PROFIT FROM THE AUTOMOBILE BOOM
SALES LESSONS FROM
TAKE YOUR FASHION LABEL ABROAD
AUGUST 2010 VOLUME 1 ISSUE 12 Rs 75
VC GAME Sureﬁre ways to land funding for your business
Kanwal Rekhi, the master investor, on what VCs want
How to Market on Twitter 5 Tips to Retain Your Customers Make Your Money in Cleantech 5 Steps to Prepare a Cash Flow Statement
table of contents 56
12 MISTAKES NOT TO MAKE WHEN APPROACHING A VC!
Avoid these and your venture is sure to receive that investment it so desperately needs, say prominent venture capitalists. By Bindi Mehta THE FUNDAMENTALS OF FUNDING 33
The hard part comes after securing the funds. That is managing the funds. By Kanwal Rekhi DYNAMICS OF THE VC-ENTREPRENEUR RELATIONSHIP 34
Like a marriage, the relationship can be quite fruitful if the two learn to work in tandem By Bindi Mehta SORT OUT YOUR LEGAL ISSUES 36
Being clear legally is of paramount importance prior to seeking investment. By Zia Mody WHERE ANGELS TREAD 38
The Indian angel investment scenario is hotting up and startups might find funding easy now. By Team Entrepreneur FOUR-STALLING FAILURE 40
There are four main reasons why entrepreneurs fail to secure funding. By S. Anjani Kumar THE NAUKRI STORY 42
Earlier, bootstrapping was the only funding option, unless your family was able to fund you. By Sanjeev Bikhchandani WHY YOU SHOULD NOT TAKE VC FUNDING 43
Yes. There are many reasons why you should not.
WOMEN ENTREPRENEUR 56 SIX YARDS OF SUCCESS Chimmy Nanjappa and Pavithra Muddaya are helping themselves and the weavers’ community with their venture Vimor Sarees. By Shonali Advani
SOCIAL ENTREPRENEUR 58 INDUSTREE-OUS Neelam Chhiber started Industree with a vision to support artisans across India by giving them access to markets. By Shonali Advani
By Ankush Chibber
OPPORTUNITIES 62 IN HIGH GEAR Entrepreneurs in the auto-ancillary sector are in for a tempting journey today. By Shobha Mathur 66 DRESSING UP THE WORLD The time is ripe if Indian designers want a slice of the lucrative global fashion pie. By Sriya Ray Chaudhuri 70 CHANGING THE SCRIPT Ahoy ﬁlmmakers. VC funding in ﬁlms is at an all time high now. By Sriya Ray Chaudhuri 74 A TALE OF THREE CITIES Entrepreneur checks out what makes BPOs tick in these tier II and tier III cities. By Pranbihanga Borpuzari 8 Entrepreneur + August 2010
INSIGHTS 20 BANKANOMICS
Bharat Banka looks into SEBI’s new takeover norms
21 WISE GUY
Guy Kawasaki on raising angel capital
22 SOLUTIONS FOR SUCCESS
Vijay Anand on creating an idea space
24 WOMEN IN CONTROL
Nandini Vaidyanathan on who a mentor really is
26 SANU SPEAKS Sankrant Sanu pays tribute to the late management guru C.K. Prahalad
GREEN SIGNALS 78 ENERGY FOR THE FUTURE Opportunities abound in the Cleantech sector in a rapidly changing India. By Amit Behl
82 THE ECO WARRIOR Chandrashekar Hariharan is developing green homes in South India and reducing people’s dependence on state infrastructure for water and energy needs. .By Shonali Advani
MONEY 88 THE VOICES OF VENTURE CAPITAL
Four leading venture capitalists offer their takes on what captures their attention and the best ways to seek out VC money. By Gwen Moran
IN CONVERSATION 52 THE MAN BEHIND EXODUS COMMUNICATIONS AND JAMCRACKER, K.B.Chandrasekhar explains what it means to take risks and reap the rewards. By Shonali Advani Entrepreneur + August 2010 9
table of contents 124
SPEND IT 120 STYLE QUOTIENT Pens from Tommy Hilﬁger, watches from Chopard and Montblanc and perfumes by Ralph Lauren. Are you ready for the high life? By Sriya Ray Chaudhuri 124 DINE WITH A WHEW The any-time dining menu at Corleone, InterContinental Marine Drive, is a must-try. By Sriya Ray Chaudhuri 126 SMALL WONDER Ever since the ﬁrst Polo hit the roads in the late 1970s, it has always been a popular small car. By Pranbihanga Borpuzari 128 DOHA DREAMS The capital of Qatar offers a host of sops for Indian entrepreneurs. By Ankush Chibber
11 ONLINE 12 FEEDBACK 13 RESOURCES 14 NEWS IMPACT 22 STUMPSPEAK 132 BACKSTAGE
92 A NEW BEGINNING The Nokia N900 lays down the groundwork for the direction Nokia should take. By Ankush Chibber
SUCCESS STRATEGIES 84 SELLING LESSONS FROM DONALD TRUMP Practice the art of the thrill—dress to impress and go big or go home. By Mark Stevens 86 INDUSTRY AWARDS CREATE BUZZ FOR YOUR WEBSITE Learn how to pick the right awards, and how to market your success. By Janine Popick
10 Entrepreneur + August 2010
94 FOURSQUARE, WATCH YOUR BACK Gowalla is bringing it’s A-Game to the location-based gaming scene. By Jason Ankney
95 THE BEST BLOG SPOT Creating a business blog may be a simple part of your online strategy, but how and where to host it? By Mikal E. Belicove 96 CUSTOMIZE YOUR APP Website design and usability are critical in converting eyeballs to sales. By Ericka Chickowski
+online [Info from cyberspace]
from our blogs
200 Ways To Be More Productive WHETHER YOU NEED to optimize your office space, get the latest cutting-edge gadget or just do some good, old-fashioned delegating, our experts will help you get more from your business–and your life. entrepreneur.com/200ways
HAVE A BURNING BUSINESS question? Our panel of small-business advisors is here to help. Whether it’s marketing, tech, taxes, or anything else that has you stumped, they have the answers you need. entrepreneur.com/ask
