Archive for the ‘Entrepreneurship’ Category
Though I have no experience in pitching to the VCs, I have written this based on my theoretical knowledge, and based on the inputs given by some of my acquaintances. My experience always taught me that people always want things very plain and simple. Though there are a hundred things to take care of in a business, a VC is looking forward to check some simple points in a firm under consideration.
Any VC will look forward for the following simple points:
- Who are you? What did you do till now? What do you intend to do?
- What is your future and why should I partner with you in your future?
- What is in it for me in the future and in how many years?
- Does it suit my investment portfolio and strategy?
Most VCs look for a very strong team that have the relevant domain and management expertise. In fact, this is the only factor that can offset any weaknesses in the business, because a strong team gains the trust of the investor that they know where they are going.
- Who are the Key Founders?
- Who are the Key Advisors?
- Who are the board members, if applicable?
A Quick View or an Elevator Pitch
What does the company do?
What problems do you address or how do you add value to the customer?
What is the target market size?
Why will the customer use it?
Why do you want to do what you want to do? It is about ‘Why?’.
What do you want to achieve in this endeavor? It is about ‘What?’
It is important to see that the Vision and Mission statement realistic, and doesn’t include everything under the sun.
Market and Industry Environment
- Industry or Area you operate in
- Different market segments
- Target segments, Size and Growth rate of the Target segments
- Critical factors in this market, and the target segment
- Situational Analysis of various stakeholders – customers and other participants, competition, suppliers, and distributors, etc.
- Who is your customer? (This is probably the first and the most important question that one has to answer.)
- Why will the customer use your solution?
- Why will the customer pay you?
- What are the alternatives available to the customer?
- Road-map of the evolution of the suite of products and services
- Assumptions made
- Existing Competition
- Future Competition
- What sustainable competitive advantage you have?
- Important revenue and cost drivers of the business
- Pricing and Different customer offerings
- Key partnerships and alliances
Financial till date (if applicable)
- All the audited financial statements – PNL statement, Balance Sheet, Cash Flow, etc.
- Break even path
- Assumptions made
Until here, the document explained all the details about the business background, achievements till date, and the possible market strategies with some assumptions. Now, the document has to convince the investor by showing why this is a good business to invest. One can do that by:
- Showing the competitive advantage that the investor will gain
- Which are the possible companies that might acquire you and the reasons?
- What are the valuations of similar companies in the past after a particular duration?
Capital Required and the Return on the Investment (ROI)
Most VC firms have a strategic advisory panel that will help on the capital required and how to manage the funds. But, an entrepreneur who is paving the future is also expected to know how much money does he need and the reasons. If the business model is decently good, the best way to convince the VC is always to talk about money – Return on Investment.
- Amount of capital needed and the rationale behind it
- Rationale for the allocation of the funds
- Return on the Investment at different time period
- Exit Strategy for the VC
Risks, Gaps, and Assumptions
It is always important to do a detailed study of the best probable investors for your start-up based on the domain and other factors such as the size and stage of the start-up. Following is the list of some top VC firms in India based on the number of investments made till now, it is not based on the value of the investments. Most of these VC firms invest in a diverse portfolio of companies across different verticals like consumer, technology, healthcare, finance, energy, etc and some of the VC firms are interested in only some verticals.
- Sequoia Capital India
- Intel Capital
- Helion Venture Partners
- DFJ India
- Norwest Venture Partners
- Nexus India Capital
- NEA IndoUS Ventures
- Canan Partners
- Kleiner Perkins
Myntra.com is currently among the top e-commerce companies in India. Recently, they started above the line (ATL) advertising with the television commercial(TVC) below. As most of us know, if you have the pockets, a TVC is probably the best way to create awareness of your brand in India.
Myntra.com TVC on air
Going on TV is a very big investment for any brand. A lot of strategic thought has to go behind such move. Most of the e-commerce websites in India lack awareness. There are a few successes like Flipkart, which got people’s trust with time and which initially sold only books – considered to be a safe category to buy online.
