Raj Shankar's Blog, page 19

Start-ups must leverage market-places

For most small businesses in India, the launch of large format stores, especially ones from the big corporate houses sounded scary. In parallel when online stores started expanding their logistics and marketing, it looked like doomsday. But incidentally there has been some revival in hopes!

While large format stores are able to give cost benefits to customers, they are not able to match the customer intimacy of a corner store. I am sure this applies to a lot more small businesses than ‘kirana stores’. Hence this threat has, in reality, turned out to be a lot less threatening than expected.

On the other hand, the online stores have actually enabled a lot of small businesses to expand their businesses. Everyone is surprised! Instead of a flipkart.com or amazon.in / jabong.com / ebay.in (amongst others) killing small businesses with price gains, they have actually enabled small businesses reach more number of customers. Unless you are one of those small businesses which is still outsmarting the customers who are unaware of cost differentials or are information starved, all others are actually benefitting from this trend. If you are one of those who is still exploiting your customer simply because of information challenges, then you deserve the onslaught from good quality competitors. For all others who truly add value to customers in some fashion, the online market places seem to be a boon.

You can now see reports of how small businesses are gaining because of their listing on the above mentioned online stores. It is also interesting to note that the above stores especially flipkart.com and Amazon.in are aggressively trying to bring on board a lot of small businesses. Read a sample news on this: http://economictimes.indiatimes.com/industry/services/retail/small-vendors-net-big-gains-as-e-tailers-spread-wings/articleshow/37491429.cms

As a start-up are you trying to still duplicate the above businesses and fight them or are you leveraging them enough? Building it is useless, unless you have a very clear reason to do it!

As a digital start-up are you leveraging the market-places available to you? Why build something that is already available for a variable fee?

Think about it!

Budget 2014 and Start-ups

It looks like the current Finance minister likes the word “start-up” more than any finance minister of the past! Otherwise why will he make reference to it so many times during the Budget speech 2014! We can boldly say that the government is definitely seeing the start-up community, the MSME’s in India as a powerful contributor of socio-economic development. There are many interesting things that the Finance minister mentioned in his talk, here are some of the key items of interest to the entrepreneurial folk:

A 10,000 Crore Fund for fuelling entrepreneurship in the country. This fund should find itself being distributed as equity, soft loans, etc
Strengthening the nation wide network of incubators and accelerators: This should go a long way in improving the early stage support that entrepreneurs badly require
A 100 Crore Fund for encouraging entrepreneurship in our villages called the Village Start-up Fund: This is absolutely needed if we don’t want our cities to break down. It is also important for us to tap into the real potential of India. Rural Entrepreneurship is an absolute must in a country like India.
A 200 Crore additional funding for supporting entrepreneurship among the SC/ST youth. This is an interesting way to move the backward communities out of that status.
A special focus on helping build the next generation of technology product companies – something that India has really fallen behind in, especially in the IT Industry. A 500 Crore Fund to support potential software product start-ups is a great boost – hopefully we should see some Google, Apple, Microsoft, Facebook, etc come out of these initiatives!

While there are many other things that could be of interest to the industry, the start-up ecosystem in the country, especially the entrepreneurial youth of this country should be cheering.

In the past, plans have been made along similar lines, but not so specifically to tap into entrepreneurship. Hence we (all those involved in Indian Entrepreneurship) are all hoping that these policies will be turned into actions and they will truly reach those who need them the most. If the government can implement this, India can truly reap the benefits of her demographic dividend!

Yes, one more thing which has got missed in the large numbers is: The plan to ease the bankruptcy framework in India. Now, if there is one thing that can truly catalyse the entrepreneurial spirit in this country, it is this. Because, if it is easy to close down a failing enterprise, people will be more open to experimentation. This can also make the long held baggage (‘social stigma of failure’) become lighter and hopefully go away.

Over all I think this budget has been very pro start-ups and I think the government has read the pulse right. The entrepreneurship and small business ecosystem in this country badly need a boost. They can create the millions of jobs that India urgently needs.

With the budget fairly interesting and forward looking, all are now eagerly waiting to see how these policies are going to be rolled out. This requires policy to be turned into actionable plans and then staffed through the right people to ensure they see the light of day.

Well begun is half done, but half done isn’t really great either! Let’s all work along to make entrepreneurship thrive amongst the youth across the country.

What do you think about Budget 2014 and Entrepreneurship? Do share your views.

Finance for Entrepreneurs: What are Assets?

All of us like to accumulate assets. This inherent nature exists amongst entrepreneurs as well. Hence it is not uncommon to see entrepreneurs and small business owners buy assets when they have money. But this kind of asset creation has not helped too many entrepreneurs and small business truly scale to their potential. Why do you think this happens?

