Champ's Blog

The silent killers of growth - http://pulse.me/s/kzIge

1. Silence out of chaos. After a night out or coffee with friends and other inspiring people. Or, things done in a dis-orderly or tedious manner that can be better and simpler.

2. From needs. When you’re looking for a product and can’t find it. Then, you think of building it and then you feel that there’s a market for it.

3. Passion. If you’re passionate about something, you probably feel there are many others who’d love to join you and use what you’ve created.

What do you think?

In an age full of brilliant people today than have ever been - entrepreneurs, scientists, inventors, artists, workers, thinkers, etc.. unfortunately, most of us have gotten comfortable in our own way of doing things. And, “change” or the “idea of changing” shocks us back with an instant refute at the thought of it. But, ask yourself if you’re getting lost towards your goals on day-to-day mundane matters - here, now and where? What is there was a solution, would you go for it?

Getting there takes fundamental change. Something that gets difficult to achieve with age and maturity. But, can be easily done with practice.

Here’s when you know whether you’re working hard or playing smart?

1a. Working hard is when you spend over 2 hours commuting to & fro from work.

1b. Playing smart is when you relocate closer to your work place or your work place closer to you.

2a. Working hard is when you try to do everything yourself.

2b. Playing smart is when you hire the right people and trust them to execute the assigned tasks.

3a. Working hard is doing.

3b. Playing smart is planning and getting things done.

4a. Working hard is delivering.

4b. Playing smart is over delivering.

5a. Working hard is learning from your own experiences.

5b. Playing smart is learning from the experiences of others.

6a. Working hard is talking about your achievements.

6b. Playing smart is leveraging your achievements to help others succeed.

7a. Working hard is not chilling on the weekends.

7b. Playing smart is taking the weekends off to start the next week fresh.

8a. Working hard is running late.

8b. Playing smart is always being on time.

9a. Working hard is when you value money over time.

9b. Playing smart is when you value time over money.

10a. Working hard is being correct.

10b. Playing smart is being wise.

11a. Working hard is not taking risks.

11b. Playing smart is risk taking every moment.

12a. Working hard is copying others and trying to out-do them.

12b. Playing smart is doing your own thing.

13a. Working hard is doing things their way.

13b. Playing smart is doing things your way.

14a. Working hard is leaving office late.

14b. Playing smart is leaving office on time.

15a. Working hard is allowing others to take over your day.

15b. Playing smart is doing everything you planned for the day.

16a. Working hard is when you put in more effort.

16b. Playing smart is when you bring in more value.

What else can you think of?

These guy’s company, once valued at USD 250 million in June, 2006; after starting up with $ 6000 seed capital in 2004 was sure a success story back then. Only 6 years later, the company gets sold at less than $ 500,000 and one of the founders gets employed at Google (who had once offered to buy his company for USD 200 million).

Now, that’s the Story of Digg.

Most largely funded eCommerce companies in India seem to be going the same way. Cost to acquire a customer is Rs. 1000 - Rs. 3000. Average first gross sale per customer is Rs. 500 - Rs. 1200, net margin is less than 5%. i.e. Company gross earning per sale Rs. 25 - Rs. 60. Of this, company bares taxes, shipping charges, marketing costs, salaries, etc. etc. costs.

And yet, investors and entrepreneurs are bullish about these models to scale.

Oops! Does this make any sense to you? - No?!

Let me tell you how it makes sense to investors and the other folks (more investors).

Entrepreneur (E) starts a small online venture. Sells stuff for dirt cheap, even below cost at times. Obviously, customers flock to his store. Seeing the number of customers come in (traffic), an investor puts in a little money (assume Rs. 10 lacs) for E to advertise and get more traffic.

Assuming, E’s store advertises on Google and other networks, spending Rs. 20/click, he gains 50,000 new visitors. Since he sells stuff for real cheap, his conversion rate is high. That means, of 50,000 visitors, 5000 (10%) end up buying.  The average sale per visitor is Rs. 300, yet, as the website is new and sells books, cd’s, t-shirts, etc. Total money collected is 5000 x Rs. 300 = Rs. 15,00,000/-

E tells the investor that of these 5000 customers, 4000 will shop again. This time, they will spend a bit more. That is, 4000 x Rs. 500 = Rs. 20,00,000/-

And, they will shop 4 times during their lifetime, that is 20,00,000 + 20,00,000 + 20,00,000 + 15,00,000 = 75,00,000/-

E also tells the investor, that each of these repeat customers will influence other customers. So, 4000 customers will multiply twice to become 8000 customers. That is 8000 will generate a sale of Rs. 1.5 Cr. in their lifetime.

Aggregating the entire business model, the E and the Investor on spending Rs. 10,00,000 have made a sale of Rs. 2.25 Cr!

Sounds good?

Not yet!

Now the company earns 5% of 2.25 Cr = Rs. 11,25,000 of which Rs. 10,00,000 was spent  in advertising, balance Rs. 1,25,000 of which part goes in shipping, packing, taxes, salaries and other expenses.

So, they put a value for each customer - 2.25 Cr / 12,000 customers = Rs. 1875.

With this value, they find another investor and tell him that if he invests Rs. 1 Cr. like the investor did of Rs. 10 lacs, he will have 12,000 x 10 = 1,20,000 customers, each valued at Rs. 1875. Can you imagine what his company worth would be?

Reverse it!

So, if eCommerce companies in India, report a sale of Rs. 500 Cr to Rs. 1200 Cr per year, are they really making money?

Nope, it only depends on when and at what price do you exit. At some point, unless you own patents like Amazon does and other intellectual sources of income, your bread will always just be bread. It may get a bit sweeter, but will never turn into cake.

Here are some interesting facts about the Indian consumer. Excerpt from Wikipedia.

1. The Population of India is 1.2 Billion people,

2. Our Per Capita Income is Rs. 61,000,

3. 400 million people live on less than USD 1.25 a day,

4. About 67% households use firewood, cow dung or crop residue for cooking,

5. 53% people do not have toilet or drainage facilities on their premises,

6. 83% have access to water at home or close distance of 100m (urban areas) and 500m (rural areas),

7. 63% have landlines or cellphones,

8. 43% have a television,

9. 26% own a vehicle (either, 2 or 4 wheeler),

10. Six low-income states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa and Uttar Pradesh are home to more than one third of India’s population,

11. 120 million people have access to the internet with an extremely low average speed of 0.9 mbps,

12. Most people access the internet at 256 kbps when the minimum regulation by TRAI is 512 kbps,

13. The Per Capita Income in urban cities such as Mumbai is Rs. 1,50,000, Delhi is Rs. 1,35,000 and lower in the other cities.

Now, if you’re planning to start a deal website, a high-end limo service, a boutique, spa, etc. I hope the above data helps you gain insight into determining your customer size.

In my opinion, it’s best to serve the biggest mass of the under-served. Such as cricket and bollywood have done. 63% people can now listen to live cricket scores or music on their cellphones, whereas only 43% can watch it on their TV. Even though a TV is cheaper to own and was introduced before cellphones.