For people to buy you, they should know you first. So, Myntra.com might have thought that trying to increase awareness through word of mouth(WOM) or through some BTL promos will take a lot of time and may never happen. This gives a chance for competition at any time in future. So, the awareness also helps them strategically in avoiding a ‘deep pocket’ competitor in future.
One of the biggest problems to buy online is ‘trust’. Lot of research proved that people generally trust a brand that comes on TV. So, Myntra.com achieved both awareness and trust with this TVC, which I think is an initial success. I am very sure that Myntra must have received an exponential increase in the number of hits, and registered users. But, people will forget things very quickly in this cluttered world. Myntra has to follow-up the consumers with banner ads, direct marketing, etc. to be in the consumer’s mind. This helps them to achieve the first target – getting established in the consumer’s mind. But, the bigger question is – how to make users buy stuff online?.
Beginning to be looked as a brand, Myntra could afford to give heavy promos without letting the consumer doubt Myntra. They only hope that with such heavy promos, and cash back guarantees people will start buying online. I think Myntra should look at their promotions more strategically. Instead of providing promos to buy online, it would be good to direct the promos towards letting the consumer experience buying online. In India, most consumers still haven’t experienced buying online. So, if one needs to be successful, one needs to attack this area.
Promotions should have a strategic direction
Myntra should direct their promotions activity more towards categories that will help consumers make choices easily. Some of the categories may be: track pants, shorts, simple backpacks, slip-on’s, flip flops, etc. This will make the consumer go and buy categories which are relatively easy to decide and not so high-involving category as apparel. Once consumers buy low-involving categories like above, you begin to take their trust to the next level. They trust you as a brand, and they trust you to buy online. Once you’ve achieved this stage, if consumers are still wary to buy apparel online, strategic directed promotions should be set up to help consumers first experience buying apparel online. For example, you may give a t-shirt free if consumers buy above 2500 rupees. Give some online promotions for any in-shop purchases. This will make consumers take that risk of choosing apparel online as it is for free. If you deliver as promised to the consumer, you will be embraced by him.
I believe it is only time this happens in India. With India being a relatively young country, I think e-commerce boom is just a few years away. It is time that we take this business very seriously.
Related Posts: Behavioral to Attitude Marketing – http://brandalyzer.wordpress.com/2011/07/31/a-to-b-and-b-to-a-marketing/
I’ve read this article in Electronics Bazaar magazine and I thought
it would be good to share some of the insights here.
The world today sees India’s economy growing into what’s expected to be one of the biggest global economies by mid-century. Although India is still viewed by manufacturers as an economy where the risks are higher and the business environment more problematic than other rival Asian countries, India does offer some advantages for investors/manufacturers. Analysts say that the legal framework in India that protects investment is one of the best in Asia. The country also offers an abundance of technical and managerial talent. The demand for electronics hardware is increasing at a rapid pace and is estimated to reach US$ 400 billion by 2020. At the same time, the gap between the demand and local manufacturing will widen and can reach US$ 300 billion, if the necessary measures are not taken on time. The major sectors driving the growth of local electronics manufacturing are telecom, consumer electronics, automobiles, defence, medical electronics, and the EMS industry, the last of which is expected to grow at a CAGR of 9 percent over the next five years.
India is changing fast. There is no comparison with what it was 10 years ago. So, what prevents manufacturers from setting up production on Indian soil? Here we will discuss some of the major challenges in setting up industries in India. There has to be a willingness and sense of urgency in the concerned government departments to solve these issues.
The burden of licensing and involvement of the bureaucracy has significantly reduced in India, since 2000. In terms of the companies’ perception of the burden, India is rated better than China and Brazil on business regulation. Licensing is no more a requirement in India, after liberalisation. Only in few areas of manufacturing or services is licensing applicable, as in the case of 3G services, etc. But there are a lot of other formalities that have to be fulfilled before any industry can be started, which is a waste of effort, time, and money. A few examples are: registration with the department of industries, clearance from the Pollution Control Board, registration under the Factories Act, registration for VAT/CST, excise, service tax, etc.
