MACONZA
MAY 2012
MACONZA
MAY 2012
Table of Contents
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Editor’s Note.
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1.Budget 2012-13 : Nemesis of Entrepreneurs and Angel Investors ?
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2. The Men who dreamt Sports.
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3. Apps World : Tomorrow’s Trend.
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4. Impact of Monetary Policy 2012 : Towards a stable future.
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5. Quality Health Cover for all : Is India Ready for it ?
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6. Role and Importance of Marketing for a startup.
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7. The Next Mark Zuckerburg in the Making: Sahil Lavingi
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Let me take this opportunity to welcome you to a brand new edition of Maconza. We are calling it 'Maconza Reloaded' because we, Batch of 2013, have attempted to infuse it with a new look and feel and an even fresher perspective. As always, our mission is to further the cause of entrepreneurship and in keeping with that mission, we bring to you a variety of articles, to inspire as well as to guide you. We hope that there is some takeaway for you from each of these pages. I also take this opportunity to thank our seniors for all their help and support in the past year. Without their help, we would not be where we are today. We wish our seniors all the very best for their future endeavors. I would also like to acknowledge the continuous support and guidance of our mentors Professor Jojo Matthew George and Dr. Hymavati Ch. , for Macon and for Maconza.
Regards, Reetoditee Mazumdar (Editor)
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BUDGET 20122012-2013 NEMESIS OF ENTREPRENEURS & ANGEL INVESTORS ? BY SUJITHA
Budgets in India are always surrounded by controversies. There is hardly a budget ever presented in the Parliament that did not invoke a nation-wide debate and an analysis of the consequences of the implementation of the same. Most of the analysis is based around the impact it will have on nation’s development and the cost of living for the common man. Budget 2012 has been under a lot of controversy both due to political as well as socio-economic reasons.
face value of such shares, the aggregate consideration received for such shares as exceeds the fair market . value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.” Simply put, any angel investor investing in a company where the investment is in excess of the fair value of the shares will be taxed and his investment will be considered as an income for the entrepreneur.
One of the reasons is the budget proposal in the Direct Taxes (Clause 21) that has been stirring quite a ruckus in the entrepreneurial world. The clause deems any investment received by an entrepreneur from a private funding source as an income and calls for 30% taxation on the same. The clause which came into effect from April 1, 2012, is applicable when “…a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the
The clause also says “the fair market value of the shares shall be the value—(i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, 4
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on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature.� While investments from Venture capitalists are not included in the clause, huge blow for the entire angel investor network. Finance Minister Pranab Mukherjee in his budget speech said that the move would help at deterring the use of unaccounted money and “increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value�. However, the angel investors claim that by treating the angel funding as income for entrepreneur, the Finance Minister is overlooking many critical aspects of the angel funding model such as mentoring services provided by the angel investor to the entrepreneur. Moreover, they also claim that if the proposal is allowed to go through, it would give ample scope for negotiation with the assessing officer and would eventually lead to more corruption.
Such a clause would also force the startups to go for foreign investors which would further worsen the condition of the angel investor network in the country which is still in developing stage. Overall, they believe that such a move would lead to a setback in the entrepreneurial spirit of the new startups and would slow down the overall economic growth of the country. Despite the sops given by the Finance Minister to the Micro, Small and Medium Enterprises (MSMEs), both entrepreneurs and angel investors believe that this single clause can slow down and kill the widespread entrepreneurship movement currently taking place across the country. Only time will tell the actual impact of this move but dark clouds sure do seem to dwell on the dreams of the potential entrepreneurs of the country.
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The Men Who Dreamt Sports If winning isn’t everything, why do they keep scores? – Vince Lombardi BY SUNIL G. PILLAI
It’s the IPL season once again but what is more significant is that, it is the 2nd season that the IPL is taking place without its enigmatic founder. Mr. Lalit Modi is in hiding due to reasons best known to him, but the brand is slowly and surely coming out from his shadow. There have been many entrepreneurs who have made their mark in varied fields such as steel, movies, pharma and so on. But there have been very few who have stood out in the field of sports. The very idea of creating a venture that would be fueled solely by passion and not the need of a consumer is bold and thrilling to say the least. In my opinion, sports, from F1 to football , are as realistic an entertainment as you can get. So when I decided to pen my thoughts on entrepreneurship , sports was my first choice.
