Reality of Indian Startups

Introduction

The speaker introduces the topic of Indian startups and discusses the challenges they face.

Indian Startups: Challenges and Opportunities

• India's "jugaad" mindset promotes innovation in startups.

• Entrepreneurs are emerging from small cities and towns, not just metro cities.

• Despite reaching a milestone of 100 unicorn startups last year, around 2,000 startups were shut down.

• Around 90% of Indian startups fail within 5 years of formation.

• Only 15% of Indian unicorns are generating a profit.

Overestimating the Market

The speaker explains how overestimating the market is a common problem for Indian startups.

ShareChat's Example

• ShareChat CEO fired 20% of workforce due to overestimating the market.

• India has a population of 140 crore people, but this doesn't guarantee success for startups.

Zomato's Example

• Zomato raised more than INR 10,000 crores ($1.3 billion) with its IPO in 2021 but terminated operations in 225 Indian cities due to poor performance.

• Zomato isn't profitable in the 800 cities where it operates; around 60% of its revenue comes from just the top eight Indian cities.

Targeting Specific Customer Groups

The speaker discusses how some companies target specific customer groups to make a profit.

Country Delight's Example

• Country Delight aims at targeting families with an annual household income of INR 7-8 lakh.

• The co-founder of the company said that the company can make a profit only in metro cities, despite 80% of Indian groceries being sold in tier-two cities.

• Nearly 1.1 crore Kirana stores in India pose severe competition for online grocery delivery services in tier-two cities.

Social Commerce

The speaker discusses Meesho's business model of social commerce.

Meesho's Example

• Meesho operates with the business model of social commerce.

Meesho's Business Model

In this section, the speaker explains Meesho's initial business model and how it evolved to address the challenges it faced.

Reseller Model

• Women from small towns and cities acted as resellers for Meesho.

• They bought products from Meesho and used WhatsApp and Facebook to sell them in their neighborhood.

• This business model is known as B2B2C.

Problems with Reseller Model

• Two problems emerged with the reseller model:

• Many customers were one-time buyers.

• The average order value was low, around INR 200, which curtailed profits.

Revamped Business Model

• To address these issues, Meesho revamped its business model from B2B2C to B2C.

• It now sells products directly to consumers, similar to Amazon and Flipkart.

Challenges of E-commerce in India

In this section, the speaker discusses the challenges that e-commerce businesses face in India due to consumer behavior.

Consumer Behavior

• Only 1 crore households contribute to 50% of all consumption in India. These households are located in the top 6 Indian cities.

• The next 4 crore households are found in the top 80-100 cities.

• The remaining households are sensitive to prices and only make purchases when they see great value in a deal.

High Return Rate

• Another challenge is a high return rate, especially for online fashion retailers where it can be nearly 50%.

Meesho's Challenges

• Meesho faced two major challenges:

• Only 1 crore households usually purchase products from the company.

• The next 4 crore households make a purchase only when the company offers attractive discounts, and they also contribute to a high return rate.

Targeting India's Population

In this section, the speaker discusses how startups target different segments of India's population.

India's Population Segments

• Blume, an Indian venture company, classified the Indian population into three sections.

• India 1 comprises people who hold most of the nation’s wealth.

• Most startups aim to target these people.

Example Startup

• CRED is a fintech startup that targets only the small percentage of Indians who own credit cards.

• Its founder has openly expressed that the company doesn't aim to target the entire Indian population but rather a tiny bit that possesses most of the wealth.

Shopee's Failure in India

This section discusses the failure of Singapore-based e-commerce company, Shopee, in India due to the misconception about the size and wealth of India's middle class.

Misconception About India's Middle Class

• Many Indians claim to belong to the middle class, but research shows that only 2% of the Indian population actually belongs to this group.

• The actual Indian middle-class population is not as large as believed and doesn't have enough money.

• To break into the top 10% of rich Indians, one must earn a monthly income greater than INR25,000.

Impact on Companies

• Overestimating the market leads to companies receiving considerable investment but failing to generate adequate profit.

• Teachmint, an ed-tech company valued at INR4,000 crores, generated only INR80 lakhs in revenue in 2022.

• Many companies have had to terminate their operations due to overestimating the market. For example, Zomato terminated its operation in many Indian cities where it couldn't generate adequate revenue.

Technical Reasons Behind Underperformance of Indian Startups

This section discusses technical reasons behind underperformance of many Indian startups using Big Basket as an example.

