Aruna Kappagantula Co-founded Bamboo House India, a social enterprise that promotes the use of bamboo products to provide sustainable livelihoods to rural and tribal people. The market is estimated to grow to Rs 26,000 crore by 2015.
We thought things were slowing down in this country. Then we found these 30 companies set up by young entrepreneurs for under Rs 5 lakh each. We caught up with them to find out how they did it and how you can too
The businesses we looked at, what they started with, their perceived strengths, how they spread the word and, most vitally, why they think their idea would work today
Talent Equity: A year ago, Indrojit D. Chaudhuri and Manish Raghuvanshi started talent equity solutions in Noida, a forum for employees to voice their opinions about their workplace and salaries. users can log on and read and write anonymously
Mogo’s Food: Sid Khullar and friends launched it two months ago, to deliver fusion food at economical prices in noida. their reasoning: good food is recession-proof. their usp: easy to order and healthy food
Evam Entertainment: Karthik Kumar teamed with Sunil Vishnu K. to create live entertainment and workshops in Chennai. revenue comes from ticket sales, corporate clientele and brand partnerships. they ride on their creativity and the scope of what they consider an unrecognised field
Bamboo house india: Aruna Kappagantula and Prashant Lingam of Hyderabad try to use bamboo to provide livelihood to rural and tribal people. bamboo, they say, is a viable alternative to wood and plastic
Thunk in india: Suren Vikash U. is a ‘best out of waste’ type of ideator. his brainchild provides waste management solutions to companies in Bangalore, creates products from waste raw materials and sells them. a viable opportunity, he says, if the final product is of good quality
The questions that shape a business plan
Sec 1.0 an introduction When was the company formed and by whom? Where is it based? What does the company uniquely offer?
Sec 2.0 Market opportunity What is the opportunity, need or problems in the market? Who is experiencing the need? How big is the opportunity? How fast is the opportunity growing?
Sec 3.0 Offering What is being offered to address the need? What are the different components of the offer?
Sec 4.0 The competition Why and how is the offering unique? How will it successfully compete?
Sec 5.0 Market Who are the customers? How will they use it? How is the market segmented? What does this offer mean to them?
Sec 6.0 Business model How will the offering be delivered to customers? What does the delivery chain look like? How will the support process work? How will revenue and costs flow across the chain?
Sec 7.0 Sales and marketing plan How will customers be acquired? What are the different modules or components to be sold? What are the price points?
Sec 8.0 Development plan What are the timelines and technologies? What is the strategy for product development?
Sec 9.0 Roadmap Over the next 24 months, what will be the sales and marketing objectives? What will be the company’s objectives? What are the product development objectives? What is the exit strategy?
Sec 10.0 Current situation What is the present status of the offer? Are any customers testing or using it? How much money has been invested? How many employees are there?
Sec 11.0 Financials How much money do you need? When, how and at what levels will you break even? What is the monthly outlook for the next 12-18 months?
Tips: Keep the business plan about 20-25 pages in length. Number the pages, check spellings, and make sure the document is logically consistent.
Source: Sanjay Anandaram, managing director, JumpStart.
Do You Have It In You?
There is no single sure-shot recipe that makes an entrepreneur, but if you answer a confident ‘yes’ to most of these questions, then you have high chances of making it
1. Can you bear great financial risk?
Willingness to take risk is one thing, being able to bear it is another. Do you have enough savings stacked up to pay your bills in case the business does not take off? Does your spouse have an income you can fall back on?
2. Do you have a unique service or product?
What you offer need not be ‘new’, but it should have a value proposition in terms of time, money, or quality over existing products. In other words, even an improvement over previous products can be successful.
3. Are you passionate enough?
If you don’t believe in what you are doing, chances are you will never make it. Self-belief and faith in your idea are among the key factors that make a difference to a business. Many real-world case studies confirm the power of passion.
4. Do you have adequate resources?
Can you sustain yourself till profits start rolling in? Make an estimate of probable costs and worst-case scenarios and see whether you can handle them. If you do not have the money, can you borrow it?
