There has recently been increased discussion, and mainstream press reporting, on the adoption of a ‘marketplace’ model (vs. an inventory model) by e-commerce companies (e.g. these two articles in Mint: Mint 1 and Mint 2).  This discussion reflects an underlying presumption that one model is better than the other.  In framing the issue as a comparison of the two approaches, I think the dialog fails to address the more important question of why this shift is taking place and whether there are other approaches that can address the underlying challenges.

The shift towards ‘marketplaces’ is taking place as companies try to find a new balance between the following priorities:

• Maximizing capital efficiency
• Maximizing customer delight (selection, post purchase experience etc), and
• Minimizing logistical complexity (which helps to maximize scalability)

The need to find a new balance is triggered by scarcity of capital.  As long as capital was freely available, most ecommerce companies focused heavily on the customer experience, which was best served by an inventory model.  As capital tightens, these companies must now balance the need to delight customers with the need to build a viable business.

What are marketplaces?

Let me start by defining what I believe to be true online marketplaces.  These are platforms that enable a large, fragmented base of buyers and sellers to discover price and transact with one another in an environment that is efficient, transparent and trusted.

• Efficiency is a function of liquidity (enough buyers and sellers) and an effective price discovery mechanism (e.g. an auction).
• Transparency is ensured by applying the same set of rules to all participants, and because buyers and sellers know who they are dealing with.
• Trust is provided by features such as buyer and seller ratings, reviews, and integrity / guarantee of payment.

Marketplaces are difficult to execute against because they require adequate and simultaneous liquidity on the buyer and seller side. Once adequate liquidity has been established and the ‘flywheel is spinning’, these businesses exhibit strong network effects (because a market that has the most buyers will attract more sellers, and the increasing base of sellers will in turn attract more buyers).  So once a marketplace becomes dominant, it scales organically and often exhibits ‘winner take all’ characteristics.  Additionally, because marketplaces are essentially technology platforms that provide tools for buyers and sellers to participate and a trusted environment that facilitates price discovery and transactions (vs. actually being responsible for fulfilling transactions), they can scale very rapidly.

We’ve seen all of these dynamics play out at close range as a result of our investment in the Indian Energy Exchange (IEX; www.iexindia.com).  IEX operates an electronic market for power in India and has emerged as the dominant power exchange in the country with deep liquidity.

The take-away is that when you get marketplace business models right, they are profitable, scalable, defensible and highly valued.  Which is why contrasting the inventory model with a marketplace model makes for an exciting debate.

The inventory model

In India, there is no question that being in control of the product (i.e. having physical inventory) enables a superior post-purchase consumer experience.  If you have the product in your control, then (assuming your systems and processes are robust) you: (i) have visibility into your stock level, (ii) know where the product is physically located, and (iii) control the pick, pack and ship process.  This means that you minimize the likelihood of accepting an order only to later discover that you don’t have the product. It also means that you can optimize dispatch time.  The bottom line is that being in control of the product enables you to deliver faster and with higher accuracy, and respond effectively to customer inquiries about shipping status. Given the correlation between delivery times and return rates that we’ve observed (i.e. long delivery times are clearly correlated with high return rates), this is really important.

The problem is that being in control of the product has meant that companies compromise capital efficiency – because they buy product from vendors up-front, thus tying up capital in inventory, while at the same time exposing themselves to inventory mark-down risk.  This can get ugly – which is why it makes sense to explore other approaches, one of which is a marketplace model.

Marketplaces in ecommerce – how different are they really?

The reality is that most of the marketplace models we see in ecommerce are not ‘platforms’, as described earlier.  For example, in ecommerce marketplaces the prices are fixed, not discovered, and the ecommerce company is responsible (from the customer’s perspective) for several aspects of the post-purchase experience, such as fulfillment and customer service.  The reality is that to the customer, many of these marketplace companies look identical to inventory-led ecommerce businesses.  In other words, these models are simply one possible response to the constraints and challenges of traditional inventory models.  And the marketplace model is not without its downsides – for example shipping costs are higher because multi-product orders are fragmented across vendors and shipped separately.  And this in turn may lead to customer dissonance because a customer won’t receive their entire order at one time.

