You are currently browsing the tag archive for the ‘india’ tag.
[Published in Mint on May 30, 2013. Here is the link to an abbreviated version of the article on LiveMint.]
[Credit: Laurynas Mereckas]
Building a startup into a successful high-impact company is not easy – it is hard no matter where in the world the founding team may be located or which geography is targeted.
It is even harder in India, despite the macro outlook almost always looking rosy – 1+ billion people, strong economic growth, emerging market/BRIC, technical expertise, many underserved needs etc.
Many of India’s successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time. Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands. Erstwhile startups that have created a successful brand include Cafe Coffee Day, Dr Lal’s Pathlabs, Flipkart, Indian Energy Exchange (B2B), Indigo Airlines, Infosys (B2B), InMobi (B2B), Justdial, Makemytrip, Naukri (B2B), one97 and Snapdeal.
Here are some of these environmental challenges that I see many startups facing here. These are almost never explicitly discussed. Perhaps this is because it’s like the air – it is just self-evident and it is hard to solve for these.
Many of the successful companies we talk about today in India took 10+ years to get to escape velocity and impact. Why? India-focused startups have to change buyer behavior and/or create infrastructure (eg Flipkart’s several thousand people in logistics, Meru Cabs’ owned & operated taxi fleet, One97’s PayTM mobile payments infrastructure), as opposed to purely focusing on better/faster/cheaper solutions. As a result, I generally see linear organic growth in companies targeting the Indian market. There are some companies that have overcome this by creating low-friction offline models e.g. Dr. Lal Pathlabs with low-capex collection centers, and micro-finance businesses with repetitive hassle-free loans to the bottom of the pyramid.
Some other sources of friction include:
- the need for offline presence (even for mainly digital companies).
- difficulties in payment collection from consumers and businesses.
- gatekeepers that have optimized for self-preservation/cashflow.
- government-driven paperwork for compliance & set-up and regulatory uncertainty.
A series of small markets
Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed. This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes. For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup’s growth.
Some examples of overcoming this challenge include:
- spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
- expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
- building or piloting in India and transplanting to the US (eg Zoho)
- aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlex, Subex).
- attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).
While many startups choose to access existing categories abroad (eg smartphone apps), many Indian startups have successfully created India-specific categories, including inbound marketing (Justdial, Zipdial), B2B marketplace (Indiamart, Indian Energy Exchange), assisted services (OneAssist, Onward Mobility, Suvidhaa), MVAS (OnMobile, IMIMobile), entertainment services (Dhingana) and transport aggregation (Redbus, Ola Cabs).
Lack of trust
Lack of trust is endemic in India, whether you are driving through the streets (and perhaps Delhi is an extreme example of lack of trust!) or negotiating with corporate partners. Examples include:
- (some) people misrepresent themselves materially without any consequences (eg overselling).
- (some) founders focus on control at the expense of value creation.
- potential buyers have a hard time parting with payment details or paying for off-the-shelf software.
- (some) people negotiate all the corner cases in extreme detail, to the point where the law of diminishing returns kicks in pretty strongly.
- trust gap between regulators, law enforcement and business.
- trust gap between promoters (aka founders) and investors and potential misalignment on timelines and strategy.
- (some) government and companies focus on protecting themselves from the 1% of customers who are gaming the system at the expense of the 99% remaining customers.
Relationships, not contracts, govern deals. Many brands in India are created from execution reliability at scale rather than product differentiation. Brands in India are disproportionately more valuable as they represent a trusted provider of products or services – think about the enduring value of the Tata brand in multiple unrelated categories. As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.
Hard to find strategic talent
Almost every entrepreneur and investor I speak with has this issue. This is not easily solvable – the only potential solution is to focus on A+ people right from the founding team onwards and never compromise on that front, even if it means slower roll-outs. Zoho and InMobi are often cited for building great teams.
