Should a start-up undertake paid branding?

A shaving cream company, say Newbee, commenced its premier product. Soon it started facing hardships in already overcrowded market. Market leaders were MNC with deep pockets and distribution penetration, backed by inducing advertisement on TV and print. MNCs have comfortably built an impregnable brand in the mind of individual males. Newbee analyzed to its happiness that MNCs have not made huge impact in saloons and therefore started focus only there. Soon it had its distribution chain. Volume increased and variable cost started decreasing. With cost leadership, Newbee found new lease of life and invested in production enhancement. Soon it could reduce its cost further down, enticing even the MNCs to get contract manufacturing from it. Newbee had the scale, quality products, and knowledge of variable quality for its customers. It was world’s largest producer of shaving cream. However, it still had one problem. Its margins were low.

Now, with high revenue and disposable profits, it thought of undertaking brand building and started advertising. It also increased the prices of its product to offset marketing costs. Did it succeed?

Yes, it did and the balance lies in the balance in pricing of its own product versus the competitor, even when both are resorting to brand building. It is, in fact, advantageous to NewBee that they are able to keep prices low, with same level of margins as competitor, due to lower costs. Here in this illustrative story, Newbee has been able to wipe off its competitor from manufacturing.

Branding is a costly preposition. Still, many start-ups these days undertake brand building very early, as they get hot money very soon in the cycle and investors are in great hurry to create that hype to increase the valuation, enabling them to exit with huge positive returns. Ideal period of this cycle of investment-hype-customer acquisition-growth-exit is 3 to 5 years. In this case, should a startup undertake paid branding? If yes, what stage should it undertake it?

Consider the cases of amazon, makemytrip, flipkart, yatra, via, redbus amongst many others, who built their product, refined it well over time and then undertook paid branding. While housing.com, ola, quickr, olx are some examples which jumped to market with huge marketing budgets from an early stage. All the former have painstakingly built their product, distribution, logistics and focused on self-sustainability to create revenue first. They approached the investors for growth-stage funding and therefore pressure was diluted for big bang marketing. While later companies got the seed /early stage funding and had the compulsion to generate market valuations quickly.

It is no brainer that market valuation is more hype than reality, now or in dot-com era. Profit is not the leading criterion like in case of amazon or flipkart. It is potential to generate business in the future that leads all the way. It reminds stories of the era, when most companies going for IPO, would build a healthy order book, possibly from friendly companies, and go bust soon after the subscription, swindling many small time investors who would have no means to know what happened. When branding is to target increased valuation and not sustenance, one must be wary.

In the case of Newbee, it resorted to paid branding once it attained substantial competitive advantage, else the chances of return over investment reduces exponentially.

Share your comments, criticism, counter-views to me (Ashish Jain), at india.ashishjain@gmail.com.

Profreneur – a way out of Pink slips

IT industry in India seems to have seen its peak. Sluggish American and European economies leave shrinking discretionary spend, compelling changing ways to do more for less. Recent trend show higher adaptation of productized solutions against green field development projects of the past. Domain and technology consulting is expected from the vendors as part of solutions approach unlike resource approach Indian services were sourced earlier. Offshoring is also moving to near shore and onshore with advent of patriotism over capitalism.

The impact is loss of IT jobs also in India. Nobody ever heard TCS, largest Indian IT Company, to fire its employees in hoard ever and raised an eyebrow when it announced to shed about 30000 people or about 10% of its workforce. Other organizations are also “Juniorizing” – a term used to replace their experienced employee to make way for relatively younger one to man the same roles. How should an outgoing professional having spent 15 or 20 years of his /her career, now consider this vacuum, given industry has very little appetite for absorption.

Thinking positively, if I could, let me assure you of immense number of opportunities that lies even in this dark stage of your career. You may see a ray of hope in professional entrepreneurship, or Profreneur.

Based on the majority of roles that are sourced from India, professionals losing their jobs in IT have technology, delivery or people management skills. Without sales or marketing skills, many such professionals fear to tread the path of entrepreneurship. The fear is not unfounded but it is possible to circumvent it. Can you look for businesses where pull factor is built-in by design (customers come to you themselves) rather you creating a push strategy, which may be hard. I will discuss some of such possibilities, out of many, just to instigate that such possibilities are many and worth exploring.

First is taking a franchise of an established brand. Brand brings you customer, brand owner helps you co-establish your business during the initial period, during which you get to know the business intricacies. With the experience and technology your forte, improvements can be made. However, this will get you limited success in business and scaling beyond will need selling skills.