There is a lack of a standard procedure and no clear cut information about the formalities that are required to start manufacturing. Startups are in the dark as to what license is required and what are the different requirements of the government departments. Industrialists depend on consultants for such information to avoid penalties and legal hassles.For example, a lot of complicated procedures need to be followed for an import/export industry.
Companies also complain of the time it takes to secure a wide range of approvals. One manufacturer reports that after many years of operation in India, the company has just secured an “approval agreement”, which is considered a routine agreement in any other country. Companies are largely in agreement that one of the most significant regulatory burdens in India is related to labout legislation, which remains a significant drag on business. Companies say, they need one common body to handle all license and registration related issues. This body should periodically educate the industry of the list of requirements by different government departments.
India’s commercial taxation system is unusually complex, especially where indirect taxes are concerned. While income tax, excise and customs duty are set by the Central Government, states and municipalities also levy their own taxes and provide discretionary exemptions to attract investment. Although the tax policy and many tax rates are set by the Centre, states and municipalities also levy their own taxes, which can overlap with state taxes. A manufacturer has no option but to take professional assistance to understand the tax structure.
The rate of taxation is very high in India as compared to that of other countries. The tax structure is also quite complex as many different types of taxes are levied, like CST, VAT, BED, cess, service,tax, surcharge, entry tax, TOT, octroi, etc, and it becomes very difficult for a small industry to understand and comply with these regulations. Both the implementation of and compliance with these tax rules is difficult, as the regulations are not very clear and there could be different interpretations leading to legal proceedings. Besides this, tax rates are different in different states, giving rise to regional imbalances and confusion.
The duty regime applicable to special economic zones(SEZs) is at par with imports; for example, on STBs, the BCD is 5 percent for imports as well as what’s produced in the SEZ. This is a big disadvantage for manufacturers in India. Presently, units operating in an SEZ are at a disadvantage when making DTA sales because of differential tax structure. While DTA units and EOUs are exempted from payment of custom duty, the SEZ units have to pay customs duty for the full value of the product. This is discriminatory, and SEZ units are not able to compete with EOU and domestic units, as they pay customs duty only on components imported and not on the whole product, as is the case with SEZ units.
The government is aware of the problem related to the complexity in taxation. It is working on the the implementation of goods and service tax(GST) to overcome this problem. Under GST, there will be one single tax and this will replace many different taxes being levied at present. The government should, however, ensure that the rate of GST is reasonable and at par with other developed countries. Implementing GST should be simple and maintaining records should have the least bureaucratic procedures. If the rate of GST cannot be made at par with the developed countries, there should be incentive for exports or some sort of trade barrier for imports to provide a level playing field to Indian industry.
GST should incentivise and promote local manufacturing, which is not the case today. The inverted duty structure should be put in place more dynamically. This means that the possibility of lower duties and taxes on inputs and components needs to be considered, whereas the duty rates for final products should be enhanced. This will reduce the cost of components and will encourage local manufacturing. Also, duties on input components
and finished goods should be aligned.
The special additional duty (SAD) on finished goods being imported is either
refunded or exempted, and now rules are being framed to make the refund of SAD faster and more efficient. And in the case of local manufacturing, central sales tax , which is in lieu with of SAD, is neither exempted nor refunded. There should be a consideration where SAD and CST are treated at par and have no differentiation. Also, SAD on raw materials , components, and machinery are eligible for Cenvat credit. however, in practice, these cannot be effectively utilised and, hence, keep accumulating in the balance sheet. There should be a consideration in the structure where these credits can be well utilised. If a product is manufactured in a SEZ, all FTA incentives should be extended as the product is still “physically” manufactured in India.
A decision to manufacture in India is quite likely to be affected by the government policies. Government policies are one of the major deterrents to entrepreneurs starting their ventures. There are many registrations required before an enterprise can be started. All the concerned departments have a bureaucratic attitude and harass the entrepreneurs rather than supporting
them. These policies are also complicated and difficult to implement. A lot of valuable time of the enterprise is wasted in complying with these complex requirements. Besides, tax rates are high making Indian products expensive compared to imports from China, Vietnam, Indonesia, Malaysia, and Thailand.