“ON THE ONE hand, “While it may be tough to gauge the financial progress of a small business on a daily or even a quarterly basis, it’s still important to set goals and monitor how close you come to meeting them. For example, if the dinner crowd seems a little thin at your restaurant tonight, you can blame it on the weather, the ball-game or a number of other factors. But if business doesn’t pick up in another couple of weeks, that might indicate a more serious problem – one that might require a menu change, a price cut, or an even more drastic measure.” – Rosalind Resnick on ‘Helping Your Business Keep Score’
The Entrepreneur Marketing Competition 2010 WE INVITE YOU to take advantage of the opportunity to win a three-month marketing campaign worth Rs.25 lakh for your company with Entrepreneur magazine and www.entrepreneurindia.in. For more details log on to http://entrepreneurindia.in/win-a-marketing-campaign ©Entrepreneur July 2010 by Entrepreneur Media, Inc. All rights reserved. Photo© Neha Mithbawkar
+ August 2010 11 To read more, grab the AugustEntrepreneur issue of Entrepreneu To Subscribe, visit www.entrepreneurindia.in
Mistakes Not to Make When Approaching a
VC Avoid these and your venture is sure to receive that investment it so desperately needs. By Bindi Mehta
magine a situation where you are at the door of a VC firm, on the threshold of your first meeting with a prospective investor. If this deal falls through, your venture could receive the backing it needs to secure its position in the market. There will be no looking back then. While you wait at the reception, your eyes fall on a poster on the wall that says, ‘Rules We Play By’. We tell you what could be on that poster. 30 Entrepreneur + August 2010
KEEP THINGS SIMPLE: VC investors are
busy people. They don’t have time to sift through lengthy business plans that don’t assert much. Make your point with clarity, brevity and confidence. Tell them what your company is out to do and how it intends to fill an existing gap in the market. This is important—it could make or break your deal. Sasha Mirchandani, Managing Director, BlueRun Ventures and Co-Founder, Mumbai Angels, says, “It is always best to send a sharp presentation comprising not more than 15 slides and a single page summary. If you send me a 4MB file, I may never find the time to download it. In a concise presentation, tell me what your business is about in the first slide itself. Don’t put too many photos or crowd the slides with too much text. Keep it simple.”
2 NEVER COLD CALL, GO THROUGH A GOOD REFERENCE: The idea of simply picking up the phone and calling a VC is not great; working your way through a good reference could make the task much simpler and smoother. A reference from your own industry could tell the VC about your potential, where you stand in terms of past performance, how good your team is etc. Basically, it lends credibility to the whole approach. “The sheer volume of deals we face necessitates that you come through a reference to us,” says Niren Shah, Managing Director, Norwest Venture Partners. For access to references, it would help you to be a part of entrepreneur networks, both the online as well as the offline ones.
3 DON’T WALK ALONE, BUILD A GOOD TEAM: The importance of a good team cannot be emphasized enough. The company’s management is its face. If the people heading the various core functions can visualize the future of the company and work cohesively toward achieving it, chances are that the VC investor you are talking to will believe in your company too. “I would like to see the team structure and who’s on it right there on the second slide following the business idea on the first one. It is a crucial factor,” says Mirchandani. Shah reiterates this: “Do you have the necessary skill sets to complement each other? That is the more important question.”
customers and ways to scale the business in a nonlinear way. Let us take the example of Facebook to understand this. At one point in its business lifecycle, the base of Facebook users grew exponentially to 100 million users, yet the company was servicing them with a mere 100 employees. If this growth was linear, Facebook may have had to hire 100 million people to serve its growing customer base; linear growth affects overhead costs and returns in the long run and may not suit the taste of VCs, who are increasingly crashing the investment lifecycle.
5 LET THE PRODUCT NOT BE ONLY AN IDEA, GET A PROTOTYPE: Few VCs are interested in investing in concept-stage companies. “The days of ‘the man with a plan (on paper)’ are largely over. If you are an internet company, you better have a functional website with some customers already on it. Following the recession of the past two years, VCs are not encouraging freshers without any domain experience or expertise,” says Shah. One thing is clear. You may have a great idea, a concept you can clearly visualize in your mind; however, till you have something tangible to show the VC, they may not entertain you. Show them a prototype, tell them how it works and give them a reason to feel excited about your product. If it’s a service, show a demonstration of how it could help them if they were your customers.
