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?

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.!!!!!

Go-to-market strategies that can kill innovations

I think we can learn a lot from our own failures and also from how others around us fail. I would like to take a trip down my memory lane. Early in 2001, there was an interesting organization called iNabling Technologies founded in 1997 by John Aravamuthan. It also got a funding of  $3 million (B V Jagadeesh, Infinity Technology Investments, ICICI)

Making e-mail access affordable was the mission of Bangalore-based iNabling Technologies. The indigenously developed iStation was a low-cost e-mail device loaded with Engati software, which allows multiple language usage. The iNablers (as they call themselves) had also designed a POP server that costs one-tenth of a normal ISP server.

They had decided that apart from the consumer segment, they would also target Public Call Offices, where iStations can be installed to provide e-mail access at a nominal cost. STD/ISD booths have had remarkable success around India, so the idea of converting Public Call Offices into Public Email Offices was interesting.

They had a good working product providing a much in-demand service at a fraction of the current cost. However, they could not survive in the market for long. This was not because their product got obsolete, but because they were not able to sell their devices.

My understanding of the trouble was that the company hired people from the telecom industry who were ingrained in the philosophy of pushing stock to distrubutors and let them take care of the further downstream channel.

This approach did not work for the following reasons:

  1. The distributors (typically, the telecom distributors) were in no position to sell a niche product.
  2. No body spent time to build a brand around the product for the channel.
  3. Combination of the above lead to the situation that there was demand in the market (early adopters) but no one was there to explain the working of the product to these early adopters. They lost interest in the product and that was the doom of the product.

This is not an isolated instance where the wrong go-to-market approach can kill a good product in the market.

So, pls choose your partners carefully.

Have fun !!!