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First follower advantage in start-ups

Published in the Financial Chronicle


Smart idea? Tweak and implement

By Roopen Roy Aug 04 2015

Tags: Op-ed
India is at the cusp of a startup boom. We have young entrepreneurs, a talented pool of IT resources and a large and growing domestic market. We need more job creators than job seekers. Therefore, India must become a beehive of startups buzzing with innovations.

Some startups would be fuelled by new inventions and patents. But many others would thrive by adapting ideas that have worked elsewhere to Indian markets. Flipkart started life selling books online but it was not a blind copy of Amazon. It adapted to the needs of the Indian market. A significant part of India is still a cash economy. Therefore, “cash on delivery” was an important adaptation of Flipkart.

In my hometown Calcutta, we have an online grocer which takes orders online and fulfils them within 24 hours. They have adapted too. The cost of labour in India is relatively low. Therefore, within a short time of placing the order, an account executive will be on the phone to ascertain the time at which they should deliver the groceries. You can pay cash on delivery or you can pay online. The online grocer has an asset-light model. It rides on the supply chain of the Metro Cash & Carry and simply manages the customer side of the equation.

You do not have to be a breakthrough inventor. Rapidly adapting ideas to the Indian market is often a safer strategy. Uber is a great “ride-share” concept whereby, through a mobile app, a customer can connect with the driver. Operators like Ola and Meru have come up and they have adapted this model. There will be increased competition in the market.

The core logic of this innovation is simple. If you are buying a car, employing a driver and keeping it idle in a parking lot of your office, the cost of ownership is very high. Rideshares sweat a depreciating asset intensely and, therefore, you pay a fraction. Yet you use the service at will in a safe and convenient manner. You also have a record of payment of fares because your card is charged at the end of the trip.

Most innovations that succeed are driven by some unfulfilled need. It may be the desire for lower costs, better service, greater convenience and easier accessibility. In many cases business models are disrupted by dynamically connecting the buyer and the seller. Take the case of TransferWise. It is almost like a legal, electronic hawala system. It was inspired by the personal experiences of two young men from Tallinn in Estonia: Taavet Hinrikus, (who was Skype’s first employee) and Kristo Käärmann. In the words of Hinrikus, “I was losing 5 per cent of the money each time I moved it. At the same time my co-founder Kristo Käärmann was starting to get paid in the UK and was losing a lot of money transferring cash back home to pay for a mortgage there. They struck a deal. Hinrikus — earned in euros and paid this currency directly into Käärmann’s Estonian account so he could pay his mortgage without having to convert pounds to euro. Käärmann returned the favour by putting pounds into Hinrkus’ UK account. This arrangement led them to start developing a crowdsourced currency exchange service to offer a cheaper alternative to established institutions. The company has transferred more than £3 billion across 300 routes transacted, while slashing the costs up to 90 per cent of what banks charge. Their portal is @https://transferwise.com/. Sir Richard Branson is an investor in this company.

There are many other ideas that have worked in the US but will need a tweaking or adaptation to be successful in India. How often you have wished the Genie of Aladdin would bring you all the ingredients of a fine Italian or Thai or Indian meal along with a recipe so that you rustle up a great dinner? Well look at a company called www.blue apron.com. They have some renowned guest chefs who craft recipes of meals which are 500-700 calories per serving and take 35 minutes to prepare. The ingredients of these meals are perfectly pre-measured so there is no waste and you can choose from the menu what meals you wish to be delivered for seven days of the week. How many times while cooking a biryani have you missed out on one or two essential items like caraway seeds, good quality saffron, sweet ittar or kevda water? What if someone sent you the exact proportions with a recipe and cooking instructions from ITC Dum Pukht’s Chef Mohammed Shareef? However, the Blue Apron model will need modification in India to succeed. They use a perfect cold chain and the last yard is covered by refrigerated boxes. But with some imaginative tweaking the model will work.

To create a large number of startups, the first step should be to create a reservoir of ideas that have worked elsewhere and could work in India. Young entrepreneurs with some guidance from mentors and angel investors can fire up the Indian start-up ecology.

In a recent article in the Fortune magazine, Scott Cendrowski wrote, “A joke was making the rounds a few years ago in China: if a US startup had a great idea, Google might buy it. If a Chinese startup had a great idea, Tencent might copy it.” India should take the Chinese joke seriously. We are a country which respects intellectual property rights and we have a large enough market to attract partnerships and collaborations. We should be aware how innovation is disrupting business models to be inspired. A fast follower strategy will be good for us.

(The writer is the founder of Sumantrana, an advisory firm for startups)


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