There are other solutions [Note that for purposes of this discussion I am not considering FDI related implications on company structure.]

Other possible ways of mitigating capital intensity while remaining in control of the product include (but may not be limited to) vendor credit, consignment sales (where products are in the possession of the ecommerce company but are not paid for upfront) or back-to-back purchasing (where the ecommerce company places the order on a vendor/supplier after receiving an order from a consumer). For example, ASOS, a UK-based online lifestyle retailer, has net working capital of less than 2% of sales while operating an inventory model.  Similarly, Shoppers Stop in India has a negative working capital model – again despite being an inventory-led business.

Focus on the substance, not the glossy headlines

This is a meaty and critical subject for any company involved in online commerce. We’re encouraging our companies to experiment with strategies that resolve the trade-offs outlined in this post because we think companies that successfully do so will have more attractive scale and economic characteristics over the long-term.  The purpose of the post is not to take sides on the inventory vs. marketplace model debate or address the pros and cons of each approach in detail – rather it is simply an attempt to surface the underlying issues that are driving the evolution of how ecommerce companies operate in India.

I think there is a lot of potential and hope, especially now, for founders to start online (only) services businesses. Indian consumers seem to be opening up to paying for online B2C services, where purchase and most fulfillment is online. This trend is a natural outcome of India’s increasing online population (>125M now) and familiarity with online as a channel (20M bought online in last 12 months, 7M of which were non-travel). Barring a few exceptions noted below, this space has historically been challenging but I hope to see that changing in future.

Successful examples of existing online services in India include matrimony (Shaadi and Bharat Matrimony) and also aggregators across categories like travel (rail, air, bus), movies and mobile phone recharge. While the aggregator segment has been more successful because of direct linkage to offline services, it is relatively less interesting (and more capital intensive) because of low absolute margin per transaction and dependence on offline delivery for scaling versus a service which is purely digital in nature.

Subject to a large potential paying consumer base being available, pure online services are fundamentally very attractive to entrepreneurs and investors because of:

• High capital efficiency (high gross margins).

• Become disproportionately valuable (given B2C/branded nature).

• Ability to grow quickly, since they are not constrained by offline buildout (not applicable everywhere).

Here are a few examples below in categories where we are anecdotaly seeing early growth in new online consumer services:

• Education: Online higher education, Online certification and Test prep (very nascent) are showing that consumers are willing to pay and consume online.

• Jobs: Linkedin’s Premium Membership, ABC’s Head Honchos and Naukri’s premium services  are showing early signs of monetizing through consumers.

• Apps: Evernote, Apple iTunes/App store and Google Play are monetizing on an Indian user base – this could be a massive trend given the rate at which smartphones and mobile data users are growing.

• Financial Services: Previously, the web was used primarily for lead generation.  Now, certain types of insurance (Auto, Life, Travel) that are delivered end-to-end online are gaining traction.

• Auto: Classifieds for used cars

It is still early days for these trends – but I hope that the growth continues. If you know of other online categories or businesses which are getting traction, I would love to learn about them – please add to the comments section below.

PS: While mobile operator value-added services (MVAS) is a great example of online services, in my opinion, these services have not really been B2C.  As a result, I am not including MVAS in the list above.  My list also does not include businesses which collect revenue from offline vendors (e.g. Zomato) or have large offline delivery responsibility (e.g. goods ecommerce).

The approach to mobile design and information architecture here in India has been haphazard at best and atrocious at worst. Perhaps this is caused by consumers just being happy getting economic value out of digital services, far outweighing their need for great design.  Perhaps the backend-oriented outsourcing culture has made developers less savvy about creating world-class UI/UX.  Perhaps the featurephone- and carrier-orientation of mobile services hasn’t required good design. Who knows.

