I recently read an interview of the CEO of SKS Microfinance, once the leader in microfinance industry in India. One statement caught my eye:
But when we embraced the for-profit model, we should have discarded the larger-than-life claims and mission statements like empowering the poor and eradication of poverty. The for-profit model doesn’t go with this.
In the startup world, I believe lots of consumer startups are faced with a similar choice - should we focus on acquiring users or generating revenue?
Within the startup community, highly influenced by tech news and blogs like Techcrunch, users are cool while revenue is not. I have even come across entrepreneurs for whom revenue is a taboo subject.
Are users and revenue really mutually exclusive?
If you think so, you should read this Paul Graham's post. Here's an excerpt:
The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users. That's a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users.
A startup has to and should make money. The ultimate goal of any for-profit startup is to make money and everything else is a means to achieve that goal.
And if you are still not convinced, here's a hypothetical question for you:
Suppose you loved acting and wanted to take up acting as a profession. What would be your goal - to become a movie star or a theater artist?
Why Indian distribution won't do away with the salesman?
In my previous post, I talked about the broken last leg in the Indian distribution system, one which is fully dependent on the salesman.
In developed markets, technology takes over the salesman's job. There's no manual order taking by a salesman. Whenever the store wants more product, an order is electronically sent to the manufacturer. In industry jargon, its a Pull based system - the store pulls or requests for stock whenever it wants.
Can't the same be done in India as well? Don't Indian companies realize the benefits of technology.
India has somewhat migrated to a Pull based process when it comes to organized retail (stores owned by chains like Reliance). Its called the Modern Trade. They could have called it anything but they chose to call it Modern, may be because Indian companies do realize the benefits of technology.
But when it comes to millions of kirana stores spread across the length and breadth of the country, the industry might not want to do away with the salesman. Both the manufacturer and the store owner are comfortable with the current Push based process. Why?
Because having a salesman is the only way manufacturers can push products to the store. And if there's no salesman, the store owner would have to manage inventory himself, which now the salesman is doing for him, for free.
But there's more to the story.
In modern retail, manufacturers fight for shelf space which is limited. More shelf space means more customer eyeballs, which might result in more sales. But in the kirana world, manufacturers fight for the limited working capital. Its the kirana store owner who sells and not the customer who buys. The bigger the piece of the working capital pie a manufacturer grabs, the smaller it leaves for the competitor. And once the store is overstocked on a product, it would obviously try to sell it first. This is why the salesman becomes important. The only way a salesman can push more is by nurturing a personal relationship with the store owner, something which technology isn't capable of doing right now.
This is the reason Indian companies are focusing on utilizing technology to enable the salesman by giving them handhelds and doing away with the paper based ordering.
When was the last time you visited your neighbourhood kirana store and found the product you wanted out of stock?
In most likelihood, the store owner would have asked you to come back Tue or Wed next week. You go back next Wed and there's still no sign of the product. You might have thought the store owner is trying to trick you.
This is how the process is designed to work:
Salesman physically visits every store in his territory as per a plan called PJCP (Permanent Journey Cycle Plan). The plan would be something like 'Visit Store X every Tuesday, Store Y every alternate Tue.'
Once at the store, the salesman takes a look at the stock carried by the store and then tries to oversell to the owner. They negotiate and the salesman takes note of the order.
Salesman comes back to the office and hands over the order sheet.
On the next scheduled delivery date to the store, the products get delivered to the store.
Salesman collects payment on his next visit to the store and takes the next order.
The biggest problem being faced by the industry today is that of salesmen not following the PJCP. The reasons are many - bad weather, bad traffic, absenteeism, unrealistic plan, lack of motivation etc.
So if the salesman doesn't turn up to take order, the store wouldn't get its stock, which means lost sales for both the store and the manufacturer.
Is there a solution to this problem? So how does it work in developed markets? Can we do the same in India?
A few months back, Apple's CEO said this during an analyst call:
“You know of course I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries. We have a business there, that business is growing, but the sort of the multilayer distribution there really adds to the cost of getting products to market”
If Apple with its deep pockets can't do much about distribution in India, imagine the plight of Indian companies who don't have much of an option.