Strategic talent is hard to find, including executives, product managers, product marketeers and design experts. We find ourselves scouring large established companies in India for executives and many times find these executives short on ability to take career risk and lower startup-level compensation in exchange for equity. We look abroad sometimes to import talent. One other friction point tends to be lack of middle management willing (or empowered) to take their own initiative and a cultural bias for say:do ratio > 1 (interesting quote by an anonymous founder) which generally means that execution requires a lot of hand-holding.
The smaller pool of founder/co-founder and risk-taking startup employees results in lots of churn and inordinately long hiring cycles, although this is changing fast at a cultural level in India. It is also quite stunning how many times people who have signed employment contracts do not show up on their first day of work.
Not enough experienced mentors
India has an early (but fast-growing) eco-system for new venture creation. I see successful founders giving back to the founder community in a big way through investments, mentorship and driving industry hygiene.
However, there aren’t enough successful founders yet to cater to the much larger group of new founders who need help. Without the perspective provided by aligned mentors, many founders are finding it tough to pivot or accelerate.
I am optimistic on this front, as many experienced and competent mentors have stepped forward over the last two years. In my opinion, this is one of the reasons driving the creation of many of the incubators and accelerators in India which are centered around these hard-to-find mentors.
Constricted access to capital
This has been an issue in India for a long time and is probably why there is a higher focus here on companies to get to cash-flow breakeven fast or to trade-off growth for cash-flow. It is not surprising that the early successes in Indian ventures have mostly come from services-oriented business (e.g. outsourcing, BPO) or offline consumer businesses that grew organically for a while.
Many would point to investors being over-cautious and risk-averse. I think that the environmental factors mentioned above are the causal factor for investor cautiousness and not vice versa. I would argue that the $1.1B in 2011 and $762M in 2012 (source: Venture Intelligence) that went into venture in India was perhaps more than the market could absorb efficiently. Capital is abundant in the growth stage, once product-market fit and/or profitability has been achieved, and hard to come by in the development stage (ie pre-revenue and/or pre-traction stage).
Indian startups have developed a unique set of growth strategies to overcome the challenges mentioned above. I will write about these different growth strategies (and perhaps deep-dive into some of the challenges) in subsequent posts. I am hopeful and excited about companies in India that are overcoming these challenges.
Thanks to the brain trust, who provided feedback and contributed ideas, including Bhawna Agarwal, Kunal Bahl, Raj Chinai, Ashwin Damera, Pranay Gupta, Ravi Gururaj, Ravindra Krishnappa, Sasha Mirchandani, Kavin Mittal, Suchi Mukherjee, Pallav Nadhani, Hitesh Oberoi, Janhavi Parikh, Avinash Raghava, Amit Ranjan, Rajesh Sawhney, Vijay Shekhar Sharma, Amit Somani and my colleagues here at Lightspeed Ventures Maninder Gulati, Apoorva Pandhi, Anshoo Sharma and Bejul Somaia.
Please note that three companies mentioned in this article – Dhingana, OneAssist and Indian Energy Exchange – are Lightspeed portfolio companies.
[Also published on VCCircle]
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).
Lightspeed India MD Bejul Somaia was interviewed by Paramita Chatterjee of the Economic Times newspaper about Lightspeed India’s experience with incubating both OneAssist and LimeRoad. Here’s the link to the article.
We are actively looking to incubate companies in these spaces, as well as back established companies and startups in these areas.
Our experience has been very positive:
“We were involved in incubating two companies in the last 12 months – OneAssist and LimeRoad – and have been very pleased with the results so far. Being able to work closely with teams during the incubation period really helps set the right foundation and strategy for the business. The incubation approach is very time-intensive, with no certainty of a successful outcome. But we will build on our positive experience by catalysing new companies in an organised manner.”
What sectors are Lightspeed looking to invest in?
“Education technology, financial technology, healthcare services, internet, mobile, software and software-as-a-service.”
[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.
(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 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.
[Published in Medianama]
Ecommerce in India has gone through a cold spell, but there is hope for warmer days ahead. There appears to now be a clear focus on contribution margin and sustainability versus the previous race to buy topline. As Bejul explained in his post, customer lifetime value is a metric that Lightspeed believes is critical to measure and optimize.
