What you don’t understand about doing business in India: Everyone needs to grow for you to succeed !


Why do Indian Start-ups fail?
Mostly because they have a narrow understanding of what Scaling-Up Means.

Roots of Scaling Up Philosophy

There is a reason why Industrialization, the father of our modern technology, the way we know it, was born in the west. When industrial age set in (1700’s), British were controlling more than 24% of the world, using a population of 8.2 Million. When American settlers were fighting the British oppression, they were about 2.5 million. The French, Germans, Portuguese and Spanish were not far behind.

Compare that with India with a population of 127 Million covering some 7% of world area at the peak of Mughal Empire.

You can see, that 8.2 million or 2.5 million cannot control such a vast geographical span and grow economically, without moving faster, communicating better, and producing more.

This gave rise to our present technologies which are prosthetic in nature. Every single function that has been developed since the industrial age is an extension of ourselves. We started off by building extensions to our arms and legs, and ended up by building a brain. From simplest to the most complex body part.

Why do we need population? We need it to produce more things which can be sold and to defend these means of production. Capitalistic economies have had a simple rationale, which is to grow working population, real or artificial.

How have advanced countries done it? First by working themselves, then hiring slaves, then building machines. Every process cheaper than the previous one. It is economics and the return on investment at play.

The need to scale things up is an inseparable need of a capitalistic framework. I am not saying it’s good or bad, but it’s a fact

One of the best ways that this was put forward was by David Attenborough (or Kenneth Boulding?)

“Anyone who believes in indefinite growth on a physically finite planet is either mad, or an economist”

We are at a stage, where the planet itself is feeling small, and all of a sudden “Colonizing on Mars” and search for habitable planets are looking more palatable.

Eastern Markets are Not the Same as the Western Markets

You see, India or China had no use of the philosophy of scaling up. If you go back all the way before industrial revolution, most of the tools and animals were complimentary and not competitive.

They existed to do things which we cannot do. Mechanization and Animal husbandry were two parallel tracks. What could be done by people, was done by people.

Scaling things up is simply not in our DNA.It’s an acquired trait. Technology for us is first a socialist tool, then a capitalist one.

When we became industrialized, we did it kicking and fighting, with unions and tough labor laws as assurance.

We saw what happened in Bengal Famines in 1940’s and became really good in Agriculture and milk production.

TCS and Infosys languished for years till we were about to lose our gold reserves in early 90’s, and Y2K threatened everything.

Now we have reached an inflection point, where there is enough infrastructure and disposable income to attract Foreign Investors.

The Rise of FDI and Indian Venture Capital

FDI is here to compete with the grounds up businesses. Mostly to stun them with a flash and a bang, and skim profits home before they are able to respond.Mostly the profit comes from an arbitrage between the technology implementation by new companies and response times from the old established ones.

FDI isn’t making its way to India to lose money. It’s come with an expectation, that more money will be made in profits and taken back, than what is being invested.

We have a government, which hopes the direct investments widen the tax base so that it can secure a future for the poor.

With this money flowing in, it’s only understandable that this money will try to replicate its previous successes. This means using technology to cut out middlemen, flatten corporate structure while increasing income gap as a side effect. My argument is that this doesn’t work in the Indian Context.

All of a sudden we see startups work on a business model, based on ideas lifted from successfully funded ideas abroad. The template has become a simple one, which includes finding ways to reach people while reducing costs by bumping off businesses along the value chain.

This method is not creating value, but just redistributing wealth from many small businesses to a single giant of a business using technology. It might have worked in the west, but will not work as easily in the Indian Context. Largely because India is far more prone to give in to populistic demands than say a government in EU.

I bring this up because this is what our new hoard of entrepreneurs thinks is the path-breaking new idea. Cut out the middlemen and add that margin to your own, and done. I don’t know what these guys hope. That the entire value chain will just keel over and die?

The Truth of Doing Business in India

If there is one truth to doing business in India, is that businesses only grow when they form long-lasting partnerships with other businesses and share their successes.

This spirit of collaboration is largely lost on our startups as most of them are working with funds that have to show returns in 5 years. Decision making for the Long Term needs patient capital.

Look at every single Indian business which is a part of India Inc.. You will find that the company has been successful because it connected people, provided them with jobs and grew the entire economy. For each one of these companies, the entire ecosystem grew. Thousands got job manufacturing things and millions got jobs selling them.

TCS and Infosys grew in stature also due to the goodwill of millions employed. Godrej and Tata’s spent huge profits improving the lives of millions. They were doing all these things within the first year of their businesses.

 India is a country where 94% of the people work in unorganized sector. If your strategy involves fighting this 94% and taking money out of their pocket, think again, as it might be short term. They are not going away and will always be plotting your demise.

World over, if google created an advertising platform, it also enabled marketing agencies and individuals grow the platform and be evangelists. If apple invented iphone, it also allowed an entire developer ecosystem to partake in profits and compete.

Individual companies don’t compete to become successful. Business ecosystems around individual companies compete to become successful, with the losing ecosystem absorbed by the winning one.

