFOREA (Engineering Forum for Entrepreneurial Awareness) was established in association with National Entrepreneurship Network, an initiative of the Wadhwani Foundation that is working with over 450 institutes across India, building 86
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their capacity to inspire, launch and support new entrepreneurs. As part of the core executive group of EFOREA, Shashank helped organize over 25 events in campus, several of them involving NIT’s alumni entrepreneurs. He participated in entrepreneurship events across the country including IIT-Mumbai; ISB-Hyderabad, IMI-Delhi and PSG-Coimbatore. In this process, Shashank had the opportunity to practice his entrepreneurial skills, as well as experience the stresses and joys, relatively risk free. His experience tempted Shashank to build his own company. “We were passionately involved in every aspect of running the E-cell. It was very hands on, almost like working in a startup. We learnt so much in the workshops and competitions and wanted to implement our knowledge in real life—and what better way than to launch a startup of our own,” shares Shashank.
Bootstrapped beginning Shashank and his classmate and cofounder Prashanth H (who is no longer with Naabo) realized that they were first-time student entrepreneurs and like most first time entrepreneurs, they bootstapped their company, reaching into their own pockets to fund their startup.
They began by identifying potential customers for whom they could build software products. They held long meetings with marriage hall owners, suggesting web solutions for managing their business. They interviewed stockbrokers, exploring product ideas that could help them manage their portfolios. But their reactions were not exciting enough. It was Shashank’s idea to speak to private clinics as well, having observed the conventional way they ran their businesses, maintaining records in hard-bound registers and making patients wait for hours to see the doctor. “Faced with growing competition from bigger hospitals, small clinics were under pressure to become tech savvy and efficient. We spoke to several independent medical practitioners and they loved the idea of having a software product that can streamline their clinics’ operations and help them connect better with their patients. Based on their inputs, we launched ‘DocTalk’ in August 2007, built on open source technologies for clinic management,” Shashank says. He admits that the product was not high on innovation, but did reasonably well as an application. They were joined by like-minded entrepreneurial enthusiasts Abhinav
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Shashank ND CEO, Naabo Solutions JUNE 2009 87
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Team Naboo (l-r) Srikanth, Prashanth, Aditya, Abhinav, Shashank
Lal, Aditya Bheemarao and Srikanth who brought additional technical acumen and enthusiasm to the team. Within three months, they were itching to grow.
The next big step The breakthrough happened when a serial IT entrepreneur offered to acquire Naabo in November 2007, for over $20,000. Shashank turned to potential angel investors for advice. Three angel investors—Padma Ravichander, Ashok Waran and Srinivas V—saw value in what Shashank and team were trying to create and instead of advising them to sell the company, they became their mentors, guiding Naabo to the next level. With their technological and business inputs, during their association with the company for the next few months, Shashank’s team developed closed-source proprietary software for clinics. This is how ‘TurboDoc’, their new branded product, was born in June, 2008. 88
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TurboDoc is a web-based clinic management product that helps clinics utilize the technology of the web and mobile to deliver better services to their patients. Apart from an end-to-end administration management system, TurboDoc also facilitates appointments through SMS and maintains patients’ complete case histories. With 75 clinics already using TurboDoc, Shashank feels they have only touched the tip of the iceberg. Naabo’s target for 2009 is 500. This Shashank believes is a realistic goal. “The excitement is growing phenomenally and I can see huge potential to grow in the coming months,” Shashank reveals.