But Kerry was going to be famous in the cricketing world for founding the World Series Cricket. He wanted a shorter version of the test matches to be played to bigger crowds with more matches played and televised across the globe to young and eager audiences.
Let us begin with the country’s favorite sport Cricket. Probably no one has changed the facet of this game more than the first man to commercialize this game. He even gave it a new name ODI (One Day International).
Due to the intensity of the matches that were being played, there was a need for modern cricketing equipments. Thus, helmets and shin guards were introduced. Kerry had perhaps intended to be novel, but he introduced safety equipment for the future cricketers. He also hit upon the daynight concept that became such a big hit that suddenly stadiums were overflowing with spectators.
Kerry Packer:
Born to Sir Frank Packer and Gretel Bullmore , Kerry was known for his arrogance , wealth and expensive lifestyle. His family had controlling interest in Nine Television network 6
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Although most of the innovations were used to bring in more revenue for Packer’s Television audiences, his venture unwittingly discovered a new breed of young aggressive cricketers who got more matches to showcase their talents. Somewhere in India, glued to the television was perhaps, one Sachin Ramesh Tendulkar.
He began expanding the company nationally by promoting in areas outside the Northeast of U.S.,and signing talent from other companies, such as the American Wrestling Association (AWA). In 1984, he recruited Hulk Hogan to be the WWF’s charismatic new megastar. The two quickly drew the ire of industry peers as the promotion campaign was broadcast in rival territories.
Vince McMahon:
Nevertheless, McMahon (who still fronted as the WWF’s squeaky clean announcer) created The Rock 'n' Wrestling Connection by incorporating pop music stars into wrestling storylines. As a result, the WWF was able to expand its fanbase to the national mainstream audience as the promotion was featured heavily on MTV programming. On March 31, 1985, he promoted the first Wrestle Mania, held at Madison Square Garden which aired on closed circuit TV throughout the U.S. Wrestle Mania was an undisputed success. As a result, the WWF thus stood head and shoulders above all its competition and Hulk Hogan soon became a full-fledged pop-culture icon.
He was born in the searing heat of the August sun of North Carolina in 1945. Vince never saw his father till the age of twelve. Raised by his mother and multiple step fathers, Vince had a turbulent childhood of domestic violence and dyslexia.
Vince McMahon went on to glamorize the wrestling entertainment and at the same time, assisted many ailing and forgotten athletes. Even Indian wrestlers have been fortunate to take part in his programmes and have also been encouraged financially to continue with their training in spite of the lack of support from the government of India.
Overcoming all odds, Vince McMahon went on to complete his business degree and joined his biological father’s business , the Capitol Wrestling Corporation. Sensing a potential in the enterprise, Vince went on to rename the company as World Wrestling Federation (WWF) ,which later due to legal issues had to be renamed as World Wrestling Entertainment (WWE). Vince assisted his father in tripling TV syndication across the states. 7
Article continued on the next page
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Bernie Ecclestone:
. There has also been an increasing influx of foreign brands testing Indian waters through mediums like Formula One.
Lalit Modi: Bernie Ecclestone’s rise, from a fishing village in England to the world’s top position in F1, is stuff of racing folklore. He left school to work at a garage because of his passion for motorbikes. He started his career as a trader in spare parts of motorbikes and went on to race couple of 500cc Formula 3 races but success eluded him for major part of his early years. Finally an accident forced him into early retirement in 1949. Little did he know that his real race had only just begun.
This man is known for his many identities and many deeds. From being the Chairman and Commissioner of IPL to one of the most wanted individuals for money laundering cases in India. Lalit Modi has become the favourite child of controversy.
After eight years in dabbling in real estate, loans and other such activities Bernie returned to racing in 1957 as a manager to LewisEvans. Sensing a keen entrepreneurial opportunity , Bernie became a part owner of Lotus Formula 2 team.He went on to acquire the Brabham team and formed the all powerful Formula One Constructors Association (FOCA). FOCA and Bernie’s company played a huge part in bringing in TV revenue and sponsorship to Formula one. Suddenly it become one of the most expensive and sought after sports of all time. Bernie Ecclestone has been the inspiration for the growing number of Indians and Indian companies in the racing industry, such as Kingfisher
Right from his college days, when he faced drug trafficking & kidnapping charges,he has been dogged by controversy. Born to the wealthy Modi Family ,Lalit dabbled in various enterprises that brought him success and failure in equal measure. His Modi Entertainment Network (MEN) has been responsible for the entry of various channels into the Indian market such as Walt Disney and ESPN . Using his shrewd acumen and tactics learned from his days at Duke University, he laid foundations for a Cricket league that would go on to stun the world with its success.
