What to scale in business? Part 2 of WWH of Scaling series

                               What to scale in business?  Part 2 of WWH of Scaling series

I hope you read and liked my previous article on When to scale as part of the series of WWH of scaling. 

In this blog I will tell you about What to scale. You will say of course I will scale my product, but there are many internal and external factors to be considered before finalizing product features, revenue model, pricing, etc.

So, What to scale?

If your product is successful in one or two markets it doesn’t guarantee that it will be hit in any market. Edtech startups like Byjus, Udemy got good traction in metro cities since 2018 but in tier-3 cities it was not gaining that traction till 2019 end.

Before scaling in newer markets, in-depth market research is required to be conducted by management team. It shall cover –

Competitor analysis

Consumer behavior

Taste and preferences

Demography & Culture

Purchasing power

Survey

Right product & service -

After above market research and its findings, entrepreneur can make changes in product placement, if required. This changes can be product design, taste colour, packaging, presentation.

Preferences of customers in south can be different than in north. If I take example of a fine dining restaurant – in south people with prefer more dishes of fish in non-veg while in north preference is chicken.  Similarly, in north consumer prefer spicy while in south preference is for low spicy.  In short, if you don’t have a product-market fit then your business will fail in that market.

Pricing 

Is highly crucial factor that decides the way forward. Indian market is very price sensitive. Competitors’ pricing and offerings need to be compared meticulously and accordingly product pricing shall be finalised.

In case of Saloon industry, for metro cities like Mumbai & Delhi a man haircut may cost Rs. 250 but in tier 2 or 3 cities like Jaipur, Indore, Pune saloon may not charge more than Rs 100 to 150 initially. 

Shotang a Bangaluru based startup that was into B2B lifestyle goods, connecting manufacturers and suppliers and getting commission on transaction, failed due to high competition like India mart, Just dial. 

Once your product and pricing strategies are finalized as per the findings of the new market, then comes the promotion part. I will cover this in my next blog of this series i.e. How to scale.

With warm regards,

Amit Pamnani
Ex-VC | Mentor | Angel Network


(P.S. your comments are motivation for me.)

"WWH formula of business scaling" How to scale startup?

It is the tendency of Business to growth and expand. Entrepreneur aims to increase turnover, profits, venturing into new geographical regions, new products and more.  But expansion cannot be done by magic wand. There is a systematic process of scaling and needs deep brainstorming.  

You cannot scale until you have clear written plan of action. It is validated fact that 90% of the startups in India fail within 5 years of commencement because of reasons like product market mis-fit, lack of capital, poor revenue model, inexperienced team, bad timing, etc.

You can chalk out your scale up plan with the help WWH formula that I will explain in three different post for clarity.

The WWH formula is –

When to scale

What to scale?

How to scale?

Lets understand the first ‘W’ that is -  When to scale?

You know when plant grows to become tree; once its routes are strong and are deeply penetrating in ground. Similarly, once business set up its route deep into market of origin then entrepreneur shall think of expanding.

Product solving problems - 

Products needs to be tested in one or two markets and delightful feedback from customer is successful proof of concept. Once product is solving problem of mass consumers and gaining rising traction like increase in revenue, increase in app downloads or website hits, it is ready to scale. But there are many other factors too.

Bangalore based Bike rental startup Tazzo failed due to low customer demand, low revenues, early to market and lack of capital.

Management bandwidth/ succession -

Before management decides to scale it need to go on Auto mode. Yes, Entrepreneur needs to have succession plan, second level leadership that can take committed control of existing market or new market or new product line.

Availability of surplus funds -

It is crucial to have before expansion. It is not advisable to disturb the working capital of one market to enter into new market or new product. Expansion is done from growth capital whether it is generated from profit or new capital is bought in by entrepreneur or Investor.

‘Holachef’ a food delivery startup connecting consumers and chefs, started scaling when foodtech was not profitable and giants like zomato, swiggy, Uber eats were offering huge discounts and free delivery. It was bad timing for scaling, it couldn’t get next round of funding and hence it could not grow.

