Understanding Startups – D2O

Today, I came across an interesting start-up: D2O (as in Distribution 2.0). They have already been profiled in Headstart network and yourstory. The name sounds very interesting. The space is also very interesting. They are in the process to create a product agnostic distribution network which can distribute any product nationwide. They have started operations in Mumbai and are seeking to scale-up. My take on the start-up is as below.

The most important aspect of any successful business is the business model. Let me try to put in my understanding of their business model:

  1. Value Proposition:
    1. Re-define conventional distribution networks and create product or service agnostic distribution networks
    2. Use financial services and insurance as the vehicle to create and test the network
  2. Customers: Consumers of any product/service channeled through the network.
  3. Key activities:
    1. Identify potential channel partners across geographies
    2. Identify potential services that can be distributed
  4. Cost structures:
    1. Setting up a scalable technology backbone to support operations
    2. Identifying potential channel partners across geographies is a cost intensive exercise
  5. Revenue plan: Margins to be made by using the same channel to distribute multiple products to same or similar consumers.
I find that the idea is novel. However, there are some major challenges ahead for them which they need to address:

  1. Setting up a nationwide or even a regional distribution network takes time and is cost intensive. This means that to create such a network, they will need a lot of cash to burn upfront.
  2. The product/service they have started with is a high margin product. But the customer segment they have decided to focus is at the bottom of the pyramid (BoP). This is even more challenging as this can potentially slow down their progress on scaling up.
  3. They need to reach a critical mass in terms of their distribution reach in order to become profitable and to be considered an alternative or a ready channel for new products/service launches.
  4. The choice of channel partners/distributors/affiliate partners will determine the constraints of the products/services that can be distributed. It is a tough choice to make.
  5. Channel partners will loose interest in the company if they do not get quick RoI or from being a part of the network. OF all the challenges, this is one which can decide the fate of the start-up.
Having said all of these, there are some other things that are favorable for D2O:

  1. The founders have a small team and are thinking big.
  2. Cloud can help them build a really scalable technology back-bone to support operations.
  3. The start-up ecosystem and the business environment (with India growing handsomely and most of the growth coming from tier 2 and 3 towns) is very conducive for start-ups like them to flourish.
In my opinion there can be a slight shift in their strategy so that they allow themselves to grow fast. That will be the only way they can ensure success.

These were my opinion on the company, their business model and challenges. Do you agree with my opinion?

NASSCOM Product Conclave – Indian IT Industry comes of age

This year’s NASSCOM Product Conclave which concluded last week had a few surprises in for me. This year’s theme was cloud computing and start-ups. A few things that stood out at this year’s events are:

  1. Co-Creator forum: One unique activity that has been tried out at the event was a match making process where big SI’s and MNC’s were introduced to Indian product companies to explore possible partnering opportunities. I participated as part of the SAP team. We met some interesting product companies and are exploring partnering opportunities with them. I think this indicates another shift in the industry. Partnerships are going to be crucial to win in the new reality.
  2. Presence of investor community: Start-up’s invariably attract investors (Angel investors and VC’s). This year there was a good participation in the event by the investor community, not only as speakers, but also as sponsors and more importantly delegates. This indicates that there is a lot of money waiting to be invested in the Indian product companies which is good news for the industry at large and start-ups more specifically.
  3. Perceptible shift in the industry: There are a lot more companies in India who now want to create products than just offer services. This indicates that the Indian IT industry is moving up the value chain. I am sure that India will emerge as a hub for software products soon and there would be no surprise if the next Google or Microsoft will emerge from this community.  
  4. Emergence of ZOHO: One success story of a product company in India has been ZOHO. ZOHO has proved to be a path breaker in this community and I could sense that they are being considered the leader in the pack, just like Infosys was considered when the services economy was about to take off. Whether ZOHO will also grow as big as Infosys, time only will tell. One thing for sure is that they have shown to the Indian software industry that creating world class products from India can be a reality. The importance given to them was evident from the fact that their CEO had 3 back-to-back sessions on the last day of the event.  
  5. Dilemma – Cloud or On-Premise: I could sense that there is no consensus on the cloud or on-premise dilemma. I guess both will have to co-exist and grow together for some more time to come before one or the other emerges as the clear winner to create and deliver great products.
Here are some interesting product companies to watch out for:

Do you know of other interesting start-ups in India which have the potential to become big? 