6 DON’T FORGET TO SKETCH YOUR EXIT OPTIONS: No VC invests in a company
4 DON’T MESS UP THE MATH: The business idea you are out to sell should have a clear monetization model. “It should not be what I call a Balle Balle deal. There should be a definite revenue model,” says Shah. In the early stages of the business lifecycle, the risk associated with the venture is generally high as a result of which the VC expects a high rate of return. To convince them that your venture can take flight successfully, you need to have wellcharted revenue flows, a bank of current/potential
forever. They are in the game for anywhere between five to seven years. Show them how your company will scale and what exit options will shape up. Will it scale enough to be acquired by a bigger player? Or would you rather stay in the market and get some PE funding? Exit options are a must for a VC to know where they stand in the larger picture. Sometimes, it becomes difficult for an entrepreneur to come to terms with exit options because it could also mean loss of control at an individual level for him as the original owner of the business.
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INSIGHTS SANU’S XXXX CORNER
Entrepreneurs and the Bottom of the Pyramid C.K. Prahalad challenged dominant assumptions regarding the poor. By Sankrant Sanu
he first time I heard of C.K. Prahalad I rolled my eyes. Not another management guru. I had gone to a TiE (The Indus Entrepreneurs) Charter Member retreat and CK was one of the speakers. I wanted to hear from one of the many extraordinary entrepreneurs there rather than an ivory-tower overhyped academic. I had an engineer’s distaste for both management gurus and management classes and little respect for armchair gurus, who had never ventured into the rough and tumble of entrepreneurship. I was wrong. By the time CK had finished his talk, I was struck by his clarity of thought and the courage of conviction, values more often found in entrepreneurs than in MBAs. Among CK’s many contributions the one that became the closest to his heart was his book The Fortune at the Bottom of the Pyramid. If you are an entrepreneur in India, read this book. In India, the poor have often been made into a constituency for the political class where garibi hatao has been a perpetual political slogan. Short-sighted and corruption-laden schemes like the National Rural Employment Guarantee Act (NREGA) are a patronizing and fiscally irresponsible approach to the poor. Rather than fostering entrepreneurship and innovation, such schemes look at the poor as wards of the (corrupt) state. On the other hand, NGOs are often equally patronizing in their approach to the poor. C.K. Prahalad spelt out an alternative approach to the poor (he used the term “Bottom of the Pyramid” or BOP)— one that treats them as savvy consumers and efficient producers in the global economy. He pointed out that the poor, including the 400 million people in India who
live at less than Rs.100/day, are a viable market. The savvy entrepreneur and the forward-looking corporation can serve this segment and profit from it once they look at the poor as potential customers and suppliers rather than “beneath them.” CK challenged the dominant assumptions regarding the poor. He pointed out that in Mumbai’s Dharavi slum, 85 percent of the households own a television—there is money to be made at the BOP. He suggested that the BOP market is brandconscious. And finally, that BOP consumers accept advanced technology readily when it can impact their lives. CK provided examples that are now common knowledge: Hindustan Unilever with its single-use shampoo packaging reaching millions of BOP consumers, of Amul with over 3,000 milk collections system units collecting over six million liters of milk from tens of thousands of farmers; the Jaipur foot and Aravind Eye Care, respectively delivering the highest number of prosthetic devices and cataract eye operations in the world to BOP consumers. Each of the examples is unique—yet each of them was based on significant innovation—in technology, in marketing, in distribution that enabled its success among BOP consumers. In the 2010 edition of the book, CK offers a summary of the key lessons learnt from the experiments at the Bottom of the Pyramid. He describes:
“Success lay in organizing highly distributed and independent entities.”
26 Entrepreneur + August 2010
THE INNOVATION SANDBOX (EMBRACE CONSTRAINTS). This is the idea of starting with the set of critical constraints that must be met to reach the target
Photo© Shamik Banerjee
market. Rather than dismissing the price point as unviable, for instance, the price-performance envelope can be looked upon as a challenge to be met. The Tata Nano project is a great example of the innovation sandbox where Ratan Tata challenged the entire company to create a car at a fixed price point. This meant the entire system—from materials to manufacturing to distribution—needed to be redesigned to meet the challenge. The Nano is not strictly a BOP example but it is an apt example of the principal CK highlights: Price-Profit=Cost, rather than Cost+Profit=Price. In other words, to reach the BOP market, priceperformance may be non-negotiable so the main challenge is to provide goods at a cost such that the price point can ultimately be met.
BUILD AN ECOSYSTEM. To reach the BOP market, think of the entire ecosystem rather than an isolated product. All the players in the ecosystem—existing channels, distributors, large and small companies, NGOs and civil society organizations and the government—would need to be considered in the ecosystem. Recently, someone wrote to me about an innovative, bicycle-mounted mobile phone charger. While it is a good product idea its success would depend on thinking through the entire ecosystem in which its consumers would operate. The ITC e-Choupal constituted village level operators of computer kiosks providing market pricing information for crops; the ecosystem included an entire procurement infrastructure, a public oath-taking ceremony in the village and a range of bi-directional services.
A NEW CONCEPT OF SCALE. Amul built a distributed scale model that gets milk from 2.2 million farmers daily; ITC collects soybean and wheat from 2.5 million farmers in a distributed, decentralized system. Jaipur Rugs, a relative startup, counts more than 40,000 independent contractors as part of its supply chain of carpets. In all these cases, scale and capacity did not need to be centrally owned. Rather success lay in organizing highly distributed and independent entities.
