Over the past 5 years or so, consumer product startups have been slowly but steadily picking pace in India. While their scale might be significantly low in comparison with e-commerce, ride-sharing or food delivery startups, their seems to be a lot of action in the space.
India’s FMCG market is pegged to be around $185Bn. Traditionally, the large players in FMCG/CPG space have operated by owning a massive distribution pipe (Wholesalers, Distributors & Retailer), doing massively expensive marketing campaigns and selling commoditised products. All of this is starting to change.
That smaller startups are trying to disrupt incumbents extended to FMCG category is a natural after effect of the internet penetration and the subsequent second-order effects. Also, as shown below, the CPG brands globally are infamous for their lack of innovation.
Factors that favour growth of FMCG startups: Include changes in status quo for:
Given the rising discretionary spends and ability for internet to help micro target, upstart startups can now decide to make products not for a mass segment but for niche consumers subset. For ex: Instead of making Real or Tropicana Juices aimed at all and sundry, there can now be Raw Pressery or Paper Boat aimed at premium/niche segment of the market.
Since the target segment is a smaller niche, it fundamentally changes how companies approach Production, Marketing and Distribution.
Innovation (Loved by a few vs liked by a lot): Given a niche customer segment, a startup can focus on making a great product that their customers will really love over a good/slightly better than average product that a lot of people will be fine using.
Production (Lower Upfront Fixed Cost Requirements): Unlike earlier times, a startup can now think of starting small and launching few niche products with a reasonable manufacturing setup and invest in production as they grow.
Marketing (Lower Variable Costs): A startup these days can get the wheels of marketing rolling but starting with ads on Google, Facebook, Instagram and others with a much smaller budget. Another aspect of marketing is the solid brand proposition that most niche CPG startups are able to drive due to their innovative offering.
Distribution (Lower Upfront Fixed, and Variable Costs): Compared to earlier times of building a comprehensive retail supply chain across the state/country to store and deliver goods, a startup can get started with minimal inventory and deliver products directly to consumer (D2C) through their website/3rd party marketplaces and scale distribution spends as their traction grows.
VC activity in the space has been on rise with some focussed funds like DSG actively investing in startups. DSG has around a dozen investments in India including Chai Point and Raw Pressery. Consumer Goods startups have raised over $152 mn in 2018 (so far).
The Bigger brands have also started making their moves in Indian Consumer Goods Startups.
Some other players that attracted investments from bigger players Happily Unmarried’s Ustra (Wipro Consumer Care) and Forest Essentials (Estée Lauder). The biggest player in the D2C category (not FMCG really) that has done exceedingly well in Lenskart.
With increasing GDP per capita, better penetration of high-speed internet, increasing transition towards e-commerce fuelled by significant VC funding and some M&A activity, the FMCG space is bound to grow and thrive. It’d be interesting to observe how various startups evolve and make great businesses.
On closing note, here’s the great introductory video by DollarShaveClub that set the ball rolling.
The last 2 engineers I spoke to who had quit their jobs to do a startup are working on building 3rd party solutions for app developers. There is clearly a trend of more folks trying to build services for various apps. From Analytics to payments, ad networks to notifications, there our services for everything, even Emotion Tracking and Augmented Reality.
How these 3rd party services tend to be used across various apps is by integrating their SDKs (essentially including code libraries from other providers into your apps).
Let’s consider an example of an e-commerce mobile app. Here are some of the features/attributes
which might be needed
Sending notifications (push notifications about offers/promotions etc)
Campaign Management (to track installs and their behaviour from various paid install campaigns)
Messenger/Chat and so on
This list would vary from app to app and the developers have two options, Build each one of these functionalities or integrate existing solutions (Mobile SDKs that provide one or more of these services). While the benefit of integrating an SDK to do say user behaviour analysis is immense (and in most cases the only option and you can’t possible build this functionality on your own) it is where the problem starts and one wonders, “how will this scale?”
How many SDKs can you possibly embed in your app? The performance and maintenance issues are plenty. While from app developers perspective the challenges are obvious (which ones to choose, how to migrate data from one to another in case of switching, how to attribute any problem to one SDK in case of multiple SDKs etc), what worries me is how upcoming start-ups with their business model built around offering SDKs to developers will come about.