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The launch of ICL by Subhash Chandra of Zee Network threatened the influence of BCCI on world cricket In such a scenario, Lalit Modi, the VP of Punjab Cricket Association began his most ambitious project ever. The Indian Premier League (IPL) was presented to the world in 2007 and became a stupendous success in 2008. The IPL has since grown to become one of most popular cricket formats, worth over US$4 billion.
The rise to prominence of otherwise unknown players like Paul Valthaty, Ashok Dinda,Vinay Kumar, Rahul Sharma, Pragyan Ojha, Ambati Rayudu, Ravindra Jadeja and so on in the World Cup victory of 2011 are a testament to the fact that Indian cricket has been served well by IPL. In a country like ours, starved of new sporting heroes, the next star might well be on the streets of Kolkata or Goa scoring goals on imaginary posts drawn on walls and crates.
Modi might have created a financial behemoth for himself and BCCI but for various cricketers across India and world, this was a golden opportunity to get recognized and earn more money at the same time, given their short cricketing careers.
But the superstar might just be the guy who gave that boy a platform to display his skills.
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Apps World : Tomorrow’s Trend BY SWAPNIL TEWARI
As more and more consumers switch over to smart phones, mobile applications are on the rise. Between Apple’s iOS and Google’s Android operating system, there are plenty of incredible apps to browse through. The past year has built up an exceptional age in apps industry which will continue over in 2012.
It’s a revolution happening in the apps world today with internet usage on mobile phones growing fast, giving rise to predictions that mobile internet usage will soon surpass the personal computer much of it owing to the helpful and handy apps available in the market. But the new features which actually make the app market so in demand are customization, ease of use and affordability.
Different app markets like android market, blackberry app world, apple app store and nokia ovi store offer most of the apps for free. These apps can serve one or more of our many needs from mobile phones today: entertainment, productivity, social networking, games etc.
While cloud computing is seen as an over-used term, combined with mobile phones it leads to innovation. Being able to access all the playlists one has plus the photos, videos documents and almost every other data through the mobile phone and that too without exercising its memory is indeed revolutionary. 10
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All of it can be stored in the cloud and can be accessed on the phone anytime and anywhere. So it really doesn’t matter whether the phone is lost or memory is reset, the data is always available with you. In India downloading or buying free mobile phone app is a recent trend, reason being that most of the apps are developed for English speaking people. 2012 will see apps targeted at Indian consumers who are more comfortable with their local language like angry birds coming in Telugu or Malayalam versions. Apps targeted at a specific demographic profile can be a trendsetter in 2012. More of localized apps which can be used at every nook and corner can be seen coming around. It would not be a surprise if the kirana store near us would be using a customized app for his store. We are witnessing a second inning of E- commerce in India as many major changes are taking place. The Indian consumer is mature and is not hesitating in shopping for most of the products online, but as these decision can be made very handy and on the go with a mobile rather than on a PC screen sitting at home, most e- commerce companies have launched or are working on their app. 2012 will see e- commerce shift in hands with the mobile phone. With voice recognition technology coming ahead apps will become not only smarter but safer too. So when we are viewing a movie on mobile phone all we need to say is pause or play to command it. Most marketers have realized that one of the best ways of reaching the customer is through their mobile phones. With the launch of the host of GPS and location based apps, retailers will now broadcast their deals and offers to the prospective customers around the stores by tracking their location. 11
Same for the media houses they want to reach out to their costumer in every possible way. First they used to sort out their consumers on the internet through website but now with the growing popularity and scope of the mobile phone apps, they are launching customized apps, which stream the latest news, updates and advertisements. While most of the leading media houses have launched theirs apps, 2012 will see them also targeting the international audience. Consumption of news and entertainment will see a sharp rise in 2012. With the rise of the culture of social networking, emails are losing their importance in informal aspect. Quite interestingly, instant messaging apps are gaining popularity rapidly. It can be seen that Blackberry’s USP BBM (Blackberry Messaging) service, makes it very popular amongst the youths these days. No one needs to send an email if it can be catered by instant messaging services. A few years back we Indians discovered how to use internet banking and were overjoyed by the facility it provided to us in terms of making online payment, paying online bills etc. but now it all can be done on the go with the help of mobile apps. Many of the banks have already tried it because it is both easy and safe too .With so much happening around in the mobile app world, 2012 is going to be a forward looking year in this segment: unexpected can be expected as it follows the cult of technology. Many leading brands are also expected to launch their version of the app stores, offering mobile phone users greater and varied choices. What remains is to see the shape the expanding market takes and if one day it will take the place of the giant called internet.