Illustration© Chaitanya Surpur
These ideas are applicable to building a business in India whether one is targeting the BOP market or not. Consumers in India are extremely value-conscious—the innovation sandbox turns the delivery of this value into a challenge. Thinking about the entire ecosystem your customer operates in can help you visualize how to make your solution a part of the entire puzzle. Finally, it is worth realizing that the traditional Indian business has often been modeled along the lines of distributed networks of contractors rather than in the manner of centralized corporations. Leveraging this idea is a good pointer towards building scale. I learned that CK passed away recently. I had realized after CK’s talk that my distaste for management gurus was a distaste for the unauthentic. CK was refreshingly authentic. He was among the line of thinkers who dared to break the mould and questioned received wisdom. CK was not only a teacher for entrepreneurs but a true entrepreneur himself. With an entrepreneur’s eye he could see the fortune where others simply managed to see grime and dirt. SANKRANT SANU is the founder of Miloka Inc. (www.miloka.com). He lives in Gurgaon and Seattle. If you have an entrepreneurial story to tell, write to him at firstname.lastname@example.org.
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DRESSING UP ON PINS & NEEDLES
The time is ripe if you want a slice of the lucrative global fashion pie… By Sriya Ray Chaudhuri
hen Fergie of the Black Eyed Peas performed at the recently-held FIFA World Cup opening ceremony, she sported an outfit by none other than Indian designer duo Falguni and Shane Peacock. But this was no isolated triumph for Indian fashion designers, who have broken all geographical boundaries where this business is concerned. Such examples abound in the world of high fashion—both prêt and couture—Indian designers are the toast of the world’s fashionistas. And if you want a share of this pie, now is the time to jump into the bandwagon. According to an earlier report by ASSOCHAM, the domestic fashion business is expected to become a Rs.750 crore industry by 2012; this would be a jump from its Rs.270 crore level in 2007. According to Falguni, the opportunities are huge today: “If one is doing good work, then the business opportunities internationally are huge. Although to make a mark internationally, you must have a clear vision about how your clothes are going to look, be consistent with your work and be able to adapt to the international market.” Adds designer Nikasha Tawadey: “There is a definite awareness abroad around Indian designers and our sensibilities. Over the years, many international biggies have also shown their ‘Indian’-inspired collections on major runways. Prominent Indian designers have been showing abroad on a regular basis. 66 Entrepreneur + August 2010
Manish [Arora] is an example to mention here. So, yes, markets abroad are lucrative because they bring in foreign currency to your business and also for the volume. Its common knowledge that stores abroad work on volumes and hence the order size is much bigger compared to my domestic market.” Dev and Nil, the young designer duo whose clothes are available in London and Canberra besides a number of Indian cities, say, “The opportunity of taking your label abroad was always there but the means were not defined earlier. Thanks to India’s fashion weeks, many international buyers have been exposed to Indian designs and designers. They have created a platform where designers are able to market their product directly to these buyers. Though in the last two years the business has trickled down a bit due to the world economic crisis but yet again with the new-found stability, the buyers are starting to place orders in sizeable numbers.” Vikram Phadnis, whose label has a strong presence in South Africa, U.S.A. and Dubai, feels that in some cases a country chooses you, rather than you choosing the country. “South African visitors to Mumbai would regularly pick up clothes from my label. Then when I got the opportunity to showcase my collection there through individual fashion shows, exhibitions etc, I took up the opportunity. That market is now very lucrative,” explains Vikram.
THE WORLD IS NOT ENOUGH: 1. A Falguni and Shane creation on the London Fashion Week 2010 ramp. 2. A Nikasha Tawadey creation on the Lakme Fashion Week ramp. 3. Vikram Phadnis’s saree embellishments are a big hit in South Africa. 4. A model sports an outﬁt by Dev r Nil, who are creating waves in the world fashion market.
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BIG SCREEN, BIG BUCKS
SCRIPT SUCCESS STORY VC funding in Indian ďŹ lms is at an all-time high now. By Sriya Ray Chaudhuri
he Indian film industry has long suffered from the tag of being nontransparent when it comes to its funds scenario. There have been reports of underworld involvement in film funding and cash transactions have been the norm in many cases. But this scenario is slowly witnessing a major overhaul. A number of national and international players have found their way into the lucrative Indian film market through film funds. These are basically film VC funding, where most payments are made by checks and the entire funding is transparent and on record. The market is clearly ripe for VCs to invest in films, both Hindi as well as regional cinema. From the Shahid Kapur-starrer Mausam to the Kay Kay Menon-Deepti Naval starrer Bhindi Bazaar, a large number of films today have VC funding.
THE MARKET IS ENTICING AND LUCRATIVE Surveys and reports further support the opportunities that are wide open for entrepreneurs who wish to jump into the Bollywood bandwagon. According to the FICCI-KPMG report on India media and entertainment sector 2010, the growth 70 Entrepreneur + August May 2010 2010
potential of this sector stays strong, with it expected to witness 13 percent CAGR to grow to Rs.1,10,000 crore by 2014. Yo-yoing between 15 percent CAGR between 2006â€™08 and the de-growing by 14 percent in 2009 (multiplex tussle and other corrective measures), the Indian film industry is expected to sustain 8.9 percent CAGR growth to reach Rs.13,670 crore by 2014. These figures look promising and helped pave the way for the big guns of the VC world to enter the Indian film market. One of the main reasons behind why VCs are keen on investing in the Indian film industry today is that Bollywood has become much more organized and also because it has proved that it is recession-proof. According to reports in leading business dailies, during the recent economic slump, its box-office collections were higher than ever. Again, the slowdown pushed down production costs, making the valuations more viable for VC funding.
