Starting a Startup: The Innovation Mission
We continue with the riveting and insightful discussion from where we left in the last issue, on the entrepreneurial journey of most well known startups in Pune and key players in the startup ecosystem, at a CII organised CFO Meet. The significant rise in the number of startup companies, which is still growing, has seen billions being invested into Indian startups in the last few years. How the story of startups is sweat blood and glory, the entrepreneurial journeys and the challenges entrepreneurs face let’s further hear from the panellists, Ashvani Shukla, CEO, Aeron Systems Pvt Ltd; Girish Chandra, chief evangelist, e-Zest Solutions Ltd (Moderator) and Ashish Goyal, co-founder and CFO, EarlySalary. Corporate Citizen brings you the concluding part of the riveting discussion
"Earlier, if businesses used to fail, people used to write off on the personal failure of that person. Today, it is getting celebrated there is a change in how people look at entrepreneurs who have failed"
- Ashish Goyal
ASHISH GOYALGIRISH CHANDRA: From a cash point of view what kind of difficulties you faced? Where the money comes from, where the money goes and how do you keep something for yourself?
ASHISH GOYAL: We are ultimately the financing company; the raw material has to come either from equity or debt. And it goes as consumer loans to the consumers, that’s our main business and that forms almost 98 per cent of our money cash flows in and out. The rest two per cent is the operating expenses, the payouts etc. What we realised is that we are always in the market to raise money. It is not easy to manage the investors, but at the end of the day when you need money, you ultimately need to go back to the private or public markets. When we started, we went to one gentleman, who gave the seed of 1.5 million dollars, which came when we were in jobs. He said that when I give you the cheque, then you quit the jobs. We then quit our jobs and started the company. Then the market squeezed, Series-A was not happening and we almost knocked each and every door of venture capitalists, purely because that’s our raw material. Not that we were trying to burn money and acquire customers, it was more to raise debt and give it to the customers. It took us a long journey and we went through many ups and downs. But, luckily once we raised our Series-A, our stories were liked by so many people. Series-B came when we raised close to 16 million dollars, which came in without us asking for it. The investor actually walked into the office and said I want to invest. We raised debt also, which we prefer more there still are turmoil’s, which is part of life and we are going through the same rollercoaster. That’s about the funding journey we had.
Q: Are you also creating some additional services?
ASHISH: We don’t want to get selling them insurance or something periphery, because that creates a large amount of distraction. But what we do is, how do we really keep engaging with customers. For exampe we went to Big Bazaar and Flipkart and came up with a product with them. Similarly, we are coming up with our own plastic (credit card), where the people can use our limits, to shop anywhere in India. So, over the period of time, we have invested to find out as to how do we really service customers from multiple angles and not only giving them the short term advances, which was our primary product and it is still our primary product. But, we want to ensure that we are with the customers. When we are acquiring customers of 25 age, how do we remain with them for ten years? The idea is to how do we service the customer more. If you create a mono line it is very bad for business.
ASHVANI SHUKLA: For me, the first source of money was from friends and family. We were able to invest that money into developing the products and we came up with very simpler products, using five per cent of the technology for the Inertial Navigation System, which is our primary product. So, with that five per cent technology, we were basically measuring the role in pitch and we came up with this product, and realised that the industries are needing it. One of the early customers for that was Thermax we got customers and they were placing orders. For manufacturing industry, if you have a product and you are able to manufacture the order then obviously you will set up work capital limits for the banks and if you can manage the cash flows, it is one of the very challenging aspects of running a product company without VC funding if you can manage cash flow, sometimes by requesting customers to pay in advance, requesting vendors to give material on 30-60 days credit and managing like that. So, for us, that’s how we have been managing our cash and finances.
Where does the money go? Typically large chunks of it goes into raw material, which are components and stuff like that and then bit of a production capacity and people. I think the important money that we spend a lot is on people because these are the ones who are doing hardcore R&D.
This R&D that we are talking about is something that our competitors have been doing for the last 50 years. So, if we have to match with them, we have to be highly agile and very fast to reach what they have done or rather exceed to what they are doing right now. So, we invest a good amount into R&D and that includes the equipment and machinery, research facility that is really required to build world class products.