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Impact of Monetary Policy 2012 : Towards a stable future. BY REETODITEE MAZUMDAR
The Reserve Bank of India (RBI) after raising key rates thirteen times in the last three years, finally relented in the Monetary Policy of 2012. While a rate cut was expected, given that inflation numbers had gone down, the ‘dovish’ stance of the RBI came as a surprise. The RBI reduced repo rate by 50 basis points or 0.5% bringing it down to 8 %. The Marginal Standing Facility (MSF) was also raised from 1% to 2%. What do all these figures and their reduction imply?
This is now raised to 2% giving them an option to borrow more at a cheaper rate. These rate cuts now go hand in hand with a reduction in the CRR as well. The Cash Reserve Ratio stands at 4.75%. This means that the banks have more money to lend to businesses and individuals. While this is good news for the banks, does it translate to cheaper funds for the common man and entrepreneurs?
The Repo rate is the rate at which banks borrow money from the RBI. In reducing the rate from 8.5% to 8%, it simply means that the banks can now borrow from the RBI at a cheaper rate than before. The Marginal Standing Facility (MSF) is an additional borrowing avenue for the banks from the RBI. This rate stood at 9.5% before the cut and is now 9%. It is always at 100 basis points (1% point) above the repo rate. Under MSF, the banks could earlier borrow up to 1% of their net demand and time liabilities.
What the banks can do and are planning to do, is to reduce their base rates. IDBI, for example, has already reduced its base rate by 25 basis points. Other banks will follow suit and reduce their rates by 25 to 50 basis points. But most of the banks will want to reduce their deposit rates before they reduce their lending rates. This means that for the common man, the deposits will earn a lower rate of interest. By reducing these, the banks will reduce the hit that they expect from lending at a lower rate.
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The RBI governor D.Subbarao is very much in favour of what he calls ‘transmission’ of the benefits. Despite the RBI indicating that there is ‘no room’ for further rate cuts, some banks are planning to wait and watch, hoping for more rate cuts. However, there may not really be any more rate cuts. And the rates may rise again, eroding the current benefits. This is because , while the RBI looked at the inflation figures and forecasted March inflation figure to be around 6.5%, there is a possibility that the rising oil prices may curb the well meaning policies. Currently, the government subsidizes and regulates petroleum product prices. The subsidy burden was increased this year with the Budget 2012 increasing the provision for oil subsidies by 15000 crores to Rs. 68481 crores. Beyond a certain point, the government cannot continue giving subsidies and if the oil prices keep rising, the oil companies will hike oil prices thus leading to an increase in inflation. This may be aggravated by a weakening rupee value against the dollar, making oil imports all the more expensive.
Simply put, the banks will pay out less on the deposits in order to charge less interest on the loans they give out. Or they can, according to analysts, wait for the reduction in rates to attract borrowers. This is where entrepreneurs may take advantage of the recent developments. Given the slow state of growth and high interest rates earlier, credit growth had flagged considerably. It was to boost this that the RBI cut the key rates, and expects the banks to pass on the same. For example, automobile rates will become cheaper as well as construction and infrastructure loans because such industries are more volume driven and cheaper rates are expected to be offset by greater volumes. The government in particular wants banks to focus on retail customers and SMEs as opposed to a uniform rate cut across the board. This bodes well for those who might want to set up a business or are in need of loans to expand their ventures. The government has already ordered state run banks to reduce their rates and private banks will have to reduce rates as a consequence if they do not wish to lose customers. 13
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Then, there is also the issue of government borrowings. The fiscal deficit has risen to 5.9% of the GDP as opposed to the targeted 4.6% and according to the Budget 2012, the borrowing program has been increased by INR 60000 crore to 5.96 lakh crores. Higher government borrowing means that the banks and the RBI will have to buy up the government securities and this will crowd out private borrowing because the banks will have less to lend out. Simultaneously, if the RBI is forced to buy and thus finance the borrowing, the money supply in the system will increase thus leading to inflation and forcing the RBI to raise the key rates again to curb it. While these factors cannot be ignored, Mr. Subbarao doesn’t completely eliminate hopes of a future rate cut. He warns of ‘upside risks of inflation’ and cautions against such expectations. Clearly, Mr. Subbarao is focusing on the growth angle.