Work-study balance Shashank puts in 14 hours a day towards running Naabo, which leaves him with very little time to study, forget a social life. “I have just barely managed to meet my attendance requirement. But my parents, faculty
and friends have been very supportive and this has allowed me to focus on my startup. My partners Abhinav, Aditya and Srikanth, with their unstinting support, have played a very vital role in providing stability and growing the company to what it is today. Naabo is an excellent example of team effort and demonstrates the magical possibilities of teamwork,” Shashank says. Despite the sacrifices that he has made for Naabo, the journey has been very fulfilling for him. “With Naabo, I have shown that it is possible to start a sustainable venture in college and run it successfully. Already, three of my juniors in college are on their way to launch their own ventures. I am passionate about entrepreneurship, so it is heartening to see the interest growing in our college with stories like DAR E ours,” Shashank adds. More articles on www.nenonline.org. Content provided by NEN
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blogs/opinion
The Entrepreneur as a Hedonist /Anurag Batra
Anything that is within the norms of society and gives an individual happiness or satisfaction is spiritual and godly
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onfucius had said, “You are lucky/blessed if your hobby becomes your profession.” The fundamental question I am trying to address in this column is to see whether an entrepreneur is seeking pleasure in the journey of being an entrepreneur. Is it okay to seek pleasure in what you do? Is the PQ (I mean the pleasure quotient) high in the life of an entrepreneur. We have traditionally looked down upon hedonists as pleasure-seeking escapists and not spiritual. Let me ask you if there is anything wrong with being joyful, happy and seeking positive experiences Isn’t that being spiritual too? According to me, anything that is within the norms of society and gives an individual happiness or satisfaction is spiritual and godly. Though I have been married for many years I don’t confess to being a philosopher. I met Gautam Singhania two years ago on his private jet, coming from Aurangabad to Mumbai. Gautam, who according to my sense, is an astute businessman and a very knowledgeable professional contrary to his public image, said to me in jest, “Anurag, my job is to recruit the best CEO so that I can have fun.” I always have said entrepreneurs exist perpetually in a single state and you can either
say they are having fun as they love their work or you can say they work 24x7. For them entrepreneurship is about enjoying what they do and seeking more of it. As they do not see it essentially as work but as a hobby, they experience pleasure. Of course, entrepreneurship is an attitude and even in a job, a manager needs to have an entrepreneurial spirit to kindle the flame of pleasure and fun to excel. I am a good example of someone who likes what he does. I have made a business of building communities embarking on this journey. A lot of young people come to me seeking advice and I always tell them to find something that they love doing, discover it and do it all their lives. That is being an entrepreneur. Am I trivializing entrepreneurs and entrepreneurship by presenting such a simplistic view of it? I don’t think so. Is entrepreneurship a bed of roses to borrow from a Jon Bon Jovi song? So go out there and have fun and entrepreneurship will find you. D A R 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.
JUNE 2009 89
INNOVATION
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Selling toothbrushes with paste dispensers The advanced toothbrush looks like any normal toothbrush, but comes with an inbuilt mechanism for dispensing toothpaste /Ambrish Jha
I
t is quite usual to find people frantically looking for their toothbrushes and paste tubes in their bags in morning while on a train journey. But for some people this observation might lead to the spark of a new idea. One such person was Agastya Narain Shukla, who was thus inspired and went on to create an advanced toothbrush with a mechanism for dispensing paste.
Mechanism The toothbrush that Shukla has innovated comes as a single unit with provision for filling up toothpaste in the handle. It is made completely of food grade (first grade) plastic, Shukla claims. A knob, attached at the back of the brush, is twisted to push paste up and on to the bristles. At one time 30 gram of paste can be stored in the toothbrush, which is sufficient for use up to 15 days. Once the bristles get worn out, one can change them. Bristles can be cleaned after brushing like any normal toothbrush. Shukla says there is no question of water seeping into the paste chamber while brushing or otherwise. “The paste-containing chamber is airtight with a piston attached to it,”
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he says. “The question of anything, marketing the toothbrush well before including water, getting inside while applying for the patent. Marketing is brushing is not possible. However, it done through a few wholesalers and is possible to open it completely for contacts. So far he has managed to sell cleaning purposes.” about 7,000 pieces. One can refill paste in the toothNegative feedback, which is quite brush through an attachment given common in the initial stages of defor the purpose. Shukla has designed velopment of a new product, are also the brush himself. He has, however, coming in. While users have apprecioutsourced manufacturing of all com- ated the whole idea, many of them ponents, from the bristles to the mold- complain that the handle of the brush, ing of the unit. Even assembling is out- which contains toothpaste, is too big. sourced. Shukla purchases toothpaste Shukla says, “The outlook of the from the Kundli-based Jaykaran Herb- toothbrush is not of the level where it al, a big player in the field. However, can be marketed alongside Colgate or one is always free to use a paste of his or her choice. Overview
Pros and cons There are obvious positives attached to this toothbrush. It can prove handy during travel, particularly to remote areas. The toothbrush is easy to handle and clean, and may save on wastage of paste. Shukla, who is the main protoganist in the whole show, got a patent for his toothbrush in India in 2008. He had started
Product
Advanced toothbrush
Features
Toothpaste container in the handle Mechanism to dispense paste Maintains cleanliness Bristles can be changed
Challenges
Price Variants Acceptance Marketing
Market drivers
Helpful during travel Handy in remote and war-torn areas Reduces wastage of paste
INNOVATION Oral B products. I want to give it a professional touch.” There have been complaints about the quality of bristles as well, which Shukla is well aware of. He says pricing of the product is a little on higher side as well. Its maximum retail price (MRP) at the moment is Rs. 180, and the wholesale price comes to Rs. 60. “I want the MRP to be kept at Rs. 45 to 50, and sell the product to wholesalers for anything between Rs. 25 and Rs30,” says Shukla. The other disadvantage is a lack of variety at this juncture. It comes in a fixed color, quite unlike other companies that have products with different color options. While the toothpaste is green, the bristles are red and white, and the knob for pressing the paste up is also red. “We are planning variants,” Shukla says. “When we start working on that we will make different models for children.” The cost of manufacturing has come down to Rs. 40 per piece since the initial days of Rs. 60 to 70. Shukla has spent well over Rs. 17 lakh from his
DARE.CO.IN pocket on this project so far, and for all practical purposes it has remained a one-way process.