SLEW OF FUNDS Two film funds were approved by SEBI in August 2008. One of these was Cinema Capital, promoted by Samir Gupta, Sanjay Bhattacharji and others. With a target fund size of Rs.750 crore through domestic
and offshore fund raising, the fund raised commitments of Rs.110 crore from about 1,500 retail investors. Key investment made included Ajay Devgn’s All the Best, while the firm has already taken equity stake in Vipul Shah’s Energetic Films. Its primary investment model is equity participation (PE). Vistaar Religare, on the other hand, is promoted by Sheetal Talwar (Vistaar) and Religare Enterprises Limited. This has a target fund size of Rs.200 crore and has already raised commitments of Rs.45 crore from retail and institutional investors. It has invested in around 11 films, including Pankaj Kapur’s directorial debut, Mausam. It invests in project-specific SPVs. The Mumbai-based Vistaar Religare Film Fund (VRFF) backed five films that were released in 2009, including the Harman Bawejastarrer Victory and Kay Kay Menon-starrer The Stoneman Murders, as well as the South African English movie Finding Lenny. Its investments were used for making the movie prints and advertising the films. “We went in with the P and A option (print and advertising) which meant that we were last in and first out. This is a good way for a VC to fund cinema, because his/her fund is financially protected,” explains a senior official of VRFF. The fund has invested in about 10 other films, including Ram Gopal Varma’s Rann, starring Amitabh Bachchan, Riteish Deshmukh and Paresh Rawal. DAR Capital Group, which operates out of a number of countries, has also forayed Imaging© Chaitanya Surpur
DOS AND DON’TS FOR AN ASPIRING FILMMAKER tA new ﬁlmmaker should do his full homework on the project. t He/she should have a complete project presentation including the bound and registered script, treatment note, indicative budget with timelines as well as proposed cast. t It may be argued that this is the producer’s prerogative, which is true. However, if the new ﬁlmmaker comes completely prepared it only enhances the producer’s conﬁdence in him/her and gives a clear insight into his/her understanding of the subject and vision for the project. t Another key factor is a show reel or short ﬁlm executed by the ﬁlmmaker as this would also give the producer an idea of his/ her ﬁlmmaking abilities. into the Indian film funds market. Explains an official spokesperson of the group, “We are primarily looking at an average of below Rs.10 crore-Rs.15 core for a Hindi project and below Rs.1.5 crore-Rs.2 crore for regional films. Having said that, if there is a very interesting project that we really like and feel has good commercial value then we won’t shy away from investing in higher budgets if required.” Another group that has tapped into the lucrative market is High Ground Enterprise (HGEL), the brainchild of London-based entrepreneur Karan Arora. It is a conglomerate of six companies specializing in the media and entertainment domain. According to Arora, Founder and Group CEO, HGEL, “We are running it as a media fund. A group of high-networth individuals got together to create this fund. We have received some funding from VCs in U.K. but
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opportunities BPO BOOM
THREE CITIES Patna and Guwahati are the wannabes, while Chandigarh is already ﬁrmly entrenched as a BPO hotbed. Entrepreneur checks out what makes BPOs tick in these tier II and tier III cities. By Pranbihanga Borpuzari
’s a fact well-publicized that Bengaluru and Hyderabad rule the roost as the BPO hubs of India. But with infrastructure here stretched to the maximum, high levels of attrition and soaring costs of living, BPOs have been looking at other parts of India to set up shop for some time now. Gurgaon and Noida sprung up as the next rung of BPO hubs, but these too will soon share their mantle of being sought-after BPO destinations with a number of tier II and tier III cities in India. With infrastructure in the existing locations stretched, costs are soaring and attrition levels increasing. From a social perspective this means a balanced growth for the country. A NASSCOM AT Kearney report says that
74 Entrepreneur + August 2010
while the sector grew at 25 percent in the last decade, a conservative 15 percent growth now will mean the IT-BPO sector will employ about eight million people by 2018, from the current two million. The bulk of this business for smaller cities will come from the domestic BPOs. “The international BPOs are not very keen on going to cities which do not have a proven track record. But the case is reverse in the case of domestic BPOs, with more providers looking at smaller cities. The cost structure is different and you will see a greater propensity from domestic players to get into these tier II and tier III cities,” says Raju Bhatnagar, VP (BPO and government relations), NASSCOM. We take a look at three of these tier II and tier III cities: Patna and Guwahati, which show promise to host a number of BPOs in the near future; and we also look at Chandigarh, which is already doing well in this space.
BPO SHARE IN INDIA’S GDP
feet in metro cities compared to Rs.40-Rs.60 in Patna,” says Jha. Margins, however, seem to remain the same as the client outsourcing business factors in these considerations.
PATNA The Bihar state government has set up an IT department which will oversee all initiatives regarding IT and e-governance. While at the moment there is hardly any activity in the IT and BPO space in this state, the scope for improvement is immense. According to NASSCOM, in terms of cost of operations, Patna has a 38 percent cost advantage over the average cost of BPOs in a metro. “Almost all the major telecom companies are located in Patna and this is responsible for BPO operations in the city. We also run the e-governance project for the state government. Last year the state government was awarded the best e-governance project in the country. People thought nothing can be done in Bihar but our achievements prove that there are opportunities to be tapped here,” says Rajeev Kumar Jha, General Manager (East), Call 2 Connect India Pvt Ltd.
JOB OPPORTUNITIES IN OTHER SECTORS Banking, insurance and telecom are the other sectors which are driving employability. For a city where other job opportunities are limited, it always makes sense for companies to come and explore the market.