Right timing to expand -

Most of the businesses are cyclical in nature, hence suitable expansion time is when demand is there or it is up cycle. As in down cycle business will have to face loss for few months till the demand time comes.

If you are in finance or fintech industry rainy season is bad time to invest in expansion, good time is September to march. For education / edtech business, best time to pitch to new market/ customer is December to February.  For e-commerce good times start from August to mid February. For restaurant industry the right will be from October to January.

Further, it is also needed to be considered that how other players are performing, what is consumer behavior and adaptability rate, habits, etc.

“Doctalk” – online medical consultancy app and digital report storage startup failed due to non adoptability by consumers in 2018-19. In India doctor consultancy is preferred offline hence it proved bad timing for Doctalk as it was early for Indian market to follow this model. Today in 2020 it is the right time for such online medical apps.

Considering factors like – Product market fit, management bandwidth, surplus capital, right timing Entrepreneur / management can take a call to scale and start working on other two equations with What and How.  It will be published in this week itself.

Your comments are my motivation.

With Best Regards,

Amit Pamnani

Low cost fund for your business - LAP or Mortgage loan

In covid-19 pandemic also how lap is useful?

As the nationwide lockdown continues, some leading banks in India have introduced special schemes for businesses and individuals to help them deal with emergency expenses, resulting from the ongoing COVID-19 crisis. With the recent crash in the market, redeeming your Mutual fund units at lower net asset values will hardly do any good.

The lowest cost of fund can be arranged from banks by taking Mortgage loan or LAP. Loan against property is one of the most common forms of a secured loan where you can pledge any residential, commercial or industrial property for availing the funds required. The loan amount disbursed is equivalent to a certain percentage of the property’s value [LTV] and varies across lenders. If there is any temporary disruption in the cash flows, and in some cases loss of income, for the businesses/ individuals, the mortgage loan will bring relief to such borrowers. Tenure of Loan varies from 5 years to 15 Years

RBI has permitted Bank to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020. Hence, Bank will not raise the installment demand during this period and Borrowers availing this concession are not required to pay the Installment during the period. Accordingly the residual tenor of repayment schedule will be extended by some months.

One of the key benefits of loan against securities is it comes cheaper compared to business and personal loans. Since the loan is backed by an asset, the interest rates are lower than that of a business loan [18%] and are typically in the range of 9-12 per cent, based on collateral.

Similar to other borrowing options such as business loan, top up home loan and gold loan, loan against property does not restrict usage of loan proceeds, except for illegal or speculative purposes. The funds can be used for various purposes such as child’s higher education, business expansion, foreign vacation, etc.

Not many borrowers are aware of the tax benefits available on loan against property. Tax benefits that depend on the end use of the money borrowed. First, under Section 37(1) of Income Tax Act, the interest paid and associated costs such as processing fee and documentation charges can be claimed as business expenditure.

Second, if the money is used for the purpose of financing/purchasing another house property, then, interest repaid can be claimed under Section 24(b), up to Rs 2 lacs in a financial year, provided the borrower is conclusively able to establish a link between the money borrowed and its ultimate use. However, unlike home loans, borrowers cannot claim any tax benefit on the principal repayment of loan against property.

Other than interest rate, that one should consider while comparing and choosing loan against property from various banks:

•      Current best offer on processing charges as these tend to vary from time to time
•       Service quality, especially post sales service quality
•     Add-on features – like DBS maxgain facility and Citibank Home Credit facility – these help borrowers to save interest by parking surplus funds temporarily in the account and paying interest on net difference between loan amount and surplus parked temporarily
•      Higher loan to value of property ratio [LTV]

Stay Safe, stay focus.

With love

Amit

‘Ask to Get’ a universal success mantra (मांगोगे तो मिलेगा )

Every relation in this world follows one mantra – “Give and Take.”