Support
Advanced toothbrush: A closer look
“When you are an innovator, it is not easy to get support,” Shukla summarizes when asked about the support he has received so far. The National Innovation Foundation (NIF) did provide Rs. 70,000 three years ago. The NIF, he says, has arranged a funding of Rs. 5.5 lakh from the Department of Scientific and Industrial Reserach (DSIR) to help him make a few variants of the advanced toothbrush. However, this funding has so far remained only on paper. The paperwork is going on between the NIF and DSIR for it. Encouragement in the initial phases from Anil Gupta, professor at the Indian Institute of Management, did prove a boost for Shukla. When he showed Gupta the prototype of his toothbrush – the one he had made using big medical injection series and iron nuts and bolts, Gupta liked it. “Professor Gupta liked the concept very much [and] I thought I must move ahead with the project,” Shukla says.
Maximum paste quantity
30 gram
India patents obtained
2008
Pieces sold so far
7,000
MRP printed
Rs. 180
Wholesale price
Rs. 60
Cost of production
Rs. 45-50
Total investment so far
Rs. 17 lakh
Amount from the NIF
Rs. 70,000
Amount approved from the DSIR
Rs. 5.5 lakh
Opportunities Besides being useful in regular travel services, this innovative product may be useful for adventure travelers going to off-beat areas or for military personnel working in remote areas. NGOs working in far-flung and wartorn areas may find this quite handy. Chil-
Agastya Narain Shukla I want to keep the MRP at Rs 45 to Rs 50, and sell the product to wholesalers for anything between Rs 25 and Rs 30 dren’s habit of wasting toothpaste can also be checked using this. There are obviously huge opportunities waiting to be tapped, for there is no parallel of this product in the market. However, some fine-tuning is required, as Shukla himself is aware of. The fine-tuning should be in the form of manufacturing variants, bringing the price down, putting in more investment, and reaching markets outside Delhi. He says, “I would not like to file for patents in other countries. Instead, I would want to keep working on the product to make it really attractive in the Indian market itself.” Shukla knows the importance of investments, and admits to talking to a few venture capitalists, but he is reluctant to toe their line: “Working with them brings several kinds of restrictions.” He says it is important to think of a consumer product by putting oneself in the shoes of the consumers – something investors selDAR E dom do. JUNE 2009 91
People DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
A. Suryanarayanan ............................ 77
Mahesh Gupta ................................... 34
Abhinav Lal ........................................ 86
Marshall Goldsmith ............................ 15
Aditya Bheemarao ............................ 88
MS Dhoni ........................................... 15
Agastya Narain Shukla ...................... 90
N. N. Shreejith.................................... 42
Ami Malaviya ..................................... 23
N. Senthil Kumar................................ 32
Amitabh Gautam................................ 72
Naveen Surya .................................... 49
Anil Gupta .......................................... 91
Navinchandra Ramgoolam ................ 62
Ankit Maheshwari .............................. 76 Arihant Panti ...................................... 32 Ashish Dhawan.................................. 22 Ashok Waran ..................................... 88 Baljinder Sharma ............................... 62 Barrack Obama ................................. 43
Navtej Saluja ..................................... 32 Nitin Godawat .................................... 77 Padma Ravichander .......................... 88 Pankaj Parnami ................................. 32
DARE is not an acronym. It represents the daring spirit of the entrepreneur.