Distribution, is possibly the most important thing for a startup and I foresee getting various app developers to use your SDK (and not building a cool service) as the biggest barrier to entry/success.
I’m sure you might have built a great user analytics/customer lifecycle management/campaign management etc SDK but how many SDKs can a developer possibly try and integrate?
Concluding Thoughts 1) Building an SDK that offers to replace an existing/prevalent one like Flurry or Mixpanel though comparatively easier to build will be extremely tricky to distribute/sell
2) Building an SDK that offers to replace multiple existing/prevalent ones (Flurry, Testflight, Admob etc) though extremely difficult to build will be comparatively easier to distribute/sell
3) Mobile platforms (Apple/Google etc) might improve their offerings around various fundamental needs and start including them into the platform APIs like iOS did with Facebook and Twitter. A native Analytics/campaign management service will be difficult to compete with
4) Some app developers might be privy to share their data (for say Customer Lifecycle Management SDK)
This space is quite exciting and I’m really interested to see how it shapes up. What do you think?
COD or Cash on Delivery as we now know it wasn’t no where near its popularity today a few years back. Today quite a few people (who call us at dialabook and otherwise) know and talk about Cash upon Delivery as a concept (books milne ke baad paise de sakte hain?) if not the exact term. COD as we know has taken the entire e-commerce Industry(if we can call it) by a storm.
To give you some perspective, about 2 years back when we(@dialabook) started collecting payment for books on delivery, we had no idea about this term and no notable e-commerce site had this option. Fast forward it to today and almost all e-commerce sites(and a few others like the one below) accept(or rather promote) COD to lure more customers.
While COD as a concept has been there for ages under the name VPP (Value Payable Post) by India Post. Here’s how their website defines VPP
The value payable system is designed to meet the requirements of persons who wish to pay for articles sent to them at the time of receipt of the articles or of the bills or railway receipts relating to them, and also to meet the requirements of traders and others who wish to recover, through the agency of the Post Office the value of article supplied by them.
Govt VPP however seems to have an upper limit of Rs 5000/-, which means you can’t send goods worth more than 5k through them.
As it turns out India isn’t the only breeding ground for COD. China,Russia etc have been a witness to the popularity of COD for long.
Going by the stats in India, as much as 60% customers of top 5 e-commerce sites in India use the option of paying by cash on delivery (COD) and many of these sites have credited COD for fueling their rapid growth. While COD for obvious reasons makes a lot of sense for Indian customers and definitely opens a new market (students etc) to e-commerce it isn’t exactly what the doc prescribed or should prescribe. Here are some of the things wrong with COD
Cost: Nearly all courier companies charge extra for collecting cash. This cost is divided in two parts
Fixed Cost: Rs 20-150/- ; Variable Cost: 1-3% of the COD Amount. (This is mostly for high price items like mobile phones, laptops etc). If the item is priced low then the COD charges at times exceed one’s margin in the product and if the item is priced very high then the % COD charge turns out to be in hundreds or even thousands
Delay in payment: Unlike credit card transactions, COD payment generally takes 1-2 weeks or more to be transferred to your account. This bites your cash flow especially as the COD amounts start becoming huge.
Delay in deliveries: On an average COD deliveries are delayed by 12-36 hours when compared to normal deliveries. The reasons for the same are mostly non-availability of customer or cash and many a times both. Here unlike regular deliveries the parcel can’t be dropped to a neighbors place
Higher Returns/Cancellations: Since the customer hasn’t paid in advance, they can always cancel/refuse to take the delivery and sight reasons like I found this phone cheaper locally and have bought it from there or I have changed my mind, will buy a new laptop later
Overheads: Collecting the cash, collating the receipts and maintaining records et all is a nightmare
With increasingly every online business offering it despite its disadvantages(to retailers) the situation might just go out of hand and turn into a death spiral (at least for some non/less funded businesses that rely heavily on their internal cash flows). Small startups are the ones that should be really concerned about these issues instead of blindly aping others and starting COD.