5. Do you have the necessary experience?
You should start your business in an area where you have experience. This isn’t mandatory, but crucial if you are starting on a small budget and cannot hire external help. Else, get someone with the required experience.
6. Are you willing to sacrifice your lifestyle?
Any business usually takes a while to succeed. You must be prepared to lead an extremely frugal life for at least a few years. This might mean few vacations, little eating out and even spending less time with the family.
7. Do you like all aspects of running a business?
Running a business means doing all the unglamorous work—from paying utility bills to running around and negotiating with people who might not be particularly excited about your idea. Are you ready to go?\
8. Are you comfortable making decisions on the spot?
With a new business, you call all the shots—and there are a lot of decisions to be made without any guidance. This instant decision-making ability is vital for success.
9. What’s your track record of executing your ideas?
Examine your past objectively to see whether you have assumed leadership roles or initiated solo projects. This will give you a clear idea of where you stand when it comes to taking initiative.
How Much Money Do I Need?
Start-up capital means money needed till your business starts earning revenues. Assume expenses would be incurred under these heads for between six months to a year. Add 15-20 per cent for unplanned expenses.
1. Preliminary expenses Expenses incurred on initial surveys or for setting up a website
2. Professional expenses To hire professionals like chartered accountants
3. Cost of goods sold To develop a product or service or total income earned minus the profit
4. Selling and distribution expenses Expenses during the sales process
5. Marketing expenses Mainly advertisements or promotions
6. Cost of technology On mobile phones, computer hardware and software, Internet
7. Administration expenses Postage, stationery, rent, telephone and insurance
8. Salary and bonus Founders usually go without salaries for the first few years
9. One-time expenditure Permits, licenses, starting inventory, housing, among others
10. Monthly expenses Telephone bills, rent, wages and salaries and cost of advertisements
The Tight Fist
When you have a small budget, you have to make each penny count. Here is how
Running Your Office
- Work out of home, use existing infrastructure like laptops and phones—don’t buy new ones.
- Buy cheap PCs and try for good deals on laptops. Don’t fall for expensive warranties.
- Look for cheaper hosting and domain plans.
- Use Skype to save on phone bills.
- Take your time while selecting cell phone and Internet plans, review them on a monthly basis.
- Watch your utility bills—switch off the lights, AC, fans and other appliances when you leave.
- Print double-sided and in economy mode with lower tones to save toner; use cheaper paper.
- Rent your non-critical office equipment like ACs, photocopiers, coffee machine.
- Instal an electric hand dryer in your toilet to save on more expensive paper towels.
- Watch stationery costs—take free stationery from conferences or vendor (but don’t steal!).
- Recycle scrap—keep pins, rubber bands and clips that you get in the mail.
- Instal open-source operating systems or use free cloud computing software.
- Stay with friends or relatives. If you must stay in a hotel, look for cheap options close to meeting locations. Share rooms with colleagues.
- Use air-miles if you have any.
- Take afternoon flights: they are cheaper.
- If you can, get a hotel industry association discount card. You can then get discounts.
- Plan travel in advance: look for deals. Try to club meetings in a particular city or part of a city.
- Hire people at less than market rates. Hire only if work can’t be done by existing employees.
- Hire interns, freshers and train them.
- Find contacts to assist you with legal work, finances etc., instead of outsourcing such work.
- Don’t outsource. Founders should have the core skill-sets to build and sell products. If not, get a person with the skill-set on board.
- Don’t invest too much for future needs: think up to one year ahead.
- Change lifestyle to match cash flows.
- Create monthly budgets for expenses. Document all expenses.
- Analyse expenses on a 1-2 week basis and see what can be reduced further.
- Negotiate deals with vendors or customers to give you discounts for later benefit.
- Use the Internet extensively for advertising.