It came as a rude shock to me as well when I was running a startup and interacted with lots of Indian consumer goods companies. Having worked with US companies before, this experience opened my eyes to a totally different world.
Distribution in India is not only multi-layered but also highly unorganized and manual. A typical consumer goods manufacturer will have the following layers:
A Carrying & Forwarding Agent (CFA) responsible for one or more states
Whole-sellers responsible for a region within a state
Retailers
On the face of it, it looks like only three layers but the complexity arises because none of these layers is owned by the manufacturer, and the adoption of IT is abysmal.
While big manufacturers have arm twisted their CFA's and to some extent whole-sellers into adopting systems, its the last mile that's the weakest link in the chain.
So how does this last mile distribution actually happen in India? that's the subject of my next post...
Continuing from my previous post about dearth of successful travel startups, I now take a shot at what goes into planning a trip. I'd focus mainly on tourists and not travelers. Why? see one of my earlier posts.
The first and the most important trip planning task is choosing a destination. The inspiration for this might come from almost anywhere - family, friends, web, newspaper, magazine, travel agent etc. Add time & budget constraints and we have a destination in mind.
So what are these time and budget constraints? Simply put, these are just two:
How long does the to and fro journey to the destination take?
How much would the to and fro journey cost?
The latter is the more important of the two, else we would have had billions of international tourists annually and not just 1 billion.
Once a destination is decided, the next most important trip planning task is to optimize the hygiene needs of the trip. Hygiene needs are just two - transportation & overnight stay. Optimizing these two essentially means the following:
Minimize the to and fro journey cost.
Find the best stay option (hotel/bnb/rental) within budget.
This is where most of the successful travel companies and startups operate, the likes of Kayak, Skyscanner, TripAdvisor, Airbnb.
Everything else is a desire and not a need.
With these hygiene needs being catered to by the existing global players, should startups try to disrupt this need space or take a shot at the desire space?
World Tourism Organization recently reported that annual international tourist arrivals crossed the 1 billion mark for the first time in history in 2012.
With 1 billion+ international tourists and billions of domestic tourists and so many passionate travelers, why don't we see many successful travel startups? Is there more to the travel market than what meets the eye?
Probably Yes.
The bulk of any trip spending is made up of Transportation (especially intercity) and Hotels. No wonder airline ticketing and hotel booking were the first two markets to witness the use of technology - Global Distribution System (GDS) followed by Online Travel Agents (OTAs). This was followed by TripAdvisor that captured the entire non-booking space.
And then came Airbnb - a marketplace for vacation rentals and private rooms.
Is this all to travel market - flight/car/hotel booking and hotel reviews?
This is my first post on travel based on my experience of running a travel startup Farinto.
The Tourist vs. Traveler debate has been on since ever. So what exactly is the difference between the two, if any at all.
I found these 2 quotes that might help (source: 1 & 2)
“The traveler sees what he sees, the tourist sees what he has come to see.” – G.K. Chesterton
Tourists leave home to escape the world, while travelers leave home to experience the world.
Still confused? Lemme take a shot.
Remember the last time you traveled or went on a holiday. Did you notice anyone with soiled clothes, a backpack and a SLR camera stand out from the crowd. She is the Traveler.
Who then is a tourist? The remaining crowd...
So if you are a travel startup, who should you go after - the crowd or the outlier?
What if our ancestors never documented anything? There was no written word?
What if all you could learn was from your immediate family and friends?
We grew up being told that 'Knowledge - the more you share, the more you gain' but I never realized its significance until recently.
Having co-founded two startups in the past 3 years, I have now realized, though the hard way, the importance of at least two things - content and network.
This excerpt from a post by Ev Williams aptly captures the thought:
Sharing of ideas and experiences is what moves humanity forward. The Internet is the greatest idea-sharing tool ever imagined, but we’ve only scratched the surface of what it’s capable of.
