Author Archives: Aristotle Consultancy
What can the current crop of startups that are staring at a dip in funding learn from a turn of a phrase that was used in the early 19th century United States?
“Bootstrapping,” which meant completing an absurdly impossible action (origins are from the phrase “pull oneself over a fence by one’s bootstraps”), is a way to support the operational expenses and growth needs of the company, through finances that are self-invested or through the sale of the startup’s products and services.
Trying to grow a startup without external funding in this day and age, when there are so many different sources of funding, might seem absurd, and trying to achieve it might seem like an impossible action. This is what Chennai-based Zoho Corporation (which started off as AdventNet in 1996), attempted in the early 2000s during the telecom bust, when its core business of infrastructure management was down and out. Zoho has survived two economic and tech bust periods and having been completely bootstrapped, has now grown into one of the most successful Indian software product startups, butting heads with giants like Google and Microsoft. Other successful examples include FusionCharts, Wingify and Kayako.
Bootstrapping maybe a good idea considering India’s current startup funding scenario. Till a few months back India saw a glut in early stage funding. If you were a startup, you were wooed by everybody from seed investors, angels, Venture Capitalists (VCs), hedge funds and even the government. Angels, seed investors and VCs invested a total of $778 million over 695 deals in 2015, compared to $538 million invested across 374 deals in 2014. In an attempt to grow at a blistering pace, startups need to burn a ton of cash in a short time, and after the initial money invested by ‘friends, family and founders’ is exhausted, they rely on external funding for expansion. With funding drying up, startups need to depend on internal accruals for survival, and growth has to be self-funded.
Bootstrapping maybe the best solution. It has several advantages.
Doing it on one’s own rather than relying on external sources for funding gives an entrepreneur a sense of achievement, independence and satisfaction of owning most of the company. Growth through bootstrapping might be slower. But it is more sustainable than using external funding, because the survival of the startup is not in the hands of investors, who can decide to stop funding anytime, putting its survival at risk.
Bootstrapped startups can also be nimble and change direction when they want to. They are not wedded to the original direction they plotted, as they are bound by the wishes of VCs, who may perhaps not bless strategic direction changes without asking tough questions. Since bootstrapping involves focusing internally on execution rather than an external focus on raising funds, entrepreneurs have the opportunity to perfect their products and services rather be anxious about VC presentations. Bootstrapping is also great for financial prudence. Every rupee spent needs to be justified and should ideally lead to the creation of an extra rupee. A lot of funded startups get blinded by the millions in the bank and end up spending money on marketing campaigns, expensive hires and swanky offices (think Housing’s Rs 120 crore “Look Up” marketing campaign). Cash burn rates are high not because the business demands it, but because they were lucky to raise a big round, when the market is flush with funds. VCs are known to invest at inflated valuations just because of the fear of missing out or because there’s money to be invested.
Jon Yongfook writes on why he bootstrapped his press release delivery platform startup Pitchpigeon. Some of his reasons included how being bootstrapped forced him to focus on revenues (instead of spending), learn the value of money, keep ownership, avoid dubious early stage investors, grow organically, increase leverage for funding in the future and save time that is usually spent on raising funding. Paying attention to Yongfook might be a good idea because his startup turned profitable and was acquired in 2014.
Stories of successful companies that use the bootstrapping method seldom get told, because it is “sexy” for the media, to report that a unicorn received hundreds of millions of dollars in funding than report the slow progress of a bootstrapped startup. With the success of Zoho, which is perhaps India’s first bootstrapped unicorn, bootstrapped companies might start getting the same attention that startups that get multiple rounds of funding get.
But bootstrapping may not be for every entrepreneur and every kind of startup. Entrepreneurs who bootstrap are disciplined, highly organized, financially prudent, patient, not swayed by the lure of easy money. They are focused on the bottom line, rather than be concerned about topline growth that may add customers, but doesn’t yield profits. They do more with less, and have a history of cost-cutting, maximising resources and a habit of swapping bells and whistles for the bare minimum. If an entrepreneur does not possess these traits, then he or she is wasting their time pursuing this direction.
Some type of startups do yield to bootstrapping, especially when they require huge amounts of upfront capital investment in human resources, infrastructure or IT equipment. Starting a hotel, going up against an already established competitor, launching a micro-finance company or a bank and manufacturing IT hardware or semiconductors. In these instances, external funding is required.
It is also important to consider some of the downsides for opting to bootstrap. First up: it is huge risk, because an entrepreneur is investing his own resources into the startup; if the startup fails, all the money lost is his alone. Bootstrapping means working with less resources, so it is tougher to hire top talent, invest in infrastructure, marketing or acquiring new customers.
Quite often, an investment is strategic, meaning that an entrepreneur opts for a certain VC because they have invested in a similar business earlier and mentored the startup to a successful exit. Other than mentoring, VCs may provide a suite of other services like legal, human resources, IT, tax and compliance. They also open doors for strategic partnerships and provide handshakes with potential customers. The money becomes incidental; the relationship is more valuable than the money invested. Investment from marquee investors ensures media attention, respect from peers, customer trust and easier to make potential key hires.