In the internet era, establishing an e-shop in the flipkart.com, amazon.in or snapdeal.com marketplaces is the second option. It is extremely easy to set up such a “shop” if you have the compelling products. Such products can be sourced from specialist markets such as brassware from Moradabad, gems from Jaipur, woolen and sports goods from Jalandhar, Spices from south India, or ethnic products from Rajasthan or Gujarat etc. for consumption outside India. As entry barrier in these products is low, so you will find many competing products to fight against. It will require lot of common sense and sales zeal to research competition, reduce costs, efficient operations and right price, to keep afloat. Establishing family / friend contacts abroad will be a definite plus on realization of money on large orders.

Business to consumer (B2C) may not be everyone’s cup of tea. It is when you have a concept to sell in consultative mode to your customers in a defined market, even non sales oriented people have been seen to be doing fairly well in the B2B segment. Some solutions lie in emerging needs in India - security, infrastructure, education and energy. It really does not distinguish between digital or brick-and-mortar preposition, so long as you have the perseverance and passion to push it through for nearly a year as cycle time to convert into order is longer.

As we are talking of people in the technology domain, an e-commerce based business venture is definitely on the table as possibility. One need to think passionately, plan big, execute small and think as if to sell it after 3 to 5 years. Success chances are increased when you move around in the VC circle and be part of entrepreneur eco-system fully.

One may argue, it is easier said than done. Well, who said working in a job is easy after all! Give it a fresh and unbiased thought, discuss with many friends whose opinion matter to you and if you so wish, can write to me at india.ashishjain@gmail.com to help distill the options you are considering.

All the best for taking the best advantage at this turn in your career.

Ashish Jain

India.ashishjain@gmail.com

Elements of Branding - Practical Tips

How do you sum up any institution, person, place or organization? How can even elevator pitch be shortened to describe something? How uniformly message be understood by most? It is branding. 


These questions highlights the associativity of perception and not necessarily the attributes of products / services that entities are in the business. So, it is easy to infer that brands manifests the perception among the masses. Pepsi is not necessarily a drink for the youth, but perceived to be for the young (remember Youngistaan), as they are the largest customer base for them. Why anyone builds a brand and how to build it? 


When a brand is built and seen positively, it becomes very easy, less costly and quite faster to sell products / services for that entity. Even brand can be monitized. Not everyone is able to create a favourable brand and it is definately not in short time. To quote a scenerio, why is it so easy for selectors to choose an IIM candidate over any other, giving benefit of doubt to IIM candidate even if Interview has not gone all that good. It is pre-conceived notion in the mind of Indian recruiters that IIM candidates selected after intense CAT process are bound to be cream-la-cream. Go to France and recruit an IIMer over a non-IIMer and chances are both on the equal footing till the other candidate happens to be from INSEAD, when he will get a edge over IIMer as this institute is French and perceived to be top-rug. Harvard and Stanford are universal brand with positive communication about them that has reached universally. Besides getting real value, it helps to back the brand in at least two other ways - play safe to justify yourself to others and it hides any selection shortcoming one may have! 


Changing the human behavior into buying habits and starting to associate best to oneself, is a slow and consistent process with each step involving two things - positive baby step and omni-directional positive communication. To build a brand, it has to be strategically thought, executed in parts and communicated in full (in geography where executed using media and buzz, buzz being more important). 


Ashish Jain

Life, by design

Japan's Fukushima is unfortunate in bearing the wrath of man-made disaster, made by design.


Increasing human need for continued energy is making us think for ways which are risky and fatal to the very existance for which we desire energy. Some lives are sacrificied for the sake of others need. But is it not what everyone does in order to exist? It may be right but not correct.


Stuart Brand argues, “Air pollution from burning coal is estimated to cause 30,000 deaths a year from lung disease in the United States and 350,000 in China. A one gigawatt coal plant burns three million tonnes of fuel a year and produces seven million tonnes of carbon dioxide, all of which immediately goes into everyone's atomosphere. Using nuclear reactor to generate one gigawatt a year requires only about 20 tonnes of nuclear fuel, but with zero carbon dioxide”. Is it better to have nuclear reactors for energy in view of less number of deaths caused in comparison to conventional fossil fuel? Not necessarily. 


Oil resources are depleting, nuclear energy is frought with avoidable risk and with coal causing slow and steady deaths, what are the alternatives?