Poonam Chothani .............................. 30 Poyni Bhatt ........................................ 42
Bhavesh K ......................................... 48 Prashanth H....................................... 86 Captain Puri ....................................... 66 Rajesh Ghatge................................... 49 Dale Bhagwaga ................................. 77 Rajiv Servansingh.............................. 64 Frank Mancuso .................................. 42 Ritvik Lucose ..................................... 32 G. Janardhan Reddy.......................... 68 Sakthivel Venkatraman ...................... 32 Gautam Singhania ............................. 89
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.
Sameer Mehra ................................... 14 Gaurav Verma.................................... 28 Sanjay Bhatia .................................... 32 Govind Agarwal ................................. 44 Sanjay Kamlani.................................. 32 Gul Panag .......................................... 77 Hari Bhartia ....................................... 22 Hema Malini....................................... 37 Hemant K. Jain .................................. 51 Indira Gandhi ..................................... 71 Jon Bon Jovi ..................................... 89
The entrepreneur dares to do things. (S)he dares to do things differently
Sanjay Nayar ..................................... 23 Sarabdeep Singh ............................... 76 Saurabh Bhatia .................................. 76 Srinivas V........................................... 88 Subhash Chandra.............................. 71
SMS “DARE <your comments, questions or suggestions>” to
Kallol Borah ....................................... 77
Sunil Mathangi ................................... 32
Kanu Anand Gupta ............................ 21
Sunil Nair .......................................... 76
Leo Mavely ........................................ 44
Tariq Akbar ........................................ 32
M. Nambiar ........................................ 68
V. Srinavasalu ................................... 97
Madan Pandit..................................... 77
Vincent Devasia ................................. 32
Madhu Mehta..................................... 45
Virendra Sehwag ............................... 15
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Madhusudan Rao .............................. 66
Vishnu Das Ranga............................. 25
dare@cybermedia.co.in JUNE 2009 93
Organizations DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
141 Sercon ................................................................ 49
Grand Hyatt ............................................................... 64
Nexus India Capital ................................................... 22
A.K. Studios ............................................................... 71
Hindustan Petroleum (HP) ......................................... 49
NirmaLabs ................................................................. 44
Air Charters India ...................................................... 66
IBN Lokmat ................................................................ 73
North Pergola ............................................................ 77
Air India ..................................................................... 48
ICICI Bank ................................................................. 48
NSRCEL .................................................................... 77
Airtel .......................................................................... 50
ICICI Ventures ........................................................... 50
Oberoi Group ............................................................. 64
Akinos Flights ............................................................ 66
IIMB ........................................................................... 77
Onida ......................................................................... 36
American Center........................................................ 76
IIT, Chennai ............................................................... 42
Oral B ........................................................................ 91
Anaxee Technologies Pvt. Ltd.................................... 44
IIT, Kanpur ................................................................. 34
Pangea3 .................................................................... 30
Apple ......................................................................... 82
IIT, Mumbai ................................................................ 42
Pawan Hans .............................................................. 67
Asianet....................................................................... 71
IIT, Mumbai ................................................................ 86
People’s Bank of China.............................................. 78
Axio Biosolutions ....................................................... 44
IMI, Delhi ................................................................... 86
Phillips ....................................................................... 36
Bank for International Settlements ............................ 79
Indian Institute of Petroleum ...................................... 34
Plasto Cards .............................................................. 50
Bank of Baroda .......................................................... 64
Indian Oil ................................................................... 34
PSG-Coimbatore ....................................................... 86
BBC ........................................................................... 71
INSEAD ..................................................................... 14
Purple Line Productions ............................................ 71
Ben & Jerry................................................................ 82
Instablogs .................................................................. 76
Pyramid Saimira ........................................................ 71
Bharatmatrimony.com ................................................ 53
International Monetary Fund ..................................... 78
Rainmaker ................................................................. 30
Binani Group.............................................................. 62
ISB-Hyderabad .......................................................... 86
Reliance’s Big Entertainment .................................... 71
Bodhi Global .............................................................. 30
ItzCash ...................................................................... 49
Reserve Bank of India ............................................... 78
Bookmyshow.com...................................................... 77
Jaykaran Herbal......................................................... 90
Roorkee Instruments (India) ...................................... 28
BPL ............................................................................ 36
Jubilant Organosys .................................................... 22
Rural Technology and Business Incubator (RTBI) ..... 42
CardTech ................................................................... 50
Kapoor Studios .......................................................... 71
S.P. Jain Institute of Management and Research ...... 76
ChrysCapital .............................................................. 22
Kerala Tourism Development Corporation ................. 67
S.S. Engineering Industries ....................................... 34
CIEL........................................................................... 62
Kohlberg Kravis Roberts & Company ........................ 23
Sarva Solutions ................................................... 31, 32
Citibank...................................................................... 48
KPMG ........................................................................ 70
Saturn ........................................................................ 82
Clinique Darne........................................................... 62
KPO Consultants ................................................. 31, 32
SBI ............................................................................. 64
