Why R Narayan, the founder of Power2sme thinks he will have a $1 billion company in five years
The Venture Capitalists who invested in me did a detailed analysis of the market. They couldn’t find a competitor in India. A similar business model exists only in Russia. In June, we did business worth Rs 15 lakh. In December we did Rs 5 crore. In FY14, we are looking at a business of Rs 240 crore.
It isn’t very often you hear the founder of a one year old Indian startup tell you that he wants to create a $1 billion company in 5 years and it rings true, even remotely. But that’s exactly what R Narayan, the Founder & CEO of Power2Sme is saying. “If I capture 1 % of the market share in the business I am in, I’ll be a billion dollar company,” says Narayan. In an interview with NBW, Narayan, who started the company less than a year ago as a buying club for small and medium businesses and raised Rs 10 crore in October, explains how he plans to do what he claims. Edited Excerpts.
First the basics, what does Power2Sme do?
Power2Sme is a buying club for small and medium enterprieses. The company aggregates demand from small businessess and places a large order with the supplier. It then splits the large order into smaller parts as per the requirement and gets it delivered to the small business using a third party logistics provider. Because we make a large order, our prices are lower than most suppliers. We operate in 5-6 verticals now. Chemicals & Additives, Inks, Paints, Polymers Engineeering, Polymers Commodity and Stee are the categories we focus on. If we get just below 1% of the market, we will have a Rs 5000 crore company. I’ve been experimenting with this model for about 1.5 years now.
Who are your competitors? Aren’t people like Indiamart.com and larger companies like MJunction doing the same?
The Venture Capitalists who invested in me did a detailed analysis of the market. They couldn’t find a competitor in India. A similar business model exists only in Russia. My typical competition would be a distribution company. But SMEs love dealing with me because I give them everything they need in one place. You can easily mistake us for some of the present players. But they have a different model. They work like Bharat Matrimony. Boy meets girl, and then they meet offline. But we are different. The boy never has to meet the girl.
For instance, take the case of paper. Lets say a lot of small businesses place orders for 1000, 2000, 5000 reams of paper. I aggregate that order and buy 100,000 reams. I have it packed in separate orders, generate invoices and have it delivered and a lower cost than what he would get from his traditional supplier. The large order I place is what gives me a price.
What are your revenues like?
In the current quarter, we will be about Rs 9- 10 crore. This is technically our second quarter since the start. So in this short four months, we have grown tremendously. In June, we did business worth Rs 15 lakh. In December we did Rs 5 crore. In FY14, we are looking at a business of Rs 240 crore. We are hoping to become a billion dollar company in 5 years. The fourth year should take me to about Rs 3000 crore.
How will you achieve this growth?
Today I have a presence in Delhi. We just started in Mumbai. I plan to be in seven tier 1 cities with 5 spokes per city by the end of FY14.
What has changed from before to make this model possible?
Lot of companies come up with my kind of model in the last 8- 10 years. But things have changed now. Firstly, people are getting used to buying online. There is no fright of the Internet now. Consumers have changed a lot now. Second, five years ago, there were no third party logistics providers. This model wouldn’t be possible without them. In the current flavor, you will see a lot more B2B companies coming up.
What are the challenges?
This is a highly scalable business. But one challenge is that SMEs are credit starved. Every year, the SME is growing. But the money in the bank is not really growing. And even if banks say they have an SME lending scheme, no one is really lending to them.
Office supplies B2B companies say that though customers place the order online, they like to meet or talk on the phone. Is that a challenge you face?
Not really. Say you order a lot of pens, you’d like to see it and talk offline. But in my case, I’m supplying the plastic that goes into making the pen. A ream of paper is a ream of paper and the buyer knows exactly what he is going to buy. The factory owner will need it periodically. Its not a decision he can put off.
[Edit note: For the record, the earlier round of funding raised by Power2Sme was from Inventus Capital as well as Kalaari Capital (formerly Indo- US Venture Partners) and not just Inventus capital as reported earlier.]
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