Even today, after so many years after liberalisation, in schemes for exports like EHTP, EOU, etc, one has to go through too many rules and regulations.A lot of time and money is spent on collecting and presenting data to authorities like EHTP, EOU, etc. The import and export rules are also very cumbersome and consignments are held at the airport for the slightest of discrepancies. Proper procedures should be in place to ensure smooth clearance of consignments without any delay. Customs and excise matters should be customer friendly to avoid bottlenecks, and above all the governments should keep the industry informed about the schemes and plans in the industry.
Weak infrastructure remains a significant cost factor for companies, although most infrastructure indicators are showing an improvement. For the efficient running of any industry, good infrastructure is of prime importance. Infrastructure helps in improving efficiency, quality, cost, and service. The basic infrastructure for any industry comprises good roads, power, water, telecommunications, finance, raw materials, components, and logistics. In India, availability of these facilities is not upto the mark even in established industrial estates.
The most significant infrastructure constraint for manufacturing is the unreliability of power supply. On an average, a company can expect nearly 17 significant power outages per month, against one per month in Malaysia and fewer than 6 in China. At the same time, power costs are high, and transport is also a constraint with road and rail systems deteriorating. This adds to two primary costs: delays in distribution and delays at ports. Transport delays increase the cost of distribution, although companies believe that other factors also contribute to distribution difficulties. This is one of the areas where Chinese have an advantage with their first class infrastructure.
Due to poor infrastructure, it takes days to clear imports and exports, resulting in further delays in customer dispatches. Imports are constrained by inadequate facilities at ports of entry. There are barely 2000 miles of expressway throughout India, and distribution costs are correspondingly high.
The government has to speed up its building of highways. The targets of the National Highway Development programme should be achieved. India’s budget for building and maintaining roads is less than that of its neighbours. China invests 2.5% of its GDP on roads as compared to India which invest only 0.3% of its GDP on roads. This results in higher freight costs in India. Power shortage and costs are really high, which creates a big challenge for local manufacturers to be competitive. Power shortage in rural areas is also hampering the penetration of consumer electronics products in rural areas.
Over the last 15 years, India has changed much faster than many predicted. Yet, things are still not to the level that allow us to compete on a global scale. Unless a concerted effort is made by the industry and the government to resolve these problems, India cannot compete with its rivals.
References: Electronics Bazaar magazine
India is currently considered the largest emerging market for microfinance institutions (MFIs). Commonly described as the bank for the poor, MFIs offer three basic services: savings, credit and insurance. Setting up an MFI is not a Herculean task – provided your priorities are clear.
Before setting up a microfinance institution, it is imperative to come to a decision about one basic premise: do you want your MFI to be a non-profit or a for-profit institution?
Non-profit MFIs are set up as trusts or societies with the aid of grants and donations, registered under the Societies Registration Act, 1860, or the Indian Trust Acts, 1882. In fact, most such MFIs started out as NGOs.
If you decide to setup a for-profit MFI, there are two models to choose from: a non-banking financial company(NBFC) or a co-operative. Unlike an NBFC, a co-operative is entitled to take on savings accounts. A co-operative brings with it ownership, your customers are also owners.
Get a License from RBI
If you are setting up an NBFC, the Reserve bank of India (RBI) is the only authorized body that’s registered to grant youo a license. For this, you will need to raise Rs. 2 crore in capital. The process usually takes three to four months. You can also buy existing licenses of defunct companies from the RBI. This should cost you onwards of Rs. 25 lakh. Check http://www.rbi.org.in for more information. To obtain a license for a co-operative, contact the Registrar of Companies.
Decide your operational model
Most MFIs use groups for the intermediary financial transactions. But there are different way in which you can work with these groups. MFIs are broadly classified into two models: Self Help Groups (SHGs) and the Grameens. You must also decide the financial and non-financial services that you will be willing to offer. To better understand your customers, conduct a market survey. Also, it is advisable to run a pilot program for around 1 year, which will help you build the cohesion and helps you better tailor your products and services to your clientele.