COST DIFFERENTIALS The cost of living is low, real estate comes at a cheaper price, all pushing down the total cost of operating a BPO. “Rental real estate price can be as high as Rs.250 per square
There is plenty of talent, which means salaries can be lower. Competition too is limited which means lower attrition levels. They may not be highly skilled but good communication skill is not hard to find. Around 1,500 engineers graduate every year in Patna, of which around 10 percent is available for the IT sector, says AT Kearney and NASSCOM.
INFRASTRUCTURE Infrastructure quality is still not up to the mark. It takes considerable time in even getting the requisite telephone and broadband connections. For new BPO units, expect considerable difficulties when setting up. IT and technology support is poor because the IT sector has not really taken off in the city. Till recently state-run BSNL was the only operator providing connectivity solutions, but private players are entering the space and a change can now be seen. The biggest problem is the shortage of electricity. Power cuts vary across the city but cuts to the tune of 6-8 hours a day is usually common.
GOVERNMENT SUPPORT The biggest support to any business in Patna has been the law and order situation. Earlier people could not think of running a business at night but today such fears have disappeared. According to the current five-year-plan, the state government will open IT parks and educational institutions in the state and create an entire IT-BPO friendly ecosystem.
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CLEANTECH: ENERGY FOR THE FUTURE India’s growth over the next decade will be driven by increase in population, infrastructure rollout, higher economic activity, increasing affluence and improved standards of living. By Amit Behl
his growth will result in a substantial increase in the demand for power. Assuming energy to GDP elasticity of 1, India’s energy requirements are expected to more than double by 2020. With current electricity generation capacity of about 1,50,000 MW, the next decade will witness rapid investment in generation capacity from central, state and private sectors. With policy framework favoring public private partnerships, a quarter of this additional energy capacity is likely to be from the private sector. As the government tries to balance increasing energy requirements with a ballooning oil import bill, diversification and making non-carbon emitting resources an integral part of the energy mix will form the emphasis of policy makers. Renewable and clean technologies (Cleantech) will be a key part of India’s National Action Plan on Climate Change. Cleantech as a sector is extremely broad and diverse. From rural lighting applications like LED lighting, to water harvesting,
FOR A BETTER LIVING: Amit Behl 78 Entrepreneur + August 2010
distributed power generation, from hybrid vehicles to carbon credits, Cleantech is relevant to all existing industries, enabling new business opportunities. The growth prospects of this sector will attract leading Indian corporations, but niche, early stage companies can also make a successful play in this market. Below are examples of new business opportunities for entrepreneurs to consider:
ENERGY GENERATION The increasing demand/supply gap is attracting large private investment. The last few years have seen significant investments in wind energy deployments, with India now ranking among the top five wind energy generation countries in the world. Biomass and solar photovoltaic (PV) opportunities have also seen Indian companies commit financial resources to this form of energy generation. Most Indian PV cell and module manufacturing are predominantly focused on the export market. The recent economic turmoil led to a cooling off in oil prices, and brought the realization that Cleantech needs to achieve grid parity and become self-reliant quickly. The European crisis has raised further question marks over the favorable regime PV players enjoyed in Europe. Defensibility in this business is built through economies of scale.
Energy generation is a capital intensive business and for PV cell manufacturing, achieving economies of scale is critical to driving down costs to achieve grid parity. Access to necessary and abundant capital, efficiency in operations and benign policy regimes will be the key success drivers for the energy generation business.
OFF-GRID AND BACKUP POWER Given peak shortfall of over 15 percent and as businesses penetrate deeper into rural India, off-grid, distributed generation and backup power opportunities are likely to see sustained momentum over the next decade. Diesel gensets contribute over 30,000 MW annually, nearly a fourth of the power supplied in India. Inverters and battery manufacturers have also witnessed growing demand from commercial and residential users. Opportunities exist for entrepreneurs to provide micro-solar, micro-hydel solutions for corporate and community users. Key questions to be addressed for the off-grid market are the scalability of such a solution, the willingness and the ability of a rural user to pay for power. To cater to the rural market the backup power, inverter companies and LED lighting have shown that it is important to create an ecosystem of adequate after-sales support, service centers, as well as offering the right payment and financing options.
ALTERNATIVE STORAGE As more distributed generation capacities are set up across the country, the ability to store and efficiently manage excess generated power becomes an interesting area. Worldwide, there has been a lot of research going into battery technology to improve the conventional lead acid battery. Companies which are focused on making the storage technologies more portable, efficient and environment-friendly have generated significant VC interest and this is likely to remain an area of interest for investments.
ENERGY EFFICIENCY India presents a good case for energy efficient investments. With transmission and distribution losses of over 30 percent, India potentially loses over 30,000 MW of generated
SUZLON’S ONE EARTH When Asia’s largest wind turbine company Suzlon Energy Ltd (SEL) wanted to house people from various offices spread across Pune in one building, the task of setting up a building was given to one of its group companies, Synefra. “Our task was to construct an aspirational building. When we toyed with the idea for the building, we did not have in mind a green building. It was only when we started designing for the building did we realize that the concept of a green building can be followed,” says J.R. Tanti, Managing Director, Synefra. Spread across 41,000 square meters with a capacity to house 2,300 people, One Earth was constructed at a cost of about 10 percent less than that of industry parameters. “Quality does not mean costs go up. We dealt with the construction of the building as providing a solution. We cut down on the wastage of water (which has cost attached to it) and other wastes, which led to a cut down in cost by about 2-3 percent. We worked further with the contractors and were able to reduce cost by about 15 percent. We reinvested this money into the building by introducing green components,” says Tanti. ONE EARTH’S SMART COST-SAVING METHODS ARE MOSTLY INEXPENSIVE. CONSIDER THE FOLLOWING: Low-energy materials: More than 70 percent of materials used in the interiors have a reduced carbon footprint. Renewable energy-based exterior lighting: LED street lighting is powered entirely by renewable energy-based systems located on the site thus reducing approximately 25 percent of the total lighting load. Daylight and occupancy sensors: Daylight sensors are used in the workstation area for maximum use of artificial lighting. Occupancy sensors control task lighting in unoccupied workstations, ensuring savings of about 20 percent of energy costs. Efficient ventilation system: Jet fans installed in the basements intermittently push out stale air and bring in fresh air, saving 50 percent energy as compared to ducted basement ventilation system. Storm and rainwater management system: Channels all rain received into a controlled flow, preventing soil erosion and facilitating removal of silt.