Source: pluGGd.in , Morpheus Ventures Partners
- Formation Requirement Only Shop Act certificate is required. Shop Act fees vary as per number of employees
- Time required 2-8 Days
- Cost Rs 1,000
- Formation Requirement Minimum two partners Partnership deed is required
- Time Required 4-12 Days
- Cost Rs 3,000
- Minumum Requirements Minimum two directors, Minimum share capital of Rs 1 Lakh
- Formation Requirement Director Identification Number (DIN) for the first directors >> Name approval from Registrar of Companies (ROC) >> Memorandum and Articles of Association
- Time Required 8-20 Days
- Cost Rs 13,000*
* The costs have been estimated for an entity with a capital of Rs 1 lakh, which is formed in the State of Maharashtra. Source: Baheti & Somani, Chartered Accountants
For a business in which the starting capital required is less than Rs 5 lakh, the best option is to dip into personal savings or borrow from family and friends.
Banks will not lend you money for this purpose if you do not have assets to show. Chances of raising money from angel investors, high net worth individuals (HNIs) and venture capital (VCs) is also remote, as no one will invest in a business at the ideation stage, when it runs the highest risk of failing.
What’s Up With Indian Start-ups
While the Indian startup ecosystem still has a long way to go before it becomes as vibrant as its US counterpart, a lot is happening out there. Sameer Guglani, partner, Morpheus Venture, tells you who to tune in to for help, advice and contacts.
- Friends Folks in your friend and family circle who are entrepreneurs or executives
- Organisations The Indus Entrepreneurs (TIE), Proto.in (www.proto.in), HeadStart (www. headstart.in) and The National Entrepreneurship Network (NEN) ( http://www.nenonline.org)
- Grassroots events Barcamps, Open Coffee Club (OCC), HeadStart’s ‘Startup Saturday’, Proto.in’s ‘The Startup Chat’
- Start-up Blogs Indian and non-Indian blogs and events by bloggers
- Business Accelerators Morpheus Venture Partners (www.morpheusventure.com), Accelerator (www.iaccelerator.org)
- Incubators Check incubator sections at www.nenonline.org and www.pluggd.in
- LinkedIn (www.linkedin.com) Amazing place to find professionals who can be of help
Tips: Key skill here is to get plugged in and continue to find more avenues. Meet as many people as you can, tell them your ideas, listen to them, make friends. Always be alert for people who can help
What Kind Of Entrepreneur Are You?
1. Lifestyle entrepreneur People who start a business essentially to earn a living and lead a desirable lifestyle. It is passion and not financial rewards that drives a lifestyle entrepreneur. Such a business often dies with the death of the entrepreneur
2. Serial Entrepreneur Such people start a company, make it grow very fast and then sell it off and move on to another business. They are the ones who love to start businesses, and work with several start-ups in the course of their lives
3. Institution builder Those who build a business to make it grow, and keep it growing. So that it can be passed on to the next generation
Does it make sense to start a business when the economy is not in the best of shapes? While entrepreneurial zeal may be in somewhat short supply during such periods, for someone with the intention to get into it for the long haul, it is as good a time as any. For, as far as recorded economic history goes, boom and bust cycles have repeated themselves. So, whether you start during a boom or a slump, you will have to live through another one soon enough.
Navneet Rai (L) & Kashyap Dalal Ostensibly India’s ‘first democratic product brand’, Inkfruit, which they founded, sells T-shirts online and offline. Over 5,000 designers across the world create and vote to choose from thousands of graphics designs.
How much tougher will it really be? Let’s take a quick look.
The money. Accept it, there isn’t much seed capital sloshing around. Private capital will flow to proven businesses and banks won’t fund you unless you have assets to show as collateral. So, if you don’t have cash of your own, it’s either of the two Fs, friends or family, where you’ll need to get the cash. So little difference there.
The market. Slumps make people more circumspect about their spending. But they don’t stop spending altogether, and they haven’t done that now either. So, if you can give them better value, you will still find takers for your product or service.
The precedents. There are lots. A Frost & Sullivan report says 16 out of 30 companies making up the Dow Jones Industrial Average started during slumps. For instance, GE during the Panic of 1873, Hewlett-Packard during the Great Depression of 1929, and Hyatt Corp. during the Eisenhower recession (1957 -1958). That’s just three of them.