Business depends on Laws

Your business derives power from the legal framework, which is as good as it is enforced. Enforcing laws takes political will. Politics favors larger number of people. The equation is simple. More businesses for you, than against you is the mantra for the Indian Economy.

So either create a blue ocean, a category of products& services which don’t exist, or fill the gap created by ever expanding population and disconnected society, or create a product that improves efficiency for existing market players. But all these should be inclusive, creating a win-win for your partners, who should grow with you.

But at no point should you forget that a business can only be profitable and successful if it operates under the unwritten social contract for the betterment of the society.

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The Views expressed here are my own and shouldn’t be construed as the views of any of my employers, present or past.

Facebook lost a case, we lost more

Facebook lost its case against the bulk search warrants in the NewYork court of appeals after a protracted legal battle. Facebook was arguing that it can appeal against data requests from law enforcement agencies, where it felt that the request was excessive.

The news looks pretty harmless. I mean when we all signed up for facebook, we all knew that facebook had the data, and was even using it to target ads. Meh..

What was not known was

  1. The real loss of anonymity: The way Trump was able to use Cambridge Analytica to literally map every single voter’s preference in the country and deliver tailor-made advertisements to it. The recent Buzzfeed article on how this targeting can actually shape your thought without you knowing it. Fake news is one very publicized aspect of it.
  2. Actual Impact of Bulk Search Warrants: The worrying part is that there is no scope. Period. If the US government is not asking for all the Facebook Data Dump in one go, then they are just being nice. In Short, facebook is now just a repository which manages data, and with minimal effort, US government can ask it. And combine that with (1) above, you see where is it going.
  3. It is only going to spread further: One good or bad thing about governments is that they learn from each other very quickly. There is already a petition in Indian Supreme Court on Whatsapp sharing data with facebook and its prevention, where facebook has tried to downplay it by saying it’s a contract issue, and supreme court is adamant on a 5 judge bench. So the NewYork ruling can just change the Tide. What is stopping China or India or Russia or Brazil from holding Facebook ransom and asking the same thing? Earlier, there might have been an argument put forward that facebook reserves the rights, now that cover is blown.

Solution?

The only feasible solution that seems possible is for facebook to create country level servers and segregate the information geographically as well as prevent complete censoring of data from crossing geopolitical boundaries. Any other argument has been substantially weakened.

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Views expressed here are my own and don’t reflect the views of any of my employers, present or past.

Hey Flipkart, Snapdeal, Paytm let’s restructure, create some value and kick some…

Ecommerce sales (Image credit: Wikimedia)
Ecommerce sales (Image credit: Wikimedia)

It’s high time that the infighting between eCommerce startups out of India stopped, specially Snapdeal and Flipkart.

The writing is on the wall, and there is no way that these companies have enough resources to compete with say, companies named after rivers. If you truly want to beat the competition, learn from Indian history, stop being the princely states from 1800’s, and eat the humble pie. Creating lobby groups to seek help from the govt. will also not work, but it should facilitate in something else.

Restructure your businesses

I won’t comment on the burn rate and foolish salaries. You know why you burnt what you burnt. Now bury the hatchet and join forces.

Bear me for a minute.

I am not asking you to merge.

I am asking you to spin off a part of your businesses and merge them to create a B2B platform.

Something I realized in 2010 was that every single eCommerce company created in India is running after the same customers, signing up the same vendors, to build the same catalog and just making google and facebook richer.

Each of you is spending loads of money maintaining staff to do these things, which are just copies of copies of copies. This is just wastage.WHY everyone does it?? I have never understood.

Even then, your competitor maintains better catalog range and depth.

What I propose is, spin off these businesses into one single business. So create a company called FlipDeal of something. Put all your vendor managers and catalog operations, warehousing and all others in this business.

Let Snapkart (eKart restructured) deliver your last mile.

Flipdeal will have all vendor relationships, catalog, and costs negotiated from the vendor.

This business is your Alibaba for B2B, and you source all you sell through this company.

Flipdeal has to earn its own profits, and either it is by squeezing its vendors or you or selling to new businesses in Tanzania or competitor like Shopclues, it’s up to them. You (Flipkart/ Snapdeal etc.) manage the brand, and the customers and marketing.

Your FDI pains will ease off, and you will be able to grow the pie, get new avenues for sales, reduce wastage and focus on essentials.

You will enable mom-pop stores and every single retailer and entrepreneur in India.

If they buy from Flipdeal, they are all joining together in this fight against your competitor, and you do get your cut.

You created one space for all customers, now create one space for all businesses, rehashing the same investment in technology and content.

If You get an export license, you can consolidate all exporters under one roof. You earn a share of profits from this entity, you sell to consumers.

I know it sounds bizarre, and your first instinct will be to reject it as madness.

But I am sure that it will start some conversation somewhere, that might end up saving a lot of jobs some years from now.

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Satyarth

(views expressed here are my own and don’t reflect views of any of my employers present or past)