We do face a lot of challenges. The typical issue with the Indian businesses is that people expect a credit on any transaction you have this is my request to the CFOs sitting here, that if you can change this tendency of asking credit, I think we can add a couple of percentages into our GDP.
"From the regulated business perspective, it is the best thing that can happen to any industry because it allows you to grow within the boundary of the law, disallows any bad actors into the game and it gives more freedom to access money and talent"
- Ashish Goyal
Q: A lot of disruption is happening in India telecom, mobile, everyone has internet the world has started looking at India as a market. What is your market from a geographical point of view?
ASHISH: On the market size, currently, our market is India and there is a large opportunity out here. If you see on the financial literacy and financial penetration, it is barely anything. If you go and check any markets, they are 10-20 times bigger than us compared to what we are today. There aren’t any doubts that there is a large opportunity out here in any field you choose. For us, at this point in time, we keep India as our core focus, but of course, ambition always remains global. As we grow, we want to go global at this point in time, for the next five years, maybe India is the market where we want to serve. There are large parts of our population that is coming into the job market, the young demographic dividend is coming back into the system. There is an immense amount of job opportunities offering in the job market, as well as in the startup ecosystem.
How do youngsters look at startups? I sometimes think that I should have started my company much earlier than waiting for so long. The one change which has happened in India is especially in the psyche of the people earlier, if businesses used to fail, people used to write off on the personal failure of that person. Today, it is getting celebrated we see people hiring the ex-founders. We ourselves have hired two people who had started their won company and were not able to raise funds due to various reasons. But there is a tremendous amount of change in how people look at entrepreneurs who have failed. I think that is the biggest change, which will lead to many people leaving their jobs and getting into the startup system.
Even today many startups start as bootstraps, which is a great thing. But, in the last few years after Flipkart and Ola’s success, there is a good amount of interest. Ten years back there were hardly any VCs or angel networks in India who were ready to give money. Today, in every city there is an angel network. There is an expectation that there is talent that can deliver.
For example, I know a person who has created a software that allows him to remotely, from his mobile phone, switch of the water machine installed in his field, from three kilometres away. Then he realised that in India the smartphone penetration is not so high, so he created an SMS based protocol to operate the same function, which allows one to switch off the water machine by sending an SMS. So, there are just too many opportunities available in India, wither it is finance, IoT or agriculture and many more.
"What is very important is, if you could have certain guiding principles in the team and if they are able to make decisions in your absence, in the way that you would have taken, I think you have built in a culture"
- Ashvani Shukla
Ashvani ShuklaASHVANI: If I talk about the product that I operate in and the products that we have for us, there is like a two billion dollars market in India. In most cases the product that we have nobody else is making in India. But, there is a peculiar challenge with the Indian market if you go to China, the Chinese would like to buy products made in China. Japanese would give preference to products manufactured in Japan, and the same goes with Germany and a lot of European countries. In India, the story is slightly reversed if it is foreign made, very good. Secondly, in India they will look at the price obviously, it is a very important point and that’s what works in our favour. These are the challenges faced by product companies in India. People look suspiciously at the products that are made in India. But, the trend is that people are doing exceedingly well in terms of research and development and the products that they are coming up with.
The second part is, in India, a lot of companies are looking at India as a market and we are not able to scale it up beyond India. I think that’s one of the issues that we have. For us, our plan is that first, we are going to prove ourselves in India as the number one player, which we have. The second, is to go global. When we say, yes, our product is better, it’s already proven as customers have validated that. Scaling up to the global level is really very important and that’s what we are doing as a company. Honestly, the Made in India tag is still not looked at well enough at a global stage and that’s where effort is required. One of the reason is that we somehow do not give quality the first priority. In our case more so it is changed forcefully because we have to follow international standards because we have no shortcuts to that. So, building good quality products is one thing that is very important.
Q: You both are from regulated industries. What is your experience?
ASHISH: We are regulated by RBI and in India, it is one of the most progressive regulators and they are quite proactive in the way they work. Today, we of course face regulatory challenges, which comes with the businesses and it’s nothing new. It is more about challenges that come from the taxes side myriads of taxes which is still very complex. From the regulated business perspective, I think it is the best thing that can happen to any industry because it allows you to grow within the boundary of the law. It disallows any bad actors into the game and it gives more freedom to access money and talent.