When it comes to bootstrapping, it is best to take a “horses for courses” approach, meaning it works for a tiny sliver of startups and entrepreneurs. But those who succeed, reap rich dividends, and respect.
Source – Kotak Business Boosters
Startups are not just about the next big idea. Startups also need an excellent team and precise planning to get to the first step to success–raising finances. To achieve this, experts say that companies need a financial and an operational plan as soon as possible.
“A financial or an operational plan serves as a navigational map for startups. It helps them remain buoyed up in a maze of uncertainty and ensures that it will be pulled down by its own hubris,” said Sakthivel Manivannan, the chief operating officer of Opus Soft, a Bangalore-based software consulting startup.
Why do startups need a financial or an operational plan?
1. Burn rate vs growth
A startup with a financial plan in place can calculate the extent of burn and correlate with the opportunities of growth that it offers. Be it the increase in the number of active users (or clients) or gross merchandise value or total number of users or total value of goods sold, all these metrics are financially determined in numbers. An investor who is scrutinizing the company should be able to see where the company is placed financially and what potential it holds to become a successful organization in the future.
2. Many rounds of finance
A financial plan will also allow a startup to determine the number of rounds of finance that it will require. It will set targets for fund raising and chart out a growth path. It will also clarify the issuance of fresh shares and share capital expansion of a company which will ease more investors to come into the company.
3. Assessing risk
Even early bird investors are weary of risk. If they are not weary and willing to take risks, they would want to know how much they are risking by investing in a startup. A startup should invest enough resources into assessing the risks that it is taking including IPR risk, market risk, technology risk and operational risk. A startup with an operational plan that clearly defines risk and is taking enough measures to minimize it has the potential to become a large organization in the future.
4. Revenues vs profits vs cash
The success of a startup does not lie entirely in the funds that it is able to raise. It is also about the funds that is earning through its business. The ability of a startup to remain liquid and ably pay off its investors is the one that can manage its working capital cycles by forging deals with suppliers and service providers. An operationally strong startup has a robust plan and team to ensure that it is earning as much as it is investing in its own future.
5. Strategy & competition
Most startups have aggressive expansion plans by entering new markets. However, they should be supported by a dedicated team in place to ensure that this process runs smoothly. It should also measure the extent and strength of competition to make sure that a company takes the best foot forward.
An operational plan will ensure that these growth measures are successfully implemented as per targets. The targets can also be reviewed constantly to measure the growth that a startup is experiencing. It can also hone the strategy and business model of a company and ensure that it becomes valuable to the investor and itself.
Source – Kotak Business Boosters
The biggest taxation reform in the nation that came in form of Goods and Service Tax (GST) after it was approved by Parliament on Monday could be a game changer for the state’s industry especially making life much easier for the manufacturing units.
Fascinated by GST, Chairman, Associated Chambers of Commerce and Industry of India (ASSOCHAM), Punjab, Suneet Kochar told TOI on Tuesday that “Till now manufacturers in Punjab have to pay VAT and other taxes to the tune of 27-28 percent while the same is likely to come down to 18 percent bringing in the much needed relief to the Punjab’s industry and pave way for a new era of industrial revolution in border state”.
He explained that abolition of entry tax would also save time as the loaded vehicles carrying goods won’t have to stop at inter-state barriers anywhere and the life of common man would be much easier as GST would replace 17 indirect taxes.
The manufacturers would also find itself at ease due to single-point tax instead of the numerous excise, octroi and other levies that had to be paid at each tier of the production process.
Notably even Prime Minister Narendra Modi in his tweet has said “GST is a step to end tax terror, makes the consumer the king”.
Stating that the high logistics costs was a burden on the industry, Chairman, ASSOCHAM, Punjab said that since Punjab was a landlocked state, the manufactured goods in Punjab could become cheap due to lower logistics and tax costs .
“The high logistics costs was an ultimately a burden on common man which wouldn’t be anymore after implementation of GST” he opined.
“First, it is the simplicity of operation for both industry and service providers, second, this is an ease of movement throughout the country from Punjab as goods can be moved from state to state without having to stop to pay octroi” said Suneet.
Source – ET Retail
Logistics firm GoJavas, which has suspended operations amid an impasse in its sale talks with Snapdeal, is considering an organisational overhaul involving layoffs and a restructuring of its business model, according to two people aware of the developments.
The GoJavas management is discussing a proposal to switch to a franchisee business model wherein the company will provide its technology to logistics partners that it would onboard, these people said. The move, primarily aimed at trimming the company’s workforce, will impact employees across categories, they said, declining to be identified.
One of them said GoJavas was also planning to adopt a variable salary model based on per packet or kilogram of load handled, on top of a fixed basic pay — similar to how cab aggregators Uber and Ola incentivise their drivers.
Snapdeal, which owns 42% of Go-Javas and accounts for a substantial bulk of its orders, has been holding talks to acquire the remaining stake in the logistics firm.