The preparation. It will take time to get rolling and hit the market. So, even if you start today, you will hit the market closer to the time that it is likely to swing up and, therefore, ready to reap the benefits.
So, from the looks of it, you aren’t much worse off. Here are 30 businesses you can start with less than Rs 5 lakh as capital. The good thing is that their markets aren’t saturated yet, and there’ll be enough for you if you choose to jump in. The risk is that not all of them are proven. That apart, we have the start-up process broken up into steps so that you can tackle one thing at a time.
Suren Vikash U. Founder of Thunk in India, a start-up that intends to ‘trash’ the notion of garbage by making high-quality everyday products, even furniture, from waste. While it provides waste management solutions to companies, it involves people from the underprivileged community to co-create and innovate.
Step 1: Get The Idea Right
It all springs from the ‘eureka’ moment when the brain throws up that wonderful idea which keeps you awake at night. An idea is identifying a need or a problem people have and providing them a better alternative than the currently existing solution, whether it is in terms of time, money, quality or efficiency.
Here is how some of the entrepreneurs we feature got their ideas. Suren Vikash U. had worked in waste management for a year and knew the scenario in Bangalore. He realised that there was a lot of unrecyclable plastic waste. The difference was he saw that as raw material for daily use products. Thus was Thunk in India born.
Indrojit D. Chaudhuri and Manish Raghuvanshi worked in a recruitment firm. They saw lots of people quitting jobs when employers turned out to be very different from what they had expected. What if employees could get a low-down on a company before they joined? And, TalentEquity Solutions, a forum where members could anonymously give opinions publicly, was born.
Shashank Agarwal He joined hands with Akhilesh Bali, Ashutosh Dixit and Rachit Mehra (not in pic) to form MithaiMate, the mithai delivery portal using which people can deliver branded sweets across three cities in India. The USP—delivery within 24 hours and customer satisfaction.
Step 2: Build A Team
If the partners come up with the idea over endless cups of coffee, Step 2 could precede Step 1. If the initial founders realise that any core skill set is lacking, it is advisable to get a person with those skills on board.
Laura Parker, executive director of the California-based Wadh-wani Foundation that runs The National Entrepreneur-ship Network (NEN), an organisation which works to inspire, educate and support new entrepreneurs, says, “The founding team should consist of a group of people with complementary set of skills who are excited about the opportunity and have agreed on some share of the company’s ownership. They should agree to work without any salary and bring some ‘sweat equity’ into the company.” Mamtha Banerjee and Sanjay Joshi, founders of InvestmentYogi are both techies. So they got Ariadne Horstman, an US-based financial planner, into their core team when they started.
Parker stresses that people should not come together just because they are friends. “There should be clarity on who’s in charge what and what role each one has.”
Step 3: Evaluate The Idea
Now you have to test the idea to see whether it is an opportunity. This step would decide whether you actually invest time and money into the business. There are two sides to this.
Purchase side. K. Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management, Indian School of Business, Hyderabad, says, “One has to gauge the criticality of the need and the level of discontent people have with the current option. Anything in the high criticality, high discontent quadrant is worth a business.”
You must figure out who your potential customers are. “Be very specific in identifying customers,” says Parker. Instead of saying ‘middle-class Indians’ one should say ‘people between 25-40 years of age who earn more than Rs 50,000 every month.’ Questions you should be asking are: “What is the solution they are using today?”, “What with the existing option dissatisfies them?”, and “How much are they willing to spend?”
When Pandurang Taware wanted to get into agri-tourism, he commissioned a survey among his potential customers. The results told him what percentage of people wanted to go for a trip to a village, how far were they willing to travel and spend, among other things. This helped him design the product.
Industry side. One should then study the macro-side of the demand. Questions you should ask are: “Is the industry growing or shrinking?”, “What is the industry size in your operational domain?”, “What is the competition?”, and “Are there any government regulations?”.