In Hindi - मांगोगे तो मिलेगा ,  ढून्ढोगे तो पाओगे

Weather its personal, business or social life. In personal life, you give love, care and take back same from family.

In business life, you exchange goods & services with money or kind.

In social life, you give time to others may be friends, neighbors, needy people and get joy, peace & appreciation.

Its prevalent since history, some great examples verifies this mantra.

In Mahabharat, the brave warrior Shri Arjun asked Lord Shri Krishna to give him wisdom & courage to fight against his Guru and Grand father Bhishm.  

If he didn’t asked for the same he couldn’t defeat his enemy and would have lost battle. 

In epic Ramayana, Lord Rama asked for help from King Sugreev to provide resources to fight Ravana. He asked for it and he got help to built path to go & attack Lanka.

Similarly, in our real lives if giver is not giving you money, resources, facilities, benefits, etc. you need to ask to the giver.

For example –

Employee can ask to employer to give his due salary, promotion, benefits, good working environment.

Startups ask from DIPP, Niti Aayog to provide supportive environment, tax benefits

Businessman request their customers to pay on time

Industries and industry bodies ask government to provide tax benefits, suitable markets, subsidy and resources to setup and growth infrastructure.

Government take funds from world bank to control economic conditions of country.

Negotiate with giver, vendor you will get benefit out of it. Don’t bring a negative thought in mind that giver will not give or negotiate, try once.

The essence is - Don’t complain, don’t hesitate, just ask polity and smartly. You may hear NO or you may get YES, no third option.

Be happy in your life what ever you do.

With Love
Amit

Investor's choice startup sectors in 2020-21

Startups in warrior segment will be the investor’s choice in 2020-21

Year 2020 is the time for being safe and survival. Business models need to be rethink and structured in innovative ways.

The focus of entrepreneur will be to consolidate the business, retain old customers and find new customers with less acquisition cost. One has to take risk but measurable and under control so as to keep the venture going. 

Investors will now prefer the startups that have successfully implemented their ideas and delivered the proof of concept (PoC). As it is time to quickly execute the business operations and scale to resolve the problems of masses. The covid 19 pandemic has brought new opportunities for few sectors and compelled many businesses to shift to digital platforms. 

Following sectors have been getting great response from consumers and attracting investors for funding -

Edtech – recently funded startups in edtech sector – Vedantu, gradeup, classplus

FMCG & Grocery

Enterprise SaaS – CRM, ERP, IVR, etc.

Health-tech & Hygiene - Esperer Onco Nutrition

Logistics & supply chain - FarEye

OTT/ content – daily hunt raised next round, Tock

Gaming – Ewar app

Conferencing and chat apps

Robotics

Fintech – setu, navi got funding from investors

Startups shall relook their product, make amendments in product, service or business model.  Once its proven to be a perfect product-market fit with low investments arranged from their savings, family & friends, Education Institutions’ grants, Incubators, etc and then later they can go to Angel Investors or early stage funds for raising growth funding. 

A successful Business Model might needs kick start resources including funding and may be some ‘growth capital’ later on but not the ‘sustaining capital’. 

In Q4 2019-20 there was 45% de-growth in startup funding as compared to Q3. But positive side is over 40 prospective startups could raise $550 mn in such a storm, which signals that there is no dearth of funds in India only required is the well thought out business plan with enthusiastic & passionate team to lead the way.

Investors like light speed venture, Eight roads, ICICI Venture, Falcon, SIDBI are actively investing in Q1 2020-21.

Therefore, Investor choice for this year will be startups that have achieved initial milestones which can be in terms of revenue, user base, number of transactions on platform, analytic & database, etc. These figures will enable investors to derive the potential of idea and capabilities of team. 

Also many investors are looking for innovative ideas in above sector but which are scalable with advance technologies like Blockchain, Artificial Intelligence (AI), Machine learning (ML), Data analytics (DA), Digital currencies, etc.