Big Basket's Success with Slotted Delivery Concept

• Big Basket rolled out 'slotted delivery' where customers could choose time slots for delivery.

• This concept gave the company more freedom in organizational planning as delivery riders and suppliers could be notified accordingly.

Impact of Pandemic on Big Basket

• The market changed during the pandemic, affecting Big Basket's performance.

Delivery Companies and Barriers to Entry

This section discusses how delivery companies operate and the importance of creating barriers to entry for competitors.

Delivery Companies

• Customers can order products at any time and have them delivered in 30 minutes by companies like Swiggy Instamart, Blinkit, Dunzo, and Zepto.

• It is challenging for companies to deliver products in 30 minutes.

Barriers to Entry

• Big Basket's market share dropped from 30% to 50% due to a barrier to entry.

• A barrier to entry makes it difficult for competitors to enter certain industries or businesses.

• Building infrastructure and procuring licenses are examples of barriers that make it difficult for other companies to enter the oil refinery sector.

• Asian Paints established its dominance by using computers to track its products, which allowed them to predict demand accurately. This created a barrier for other paint companies who could not compete with their low distribution costs.

Customer Acquisition Cost (CAC)

This section explains what customer acquisition cost (CAC) is and why it is important for startups.

CAC

• Indian grocery startups invest money in marketing and discount offers to attract customers.

• The amount of money spent on attracting a customer is called Customer Acquisition Cost or CAC.

• LTV should be three times the CAC, meaning that if a company spends INR 100 to acquire a customer through marketing or discount offers, it must ideally generate INR 300 in revenue from the same customer.

• The ratio of CAC to LTV for most Indian grocery startups is 1.5.

Low-Cost Marketing

This section discusses how Physicswallah, an Indian ed-tech startup, generates profit by using low-cost marketing.

Physicswallah

• Physicswallah is one of the few Indian ed-tech startups generating profit due to its low-cost marketing.

• Founder Alakh Pandey's popularity on YouTube allowed Physicswallah to avoid investing a hefty sum in marketing.

• In FY21, while BYJU’s spent nearly INR 2,500 crore on marketing, Physicswallah only spent less than INR 1 crore.

Indian Startups and Funding

This section discusses the challenges faced by Indian startups in securing funding due to the global economic downtrend and investors' hesitation to take risks.

Difficulty in Securing Funding

• Indian startups are facing difficulty in securing funding due to the global economic downtrend.

• American investors were previously willing to invest billions of dollars in Indian startups due to low-interest rates, but they are now hesitant to take risks.

• Investors are looking for high-return investments in the US rather than making risky investments in India.

• Startup funding in India has plunged to a nine-year low this year.

Success Stories

• Despite these challenges, the Indian startup ecosystem has developed significantly.

• Successful startups like Zetwerk and Zerodha have generated crores in profit without relying on foreign investment.

• Indian startups have created more job positions, with nearly 50% originating from tier-2 and tier-3 cities.

Unique Products of Indian Startups

This section highlights some unique products created by Indian startups that companies abroad haven't produced yet.

Unique Products

• Paytm soundbox is a truly Indian product that is not produced by companies abroad.

• Companies like Solar Industries and MKU have been manufacturing drones, which was not expected a few years back.

Challenges Faced by Indian Startups

This section discusses the challenges faced by Indian startups, such as limited consumers for online grocery companies and the need to address basic problems.

Challenges

• India has a population of 140 crore, but not everyone can serve as consumers for online grocery companies.

• When the income of this group of people rises, they will enter the country's middle-class economy.

• Startups valued at crores would actually be able to generate revenue when this happens.

• The matter of same-sex marriage is another story that is frequently discussed in newspapers.

Job Creation by Indian Startups

This section highlights how Indian startups have created job positions in tier-2 and tier-3 cities.

Job Creation

• Startup jobs in the Indian economy are on the rise, with a foothold in tier-2 and tier-3 cities.

• Nearly 50% of startups originated from these cities.

• Shark Tank saw around 100 entrepreneurs from lower-tier cities in its first season.

Positive Outlook on Indian Startup Ecosystem

This section provides an optimistic outlook on the Indian startup ecosystem despite challenges faced.

Positive Outlook

• The Indian startup ecosystem has developed significantly with several success stories like Zetwerk and Zerodha generating crores in profit without relying on foreign investment.

• Indian companies have created products that companies abroad haven't, such as drones and Paytm soundbox.

• The startups valued at crores would actually be able to generate revenue when the income of a group of people rises and they enter the country's middle-class economy.