When creADivity.com, which provides advertising content for SMEs was launched, the founders needed to have an idea of the size of their market. So they found out the number of SMEs and their average ad spends. Further, they found that about 30 per cent of the entire ad revenues were spent on creating content, something that helped them arrive at the size of their potential market. “It involved a lot of research based on available market reports,” says Sitashwa Srivastava, one of the founders.
Step 4: Create a Business Plan
Your idea now has to get a “business dimension”. Creating a business plan takes care of all the necessary things you need to put in place and the problem you are going to solve. (See ABCs Matter). Sameer Guglani, entrepreneur and founding partner, Morpheus Venture Partners, an early stage start-up consultant, says: “Zoom in to a small part of the problem that can be solved in the least time and with the least money. This part should be something you can scale up to a bigger version eventually.”
Financials. First you need an estimate how much money you require to start and if you have that kind of cash. (See How Much Money Do I Need?) It pays to be organised. “One has to build a spreadsheet-based financial model that has projections of various cash inflows and outflows depending on assumptions and inputs such as the number of customers, customer growth rate and so on,” says Guglani.
Another purpose this could serve is developing multiple cash-flow scenarios. Before launching Mogo’s Food, the founders created various ‘what if’ scenarios where they considered a decrease in number of customers, increase in cost of packaging and raw materials and so on.
D.V.R. Seshadri, visiting faculty and affiliated with the N.S. Raghavan Center for Entrepreneurial Learning at IIM-Bangalore says, “When starting it is important to define the exact criterion for failure and entrepreneurs should be wise to change tracks or pull the plug when required.”
Step 5: Create an Entity
For a business to run, it has to be a legal entity. To set up a sole proprietorship is the quickest. If it is being set up by a team, it has to be at least a partnership. To protect the brand, you need at least a private limited company. The last also separates your private assets from those of the company. Incidence of tax typically rises with the complexity of formation.
Step 6: Test the Market
This is crucial. “Once the idea is validated and the start-up has a legal avatar, I’d really suggest them to build the first version of the product-a very minimalistic one, but something that serves as a reflection of the core differentiation/service they offer,” says Ashish Sinha, chief editor of pluGGd.in, a Web magazine for start-ups. This is called a prototype or the ‘alpha’ stage in tech parlance, when a closed group of people is asked to critique the product to see how it does in a real-life situation. This stage lasts a fortnight to a few months. “Be ready to change your strategy and business model, if you realise that things aren’t working as expected,” says Harin Chandra, COO and managing director, Asia Pacific Region, startups.in, a platform for start-ups. Also, at this stage, make sure you can scale up to avoid problems later.
Venkata Subramanian, one of the founders of agri-supply chain company Matchbox Solutions, says feedback from farmers, retailers and NGOs helped him fine-tune his initial business model.
Step 7: Reach for Growth
When you are confident, throw open your business to the public. The hard work has just begun. You could call this the ‘Beta’ stage, a learning period in a start-up’s life that could last up to a few years. Sinha stresses the need to define clear success measurement criteria—such as number of customers or page-views—and keep improving them.
Spread the word. Try to get more customers but keep marketing spends on a leash. Use viral marketing tools, such as word of mouth and social networks, to increase brand awareness as well as sales.
Stay lean. Starting and running a business on your own without depending on outside funds, also known as ‘bootstrapping’, is more of a mindset than anything else. The aim is to keep costs to the bare minimum and squeeze out the last bit and more from resources. And during a slump, how good you are at this could make or break you. (See The Tight Fist)
External funding. If you have expansion plans that require funds, you could start looking for external funding. This could be a long and winding process and you need a strong relationship with the investor community. “It was only after building a prototype and launching a product that we closed down on the first round of funding,” says InvestmentYogi’s Banerjee.
“There is no single recipe to form a great start-up,” says Chandra, citing the example of Microsoft and Yahoo!, who, in spite of having deep pockets, could not revolutionise the search engine the way Sergey Brin and Larry Page, two bright but broke kids, did with Google. Harvard Business School defines entrepreneurship as, “The pursuit of opportunity without regard to resources currently controlled.” So, give it a go.
anaghpal at the rate outlookindia dot com