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As always, a monetary policy needs to be complimented by a strong fiscal policy. While the Finance Minister Mr. Pranab Mukherjee has made promises such as curbing subsidies to 2% of GDP, the ground reality remains bleak. With a higher borrowing program as well as the delay in implementing such progressive reforms such as the GST, the growth story may hit a roadblock. The RBI however has taken the first step and it remains on the government to follow through. In conclusion, entrepreneurs for the present have a favorable climate. If the public sector banks reduce rates for SMEs and retail lending even by 25-50 basis points as per the plans, the cost of funds for starting a new venture will be lower. Unless a new crisis upsets the applecart, the monetary policy is favoring credit growth and entrepreneurship and it may stay that way for some time to come.
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QUALITY HEALTH COVER FOR ALL IS INDIA READY FOR IT? BY TANISHA PREET KAUR
India, since its independence, has achieved significant improvement on all health parameters. The average life expectancy in India has nearly doubled to 66 years owing to the low cost basic health care delivery system, which comprises of : • Primary, Secondary and Tertiary HealthCare centers across India. • A pharmaceutical industry which deliver drugs at costs which are among lowest in the world. • Institutional Medical works comprising Central Govt. Health Services (CGHS) for white collar workers. • The Employee State Insurance Corporation (ESIC) covering blue color workers. Healthcare Infrastructure in India Public health care system in India, at present, has a three-tier structure to provide health care services to the people.
Primary Healthcare (First tier) is provided through a network of Sub centers and Primary Health Centers in rural areas, whereas in urban areas, it is provided through Health posts and Family Welfare Centers Secondary Health Care (Second tier): In urban, semi-urban and rural areas, secondary care hospitals provide beds for admission of common illness. Moderately severe illness that needs hospitalization is treated here. Public sector district and Taluka hospitals provide care for the poor patients. These facilities are manned by specialists and MBBS doctors. 15
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Tertiary Health Care (Third Tier) refers to a third level of health system, in which specialized consultative care is provided usually on referral from primary and secondary medical care.Key features include: Specialized Intensive Care Units, advanced diagnostic support services and specialized medical personnel. It is provided by medical colleges and advanced medical research institutes. Private health care systems in India has shown remarkable growth in the last two decades endowing India as one of the largest private healthcare delivery systems in the world. According to NSSO 60th Round Morbidity and Healthcare Survey, the household healthcare seeking behavior is shifting from the public towards the private sector. • 80% of the people use the private sector for outpatient curative services as a first line of treatment in both urban and rural areas. • Around 60% of the population today actually prefers to undergo hospitalization at private hospitals.
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Financing Healthcare in India With this, strong healthcare delivery system, healthcare financing has also seen multiple dimensions in India. The govt. initiative of providing Tax free allowance of up to Rs. 15000 per employee for medical expenses per annum has increased the public expenditure, from 0.9% of GDP in 2003-04 to 1.06% of GDP in 2009-10. on healthcare which used to be lowest in the world. Roughly Rs. 42,000 crores is being financed by this route. Household savings Household savings in India account for Rs. 90,000 crores of Healthcare expenses per annum (at approx. 2.5% of GDP). India has one of the highest household savings rate globally estimated at 25 %-30% .
The Liquid assets are essentially nurtured for 4 main expense categories, ‘Perceived Risks’ Higher Education of Children Marriage of children Health Retirement According to the Survey by NCAER and Max New York life 81 % of the households save for children's education as a key priority. 69 % households saved for old-age financial security. 63 % households said they kept aside money to meet future expenses like marriage, births and other social ceremonies. 47 % households saved to buy or build a house and a similar percentage saved to improve or enlarge their business. 22 % households saved to buy consumer durable. 18 % save for meeting expenses towards gifts, donation or pilgrimage.