I don’t see this as the future of design in India. There is an early but growing sense of good design and information architecture emanating from India-based mobile application developers.   Many of these are competing either on a global level or are targeting smartphone users who expect well designed apps, such as they see from Facebook, Whatsapp, Flipboard, Kindle, Spotify and Youtube.

I like to see a solid design orientation in consumer-facing companies that I look at.  This is an absolute imperative for Web and mobile.  At Lightspeed, we have some companies that are focusing on delivering great experiences, including Fashionara, LimeRoad and Dhingana.  Users are responding well to their designs.

As a benchmark, I think India-based Cleartrip, Zomato, Hike and CloudMagic really deliver on superb design and value. Kudos to the developers at these companies.  I have included some screenshots below – hopefully the developers won’t mind me making use of their app images.

Addendum: Several readers have suggested other well-designed apps in India. I wanted to mention them here as well: BookMyShow, Ola Cabs, PayTM and RedBus.

Zomato

Cleartrip

Hike

Cloudmagic

We have been thinking through how to start and build large mobile B2C businesses, with an eye toward the megatrend of mobile that is slowly building here in India.   Megatrend-wise, the number of mobile internet users in India has grown rapidly (60-100M mobile web users depending on who you believe in) and that trend is likely to continue.

While this megatrend is creating an opportunity to build mobile-first B2C businesses, the lack of monetization methods is a big problem. Stumbling blocks include lack of depth in micro-payment platforms (outside of telcos) and a rather small mobile advertising market.

I believe that mobile-first startups need to keep gross burn low while iterating fast toward product-market fit –  there are two key metrics which I feel need to be optimized early-on and are lead indicators of the value that a business in this space can create:

1. Customer acquisition cost (CAC) associated with a fast growing user base
2. Engagement within the acquired user base

How to drive lower customer acquisition cost:

Low B2C CAC for a quickly scaling user base can mean one or more of the following:

• You have hit a need gap that might have a large market.
• Your product cuts through the clutter and provides an offering much better than competition / substitutes.
• Strong virality or word of mouth referrals which come from a wow consumer experience and/or a well designed social product.

Typically, cost of acquisition needs to be compared against the revenue or lifetime value of a user, but given monetization will take longer in India, absolute low customer acquisition costs are important for the business to grow and sustain. Dhingana, a Lightspeed-backed music streaming service on web and mobile, for instance has spent a minimal amount on above-the-line marketing and has reached several million monthly active users.

What if your customer acquisition costs are not low?

• Initial customer acquisition costs for new products are typically high. As you refine the product, channels and communication costs should improve.  So have a plan for driving down blended (over non-paid and paid channels) CAC.
• Explore acquisition channels that are opening up now: A key driver of TripAdvisor’s success was its understanding of Google SEO much ahead of competition. Social and mobile channels are opening up now and some aspects aren’t yet saturated or very well understood. Take advantage of such channels. For example, Facebook recently launched its in-stream advertising and provides an opportunity because it isn’t very popular yet.
• Think about alternate channels for customer acquisition (E.g. offline retailers for local oriented apps, banks for financial services, publishers for media content, etc.). However, ownership of the customer is always an issue with such channels.
• Figure out monetization sooner, rather than purely growing the user base: Easier said than done, but you might want to identify market segments where there are customers that have a higher willingness-to-pay.

In essence, low customer acquisition cost is a key indicator of a large future user base.

How to drive higher engagement and retention:

After user base growth, engagement and retention are the key indicators of a business’ sustainability.