First things First! Let us understand what ‘assets’ are, from an accounting perspective – they are objects that we purchase ownership to. Businesses attempt to own things – equipments, land, buildings, cars, etc.,. All of these appear on the ‘Asset’ side of the balance sheet. But on the asset side you also see such entries – cash, inventory, receivables, etc.,. While all of the above are what a company owns, they fall under two categories: short term assets and long term assets. The short term assets are also called ‘current assets’. These are assets which the business can realise value from in the near term (typically one accounting period, usually one year). For example: cash, receivables, etc.,. The long term assets are those that the business derives value from over a long period of time (multiple accounting periods, usually more than one year). For example: land, building, equipment, vehicles, etc.,.

Assets are created by enterprises by incurring expenses. But these expenses are not fully chargeable to the Profit/Loss Statement (https://rajshankar.wordpress.com/2013/11/01/finance-for-entrepreneurs-what-is-a-profit-loss-statement/ ) in the same period in which the expense is actually dispensed with. The reason for this is that, to ensure fair accounting practice. Hence it is only good to spread the cost of the asset over the period through which it provides value to the company. Lets take an example: An equipment costs the company 10 lakhs. The estimated life of the equipment is say 10 years. If that be the case, the enterprise will derive value from the equipment for 10 years, utilise the equipment to produce for 10 years. In this case, how is it fair to charge the entire 10 lakhs to the Profit/Loss statement in the year in which it was incurred. One it doesn’t seem fair because the equipment is contributing to the revenue over the ten years and second, if charged in one year will make that year’s performance look poor. This will also lead to avoidance of taxes as every year the enterprise can simply keep purchasing assets to show expenses!

Hence it has been agreed that the cost of the asset will be charged over the life time of the asset. This yearly charge is called depreciation, a non-cash expense. Only the charge that is applicable for this year is taken to the Profit/Loss Statement as expense (Depreciation). It is called ‘non-cash’ expense simply because it is not actually spent in the year in which it is charged.

What kind of assets should start-ups try to create? This requires some thinking. But a couple of simple rules can help: Create assets that can help the enterprise generate revenue in the future. Create assets only when they cannot be borrowed, begged for, or stolen. (http://rajshankar.wordpress.com/2014/05/13/entrepreneurial-skills-beg-borrow-steal/ ) Now this varies from business to business. In case of a IT Services enterprises, it could be intellectual property, or people, R&D, Organisational knowledge, etc. In the case of a clothing company, it could be machines, factory space, etc.,.

Well thought of investments into assets can help a company grow fast. If investments are not prudent, businesses will end up with assets which may become valuable but will not enrich the future revenue generation capacity of the enterprise. Example: A small IT firm invests in a large land and building. While the property will appreciate in value, it does not necessarily translate into future revenue from software services!

Think about it!

Start-ups: Dare to price this way?

While there are innumerable inputs that one can give an entrepreneur on how to price a product or service, the one piece of advice that never shows up is: asking customers how much they would pay! Sounds strange to you as a start-up? Are you wondering if it will look crazy? Do you think they will under quote and cheat you? If you are saying any of these to yourself upon answering the question, please wash your face and re-think again.

Everyone wants to practice value pricing. But the trouble is we are not sure about what ‘value’ means. Hence it gets really difficult to identify the right price. But won’t it be easy to show case your product to chosen users and seek inputs on what exactly is their benefits or perceived value? Won’t it better if you hear from the horse’s mouth, what the potential benefit is, in tangible terms? Are they saving money as you assumed or it is that they are actually saving effort? Are they buying because it is faster and more stylish or are they purchasing because it is lighter and has longer battery life? Hearing from the user about what they value can provide valuable insights to pricing product and services.

You will be surprised at how gracious customers are. While some are mean and want to break you down by negotiating hard, most people are fair and want you to continue providing the service at fair price. They understand that their vendors cannot survive without making money, and hitting them hard is not good for them too.

Asking customers what the price should be is a daring practice. May be we need to ask them about their benefits, perceptions, etc.,. rather than price directly. But in any case, they are the best people to give us indications of what the product or service should cost to them. In fact the rational that they give for pricing should be treated with great care as it will give a start-up enough information to price at the optimum level.

This practice is worth exploring simply because, most start-ups under price themselves and stay stuck at that level. They simply cannot rise out the lower gross margins with which they start. Using all other strategies does not work, once we are perceived wrong by our customers. Pricing has a tremendous effect on perception.

Try experiments in pricing and use them as potential tools for creation of buzz! How often have you found a company asking you to decide how much you want to pay?

Think about it!

Vedantic Wednesday: Handling Preoccupation

Are you preoccupied? If you are one who answered ‘No’, you are truly lucky, for that group is infinitesimally small. But if you are one who feels that he or she is a victim of preoccupation, then read on!