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EARS LEND YOUR
For many hearing-impaired people in Vadodara, talking to a friend via video messaging is now a reality, thanks to the application RockeTalk. By Pranbihanga Borpuzari
hen Mook Badhir Mandal (MBM), an NGO in this Gujarat town chanced upon an application called RockeTalk, they realized it had the potential to be a game changer for the way the deaf communicate. The application, which enables the user to send a video message has meant communication between hearing-impaired people never remains the same again.
BIRTH OF AN IDEA Rajiv Kumar found it difficult to read SMSes because of his eyesight problems, and wondered how to communicate with his friends through voice messaging without having to make a call. “It was over three years ago when I was in the U.S. and wanted to communicate with my daughter by recording my voice. I also wanted to receive a voice recording from her instead of the usual SMS,” says Kumar. He started prototyping on an application that would enable people to send voice messages. Kumar decided on a social networking platform which would also enable people to connect with others with similar taste. The idea got even bigger when he thought he could make
thousands of people talk together on a common platform. “We have managed to achieve what we set out to do. Today we have thousands of people talking at the same time in a virtual room over mobile phones. They are not only talking but also sharing thoughts and ideas,” says Kumar.
CHALLENGING TASK A push-based service and messages on RockeTalk can be sent on real time. This, however, has not come easy. Kumar first had to sort out a way to search voice, capture and digitalize voice and then transmit and receive it. “No two phones work the same way. Every time you get an application for a computer, it is easier to develop since a sizable number of computers have the same operating system of Windows. For phones we have Java, which is further divided into 1.1 and 1.2. “Then we have Symbian and its different versions and now we have iPhone and the androids. Apart from that, once you have developed an application you have to think about the screen sizes of various phones. The challenge was to create an application that runs across all phones,” says Kumar.
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I RAIS NG RICH PALETTE
THE COLOR BAR
Samir Modi’s cosmetics brand is competing with the big foreign guns of the sector. By Pranbihanga Borpuzari
ow do you beat established players in the cosmetics space at their own game? Samir Modi had the perfect answer— source your products from the same place as
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the international brands, mix and match with colors, sync it with the Indian women’s needs and deliver high quality products. The result is Colorbar, a cosmetics brand which is fast becoming popular with women. As a young man, the stint in Phillip Morris in the U.S. where he learnt to be an ideal employee did Modi a world of good, exposing him to the world of business. However, when he came back to India, he had to re-adapt his thinking to a system which was alien to him. “Everything in India functioned at its own pace and had its own frustrations,” recalls Modi. After various stints in his family business, Modi shifted his focus to Modicare in 1997, which was in the business of floor cleaners, toilet cleaners and the entire gamut of disinfectant concentrates. In 2004, the entrepreneurial blood which ran through his family got the better of Modi and he decided to start a business of his own. His mantra was to start a business that did not exist in India and even if it did, he wanted to do things differently. “During those days the true door-to door multilevel company that provided income to the common man did not exist. With that in mind I first launched the direct selling arm of Modicare,” says Modi. Next, Modi focused his attention on starting a company that provides products catering to women backed by great performance and formulation and a large palette of colors to suit women across India. “I decided to get into the cosmetics business and source products from Photo© Shamik Banerjee
the best players in the world,” says Modi. His quest saw him approach the best players of Italy, France, Germany and Greece and Modi firmed up on the idea that he would source the formulation they supplied to the prestigious players in the cosmetics segment of the world.
LOOKS GOOD! “I used their best formulations and tuned these to suit the skintone and preferences of Indian women. Our cost today is probably the highest in the cosmetics market. We buy 25 percent of the products completely finished. About 30-40 percent of our entire expenses take place in sourcing the products against the industry norm of 10-15 percent,” says Modi. This, however, has it own set of problems. While big players play on bulk buying, Colorbar too was forced to buy the same quantity irrespective of the demand for its products. “But we are able to compete with the likes of L’Oreal, Chambor and Revlon in terms of quality. I test launched the first product in Chandigarh with 36 types of nail varnish and lipsticks. Today we have over 480 products under Colorbar,” says Modi. He adds that he has no plans of making the formulations himself because he does not see it as his core competency. The company may not be formulation-competitive, but it is costcompetitive. Margins are low for Colorbar and Modi says he is playing the long-term game.
NO CAKEWALK! The main challenge that the company has faced so far is the small size of the Indian market for cosmetics. With companies such as Lakme and Revlon dominating the Indian industry, Colorbar will take some time to catch the eyes of Indian cosmetics lovers.