Household Saving pattern in India Liquid Assets, like Bank or post office deposits & cash at home Physical Investments like real estate & gold Financial Instruments
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Consumer perspective about role of Health Insurance In India HI is seen as a financial product by insurance industry but from the most important Stakeholder-the end consumer’s perspective, there is a lack of clarity and understanding about the concept of HI. The majority of the consumers neither understand their healthcare needs nor fully comprehend the degree of protection or amount of coverage they would need in future. As a result, they either under-insure, over-insure or do not insure at all.
Health Insurance -latent market, Undeveloped but capable of developing Health Insurance Industry at a glance HI (Health Insurance) in India has registered an annual growth rate of over 30 % year on year since 2002-03. The total healthcare industry, pegged at approximately Rs. 1, 53,330 Crores in 2006, is expected to grow over Rs. 3, 53,700 crores by 2012. HI premiums which were less than 3% of the healthcare industry in 2006 are expected to constitute 5% of the healthcare industry.
Each consumer has his own unique perspective depending upon his level of awareness gained from his environment- the media, peer group, family, friends and advisors etc. Some of the policy holders are influenced by the fact that HI would provide them protection against unforeseen medical emergencies but at the same time there are people who adopt HI as a tax saving instrument. For HI Consumer buying behavior Consumer buying behavior can be classified into four distinct categories: • Routine Buy: One who buys under the advice from the agents and are not concerned with policy details or benefits. • Impulse Buy: One who is convinced temporarily about the benefits but forgets about it soon after the purchase. • One who opts for HI after hearing some health hardship faced by a relative or a friend. • One who seeks information about policies from agents for evaluation and purchase.
Along with the above statistics there is a bitter fact that HI Industry is an undeveloped market and this can be attributed to the perception of Indian consumers in the context of health. Indians perceive health in two dimensions: First, treatments are done only when things turn serious. Small aliments are generally ignored or self treated. Second, medical emergencies are perceived as ‘rainy day’ emergencies for which they save. More than 60% of people who had a medical history rely on personal savings. For Indians , savings are their ‘assets’ to be used only in case of emergencies. When not so used ,they provide returns. Consumers thus do not see the ‘real value’ in switching a part of his saving portfolio to pay a premium of a HI, which may or may not be actually used. Along with this, there is no denying that with people opting for private hospitals, healthcare related expenses are growing. So they look out for the ways which can help them to save a little on health expense because money saved on this can be used for overcoming other risks. The key trigger for them for purchasing HI will be peace of mind that results in medical expense planning and that aspect will make them to think about purchasing a HI.
All these factors point to process efficiencies among the stakeholder groups. These deficiencies have created an overall adverse impression of the HI industry.
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The way forward To have a flawless HI sector there is a need for Industry initiatives • Product design innovations • Investing in consumer feedback and Research • Investing in consumer education and agent training. Another positive impetus would be working towards the strengthening of healthcare delivery infrastructure and evolution of standard Treatment protocols with cost indicators. But above all Indians have to come out of this sense of complacency - that sense of ‘nothing has happened so far’ which leads people to assume that nothing untoward is likely to happen in future too.
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Role and Importance of Marketing for a Startup BY GHANSHYAM BHAMBANI
The success rate of startups is very low and there are many reasons. One of the most important ones is the ineffective marketing. A lot of promising startups end up not seeing the light of day, simply because they didn’t pay sufficient attention to the marketing of their product/service. Many entrepreneurs believe that if they build a great product/service, they will be successful but that is not true. Though there are exceptions to that, but generally, building a great product will get you to the starting line only. The product does not guarantee that the race is won.
Not only will they not buy, they will ask for specific details. Similarly, an investor will fund only if the marketing plan is complete, specific and implementable. An example of a startup , where sufficient importance is not given to marketing, is where, a technical founder(s) tries to do both the product development and marketing. That is generally not a sound idea as it diverts and halves the attention of the founder(s).
The importance of marketing for startups can be understood by the fact that investors do not fund until and unless, the entrepreneur with a good business idea, also has a good, if rudimentary, marketing plan. Many business plans do not have anything more than a few marketing terms sprinkled within them, and that does not suffice. Would anyone buy, sight unseen, a vehicle merely by the description ? 20
So what is marketing for a startup? At the very least, it is a lot more than advertising. Marketing has its role everywhere, even before the startup launches its product/service. The role of marketing in a startup can be divided into three stages:
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strengths and weaknesses. It also involves estimating the influence of economic factors on the business, the probable substitutes for your product/service and so on. Stage 2 : Pre-launch marketing First of all the entrepreneurs should ask themselves as to why a customer would buy from their startup instead of one of their more established competitors, and what would compel the customer to buy now and not wait. Answering these questions are necessary to get the immediate sales needed to keep the revenue stream flowing and to keep the startup afloat.