Preoccupation hurts primarily one thing – concentration. Why? At any point in time a person is involved in an activity. When involved in the action, the mind inside us keeps wandering everywhere else other than remaining here. If you are experiencing this, then you are preoccupied. Examples: Thinking about office work while in the shower, planning for a meeting while eating, wondering about a new character for the next novel while spending time with your spouse.

Preoccupation means there is no concentration on the activity on hand. The mind isn’t where the body is. Hence the action becomes mechanical and through this we lose awareness of the action.

Multi-tasking seems to fueling this fire. Here are some examples:

Trying to feed an infant: Speaking on the phone while we are feeding an infant or giving instructions to what food to cook in parallel are all example of a preoccupied mind

Driving and talking on the phone: Speaking on the phone while driving the car is an example of preoccupation. The mind is constantly trying to move between the conversation and the traffic on the road.

Studying something: While a student is trying to learn a subject, he or she is constantly thinking about who will win the world cup or is wondering what he will buy in case he comes first!

I am sure there are enough instances in life where we are at one place and we are thinking so hard about another that we feel we are actually at the other place and in that situation. This illusion makes us distracted and tired. If only we can remain in the action that we are involved in, life will be happier because we will be more fully engaged

Engagement gives a feeling of completeness. Ask a person who has experienced the thrill of completing a job, especially after being fully immersed in the action – the joy is very different from one who does it as an item to be knocked off the task list.

Lack of preoccupation is critical to real joy and satisfaction. Because if the mind can be kept where the body is, there is greatest involvement in the action and the joy out of such an action is immeasurable.

Think about it!

Entrepreneurs: Outsource your marketing

Entrepreneurs must learn to outsource their marketing! Does it sound ironic to you? Only, if you are expecting the same traditional answer. But having heard this repeatedly from successful entrepreneurs that have scaled, I think it is important for entrepreneurs to outsource their marketing, but to whom? “Customers”

Customers are a start-up’s biggest marketing people. If your initial customers are not excited about your product or service, how do you expect to make the next set feel it? If we keep harping that our product is exciting, filled with passion, deserves to be spoken, etc.,. no one really does. On the contrary, a random blog or review can show up on Digg and become a spoken about topic. It can give you inbound links, raise your appearance on Google organic search, and lead to tremendous traffic which even your paid search cannot assure. How to become that sensation in marketing? Simply by outsourcing your marketing to your customers. How does a start-up outsource its marketing to customers? By delighting them from the word ‘go’. Right from the start, every potential customers (at least the first 1000) must simply be bowled over by your interactions, messages, communiques, products, packaging, engagement, everything! Everything about the start-up must be filled with enthusiasm, delight, energy and possibilities. All of this are ideal ingredients for word-of-mouth. Buzz happens, its rarely created. While buzz can be catalysed, enabled, supported, etc.,. it simply must not be forced. It won’t last. And if it has to happen organically, then the only option is to allow it to be handled by your customers.

As an entrepreneur, you and your team must simply break loose all the boundaries between you and your customers. Make them experience the thrill of buying from a start-up and let them share whatever they have to. Good, moderate, bad, all reviews are potential messages for word of mouth. Simply accept, acknowledge, correct, update and get better with what customers say – they kind of keep giving you feedback and hints about how to make your marketing effective and larger than what you can ever afford.

Great businesses are invariably marketed by customers. Numerous local businesses thrive on local fans spreading word of mouth in local networks and making people visit the enterprises. If small businesses have thrived for decades on local word of mouth, why can’t start-ups thrive on word of mouth, especially with the power of social media.

Think about it!

India’s Youth: Demographic Dividend or Demographic Liability?

In a recent news item I read that India has close to 5 Crores (50 million) youth who are unemployed. Read this article to see this alarming trend: http://economictimes.indiatimes.com/articleshow/37623861.cms  The rate at which we are churning out graduates from our education system, this number will bloat. And this will happen gradually that we won’t notice it, until it happens. Can you imagine what will happen if they simply stay jobless for a few years? Our entire demographic dividend will become a demographic liability. Hence we need to create jobs and at a real fast pace.

Entrepreneurship is really a key tool in this process. Policy makers need to think and apply entrepreneurship in a larger context. Especially from within the educational systems. Most universities in India are still focussed on job creation. With jobs being far and few, this model of education is becoming archaic. We need more discussions on entrepreneurship within campuses. Students need to expose themselves to new trends, new careers, job technologies, etc so that they can explore taking up entrepreneurial initiatives.

It is not necessary that all of them start-up, but they can do things that are different, which can give them interesting jobs, create careers that never existed in the past decade, and may be provide for a few more jobs in their new found space. This approach is essential for society to resolve this ticking time bomb – Youth!

To avoid this time bomb from exploding an turning the much touted dividend and making it a disaster, entrepreneurship should be treated as a socio-economic tool. I am sure this alone will not solve this big challenge, but is going to be a sure tool in heading towards a solution.

