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(Source: Chiot’s Run)
[Published on Pluggd.in]
Founders of consumer businesses inevitably face the dilemma around when to start scaling their companies. Sometimes the decision is outside of their control, for example if their service starts to grow exponentially, but more often scaling is a deliberate decision and involves up-front investments to drive and support growth, such as filling out the management team, growing the sales and/or engineering teams, and increasing marketing spend. Because any of these activities result in increasing expenses and cash burn ahead of revenue or usage, the decision around when to scale is a critical one.
Our contention is that entrepreneurs should demonstrate product-market fit before investing in scaling up. In the Indian context, where new web services are cloned on a weekly basis, waiting to get to product-market fit can be difficult to do. Founders may feel pressured to scale prematurely, justifying this decision with reasons such as “it’s a land-grab” or “first-mover advantage”.
Scaling out prior to product-market fit can be very risky. In many cases, you have to be ready for a high-burn scenario – access to capital becomes a key constraint here, as evidenced in many of today’s ecommerce businesses. You may also cycle through lots of management (especially sales and marketing) if you haven’t got the product, value proposition and messaging right. And you may lurch around from product to product or positioning to positioning as the pressure to deliver financial results grows. All of this can distract the company from answering a critical question – do customers really value the product or service you are offering?
So, what is product-market fit? While there is no ‘silver bullet’ definition, we typically look for evidence that customers value the product or service offered by the company and engage in a manner that indicates that they cannot live without the product. For example, we look for signs of the following:
- Traction: Large and accelerating growth in monthly active uniques (MAUs) and daily active uniques (DAUs). Note the importance of the word ‘active’.
- Scalable customer acquisition: Ability to acquire customers cost effectively through scalable (and ideally organic or viral) channels
- Repeatability/Engagement: High amount of repeat visits from existing users and signs of ‘value generating’ behavior e.g. repeat purchases for an e-commerce site, songs streamed for a music service or community engagement for a social networking site.
- Virality: High k-factor
- An initial set of users who will pay money for what you have
Here are some examples from within our portfolio of companies that achieved product-market fit – along with illustrative metrics in each case of how this was measured:
- TutorVista: increasing length of stay / subscription and declining acquisition costs
- Itzcash: increasing organic transaction volumes
- Indian Energy Exchange: acceleration in trading volumes and number of participants trading on the exchange
- LivingSocial: Rapid viral adoption and repeatability of economics and customer / revenue ramp across cities
There are several different approaches or strategies to accomplish product-market fit – the blogosphere is full of wise advice from founders and investors on this subject (see below). However all these approaches hinge around a common core, namely proving that there is a reason for your company to exist before spending more money amplifying your message or building your expense base.
- iterating constantly, starting with a minimum-viable product (a la Eric Ries and Lean Startup)
- focusing maniacally on actionable metrics (a la Dave McClure and AARRR)
- keeping a low-burn with a small, nimble and technically-oriented team
- getting detailed feedback by directly observing users interacting with your product (a la Scott Cook of Intuit)
- clearly detailing a hypothesis on your value proposition and disproving and proving that through actual data
- making things people want (a la Paul Graham of Y-Combinator)
- optimizing customer sataisfaction, perhaps through tracking Net Promoter Score (NPS)
Once you have product-market fit, you have evidence of a strong value proposition for consumers, advertisers and other customers. This provides a foundation for a viable business model. Now you can – and should – scale.
[Published in Yourstory.in]
There are two levels to this question:
a) Is there value in vernacular content?
b) Is there value in online vernacular content?
(My thoughts below the image)
a) The first one is a clear YES, which wasn’t the case a few years back. In 2007, English publication readers constituted 10% of total print media readership, but garnered 60% of the total print ad-pie. Today, English still constitutes 10% of readers, but its share of the ad-pie has come down to 40%. In the same period Hindi grew from 20% to 30% of the ad-pie. To put things in perspective, the print-ad pie is ~$1B today, so Hindi print alone is at $300M of ad-revenue and growing at 17-18% annually. More data in a recent article in FE.
According to media buyers’ estimates, during 2007-09, the ad rate commanded by English newspapers was roughly 10x that of non-English dailies. This rate has contracted to about 8x and is further expected to come down to 5x or 4x in the next three years.
b) Value in online vernacular content is not showing in terms of monetization yet. Online advertising is gaining traction but it is mostly English today. However, it is encouraging that vernacular is building up readership – Dainik Bhaskar recently announced 200M monthly pageviews. Advertising spend on any media tends to inflect after reach (readership) crosses a threshold, and the signs for online vernacular are in the right direction.
Thus the answer to the question in the title of this post is “Yes, it seems so”, but it won’t be clear for some more time. Of course, when the answer is obvious to everyone, the opportunity no longer exists.
Takeaways for entrepreneurs:
- There is an opportunity in vernacular: Online vernacular readership is increasing and will increase faster as internet and mobile-data access continue to penetrate deeper beyond the English-speaking population.
- Monetization will take longer: Be prepared to keep a lid on the costs while the market shapes up. Good news is that the online ad-ecosystem is in place for English and given will bring $$$ to vernacular if there is an arbitrage opportunity in pricing.
- Local plays an important role in vernacular: 60%+ of ad-revenues in vernacular-print come from regional sources (regional fmcg brands, education institutes, local government, etc). The content too has a very local taste – print publications customize their content every 25 kms to fit into local dialects and preferences. So keep localization in mind in terms of content and as well as monetization.