The ecosystem is a key enabler of sustainability for an industry. For example, it is unviable for all ecommerce players to build end-to-end logistics and payments/wallet capabilities internally. Certain ecosystem trends are emerging which may help ecommerce businesses become more viable over time:
Capabilities of logistics service providers aren’t static
Logistics is where rubber meets the road, and ecommerce glamour meets the offline reality filled with dust, sweat and lost/wrong/delayed shipments. Some ecommerce specialist players now provide:
- End-to-end ecommerce solutions, including inward, racking, picking, packing, shipping and collection.
- Transparency into logistics company’s processes through APIs, which can reduce returns (and costs) and bring predictability.
- Variable warehousing bills (per order shipped) that help manage costs at lower scale, and a projection for reduction in per unit cost with increasing scale of the ecommerce business.
There are several new and old companies worth calling out:
- Dedicated ecommerce divisions within traditional players like Bluedart, Aramex, etc
- New ecommerce logistics specialists such as Delhivery, Holisol and Chhotu. These companies and teams tend to be more hungry, innovative and nimble than their traditional counterparts but are still building their capabilities. Also interesting is Mudita for bulk inter city shipments.
Payment gateways/aggregators are trying to address pain points
Payment gateway failure horror stories are common, with failure rates as high as 35%. This continues to be a lost opportunity, and a very expensive one, as it costs up to Rs 1,000 to get the customer to that point. Here are a few improvements/innovations that are coming up:
- Wrapper technologies that work with multiple banks to minimize probability of transaction failure.
- Deep analytics and visibility into customer’s intent to buy: For example, ecommerce companies can track a list of failed transactions (with customer and cart details) so that their teams can follow-up and close offline.
- PCI/DSS compliant widgets which simplify the payment experience for consumers.
- Capability to handle payments originated over mobile web.
There are traditional names like Billdesk, CC Avenues, EBS, who are incrementally adding value but the new teams that are coming up quickly are Citrus and PayU, in addition to GharPay which collects cash from consumers’ doorsteps when no physical delivery of goods is involved (e.g. tickets, collection in advance of shipping).
The industry is maturing
Some of the more recent trends I see are:
No-poach agreements: After the initial land grab in the OTA space, Yatra, Makemytrip, Cleartrip got into such arrangements. Leading ecommerce players are now discussing these. It is good from a talent pool perspective too, as people apply themselves to fix hard problems versus moving to the next job.
CoD Blacklist: CoD is a key part of Indian ecommerce. However, high CoD return rates (upto 25% in some categories) cause operational challenges and working capital burden. Some players are discussing creating an industry wide CoD customer blacklist – this can drive significant efficiency for ecommerce / logistics companies and a better experience for genuine customers.
Trust from OEMs/Brands: Brands/OEMs are putting more trust into ecommerce now. Eighteen months back ecommerce was not strategically important to brands/OEMs, but brands are now launching their own ecommerce platforms, and/or have a clear strategy for ecommerce as a channel. Senior executives with years of core category experience are now excited about ecommerce and are considering opportunities in this retail format.
These trends are still in their infancy but if they continue the situation will be very different a few years from now. The key question is to what extent and in what time frame will these developments move the needle in making ecommerce sustainable.
Some thoughts for ecommerce entrepreneurs
My thoughts for entrepreneurs building ecommerce companies are to:
- Assess if you can derive value out of any of these services / trends: For example, compare if your current logistics / payment provider (in-house or outsourced) is competitive with the changing environment or revisit if you can bring in top talent from the domain into your team.
- Step forward to support the ones you find relevant: For example, you would take risk when you test a new partner in your order flow (logistics or payment), or when you commit to not hiring from competition, but these partnerships can pay off very meaningfully in the long run.
- If you are a new startup, identify and focus on your core competence: Logistics and payments contribute significantly to direct costs but they are only necessary and not sufficient for success. So unless you plan to differentiate on these, leverage the ecosystem.
This list is by no means exhaustive, so please feel free to add more names / trends / thoughts in the comments section.