Poor retention is like a leaky bucket. There is no way you can create or hold value if your service is unable to retain customers. Retention (% of users that continue to use your service) after three months of activation is a widely accepted engagement metric. Flurry recently reported an average retention of 35% after three months of registration across a large base of apps. If you don’t know which side of this average your retention is, you are blind to one of the most important aspects of building a mobile business. A few points to keep in mind when using the above average as a benchmark:

• The nature of your business impacts retention. Flurry’s own data shows the extremes, such as finance apps which average retention of 10%, while news/sports could be as high as 50% after three months. This does not mean you should change your business, but have the perspective when you are benchmarking your business.
• If your user base includes a large mix of older platforms like Symbian (especially in India), then expect your average to be lower than the global average, which has a large mix of iOS that is likely to have better experience and thus retention.
• Finally, this retention number is from developers who cared to install such a measurement tool. Many developers who didn’t would likely be at a lower retention for their applications.

More frequent use of your service makes it more valuable. Flurry reports average usage frequency of ~4 times per week within its sample. The use of game mechanics and notifications are approaches to building engagement. Foursquare is perhaps one of the leading examples in driving engagement through gamification. Tools such as Urban Airship, Badgeville, Bigdoor and Xtify could be useful to use here.

Start tracking engagement metrics as soon as you launch your service. Use tools such as MixPanel, Flurry, Apsalar, Kissmetrics to measure funnels and cohorts. Define core, casual and inactive users, and measure movement between these categories against weekly and monthly targets.

Delivering on these metrics will lead to monetization and sustainability over time:

Drive high engagement today to create valuable users for future: Eventually, a portion of users who you engage could pay for the service. If the service is providing enough value, people in India jump through quite a few hoops to find a way to pay. IRCTC (~20M monthly transactions) and online tax filing (15 M in 2010-11) are great examples of at scale online transactions.

Focus on building engaged user base for better ad-monetization: Overall, there is far more mobile ad inventory in India than there is demand from advertisers. Thus, a business that stands out in terms of user engagement and has an identity within its user base will attract ad budgets. For instance a strong sports-oriented platform could find youth-oriented brands as its takers. iPad has a strong identity and engagement within its user base and ads on iPad in India go at ~Rs 1000 CPM and there is always demand for more. On the contrary, if you are one more provider of mobile inventory, then you are likely to be used for performance campaigns with poor fill-rates and low CPMs.

Good performance is self-sustaining: Your performance on app stores as well as likelihood of getting featured on one improve if you have organic traction (low CAC) and have high engagement. Android for instance optimizes search results based on retention metrics of apps.

More monetization options are becoming available, albeit slowly:

Existing VAS business models are being challenged: While the above two metrics don’t apply as sharply to existing mobile VAS businesses that are monetizing through operator relationships, the wind  is certainly blowing in the direction that they would need to start thinking about these metrics as well (TRAI’s regulations and TDSAT’s recent ruling in TRAI’s favour).

Payments through telcos is a matter of time (could be long though): Given the circumstances, telcos are opening up to being a payment channel (and getting paid like one) where the mobile business is responsible for customer acquisition. Vodafone is already selectively allowing B2C businesses to keep 60-70% of the revenue that is being collected by Vodafone from users that were acquired directly by the B2C business. More on this in Dev’s post.

More payment options are opening up: There are more efforts underway at app-stores (Rupee payments at Google Play and iOS App Store, OVI/Blackberry integrating with Airtel/Vodafone billing gateways). There are also other ongoing efforts like mobile/online wallets and integration of telcos under a single payment solution which will all lead to a much more favorable payments ecosystem for mobile B2C businesses as they come into market.

Mobile advertising is getting organized: The mobile advertising ecosystem in India is firming up with multiple players from ad-networks (InMobi, Komli, Vserv) to media-buyers (Ad2C, Madhouse) setting up dedicated teams for the Indian market. Brands are already experimenting with mobile even though the budgets are small today. It is still a long way to go, but if smartphone penetration continues to grow, then mobile could very well be the largest targeted digital rich media platform available to a brand manager.

These are still early days and it is a long haul, but if you are building a mobile-first B2C business and focusing on the metrics above, there is a path to meaningful value creation.

[Published on NextBigWhat]

Your board should be an asset to your company, providing guidance and advice at critical strategic junctures, as well as functionally helping with executive recruitement, M&A and other liquidity options, and key strategic outreach into regulators, distribution partners, suppliers and customers.