Lets all think about this, because while the policy makers come up with a plan, we can do small changes in our own small ways: as parents, as teachers, as friends, as well wishers, as ecosystem players.

A good ecosystem will only enable healthy growth – let’s contribute our part.

Think about it!

Can Governments afford to pay USD2800 to simply have people stay alive?

How is that for a deal? The base pay for all people should be made USD 2800. Read news here: Base (unconditional) Income for all adults: http://www.reuters.com/article/2013/10/04/us-swiss-pay-idUSBRE9930O620131004 All you have to do is simply live and you will get USD2800. This has been an interesting referendum proposed recently in Switzerland. Why are people asking for such a basic pay? It looks like a challenge not only for people in Switzerland, but all over the world – reducing jobs! Why? I think the problem is automation. With more and more activities being automated and slowly robots taking over most mechanical tasks, too many people have not much to do. At the least, the volume of effort has come down, leading to much needed reduction in labour force. Read this article: Machines will do most of the work: http://www.innovationexcellence.com/blog/2014/06/27/the-coming-workless-future/#sthash.DFY39hP3.uxfs

Increasing competition and economic slowing down has caused many organisations to reduce workforce and invest in technology. Everyone wants cost savings. But is all this sustainable? Only time will tell. But in the near term, will governments be able to bear increasing social security costs? If developed countries have this problem, the bigger problem with developing countries is beyond cash – it is about what to do with the young minds. Can you imagine having millions of energetic youths simply sitting at home spending time playing games, tweeting, and FB’ing friends? Sadly that’s beginning to happen. Where’s the end?

Its time policy makers start thinking! Enabling entrepreneurial living and teaching people the spirit behind this is probably the only hope!

Think about it!

Books and Me: Why now is the time to crush it!

Book Title: Why now is the time to crush it! Cash in on your passion

Author: Gary Vaynerchuk

This book is not really about how to build a firm, but it is very close to that. It talks about how to build a brand. While the entire focus is on building a personal brand, I think the fall out of the efforts can really help transform your start-up venture. The case-in-point for this is the author himself. Apart from having created a fan following for himself, he has also built up his family business and taken it to great heights. How? By using social media correctly.

The author is famous for the Wine Library TV that he runs online. He comes from a family business in the liquor business. But I am sure there are so many with similar backgrounds! What makes him different is the passion that with which he built and spread knowledge about wines. Doing this correctly has also led him to become a personal brand. This personal brand building has enabled him launch himself into related businesses, gain book deals, hit the lecture circuits and most of all: enable him live doing what he loves!

I think that’s one big point that the book makes. Today there are enough tools and enough freedom to enable one to channelise their passion. They can use the power of the internet and spread their passions, find others who relate to them, enable others who want to know about them, and even become a celebrity in their own right. One can then actually make a living doing number of related activities around the identified passion. All of this is today possible – thanks to the internet.

The book speaks about how one can do this. Right from selecting the right area, choosing the medium that is most suitable for us, and creating content that can spread like fire – the books covers good ground. But it is not a how to book. It does not talk about how to actually shoot a video or how to write a blog, it does however deal with the thought process behind it, the intent behind how to leverage the social media tools, and exposes one to how it has worked in the case of the author.

There is enough inspiration in the book, directions to get started, and where to head to get started too. But as the author says, it is up to us to make use of this wonderful opportunity that has been provided to our generation and live a fulfilling life. What more can one ask? Make money (more than what one can imagine or at least need) doing what one always wanted to do (life’s task).

If you are an entrepreneurial mind, then this book can quickly show you how to get started. If you are in the advisory / consulting / training space, these can be used by you to establish yourself as a thought leader in your domain. If you are a start-up, you can use these to help your start-up benefit by leveraging an existing shared passion.

Find yours now!

Why VC industry will grow in India?

I think the VC market in India is poised to grow leaps and bounds – simply because of the immense opportunity to invest in entrepreneurs as an asset class. Here are some trends which should provide some support to this argument:

There is a lot of wealth generated amongst people in recent times
People with a fair amount of capital invested in safe asset categories want to explore riskier segments with limited funds (both for thrill and returns)
Traditional investment options are really tapering off (need more creativity from financial institutions here)
The first generation of entrepreneurs (post liberalisation) are cashing in on their investments and ventures

Of all the people who are turning towards venture investing, the first generation entrepreneurs who have cashed out seem the best. They have been there, done that, know the nuances of not having money, have experienced the difficulties of raising capital, can quickly identify opportunities, can spot entrepreneurial talent, and can take risk. Since this number is growing, there is tremendous hope that the VC market in all its forms (angel, seed, early stage, etc) will bloom. Its good for them too!

What do you think?