Author Archives: Aristotle Consultancy

Five reasons why startups need a financial/operational plan

Startup 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

State’s manufacturing industry to benefit a lot with GST: ASSOCHAM

GSTThe 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

GoJavas considering organisational overhaul involving layoffs, restructured business model

Gojavas_restructure business modelLogistics 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

Why Big Bazaar tied up with Paytm

Big Bazaar and Paytm join handsKishore 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

Startup merger and acquisitions surge on funds crunch

Mergers & acquisitionsAs venture funding slows down, startups seem eager to sell themselves off. This is showing up in a surge in mergers & acquisitions (M&As).

In July, there were as many as 36 M&As, almost twice that in June and about three times the January and February numbers, according to data from startup research firm Xeler8. The second quarter of this year saw three big distress sales – FabFurnish, Jabong and Hiree.

Data from Tracxn, another startup research firm, also shows a significant increase from the second half of last year, when funding started slowing down. From 32 M&As in the second half of 2014, the figure went up to 67 in the first half of 2015, to 79 in the second half of last year and was 75 in the first half of this year. The data is collected based on media reports, and announcements in social media, blogs and websites.

“The trend will accelerate in the next six months,” said Mohan Kumar, executive director at venture capital firm Norwest Venture Partners. T C Meenakshisundaram, founder of VC firm IDG Ventures India, said the Uber-Didi merger in China shows the way ahead for Indian startups. “Everybody cannot create billion-dollar companies and sometimes investors don’t see value in a company when there are too many players in the sector. Exit is better than shutting down,” he said.

Another VC investor, who did not wish to be named, said that in most segments market leaders are emerging. “This was expected. Cash is air for startups. When you don’t have money to pay, employees leave and that creates so much negative sentiment in the company that entrepreneurs lose heart,” he said. While Indian startups raised around $3.5 billion in the first half of 2015, the funding dropped to $2 billion in the first half of 2016, says a report by KPMG and startup research firm CB Insights.

Xeler8 finds that the most-funded sectors and the ones that attracted the highest number of entrepreneurs – including local commerce and e-commerce – have seen the biggest consolidation. Delhi-NCR, which is estimated to have the highest number of local commerce and e-commerce startups, saw 29 M&A deals in the first half of this year, followed by Bengaluru at 26 and Mumbai at 16.

The year’s biggest acquisition was by Quikr, which bought online real estate platform CommonFloor for around $100 million, while the asking price was around $160 million. Myntra acquired Jabong for $70 million, though Jabong was once valued at more than $500 million and was demanding a price of over $1 billion for a sale in late 2014. Titan’s recent acquisition of more than 60% stake in Chennai-based Caratlane was below the jewellery e-tailer’s valuation in its last funding round from ll. Hyperlocal delivery startup Roadrunnr acquired food-tech startup TinyOwl in June after the latter found the going tough.

Rishabh Lawania, founder of Xeler8, said this trend will continue because big players are now scouting for companies that complement their offerings or add new segments that could help them with incremental growth.

Source – ET Retail