Clinching GoJavas, which caters to other clients as well, could prove handy for the ecommerce marketplace as the festive season approaches but differences have cropped up primarily over the ask-price.
Last week, GoJavas suspended operations citing unspecified technical reasons and asked clients to make alternative delivery arrangements until it could resume services.
A GoJavas spokeswoman, while refusing to comment on the proposed restructuring or layoffs, said in an email reply to ET that “GoJavas remains open to discussions with all our investors”, indicating the company was continuing its negotiations with Snapdeal. Snapdeal did not comment on the acquisition talks. The GoJavas spokeswoman said the company was yet to decide on when to resume operations.
“The exact time till when the operations will be affected cannot be confirmed as we need to ensure that a thorough testing is done before we resume service to all our clients,” she said.
The suspension of services is likely to affect Snapdeal’s shipments. The marketplace’s logistics unit Vulcan Express handles product shipments from the company’s vendors to its warehouses or delivery centres.
For last-mile reach to customers, Snapdeal has a network of 15 partners including GoJavas. Snapdeal in November invested Rs 36 crore to build its network of fulfillment centres or warehouses under Vulcan Express, according to documents filed with the Registrar of Companies. In GoJavas, Snapdeal’s parent Jasper Infotech has invested Rs 237 crore.
“Snapdeal works with multiple logistics partners for its fulfillment requirements and a large part of our shipments are handled by Vulcan Express, our in-house logistics company,” a spokeswoman for Snapdeal said.
Source – ET Retail
Kishore Biyani has been extremely critical of the business model followed by e-commerce companies in the past. The founder and group CEO of one of India’s largest organised retailer Future Group, however, cannot close his eyes to the potential of e-commerce and the ever-growing base of customers shopping online.
With the latest partnership announced with mobile payments and commerce platform Paytm, Biyani is making an effort to go online without taking on the risks and huge costs associated with the e-tail business.
Under the deal announced by the two partners on 4 August, customers will be able to shop for Future Group’s hypermarket chain Big Bazar’s merchandise on Paytm’s marketplace and also, get them delivered to their homes.
Explaining the rationale behind his tie-up with Paytm, Biyani said: “The cost of customer acquisition in the e-commerce space is more than 20%, the cost of fulfilment is more than 20% and the cost of running operations is 8-10%. This totals to almost 50% as the cost of operation. At this cost, you can’t sell any goods on this medium.”
Biyani, indeed, isn’t speaking through is hat. Almost all e-commerce companies, including the market leaders such as Flipkart or Snapdeal and even global companies such as Amazon, have been running massive losses in their operation with no signs of profit in sight yet.
Since, market pundits have been predicting that at some point, online retail transaction will become big enough to command a viable business model with a huge potential for growth, Biyani did make a few attempts at hopping on to the e-commerce bandwagon in the past.
In 2014, for instance, the Future Group had tied up with Amazon India to sell its merchandise, primarily private fashion labels. The same year, it had also launched
shop.bigbazaardirect.com, the online platform for its direct selling offshoot Big Bazar Direct.
Both experiments, however, failed to deliver desired results.
The deal with Paytm
The tie-up with Paytm is Biyani’s yet another attempt at going online. Is he late to the e-commerce party? He doesn’t think so.
“We are not entering late. We were unable to do business online because unit economic wasn’t working,” he told Techcircle, adding: “We didn’t want to spend considerable amount in the acquisition of customers, in fulfilment or administrative obligations.”
Biyani said in Paytm, the Future Group has found a partner that can “bring the unit economics into the business. Besides, we don’t have to worry about payment gateway cost. In that sense, it is a great fix for us.
“Biyani’s optimism may not be misplaced. To begin with, the tie-up with Paytm comes just a few days ahead of Future Group’s hypermarket chain Big Bazar’s yearly flagship sale, Maha Bachat that will run during 13-16 August this year. A hugely popular format, Maha Bachat contributes around 3% to Big Bazar’s annual revenue. With its discounted offers moving online during the four days, Biyani is hoping to reach out to a new set of customers outside of his loyal set.
Big Bazaar’s online avatar
Under the deal, an anchor store has been created for Big Bazaar on the Paytm app. Customers will not only be able to browse and buy Big Bazaar merchandise on offer, they will get a further 15% cash back on all purchases using Paytm’s wallet facility.
Paytm, too, sees the partnership with Future Group as a win-win deal. “Together (with Future Group), we see a fantastic opportunity to create a mobile first, omni-channel retail and payment solution for our wide consumer base,” Vijay Shekhar Sharma, founder and CEO of Paytm, was quoted as saying in a PTI report.
In a chat with Techcircle, Sharma said the partnership is an attempt at bringing a high frequency, large offline platform, online. “They (Future Group) do not have a very active e-commerce strategy as publicly visible. This (the partnership) will allow them to get mobile and internet customers to shop for Big Bazaar merchandise. Everything that is available offline will be available on the anchor app,” he added.
Source – TechCircle