- Think mobile: With cost of devices and access continuously falling, mobile might be the primary channel for accessing vernacular content in India, unlike English.
- Define your space: Large offline publications will always be faster and cost efficient in building content. You need to define your space but still be meaningful to a large enough population.
- Think out of the box, especially if you are looking to raise venture funds. Content production is a linear businesses. Can there be a platform play where the effort/cost of building content is not directly proportional to content monetization?
- Finally, keep an eye on vernacular even if you run an online transaction business (like ecommerce). If vernacular audience is valuable to an advertiser (online or offline), it is likely valuable to you as well, so don’t close your doors on them by having an English-only website. The “access” value proposition of ecommerce is also more suited to the non-metros of India, which constitute ~50% of the orders today.
Please add your thoughts in the comments section.
[Published in Pluggd.in]
“The technology itself is not transformative. It’s the school, the pedagogy that is transformative”
- Tanya Byron, psychologist
As part of our upcoming founder-focused breakfast on education startups, I wanted to lay out my thoughts on the education space, which has proven to be a productive area for us through our investment in TutorVista. This post is focused on K-12 education businesses.
After Educomp and Everonn built large businesses over the last few years, many education-focused businesses are emerging, piping existing and new content into classrooms or homes using new technology platforms like web, cloud, tablet and VSAT. However, it is debatable if any of these businesses have measurably improved student learning outcomes.
Technology Adoption Lifecycle
Tech-enabled education businesses still have not crossed the chasm (they fall in region I and II above). In fact, of the ~80K private schools in the K-12 segment in India –only ~12-15% (# of schools doesn’t take into account # of classrooms per school, Educomp claim: 8000 schools) of them are using technology enabled solutions.
The key reason is that the perceived technology is being adopted by schools who buy those solutions that are vendor financed or paid for by the “early adopter” parent. To get to the main stream market (pragmatists, conservatives in the diagram above) a “whole product” needs to be stitched together that addresses the pain points of all the stakeholders of the education ecosystem effectively. Here are the pain points I see in the market:
- Parents pay for everything but still haven’t seen any impact of the solutions on the child. Simply a technology enabled solution can’t intrigue them for long
- Schools have benefitted from higher fees and more admissions with no investment. However with no measurable outcome, they have not been able to sustain high fee or any differentiation
- Students do not learn anything fundamentally different from their text books
- Teachers are negatively impacted by long execution lead times due to extensive teacher training
Though school as a distribution channel not only provides instant credibility but also a captive base of customers to the business, this channel might take time to scale since schools appear to be fatigued by a number of vendors offering similar solutions.
So how can a business create a bandwagon effect so that the product becomes a standard, a solution and a convenience?
Businesses need to have a strong value proposition by identifying the key intervention point (s) as well as by addressing some of the pain points mentioned above. Additionally they need to continuously innovate. They should:
- Make intervention easier by tapping areas such as designing student feedback platforms for teachers /parents, customizing remedial content and developing out of school learning aids through asset light platforms since these are relatively untapped opportunities. It is essential to have closer involvement of educationists, rather than just technologists, since educationists would help create products that blend with the core needs of existing educational setups.
- Design content which is easy to grasp, fundamental in nature and more interactive than text-book content. Elements of high quality animation or gamification makes learning more experiential and activity-based and hence more engaging for students.
- Figure out direct to customer (student/parent) “Edmodo”-like distribution channels to reduce friction in scalability.
- Provide affordable solutions to the school/parent. Although the parent is fairly price elastic, it is essential to cut across the affordability criteria for the ~80K schools in the country. The price can be a small percentage (up to 5%) of the school tuition fee or tutor fee depending on the distribution channel. Customer response/engagement can also be tested by giving the solution for free in the first 3-6 months of product launch.
- Develop simplified tech platform frontends so that the teacher/student doesn’t need much hand-holding. Should involve basic steps that can be easily understood by a non tech savvy person.
- Keep track of the key regulatory changes going forward since this space is unregulated. Introduction of CCE* (Continuous and Comprehensive Evaluation) is an example which has created new business opportunities .Some organizations such as Bureau of elementary/secondary education and CBSE, ICSE, IB, SSC, HSC, state education boards might be worth monitoring.
Potentially interesting areas for intervention (with examples):
- K12 curriculum: This is a relatively crowded space but requires high quality interactive content through scalable asset-light technology platforms (cloud/tablets/web etc.). Idiscoveri is doing some meaningful work in this space through non tech platforms.
- Student assessment/CCE*: These include adaptive learning methodologies with feedback, including remedial content so that teachers/parents understand the weak areas of each child. Additionally technology as an enabler can potentially improve efficiency of the teachers. Educational Initiatives is a relevant example in this space that resonates in my mind.
- Out-of-school tutoring: These solutions include self-learning interactive content/tutoring through tablets/web/cloud. Tutorvista, a known name in this space and also one of our erstwhile portfolio companies, was acquired by Pearson in 2011.
- Extra-curricular/counseling: Such models can be difficult to scale since this isn’t the basic requirement of the parent or the school, yet there is a possibility of building brands aimed at holistic development of the child. Edusports, a company that designs a K12 sports curriculum is one example in this area.
Though one might argue that the impact on the schools and the students would be more visible in the long term, there are a bunch of progressive schools such as Shri Ram (Delhi), La Martiniere (Kolkata), and Presidency School (Bangalore) etc. who seem to understand, appreciate and adapt meaningful products which should transform the pedagogy in the long term. As far as commercial schools are concerned they would follow suit once the models are proven.