Stage 1 : Before building the product/service: If a person gets a good business idea he becomes over optimistic and confident even before testing the viability and demand of the product/service. What is important here is that the entrepreneurs should first implement a market research exercise and test the idea thoroughly. The entrepreneurs should try to understand the problems that the customer is facing and how can their product/service solve that problem. What are the modifications that must be made to their product/service offering to make it more appealing to the customers ? The product then goes through a series of iterations until the entrepreneurs feel that they have a sound concept to build upon.
People buy what is most familiar to them. Even if there is a superior product, customers still have a tendency to buy from those they already know. So, it is important to make customer aware about the product/service as much as possible. It is never too early to start the pre-launch awareness. One purpose of pre-launch marketing is to support the sales effort later. In the effort to increase awareness the entrepreneur should focus on networking and building relationships rather than just circulating the business cards. It is important, in this day and age. to get the website ready and treat it as a part of pre launch marketing plan so that as soon as the product is launched , customers can easily find more about the product/service and the company. Besides, websites are a proven sales and marketing tool. However, the entrepreneurs must be careful as the quality of the website will reflect accordingly upon the business, in the minds of the customers.
Market research consists of finding of discovering the exact demand for the product/service, judging the ideal price point for the product/service and gaining intelligence about the competitors, their 21
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In conclusion, though marketing is very important for all startups, it should be noted that it can never substitute for a great product/ service and if a product/service is truly great then it will be easier to market it.
Stage 3 : Post launch marketing: One of the greatest challenges facing startups, is convincing enough potential customers that they should trade their hard earned money and limited time for the product created.
Both the product and its marketing are equally critical for the overall success. Sometimes, the product goes beyond what marketing campaign promised but when the marketing gets ahead of product, the problems are harder to solve because the product/service is not able to meet customer’s expectations.
As compared to ‘pre launch’ marketing which focuses on generating awareness of the product/service, the focus of ‘after launch’ marketing is to use that awareness created through ‘pre launch’ marketing and convert those marketing efforts into sales. It is very important for the startup to get the initial sales because it will help the startup to remain afloat and grow bigger.
This ultimately leads to dissatisfied customers bad mouthing about the company and its product/services. Hence, entrepreneurs should try and strike a happy medium between the two extremes.
Post launch marketing also involves retaining the customers and preparing and analyzing the sales reports and focusing on performance. It involves gaining awareness about the mistakes made and improving upon them.
We can learn from companies like Facebook who used marketing to gain massive adoption. Here are the steps Facebook took for post launch marketing: ♦
Initially the Facebook made the site exclusive to people who had ‘.edu’ email address only, to create an artificial scarcity. Thus it branded itself as a social networking website for the college students. Without spending any great amount. Facebook targeted its initial users and positioned itself for them.
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They targeted the influencers like the students of Harvard and Stanford.
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When a university wanted to use their own school social network instead of Facebook, they launched the service at surrounding schools so all the students’ friends would be on Facebook. This encouraged the students to influence the faculty to support Facebook’s social network instead.