Solar energy in India is untapped. India is densely populated and has high solar insolation, an ideal combination for using solar power. With about 300 clear, sunny days a year, India's theoretical solar power reception, on only its land area, is 600 trillion Watt per year. Assuming the efficiency of PV modules as low as 10%, this would still be thousand times greater than the domestic electricity demand projected for 2015. Currently, the amount of solar energy produced in India is less than 1% of the total energy produced. High cost of solar power notwithstanding, it has decreased four fold in a decade and is at GBP 125-180/MWh in comparison to coal at GBP 100-155/MWh (2010 Matt MacDonald Estimates). High usage and therefore high consumption volume of solar photovoltaic cells will reduce the per MWh cost of solar energy further, making it attractive energy option. Solar energy is not only green, saving carbon credit costs and helps in fulfilling Kyoto obligations, but also averts any man-made disasters. Distribution losses can be contained by grid-based and non-grid based power network that are possible only using solar power. 


India is uniquely placed in harnessing solar energy unlike many developed countries in the cold region. Our energy sources can well be different too. Energy sufficiency will make superpowers of tomorrow and India can catch that advantage as it did in IT, by design.


Ashish Jain

How to be a successful Entrepreneur?

I have had successful entrepreneurial stint. Here are few practical insights based on my first hand experience.


Planning is always considered essential but often ignored in the height of either bread-and-butter or urgency of issues at hand. These are inevitable, but planning is not to be ignored. An entrepreneurial venture needs to focus in that order 1) Product / Solution offering 2) Sales 3) Operations and People 4) Finance and 5) Marketing.  

First and foremost mistake is to get embroiled into daily OPERATIONS. Once in a while is fine. Keeping knowledge of operations and not budgeting for an operations guy are two different things. This is the most important factor to fail. Non-availability of his time or he getting tired in daily operations would leave nobody to drive the bigger agenda - business generation.

A) Clearly Defined Horizon - A startup never has the time and enough resources to dilute the attention. Most smaller companies start with an idea or commence with presence in one product or industry and after the consolidation, moves either for horizontal or vertical scaling. Most Indian IT companies when they started, started with one product - body shopping. I know of a friend who started and established a credible product company in travel industry with marquee customers. He knew the industry and Industry him. By virtue of his domain and industry knowledge, his products used to sell by word of mouth with advertisement budget of less than 2% of net profit (and not even turnover).

B) Connected Organization

    B1. Ecosystem helps - Outsourcing is not just for big clients. It can happen when you are just starting too. Create and have knowledge of an eco-system with specialists that can be tapped at will with in-built extra time and price margins. Upfront investment in hiring and keep worrying to provide work to specialist employee is a big headache saved.

    B2. Networked Organization - Many time, customers judge you indirectly as they may not like to judge directly. An enterprise's Microsoft Gold Partnership, Oracle's premium partner, HP-Mercury's premium level etc. sends a message to customer that the organization is trusted by industry's credible names and they can take it easy in their own evaluations and start trusting. All these partnerships also keeps you in top-of-the-mind recall of partner and may get the inquiries generated at them. A friend of mine in Sacromento, California, USA left a highly paid job at Microsoft to commence a startup. He knew the product BizTalk from Microsoft well and knew what it did not have. He made complementary add-ons and largely concentrated his communication to Microsoft, by direct interactions. In 18 months time, he was able to sell his small company ( $2m revenue) at 34 times premium to Microsoft itself. In generating this $2m revenue, 60% of the inquiries used to come from Microsoft only. Connect with trade association is also very useful.

C) Astute Financial Management

    C1. Keep Cost Low - Startups in garages or room at hostel is still a good idea. Customers that we tend to acquire initially usually do not come (B2B space) to entrepreneur office and grand office may not be needed during the trial phase.

    C2. Right Price - Selling products at very high price will deflect customers and selling it cheap will erode the capital for further growth. Pricing has to be right. Networked organization also exposes one to know what is expectated and how competition behaves.

    C3. Cash is King - One single most important reason for startup to fail is to struggle over working capital to pay for operating expenses. If one has planned for a one year of expenses and ensured their availability, promoter can focus on selling and/or making the products, away from every day finance related distractions. Most college graduates have better chance of stiking gold as there is no perennial sword of meeting expenses. Bill gates, Steve Jobs, Karsanbhai Patel are few examples.

But to sum it up, two more things that are important. One, keep publise organization with "I exist" phenomenon. Keep spreading the word about your existence to be in top-of-mind recall, through low cost but positive messages. Second, use mentor services. Mentor could be another friend's organization with whom you can share your issues and discuss openly on reciprocal basis or an individual who can be unbiased. Mentor is different from co-partner and brings in fresh perspective from outside without mired in the daily problems.