- You may require 5-6 field workers, people who actually meet and interact with the target customers. It is advisable to choose the field workers with ethnic profile from your customer base.
- You may require few people to look after the accounts, and manage the MSME.
Get a bank loan
MFIs fall under the ‘priority sector‘ identified by the Government of India. The pilot program helps to gain the bank’s trust and put you at an advantage as you approach the banks. As always in business, it is advisable to source your funds from two to three different banks. Below are a few links that may be useful:
This post will be followed up with more details about the operational models of MFI.
Flipkart is an ecommerce website which sells books in India. It was setup in Sept 2007 and it has over 400,000 titles with a whopping 5 million monthly uniques, and a new round of cash from Accel in the bank.
If you are an avid book reader there is a good chance that you have heard about or bought some book from Flipkart. I have used a few of the other websites and without any doubt Flipkart is the best in this league of booksellers.
Why is Flipkart the best?
The most important feature for the websites in this business is ‘Search’. It should be quick and accurate.This is one of the reasons why Flipkart is so successful in comparison with other book sellers. Except for Flipkart and TheStorez all the other websites fail in this vital area, as they either take long time to return search results or have some connection problems in due time. Once I search my book, the next thing is ‘how easy it is to read the description, previews and buy the book?’. Even here Flipkart scores above all the other websites with easily noticeable links like ‘Add to Cart’ and a single click to the check-out page. Also, Flipkart integrated Google Books preview which facilitates you to read a few pages from the book.
The Indian Consumers: Earn their trust
Understandably, the Indian Consumer is not very comfortable in buying online, not even a handkerchief. The Indian Consumer is very cautious about spending money online due to a mix of reasons like
1. Lack of Trust:
If a person is cheated in an online buying, he spreads a message saying ‘Don’t buy online’, which affects your business too even though the problem is with your competitor.
Most of the websites throw ‘Server Error’, ‘Application Error’ and all sorts of application problems without a proper message. This not only irritates the customer but he loses the trust on your website and might never come again. If you don’t serve your customers well, somebody else will.
With many competitors and the second-hand book stalls which always have the best-sellers outside, pricing is a very vital aspect in this business. Be honest with your pricing, don’t change the price too much in the process of check-out. It makes the customer feel that you are not honest and he immediately loses trust on the website.
3. Unkept Promises:
Most websites boast of money back guarantees and exchange facilities which are not properly implemented.
4. Payment Mechanism:
A small survey done by me among a group of 14 people taught me that people like to buy small when they buy online. Some of the first timers told me that they don’t mind buying online if the book is cheap, but the problem is some of the websites ask for a minimum bill of hundred rupees and don’t ship free. This is where we can target the first-timers and gain their trust and emotional value.
5. Wrong User Interface:
I observe that most of the websites display a category of books like photography, fiction etc… I don’t know the rationale behind this but this is going to be easy for your customers. Most people easily remember titles, and authors and this why you should present them with titles, authors, and categories with an excellent ‘Search’.
6. What You Show Is Not What You Deliver:
Most of the websites sell duplicate products and the customer has no way to go back. Almost all of my friends have complained about this at some point or the other. However, in the books business there is very less to be deceived, unless you get a pirated copy or the wrong title.
Have Customer Care Centers:
Take the case of the Crossword store at the end of the street. The advantage these stores have is they serve as customer care centers, in case if the customer has some problems while using their free home delivery, or phone a book facilities. This is not something the esellers have which makes it more difficult to gain the trust of the customer. So, you should be really good at your delivery service and make the customer say ‘Vow!!’, and one such example is Zappos.
Use of Viral Marketing:
Reduce the cost of some low price best-sellers and use the social networks like Facebook to promote your offers. This is a golden oppurtunity for you to prove that you deliver the promises and gain the customers’ trust. Also, gifts and group accounts can lead to some traffic when implemented in the right season.