In my opinion, the smaller the board, the better. When you start out with your company, perhaps there are one or two founders and an independent on the board, for a total of three.  I have seen most boards at about five and some at seven to nine members. Six or above, in my opinion is too big and unwieldy to make fast and correct decisions.

In all the hubbub of starting and growing a company, it’s easy to overlook the creation of  a strong and value-added board. Most times, the board consists of management (initially founders) and investors and remains that way for quite a while.  But it can be even better.

I’ve seen independent board members help out a fair amount.  So whether it is an empty seat set aside for an independent or no seat at all, I would recommend getting somebody onto the board soon. And constituting an ‘advisory board’ doesn’t achieve this purpose.

Some of the roles I’ve seen independent board members play are:

• helping resolve complex and difficult situations or stand-offs between the CEO and investors.
• providing a balanced perspective when management and investors may have drifted into extreme positions
• working closely with the CEO outside of board meetings to provide specific deliverables back to the board (eg compensation proposals)
• provide a sense of real perspective from a long and successful career in their industry
• serving as a mentor and guide for the CEO to enable the CEO to learn and grow in his or her role as a leader and manager

So, who should your independent board member be?

• Should have strong rapport with the CEO and not be just a ‘yes man.’
• Should ideally have a point of view/relationships/experience in an area that is currently under-represented in the senior team
• Should have a financial interest in the success of the company. Ideally would have invested their own capital into the company
• Has time to spend for board meetings and outside of board meetings with the CEO
• Is genuinely interested in seeing the CEO and by extension the company succeed

Some good posts & examples:

• From Brian Halligan of Hubspot: The Benefits of the Perfect Independent Board Member
• From Elad Gil: How to Choose a Board Member
• From Matt Blumberg of Return Path: Why I Love my Board

Have seen you seen independent board members play other constructive roles? Please let me know in the comments section.

(Source: Dilbert)

[Also published on Yourstory.in]

Earlier this week, I was invited to mentor the GSF Accelerator’s startups on Pitching & Investors Decks.  I thought I’d summarize what I said there.

I certainly don’t claim any special knowledge on what makes for a good first investor presentation.  There have been many books and blogs written about this.  However, I’ve seen hundreds of investors pitches over the past several years of coaching CEOs on IPO roadshows, raising capital as a founder and listening to pitches as an investor.  Heck, I’ve even been involved with investing in the leading presentation sharing company - Slideshare - which has helped accelerate a trend toward storytelling in presentations.

The first meeting is not about getting investors to agree to invest (although perhaps it is when you are looking at angel/micro-VC funding). The key is to start to develop the relationship and get them excited enough and intrigued enough to want to dive in deeper in a subsequent meeting.

You can greatly improve the odds of having a productive first meeting by telling a compelling story in a concise and hard-hitting manner.  Make it personal. Hit the main high points first to generate and assess interest. Then provide backup to your claims to cement the story.

Click here to see the 4 key slides (on Slideshare) that you need to nail.

After these four slides, stop and assess your audience by asking them what they think, their key concerns etc.  You should then be adept enough to address these concerns as you continue with the familiar series of slides on traction, product overview/roadmap/differentation, market sizing, business model, go-to-market, financial projections and funding requirement & milestones.  Finish by showing the Investment Highlights slide again and summarizing the key points.  Leave this slide up while you go through any final Q&A with the investors.