ASHVANI: The regulation is very important, it tells you that this much standard is what you have to meet at least so it pushes you towards that. For example, in the industry that we operate in, anything that goes into the aircraft there is a certification that is required from a DRDO lab. They would go through every bits and piece of your code, to see that whether you have written the code correctly. Obviously, that level of scrutiny never happens in any other industry. So, it actually helps you to build the best of the systems. It takes lot of time and lot of resources, but then regulations help you a lot. The challenge that we face typically is there are a lot of regulatory bodies and I think the exception is may be RBI, but our regulatory bodies are not updated of what’s happening in the world. They should be updated as technology is changing and as the markets are changing. Things are changing but the pace has to be better.
Q: What is the biggest mistake you did in the last three years?
ASHISH: When I quit my job and started my company, one person told me that you are coming from an industry where if something goes wrong there will be an issue. But now you are going into the space where if everything is going right there will be an issue. If everything is going right, go back and check there has to be something wrong because most of the time we work with half information, we work with half people. That’s the journey and what we did at that point in time was what was possible with the kind of resources and the kind of environment we were in. One thing which I would do differently in the initial phases we decided to build everything in house because of the cost of buying any software. Maybe if I need to go back and change maybe I would buy that software because my core IP is how do I interact with my customer and how do I provide more services to the customer, than building a backend software. That is something in hindsight, maybe we had done differently.
ASHVANI: In a startup journey every next decision can be a mistake. One of the things that I now realise is that we were focusing on a certain product and the industry trend we were thinking at that time, it was going up, but it was actually going down. Obviously, we were looking at market data in terms of customers, but we were getting all the wrong information. You have to realise that if your decisions are based on the information and if you are getting the wrong information, your decision is going to be wrong. That is one learning we had, that we shouldn’t rely on one industry and make a decision on certain data.
Q: What’s the role of culture in the organisation?
ASHISH: Culture is the most critical factor in any organisation. There is a saying, "Culture eats strategy for breakfast" and I think that’s true. Culture takes a lot of time to build, it's invisible and you don’t even know what kind of culture you are building. And what culture you build at the top is different from what is getting built at the bottom. There are no doubts that the culture is the most critical piece what you stand for, how do you make decisions at tough times, how do you keep the transparency, how do you take care of your employees and customers, how much you are talking to the customers, what kind of information you are passing, all these is related to the organisation culture. How do juniors in the team feel about the company? If he/she feels that this is his company, then it is a culture and if he feels that I can come at 9 am and leave at 5 pm, then it is culture. If you build the right culture you don’t need to tell, they work and deliver whatever is needed.
ASHVANI: For an organisation, nobody would deny the importance of culture. In our case, for example, our projects have patriotic flavour, I did not have much of a challenge while building culture. But, what is very important is, if you could have certain guiding principles in the team and if they are able to make decisions in your absence, in the way that you would have taken, I think you have built in a culture. That’s what we constantly try to do. So, it’s based on integrity, the quality of the product, customer friendliness all these aspects you have to build in each and every person. Like we try and build a culture that the customer is first without customers employees are not there. So, everybody in the organisation has to know that customer is extremely important. Second, the most important people are the employees and not the investors. So, if you then keep employees happy, you give them reasons to grow, you care for them and give them a feeling of family more than a business organisation because businesses are run for profit and families are not run for profit. So, if the motivation is running as a family running for something, I think then you have built a good culture.
GIRISH CHANDRA"We implemented a framework called 'OLIVZ', wherein 'O' stands for the owner. So, everybody is an owner, acts like an owner, is empowered like an owner, makes decisions, takes care of their own project & assignment"
- Girish Chandra
GIRISH: What we did is we implemented a framework that we live every day, which we call 'OLIVZ', wherein 'O' stands for the owner. So, everybody is an owner, acts like an owner, is empowered like an owner, makes decisions, takes care of their own project and assignment. Then, ‘L’ stands for learning, so there is a continuous learning mechanism that is instituted and there are funds and budgets allocated at an individual level. Then, ‘I’ stands for innovation, we have innovations cells and we have invested in some products, we incubate. Then ‘V’ is value creation, ‘Z’ is a zest for life, that’s the name of the company “e-Zest” is actually electron, which is the highest charged particle and Zest is a zest for life.