CNN ........................................................................... 71
LawQuest ............................................................ 30, 32
SDD Global................................................................ 32
Cobra Legal Solutions ............................................... 32
LawScribe ............................................................ 31, 32
Securities and Exchange Board of India ................... 80
Colgate ...................................................................... 90
LawWave ................................................................... 32
Select City Walk......................................................... 50
D.Y. Patil University .................................................... 64
Legalease .................................................................. 32
Servomax .................................................................. 53
DD Metro ................................................................... 70
Lifestyle ..................................................................... 50
Sharekhan ................................................................. 48
Deccan Aviation ......................................................... 66
Loyalty Solutions and Research (LSRL) .................... 50
Shopper’s Stop .......................................................... 49
Decidyn...................................................................... 77
Make My Trip ............................................................. 50
Singhi Advisors .......................................................... 62
Department of Scientific and
Marketelligent.com .................................................... 77
Snapple ..................................................................... 82
Industrial Reserach ................................................... 91
Mayfield Advisors ...................................................... 52
Society for Innovation and
Devasia ...................................................................... 32
mCheck ..................................................................... 48
Entrepreneurship (SINE) ........................................... 42
Dilli Haat ................................................................... 97
Miditech ..................................................................... 72
Sony .......................................................................... 71
Discovery ................................................................... 71
MTV ........................................................................... 70
SREI Infrastructure Finance ...................................... 62
DLF Place .................................................................. 50
Naabo Solutions ........................................................ 86
Sri Ramachandra Medical Center ............................. 64
Done Cards ............................................................... 49
Narsee Monji college of commerce
Star TV....................................................................... 71
Doordarshan .............................................................. 70
and economics .......................................................... 20
Stic Travels................................................................. 66
Dream Catchers ........................................................ 72
Nasscom.................................................................... 44
Suminter India Organics ............................................ 14
Electra Card Services ................................................ 50
National Business Incubation Association (NBIA) ..... 75
Sun TV ....................................................................... 71
Emory University ....................................................... 20
National Entrepreneurship Network........................... 86
Swatch ....................................................................... 82
Endeavor ................................................................... 14
National Geographic .................................................. 72
Taj .............................................................................. 64
Enercon ..................................................................... 20
National Innovation Foundation ................................ 91
Tata Group ................................................................. 71
Eureka Forbes ........................................................... 36
National Institute for Chemical
Tejas Networks .......................................................... 53
Evalueserve ............................................................... 31
Pharmaceutical Research and Development ............ 25
TV-18 ......................................................................... 71
Fachak ....................................................................... 76
National Institute of Technology ................................. 86
UTV ........................................................................... 71
Federal Reserve of the US ........................................ 78
National Research Development Corporation ........... 25
Vdopia.com................................................................ 76
Federation of Indian Chambers of
Naturals and Essential Oils Private Limited............... 25
Virgin ......................................................................... 82
Commerce and Industry (FICCI) ............................... 70
Nautanki.tv................................................................. 76
Wadhwani Foundation ............................................... 86
Fortis Healthcare ....................................................... 62
NDTV ......................................................................... 71
Walkman .................................................................... 82
Frost and Sullivan ...................................................... 26
Network 18 ................................................................ 73
Whirlpool.................................................................... 36
Gangaratna................................................................ 97
Newline Enterprises .................................................. 51
Zee Tv........................................................................ 71
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/society
The craft of making leather puppets is said to have originated in the small scenic village of Nimmala Kunta in Andhra Pradesh. But with the popularity of puppetry dwindling, this craft is being used to make a variety of beautiful decorative handicrafts /Aswathi Muralidharan
A
V. Srinivasalu
Andhra Pradesh
long time ago, when the idiot box was yet to make its mark, traditional forms of entertainment like puppetry were extremely popular. This was especially true in the rural hinterland where it was appreciated and enjoyed not only for its entertainment value, but also viewed as a source of income. There were different clans across India that specialized in it, right from the making of the puppets to holding shows. However, with the onset of the electronic media, this traditional art form started to slowly lose its sheen, affecting the livelihood of those who were devoted entirely to
The Puppet Makers 96
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DARE.CO.IN
/society it. While some found solace in different occupations like agriculture, there were others who found newer ways to sustain themselves from the craft itself – one of them being the leather puppeteers of Andhra Pradesh. This story is about V. Srinavasalu and his wife Gangaratna, who are leather puppeteers-turned-craftspeople from the small village of Nimmala Kunta in Andhra Pradesh. According to Srinivasalu, his family has been in this profession for several decades. However, he did not join the core family trade; instead, he decided to take a slightly different route. He used the craft that he learned as a child and perfected as he grew up to make a variety of handicrafts. Today, at his temporary stall in Dilli Haat, he proudly displays an array of products from lampshades to wall hangings, priced from as low as Rs 150 to as high as Rs 20,000.