Some other guidelines and pet peeves:

• The point of the slide should be the title of the slide e.g. don’t say “Team” as the title of the slide. Instead, say “Extensive Team Experience in Adtech” if you are doing an Adtech startup.
• The meeting is not about reading out the presentation, it’s about your conversation and engagement with the investors, with the presentation as support material.
• No more than 2 minutes per slide. I’ve seen 30 minutes spent just on the first slide where the whole pitch is given with that one slide.
• You should be able to run through the presentation by yourself in less than 30 minutes.
• Place yourself between the investors and the projected or laptop-based deck. Otherwise you’ll have the tennis match effect of spectators swiveling back and forth between the presentation deck and you.
• Don’t leave the meeting without asking investors: “What do you think?”, “What are your main concerns?”, “What did you like specifically?”
• Know what your investors have invested in or said about your space before you meet them. The Web is your friend.
• Please don’t take the slide deck I’ve embedded above as an example of the colors, fonts or layout that you should use.

[Also published on Startup Weekend Delhi]

Founders start companies for many reasons.  They want to build something useful. They have identified a specific pain point in their personal or professional lives and the status quo causes them pain. They have analytically spotted a specific business opportunity.  They are inventing something that is a leap forward in their industry or disruptive in general.  Or perhaps, they see everybody else doing the same thing and want to jump on the bandwagon!

No matter how small or big the initial idea is at startup, the best founders step back and ask themselves what the high-impact success scenario is for them and what the purpose and vision of their project is.

Yet, why is it that, time after time, many founders fail to communicate this high-impact scenario and sense of purpose and vision?   Time after time, the first words uttered  by founders to the press or investors or recruits is what they did in the past month or the recent milestones that they have hit or the numerical goal they have in mind.  I believe these things are necessary, but not sufficient, to drive a company to high-impact greatness.

Having been a founder myself, I know that the day-in and day-out focus on getting things actually done (considerably higher friction in India than in many other countries) is all-consuming (and appropriate). Yet I think it falls on the founders and management team to have a deep sense of purpose and vision and communicate that to the whole company, through words and through translation into what-does-it-mean-for-me for their team. And I believe this translates into better decision-making and execution through your startup.

My goal with this post is not to drive you to spend a bunch of time creating vague marketing-speak vision statements like “Invent” or “The best technology services provider in the world” or “The largest ___ in the country.” My goal is to drive you to think through your high-impact scenario and actively drive toward it with a vengeance.

So, consider the questions below early during the life of your startup and perhaps weave the answers into your execution as well as the (hopefully reality-based!) story you communicate to your stakeholders, whether they be the press or investors or recruits or regulators or others:

• What is the purpose of my startup and how does this connect to the impact I want to have?
• If my startup achieves its purpose and vision, how will my industry or people’s lives have been meaningfully impacted?
• How do I work backwards from this purpose and vision to instantiate a specific execution plan?
• Why is my team the best team to deliver on this vision? If not the best team, how do I build this purpose-focused team?

Here are some purpose/vision statements that resonated with me. And lest you think that these are just purposes dreamed up after the companies had succeeded, please think otherwise. These companies had this in mind from day one.

• LinkedIn

“Our mission is to connect the world’s professionals to make them more productive and successful…  Our solutions are designed to enable professionals to achieve higher levels of performance and professional success and enable enterprises and professional organizations to find and connect with the world’s best talent.” ~ LinkedIn Annual Report

• Indian Energy Exchange (a Lightspeed portfolio company):

“We envision an India where the quality of life of the common citizen, rural or urban, is not compromised as a result of power shortages. We indeed envision a power-surplus India and a concomitant healthy competition in the electricity market for the ultimate benefit of the consumer, domestic and industrial… We will help accomplish the above vision by providing the nation with – and enhancing the utility of – our robust, scalable, and customizable electronic trading system with integrated solutions for trading, clearing, risk management, surveillance and counter-party trade guarantee.” ~ IEX website

• Square:

“Several years ago, PayPal pioneered a new method of person-to-person transactions. Square takes this to a new level of personal accountability by enabling card present transactions with known payers. This is the next step in the cashless society.” ~ Jack Dorsey speaking

(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.

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)

(Source: Newshunt)

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.

The above is also the driver for investments and growth in Hindi print. E.g. Blackstone’s investment in Jagran and Nalanda’s investment in DB Corp.

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.

Source: Dell

[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.