Next wave of Growth for Banks – Retailer Credit Card

Farmers in India are offered Kisan Credit Cards to provide adequate and timely support from the banking system to the farmers for their short-term credit needs. The banking industry can take a clue from this and introduce a retailer credit card for exclusive use by small-time retailers to pay to their suppliers. 
The idea: 
  1. Banks to offer small retailers a Retailer Credit Card with a minimum credit limit of 10000 INR. 
  2. This offer will also come with the credit card swiping machine which the retailer has to use in his retail counter. The rent will be waived off if the retailer does a minimum of “x” number of swipes in a month.
  3. The credit limit of the retailer goes up by a % of the total transactions done via the credit card swipe machine. For example, if the retailer has swiped for INR 100000 in a month, his credit limit on his card goes up by (for example) 1.5% of INR 100000, i.e., 1500 INR. 
  4. The retailer can use the credit card to pay his suppliers. The suppliers will only be charged rent for the machine and the transaction costs will be waived off (may be for the 1st year to induce usage).  
What’s in it for the bank: 
  1. Currently, the number of retailers who accept credit cards are limited. The bank can increase this number by a large margin. 
  2. The profit for the banks will come from the transaction fees. By combining the credit limit for the retailer to the value of transactions, the bank can incentivize the retailer to increase the transaction via credit cards thereby leading to higher profits. 
  3. There is also the possibility for the end consumers to make part payments towards their credit card spending, thereby generating very high interest fees for the bank. 
  4. This has the potential to increase the total spend via credit cards twice or even more than the current usage.  
What’s in it for the retailer: 
  1. Currently, one of the big pain points that the retailers have to grow their business is to be able to procure more goods to sell in their shops. One of the limiting reasons is the limitation of working capital. Most of these retailers are unbanked and can not get access to working capital loans on offer due to variety of reasons. This credit card provides them an easy way to get short-term working capital. The fee that they pay is much less than the other options they have (local money lenders). 
  2. By accepting credit card payments, they have the opportunity to increase their sales as they loose some sales to organized retail due to the ease of paying with a credit card that the organized players provide. 
My personal opinion is that this can provide the banks a lot of growth in the next few years.
What do you all think? Pls let me know. 

Business Model Innovation: Learning from the peers

CISCO has been talking about Smart + Connected Communities which have a single intelligent common network backbone on which multiple services can be built and provided thereby increasing efficiencies and effectiveness of the services. 
They have been promoting this service for a reasonably long time now with some moderate success. When you think of the different challenges that CISCO has with regards to S+CC is very similar to the challenges that Sun Edison faced a few years ago. 
A little about Sun Edison:
They were an organization in the business of installing and maintenance of solar power systems for large organizations. They had considerable expertise in installing and maintaining these solar systems. They had customers who were interested in these systems as well due to different reasons like green energy, low long term costs, etc. But these installations were huge requiring very high capital expenditures upfront and their customers were not willing to commit to such high capital expenditures.
They solved this challenge in a very unique way. They did the following:
1.  Find customers (Example: Wal-Mart) who are willing to pay for the usage of the solar power once it is made available to them. They signed long-term power purchasing agreements (PPA’s) with this customer.
2.  Find investors who want reasonable long term returns on investments (For example Pension funds). They sold the PPA’s to these long term investors who were then willing to invest in the upfront capital expense and considered this as the investment on which they get stable returns.
3.    They also signed up with these investors for the maintenance of these installations.
4.    Majority of their profits came from these maintenance contracts.
CISCO can also benefit from a similar strategy with some modification/adaption to overcome the challenge of high upfront capital expenditure for their customers.
Sun Edison was acquired by MEMC in November 2009. Here are some links from Sun Edison site which explains their business model: 
This again goes to show that there can be solutions to our challenges around us and it pays to research well whenever we face some very stiff challenge. 

Zero Inventory Retail Business Model

I recently came across a company, CornerStone which has implemented a unique retail business model where the physical stores do not hold any inventory at all. All the inventory is maintained at the central warehouse from where all shipments are made. I think they should go one step further and tailor the garment only upon the receipt of an order. They also provide an online store from where you can purchase.

The business model is unique in the industry as it combines the best and worst of the virtual and real world models. Low or zero inventory at the retail store means that the cost of opening up a store is drastically low and conducive to franchising mode of growth. This also provides them the opportunity to optimize the supply chain and reduce the overall cost of production. All of this put together means that the possibility of good profit margin  is high.

The flip side is the fact that customer’s who do impulse buying are less likely to buy or place orders in this model. This model would work very well for the customers who are very particular about the fit and less about the impulsive high of owning something immediate (aka, online shoppers).

If they can find ways to scale fast, the economies of scale will provide them a great opportunity to disrupt high-end fashion retailers.

Some more ideas that they could mull over:

  1. Tailor the garment only upon receipt of a confirmed order and then dispatch. 
  2. Allow customer’s to book an appointment and go to their home/office to take orders. 
  3. Aggressively franchise to gain economies of scale
  4. Look at the consumer gift voucher as a mode of promotion of sales
  5. Adapt the Zappos way of doing business for their own benefit,  like  
    1. 365 day return policy 
    2. 2 way delivery free 
  6. Allow customers to advocate the product from the stores directly as soon as they purchase
  7. Increase the product mix to include women’s wear
Hope that they are able to improve their sales and scale their operations nationally. 
Wishing them all the very best.!!!!!