Ashish Jain 

Education - Enabling India as World’s Back-Office

India’s education market is on a high growth trajectory and so are the employment opportunities. With more and more players entering this lucrative field, the job market dynamics are fast-changing.

India is fast emerging as back-office of the world, having caught on the service bus leaving China to play the manufacturing handle. Service economies around the world have been able to command better premium and face less pricing pressure unless it is totally skewed and overtaken by another country. India has that advantage and it has the correct basics in place. Be part of this sunrise industry.

According to the 2009 Global Education Digest published by UNESCO’s Institute for Statistics, since 2000 an additional 51.7 million new tertiary students have enrolled around the world and 2.8 million students currently study outside their home country. Gross Enrolment Ratio (GER) in US and Europe is 70%, it is 11% in South and West Asia and 6% in Africa. It shows immense potential in developing countries and especially in India with huge and growing population. Out of 1.1 billion Indian people, 672 (60%) million people are in the working age group of 15 to 64 years. This is highest in the world. India will see sharp decline in the dependency ratio over the next 30 years. Govt. has planned budget of 6% of GDP for education in the aggregate planning. Ministry of education has cut a task for itself to l Facilitate 3 times increase in enrolment in
higher education (14 million to 40 million by 2020) l 150-160 million youth base who opt for Vocational Education l In India, 14 world class (Infrastructure and faculty) universities are being setup with coverage including innovation, IP and public-IP.

Right to primary free and compulsory education act is already operative, facilitating government support to education in remote areas. Central government alone will not be able to do much. It will have to be supplemented with State governments and private sector. These are years of IT revolution that is unfolding in India for education.. Here is a quick bite on the opportunities.

Opportunities

• National Acedemic Depository Bill 2010 will facilitate electronic database of academic awards and it will be mandatory on academic institutions to lodge all degree, diploma and mark sheets there 
• Scheme by central government for setting up model Degree College in 374 educationally backward districts where GER for higher education is less than national GER. Under which assistance is provided upto Rs. 2.67 crore with maximum of one-third share, increasing to 50% (Rs. 4 crore) under special category states
• Under Central government funded scheme “National Mission on Education through ICT”, setting up VPN and broadband with 1Gbps connectivity is provided for institutions of higher learning and centers of excellence 
• Right of Children to Free and Compulsory Education Act 2009 opens up opportunities for entrepreneurs to provide systems for admission, attendance and completion of elementary education in schools that conform to specified norms and standards 
• 100,000 students from India go to USA either because of better facilities there or due to better brand. Sooner or later these universities are likely to come to India and opportunity exist to collaborate with them to provide them digital content, pedagogy tools, psychological research inputs to Indian conditions, facilities or others
• Education as a means in spreading the message and catalyzing for corrective action for global warming and climate change 
• Concept of cross border education through e-learning, open educational resources and mobile technologies 

Government intentions augur well so far. Kapil Sibal has been on record recently to have put important  legislature in place. Bills under parliament approval are

• Mandatory accreditation of all higher educational institutions
• Regulate the entry and operation of foreign educational institutions in India
• Establishment of National Education Finance Corporation, a special purpose bank which will finance the banks and universities directly for the education loan to the students

Central government is working in close association with banks to revolutionize the education funding, an important element in the whole eco-system. It is offering to facilitate education loans at 4% interest rates with
methods than are likely to revolutionize the sector (See separate bar for full information). Taste this:

• Banks to get re-finance from NEFC, a special purpose bank setup with budgetary provisions
• Loan applications to be forwarded from the institute to the banks
• Co-branding degree / diplomas with Bank and Institute to make it obligatory on employers to inform bank while employing the students
• Banks will have lien on the salary from employers and thus repayment of loans 
• Students get higher education without lack of funds at reduced interest rates to come in the mainstream

Sector is getting too attractive and inviting many small to big players alike. EduComp is revolutionizing the classes of tomorrow, tutoring is going virtual and studies teacher-less. Competition is bound to grow and so are the challenges. Some imminent challenges are:

• New methods to respond to emerging societal demands
• Diversify and enhance revenue streams
• Improve and demonstrate quality
• Control costs
• Compete with new providers at the global level
• Capitalize on the emerging technologies

God favors who decides his own fate. Make calculated risks and if at all one needs to plunge in this sector, time is now.