With time as the e-commerce market in India matures, there *might* be more trust in established mechanisms of swiping cards for paying and some people will get over the liking for COD and prefer pre-payments. But, given the case in China, Russia etc it looks like unless the e-commerce majors deliberately start demoting COD and promoting other payment options we just might replicate what’s happening elsewhere i.e 60-85% people using e-commerce sites paying by COD.
Some ways around COD
Multiple Payment Options (at least 5-6)
Pre-payment methods (like wallets, cards)
Mobile banking and SMS payments
Card on Delivery
Giving incentives to users for choosing online payment against COD
Alternative payment methods such as paypal etc
While COD is a good option to have in some cases its double edged sword which should be used with a lot of caution and foresight. What do you think?
I’ve been a fan of 37signals ever since I first used Basecamp during my stint at Slideshare in 2007 and later while working on Kwippy. What’s also special about 37signals is that not only they build great products that make money, they are also doing a fabulous job at sharing their experiences and learnings with the community using Social Media long before it was a buzz word. If you haven’t done it already, you should checkout their blog where they talk about design, business and other things.
Sometime back I happened to listen to this talk given by DHH on ‘Making money online’. Despite a cheesy sounding title the talk is a great primer for web entrepreneurs starting up or thinking of starting up. DHH touches upon a great point when he says
The odds of you in here making the next Facebook or YouTube or MySpace are tiny, the odds of you just actually just creating a product that few people will like and pay more for, not that shabby.
It’s kinda like reverse terror alerts, the probability of something like this happening, like the probability of you being crashed in the plane, tiny, but the fear you have of it or the desire you have to be the next Facebook, Huge, because it’s been broadcasted over and over again, you are being brainwashed
DHH further goes down to put forward the maths behind making a million dollars in an year by having 2000 customers and charging them 40$/month. Adding decent conversion rate(5%) to the equation it would take about 40,000 signed up users to get 2000 paid customers. Taking it down one more level to make 200,000$ a year you would need just 400 customers at 40$/month.
The number of problems/niches one can attack trying to get this many customers are a lot, but not surprisingly we still find most web start-ups aiming at building the next Facebook or YouTube. Its not uncommon to find entrepreneurs by the dozen running after VCs and Angels to raise money for the next big thing on the internet despite the fact that most of them can get their venture started without too much money. One of the primary reason for this is the fact that raising million dollars for building(or the mere thought of) a global product that might be used by millions is SEXY however building a web product that’s being used by a few hundred or thousand users while making you some money isn’t.
This frenzy is fueled by media and consumers alike and the entrepreneurs(esp first timers) get unknowingly drawn into this trap and the next thing you know is everyone trying to make it big without even trying to taste success in building a smaller yet useful product.
While I won’t discourage anyone from taking big shots right from the start, I strongly feel its a lot better(and practical) to solve a small problem first before going for the bigger one.
Yesterday’s TiE-SmashUP at IIT Delhi Seminar Hall was the third TiE event I attended in the last 4-5 months and like all the previous events I was happy for being there.
For those of you who might not know, TiE is the world’s biggest formal network of Entrepreneurs and Professionals. The thing I love most about TiE events is the wonderful opportunity they offer of meeting loads of interesting people from various profiles spread across different industries and hailing from different parts of the country and world.
It took me some time to realize and appreciate that the kind of audience TiE events attract is a lot different from what similar events(Startup etc) attract and that’s what sets them apart from other events in the same category. Also, as mentioned previously I strongly feel that TiE events are especially designed to make networking more easy and often, for example this time around(for SmashUP) there was a “Power Breakfast” in which you were asked to choose 3 out of 5 established VC’s/Successful Entrepreneurs and the orgaziners would try to arrange you(and 8-9 other folks) to have breakfast with one of them on a separate table. Having attended a Power Breakfast yesterday I can say it was a simple yet very effective thing. To discuss and network with 8-9 attendees and a VC/Successful Entrepreneur in just an hour couldn’t have been easier and better.
Having said all that I’d like to conclude this post by saying that if you are one of those who like professional networking with people and you haven’t yet attended a TiE event, you should give it a try.