Innovating and Building for India
Innovating and Building for India
Evaluate businesses based on the problems and opportunities presented by India, and not copy and paste models that have worked elsewhere.
Bharati Jacob, Co-Founder & Managing Director, Seedfund
The years 2014 and 2015 are often called the golden years for the Indian startups.Over the two years VC funds, hedge funds, mutual funds, corporate investors, investors of all hues scrambled to get into every deal and invested over $14 billion in Indian startups. This flood of capital was based on the popularly held belief that India was “China + 5years” or, the US + 10 years”: many investors and entrepreneurs believed that innovations and startup business models that worked in China 5 years ago (and in the US 10 years ago) would now work in India (based on various macro data sets ranging from the number of mobile phones, broadband penetration, GDP per capita and the like) and that Indian businesses would get to the current scale of Chinese businesses over the next 5 years. This resulted in Indian companies that copied the innovation, being funded to the same level and degree as their Chinese counterparts.
Companies however belied this expectation and didn’t scale as expected. For example, over a 12-15 month time period, while the total number of food deliveries made by an Indian company across all of India grew to about 10000 a day, one Chinese company reached over 2 million of daily deliveries over a similar time period. The lack of scale of innovations in India, the ones that worked in other markets, resulted in a lacklustre funding in 2016. Were investors right in 2014-15 or in 2016?
My submission is that India is a very different market than any other at many levels: from an Indian consumer’s ability and willingness to pay for the challenges of executing on the ground to the attitudes of “chalta hai” and “jugaad” to the infrastructure challenges to the regulatory environment. Therefore while investing and building businesses in India, we need to be able to consider the unique characteristics of the Indian market, evaluate businesses based on the problems and opportunities presented by India, and not copy and paste models that have worked elsewhere.
“What to make” for India and “how to make” in India are two important aspects that need nuanced understanding of local markets and not follow the “pattern matching” that many investors and entrepreneurs followed.
Make for India
India lacks public spaces, including spaces in many schools, where children can play sports or outdoor games. The Indian parent however is increasingly aware of the benefits of sports and fitness for children. The challenge is how to marry the constraints of space and trained sports coaches with the parental desire for sports for their children. Enter Edusports, a Bangalore based company that offers comprehensive fitness and sports outsourcing programs at schools, that bridges the gap in a unique way. Edusports provides physical education curriculum, trained coaches and a comprehensive evaluation of the progress made by the children in school.
Today, Edusports is available in over 1000 schools across several cities in India. It has been successful as it uniquely matches the constraints of schools – space, inability to provide a comprehensive physical education and sports coaching – with parents’ desire to see their children play sports and be physically active. Edusports fails the “pattern match” test as it is hard to find a similar program in the developed markets given the abundance of public spaces for children to be physically active.
Making the Indian way
redBus launched in 2006, is a bus ticketing company that helps consumers buy tickets for inter-city buses on-line, just the way a consumer buys and reserves a seat in an airline. In 2007, when we invested in redBus, the average ticket price of a long distance bus was about INR 500 and redBus made 10% commission income i.e. INR 50 on this amount. redBus had to run its entire business on this commission amount and generate profits. The number of tickets, however, sold annually was estimated to be over 40 million and expected to grow at 15% a year. Today, ten years later, from selling 35 tickets a day at the time of our investment, redBus is selling over 35000 a day and is one of the few internet properties that is profitable. The only way this could occur was by selling a large volume of tickets in a very frugal, efficient and innovative manner. redBus was acquired by Naspers of South Africa, it had only spent INR 140 million (or $2.4 m at the then exchange rate) and provided one of the top exits in India over the past decade.
In India, many markets mirror the economics of the bus industry viz. high volume and low value markets. It can even be argued that the majority of consumers segments in India, (barring the top 100 million people) characterise the “high volume-low value” markets. The implications for start ups targeting India markets is that such ventures need to be capitally frugal and understand how to make money from small value transactions. Customer profiles, habits and behaviours have to be rapidly discovered in a very capital efficient way and have a very tight grasp of the unit economics of the business before scaling rapidly.
Team India way
The Indian education system is designed to produce employees rather than employers– a system of rote learning, a system where enquiry based learning isn’t inculcated nor is risk taking. Therefore, while the young entrepreneurs that want to build businesses have the passion, raw energy they often lack a sense of commerce or tools to convert an idea into a sustainable company. This means that the early stage capital must come with real value addition – of helping the entrepreneurial team convert their idea into real businesses. The implications for early stage investors is to build a team that has strong entrepreneurial empathy, a team that understands local executional challenges – a team that is “coaching” and mentoring the young start up teams. And a startup needs to work with investors who understand local challenges and aren’t driving from back seat, helping find talent, helping find product – market fit.
Antoine de Saint-Exepury, French aviator and author said “if you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead teach them to yearn for the vast and endless sea”.Similarly, to innovate for India, identify the big problem, find the team that can yearn for the vast and endless sea and provide the tools to solve it. It is the only way to create sustainable enterprises that cater to India’s unique problems.
Opinions expressed in this article are the author’s own.