WORK 24X7 The current size of the cosmetics market is about Rs.1,000 crore-Rs. 1,200 crore and is
“THE COMPANY MAY NOT BE FORMULATION-COMPETITIVE, BUT IT IS COST-COMPETITIVE. MARGINS ARE LOW FOR COLORBAR AND MODI SAYS HE IS PLAYING THE LONG-TERM GAME.” split between the unorganized (imitations) and organized players. The largest player in the cosmetics market in India is Lakme, with a market share of about 50-60 percent, followed by Revlon with about 20 percent. The industry is projected to grow at a CAGR of seven percent till 2012, says the Indian Cosmetics Sector Analysis, a recent research report by Delhi-based research firm RNCOS. Modi’s eyes are now set on ousting Revlon and capturing 20 percent market share by 2012. “Colorbar now has 6-7 percent of the market share and this fiscal it would have revenues of about Rs.50 crore. The focus areas are the tier I and tier II towns, getting more people to use the products and never compromise on quality,” says Modi. He is also working on another venture— utility stores called 24X7. The idea of opening these stores sprung from the memories of his college days in the U.S. and shopping at 7Eleven stores. “The outlets adjacent to fuel stations were opened at several spots in Delhi. The only thing thwarting the growth of these outlets is the increased availability of imported goods at city stores. Over years of trial and error I have learnt that for such stores to succeed you need larger stores of over 1,000 square feet to take care of higher rentals. Today at the outlet level we are making money and hope this will only increase in the future,” says Modi.
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how to [... do just about anything]
Cash Flow Statement It helps investors evaluate your company and also guides you in ascertaining working capital needs. By Bindi Mehta
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cash flow statement is an important tool to determine the liquidity and overall financial health of your company. And yes, this is different from an income statement and a profit and loss statement as it deals only with cash and cash equivalents. By this very assertion it discounts transactions conducted on credit basis and helps to ascertain working capital needs of the company.
materials, etc. Investment cash flows result from receipts or disbursals related to capital expenditure, asset acquisition and other such activities. For example, the installation of new plant and machinery would lead to an investment cash flow. Financial cash flows, as the term indicates, are related to financial activities such as loans coming in, payment of dividends to shareholders etc.
DECODE THE COMPONENTS
UNDERSTAND THE DIRECTION
There are primarily three kinds of cash flowsâ€”operational, investment and financial. Operational flows result from the core business operations of your company like sale of goods, delivery of services, payment for securing raw
Cash can either flow in or out of your company. All the cash coming in is added under a generic head of cash inflows or receipts while the cash flowing out of the company is aggregated under cash outflows or disbursals. Sales lead IllustrationÂŠ Chaitanya Surpur
to inflows while operational expenses lead to outflows. Inflows exceeding outflows always indicate a positive cash flow for the company.
CONSIDER THE REVENUES The main source of revenues is sales. If you are just starting up, you may want to consider the revenue projections of competitors in your market segment; this could help you to arrive at your own sales figures. There are also books and manuals available to help companies do sales forecasting. For already operational companies, industry growth projections, market research reports and future prospects for tie-ups could help the projection of sales. Collections from accounts receivable, loans (received) and other cash injunctions (by owners) also contribute to cash inflows.
“INFLOWS EXCEEDING OUTFLOWS ALWAYS INDICATE A POSITIVE CASH FLOW FOR THE COMPANY.” you go about negotiating rentals, advertising contracts, insurance deals etc. Expenses don’t involve as much of forecasting as sales do. Items like insurance and tax payments also add to the expenses.
RECONCILE THE STATEMENT Aggregate the cash receipts and payments. For reconciliation, carry forward the balance of the previous month, to this add the total cash receipts and deduct the total cash payments to arrive at the final cash balance in hand. This closing balance will again be carried forward as the opening cash balance for the next month and could either be positive or negative. Also, you could draw up two side-by-side vertical columns for each month of the year, to tally actual figures vis-à-vis projected ones. This would be a useful tool for you to manage your cash effectively.
CRACK THE EXPENSES Your expenses will primarily comprise payments made for trade supplies each month viz. raw materials and stock replenishment. In addition to this, there will be fixed operating expenses you incur each month like payroll costs, admin costs, utility payments and finally, maintenance charges. Advertising and publicity expenses also contribute to outflows. When you start your business, you will get a fair idea of the expenses you are incurring as
CASH RECEIPTS TOTAL CASH RECEIPTS
10,000 CASH PAYMENTS
TOTAL CASH PAYMENTS
13,000 RECONCILIATION OF CASH FLOW
OPENING CASH BALANCE
ADD: TOTAL CASH RECEIPTS
DEDUCT: TOTAL CASH PAYMENTS
CLOSING CASH BALANCE
(All figures in Rs.)
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ll e T o t y l e k i L t s Mo e r A s r u e n e r p Entre
1 By 2015, our market will grow to Rs.2,500 crore. 2 There is no one in the market like us. No one.
VCs get enough stick for the ﬂuff they give out to entrepreneurs. But our entrepreneurs are no greenhorns either when it comes to dishing out a load of trash. Here are 10 ways they are most likely to do so...
3 Airtel/Infosys/Tata is close to partnering with us. 4 Our ﬁrst big order is close to being signed. 5 Our world-class people are our real strength. 6 Conservatively, we are looking at an IPO in two years. 7 Our product can’t be copied by the Chinese. 8 There is no threat from Google in this market. to disclose beforehand that we have other 9 We just want sted. VCs intere
10 Entrepreneur magazine is about to do a major story on us.
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