Ashish Jain

Leading International Business - Locally

KFC entered India with Beef and Pork products, without realizing the potential retaliation from the local market. The result, it had to close shop for nearly two years. Future Group with Kishore Bayani as its first generation entrepreneur setup 80 people core team in Bangalore which visits stores, observes customers, meets them, engage with them and alike to gather what he considers core facts for his retail strategy. When Big Bazaar was started, the floors were neat and clean akin to large malls. Customers were reluctant with missing market buzz of shopping. Big Bazaar swiftly adopted the change to succeed, based on the facts gathered through their market insights. Is it business knowledge or cultural knowledge? I would attribute it to knowledge of local culture (India) as same factors may not work in another country just the same way even if other business parameters are kept similar.

Knowledge of local culture, therefore, is as much important as knowledge of business itself. This is hygiene factor, without which, chances of failures increases leaps and bounds. Leaders are expected to have this market knowledge before launching their country strategy. In an International environment, mistakes are costly, not only from financial perspective but also from the damage to the brand.

Insights here are not intended to be exhaustive, but are catalyst to generate interest and help through few guiding rules. Some insights work on the region while others work on the country.

The first exposure is to communicate in International markets. Americans and British like to crack jokes and involve humor with business while French, German, Dutch and Japanese would not mix the two, till they have become ‘friends’. It is strict ‘No’ to discuss politics, religion, family, children, and salary with Americans and Brits. Safest bet is to discuss local sports like baseball, basketball in US and Soccer in Europe apart from Weather. French likes to discuss art, wine, travel experiences and sports. It is kind of ritual in Latin America to discuss health issues in great details. French do not like to get a smile from passer by, just the opposite of Brits. It is compulsory not to discuss family and criticize king / queen in Islamic countries, else…you know best. Italy does not take discussion on Mafia, taxes and politics easily. In Australia and NZ, avoid discussion on politics, racism, labor issues, kangaroo population and highly of NZ in Australia and vice versa.

Australian, Brits, French, Canadian and Americans use chit-chat to familiarize fast. China and Hong Kong uses chit-chat just to discuss the travel experience but swiftly moves to elaborate conversation on even personal topics like family, Income etc. People in Middle East and India like to engage in conversation for a long duration. Eye contact is positive in US and Europe unlike Asian and Latin American, as it is seen as attentiveness, alertness, self confidence, truthfulness and respect. Japanese, Koreans and many Asian countries find stare quite uncomfortable, to the extent of doubting and not agreeing. Accent is very important to Brits and is able to find out educational background from the accent. Standard English were found in supervisory positions more often than were persons who speak with pronounced accent. Americans like to speak slower. In Middle East, Italy, Germany and Taiwan, they associate volume with strength and sincerity and thus speak loudly. Japanese prefer to speak and hear softly.

One of the most authoritative work as a project was carried out by Geert Hofstede (www.geert-hofstede.com) on cultural dimensions. Geert analyzed a large data base of employee values scores collected by IBM between 1967 and 1973 covering more than 70 countries, updated in 2001 with scores for 74 countries / regions.

Hofstede developed a model that identifies five primary Dimensions to assist in differentiating cultures: Power Distance - PDI, Individualism - IDV, Masculinity - MAS, and Uncertainty Avoidance – UAI and Long-Term Orientation – LTO. Values of some countries are mentioned here.

Country	PDI	IDV	MAS	UAI	LTO
Arab World	80	38	52	68
Australia	36	90	61	51	31
Belgium	65	75	54	94
Canada	39	80	52	48	23
China	80	20	66	30	118
India	77	48	56	40	61
France	68	71	43	86
Germany	35	67	66	65	31
Italy	50	76	70	75
Japan	54	46	95	92	80
Mexico	81	30	69	82
Netherlands	38	80	14	53	44
New Zealand	22	79	58	49	30
Pakistan	55	14	50	70
United Kingdom	35	89	66	35	25
United States	40	91	62	46	29

Power Distance Index (PDI) - Society's level of inequality is endorsed by the followers as much as by the leaders. Higher the number means higher the inequality.

Individualism (IDV) – This is opposite to collectivism - in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families. Higher the number, lower the collectivism bond.

Masculinity (MAS) – Distribution of roles between genders. Masculine assertiveness over feminine shows higher number.

Uncertainty Avoidance Index (UAI) – Factor to show society's tolerance for uncertainty and ambiguity. Laws and rules are stick for uncertainly avoidance in high scoring countries / regions. People in uncertainty avoiding countries are more emotional. The opposite type, uncertainty accepting cultures are more tolerant of opinions different from theirs. Long-Term Orientation (LTO) - It can be said to deal with Virtue regardless of Truth. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition and fulfilling social obligations.

Knowing cultural diversity and its impact on business is any leader’s dream. HSBC aptly characterized it in its punch line “Think Global, Act Local”. Leadership can only be better by avoiding traps KFC found itself in.