The craft Talking about making handicrafts from leather, he says, “It is a very time-consuming job. At times some of the products like wall hangings may take up to 10 days to perfect.” Describing the technique, he explains that the leather has to be processed before it can be made ready for painting. Srinivasalu procures raw goat hide from the local market starting from Rs 250 for a piece of leather. It has to be then washed with hot water and dried to remove the hair from the skin. The leather has to be then beaten using a hammer into a very thin layer, which is a time-consuming process. After the base is made ready, the sketching is done and then colors are filled in. In case of puppets and wall paintings, small holes are punched into the sketching to allow light to pass through it so as to enhance the effect. Srinivasalu uses both vegetable and camel colors for the painting. After the coloring is done, the painting is cut on the outline and with some finishing touches, it is ready for sale. He says, besides the time and patience, one of the challenges he faces is the lack of funds for buying raw materials. According to Srinivasalu, his paintings have a very long life if contact with
Our family owns puppets that are almost 100 years old. It has been preserved intact for ages by cleansing regularly with coconut oil — Srinivasalu water is avoided and if the paintings are regularly cleansed with coconut oil. He proudly says, “Our family owns puppets that are as old as 100 years. They have been preserved like that for ages.” He recalls an incident, “Last year one art collector came to my village and bought old puppets for almost Rs 3 to 3.5 lakhs. I sold him some of my own as well for Rs 50,000 to 60,000.” He says that his entire family of six, including his two children, are in the trade. Though he himself could study only up to class III and his wife was unfortunate enough not to have had any eduction at all, he sends his children to school, thanks to the government support he has received to showcase his talent in many cities. He says, “We face a lot of trouble being uneducated. At least now we are able to educate our children.”
Marketing There are many crafts that are dying a slow death due to various reasons such as financial insecurity, government neglect, lack of a place to showcase the talent, dwindling customer base and so on. However, Srinivasalu was lucky in this aspect. He says, “The government has been very supportive
of this craft, and has also issued me an artisan card.” Using the privileges provided by the card, he sets up temporary stalls in major exhibition centers, sometimes for a nominal cost and sometimes even for free. He says, “In government-organized exhibitions the cost for setting up a stall is nil, whereas we have to pay for participating in the exhibitions set up by private players.” For example, he says, “The Dilli Haat stall is for 15 days and we pay a small price of Rs 300 per day as rent. However, we also put up our stalls in government-sponsored exhibitions in many cities like Delhi, Mumbai, Hyderabad, Kolkata, Varanasi, and Chandigarh for free." Sometimes the government also provides lodging facilities. The exhibition season starts from October, when his sales are maximum, and ends by March. During the rest of the year he puts up a stall in private haats, exhibition centers, emporia etc. When asked about his wife’s contribution, he says, “Then there are some programs especially for women who are involved in the making of handicrafts. We participate in those exhibitions as well.” So how much money does he make in a day? He claims, “Generally in Dilli Haat I have sales of Rs 10,000 to 15,000 per day. In other places it is around Rs 6,000 only.” Srinivasalu is unaware of terms such as recession and slowdown. He says, “These days there is a dip in the number of customers, but I think it is because of the heat.” His products are also exported. According to him, there are a few people who buy his products for exporting, but he is neither aware of the countries to where they are exported, nor the rate at which they are sold. On being asked as to why he doesn’t plan to export it directly rather than going through a middleman, he says, “I know a lot of money can be made by selling directly, but it needs a huge capital investment of Rs 10 to 12 lakh. Besides, there are a lot of things, like getting an export license number etc, which is a complicated process. But there are people I know who are exporting and making DAR E a huge profit out of it.” JUNE 2009 97
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RNI No.DELENG/2007/22197. Posting Date: 5th & 6th of every month. Posted at Lodi Road HPO.
DL(S)-17/3314/2008-09-2010