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The Next Mark Zuckerburg in the Making: Sahil Lavingia BY GARVEET MODI
Sahil Lavingia is a 19 year old student and “stuffcreator” at University of Southern California. He makes applications of iOS and web for the sake of fun and enjoyment but turns out they are profitable as well! He’s the man behind the sparks of Dayta, Color Stream and Rmmbr among many others. For Sahil designing and coding are his passion and he likes to fulfil the needs and wants for revolutionary applications for fun and profit. In twitter, Sahil introduces himself as, Sahil Lavingia (Making @gumroad. Past: @pinterest founding team, maker of@turntablefm for iPhone. Design-centric fullstacker. San Francisco, CA )
During his school days, he came up with application ideas and commissioned a freelance developer to develop them for about US$50. He then sell them for US$1,000+ in marketplaces. He did this for about twenty times and by the time he was 15, he made about US$100,000. 23
In August 2011 he left Pinterest (a Virtual Pinboard) to start his own venture named “Gumroad”. Sahil Lavingi walked away from Pinterest and the stock that he would have received because for him, “working on something that you created yourself is so much more fulfilling than working for someone else.” About GumRoad: Gumroad Makes Selling Anything Dead Simple. They say - Sell anything we can share. “Gumroad could potentially grant everyone the ability to sell stuff, online or offline. Use the channels you already have with your fans and followers. You are the distribution. No store needed," says Gumroad. What Gumroad is actually trying is to make transactions frictionless and simple. It overcomes complicated forms and pay walls. The clients just give a link, and their potential customers purchase the digital or physical good immediately by following the link. The click and buy process is so easy and simple that there is no requirement for account signup and approval by the admin. People use it as a platform to sell things that they have created on their own including digital media of songs, albums, video clips, images, and personalized items and in fact all those things which can be uploaded or provided a link to. Gumroad earns
MACONZA
MAY 2012
5% of the value put by the seller and 25cents out of each transaction. There are no registration fees, membership fees, or fees to withdraw the products put on the site. What makes using GumRoad even simpler is the fact that it simply requires signing in with Facebook (901+ million people have FB account!) or Twitter and provide the link to blogpost, iPhone application invite link, Spotify playlist, Instagram, scribd or other research papers or whatever you can, in the entry form. Gumroad service asks the seller to set any price and option to require an email for purchase and/or upload a photo. Sahil Lavingia thinks that Facebook and Twitter can become the new marketplace/store-front and thus, in his view, Gumroad has the potential to be a huge sustainable (even billion dollar) company in the coming period. The young entrepreneur raised US$1 million in 4 days of incorporation from biggies like Max Levchin (founder of PayPal). Now he is receiving a flurry of term sheets from other wealthy Venture Capitalists for even more investment. In an interview with Andrew Warner, founder of Mixergy.com, the home of the ambitious up-start ‘Shut up and Ship’, Sahil said that over the past three years he created around 25 new products. According to him, people are fickle minded and they remember the creator for one awesome product, and not for the other bad things that were launched. In February 2010, Sahil created a website called oneweekapp.com during his one week off school and worked on programs and applications from one Sunday to the next Sunday. Thus, within one week, he released the application and submitted it to the app store.
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Everything from thinking up the idea, doing all the design work, coding it, and providing it to the app store with the icon, the website and the FAQs on the app, was done within one single week. He set up a little page that said ‘starting on Sunday’ and it was his commitment to the public to complete it a week that helped him to achieve this and thus he says “Committing publicly really works. The deadline made me way more productive than I could’ve been. It’s a really good motivational tool.” Sahil purchased the site freelance.com to watch TV shows online for $400, and flooded it with ads all over. Revenues started flowing and he made US$100 a day off it. Cumulatively, he made over US$10,000 and sold it later for $8,000.
At another project, he set up a site, wrote a blog post, put it on to hacker news, tweeted about it and even created a twitter account for it, all in two hours. Within two hours, it resulted in over 20,000 visits and 10s of thousands of notes were created. A sense of its value was realized after the mad rush of posts all over the cyber space.
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MAY 2012
On Importance of not being perfect he says, “I think perfection is kind of bullshit. I can’t name a single thing that is perfect, really.” In another interview, Sahil also said that he blogs about almost everything, although most of the stuff that has to do with entrepreneurship and start-ups. Generally, the content of these blogs have to do with a problem he has seen. “Everyone knows Mark Zuckerburg because he was in the social network. I’m going to be the next one, bam, that’s all you need to say. It would be awesome if I have that kind of influence and that impact and that cash.”
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MACONZA
MAY 2012
The Editorial team of Maconza : Swapnil Tewari Sujitha Reetoditee Mazumdar Dhruti Badami
We would like to thank the following people for their contribution Tanisha Preet Kaur Sunil Pillai Ghanshyam Bhambani Garveet Modi Cover design by : Reetoditee Mazumdar
For enquiries, feedback or suggestions, please drop a mail at : maconza.magazine@gmail.com Disclaimer The writers’ views in the articles have been influenced by various writers and sources. Thus, readers are expected to cross check the facts before relying upon them. Much care has been taken to present the facts without any error. Still, if errors creep in, appropriate feedback will always be welcome. The magazine is NOT MEANT FOR SALE and hence, no part of this magazine should be used without the prior permission of Macon, EE-Cell, IBS Hyderabad. 26