Author: Avishek Gupta

I help drive sustainable development by financing the growth of professionally managed entrepreneurial ventures that solve key social and environmental problems. Having financed and observed over 250 ventures from close quarters, I understand the challenges that such ventures face in scaling up. I have the knowledge of process, financing and technology solutions that can help overcome those challenges. Separately, I have the experience of building businesses that finance early/growth stage companies. Most recently, I was involved with growing Caspian Debt to a full-fledged operating company from an initial 3 member fund investments team.

The approach to the “marketplace” business model

Jason is back with another great post on market place business model. By marketplace, he refers to a platform which connects buyers and sellers who find it difficult to connect.

A few insights distilled from his post: (I must say that the full post is a MUST Read. This summary here, is not the best!)

  • The biggest problem for this kind of business is which side’s problem do you solve first? At the beginning, neither the seller or the buyer would come to you! Jason suggests, tackle the seller side first. Create the right proposition for the seller. It is easier to convince the seller to sell through you because it would anyways increase their sales. This would help you in creating an inventory, so that the buyer knows you have inventory and returns.
  • Do not automate right from the beginning. Wait for some time and find out the right things to automate. Or else, a lot of money might be wasted in automating something which may turn  out to be a wrong approach.
  • In order to get people to your site, SEO and google ads is passe, use a novel strategy like writing a useful guide or something that the chance visitor would bookmark/twitter/FB because it is genuinely useful. This would start getting eyeballs for your website!

Given the fact that my colleagues are fighting with a similar business model in different sectors. I am forced to wonder:

  • How would a platform that connects rural homestays to tourists start? What could be their “novel strategy” as mentioned by Jason? What could get more eyeballs to their website?
  • What would be novel strategy for the marketplace which connects buyers and rural artisans?
  • What would be the novel strategy for the marketplace solution which connects rural distributors of energy saving stoves with manufacturers of energy saving stoves?

Economics of Happiness

US Federal Reserve Chairman Ben Bernanke talked about the Economics of Happiness in a commencement speech at the University of South Carolina on 8th May, 2010.

A few takeaways:

He moves away from the materialistic reasons of happiness as proposed by many economists and suggests the following as things that lead to happiness (off course in addition to materialistic gains):

1.) spending time with friends and family,

2.)getting engrossed in the “activity” you are involved with,

3.)recognising the fact that everything in life can not be under our control.

4.) Remember all the good that happened with you!

He also tries to answer the age old question that we often ask ” Are the people in the poorer countries less happy?” or ” Are the people in the villages less happy than the city people?”

He says that what matters is the relative possession of wealth. So he says,”If I live in a country in which most people have only one cow, and I have three cows, then I will have lots of social status and self-esteem and will thus feel happy. But if everyone around me has a luxury car, and I am hung up on status, I won’t feel very special unless I have both a luxury car and an SUV.”

He ends it off by saying something very interesting “happiness is nature’s way of telling us we are doing the right thing. True. But, by the same token, ephemeral feelings of happiness are not always reliable indicators we are on the right path. Ultimately, life satisfaction requires more than just happiness. Sometimes, difficult choices can open the doors to future opportunities, and the short-run pain can be worth the long-run gain.”

Perhaps, an effort to draw our attention to the fact that the desire to gain immediate proseperity through financial jugglery has led to a fatal crisis for all of us today. He seems to be telling us that it is prudent to postopne immediate happiness for “life satisfaction”!

Read the whole speech here.

No plan survives first touch with customers

  • The last word on startup success.
  • Why writing business plans is NOT done first. It is something different that needs to be developed first and that is – a business model.  A summary of the lessons learned is given below (copied from the original blog of Steve Blank HERE):
  • A startup is an organization formed to search for a repeatable and scalable business model.
  • There are no facts inside your building, so get outside and get some.
  • Draw and test the Business Model first, the Business Plan then follows.
  • Few if any investors read your business plan to see if they’re interested in your business
  • They’re a lot more interested in what you learned

Here is another article on the Financial Times (Read FT Article **). The article discusses the act of pivoting in a startup which refers to making minor changes in the original idea of a business rather than going for a completely new business altogether. It points out that though entrepreneurs start with an idea that looks perfect, it is the feedback from the customer that first triggers a pivot. The more successful you are in pivoting, better are the chances of your startup doing well. The article also discusses how along with many others Facebook and Twitter pivoted and then created history. I guess my previous article on Starbucks (Starbucked)also referred to the same without using the term pivot. I mentioned there that Starbucks didn’t start as a food service concept. Their idea was to sell coffee so that people could make it at home!

One interesting quote from Mark Suster in the FT article:

“Every entrepreneur starts with an idea that they believe makes sense. But then your customers start using your products, your competitors come out with new offerings and your partners decide to launch a similar product rather than working with you. You’re forced to pivot on a regular basis.”

For more from Mark, I suggest you follow his blog which is a must read for any entrepreneur. It talks more than just about pivoting!

** You will need to register for the FT article. Don’t worry, there is a free registration that allows you to see upto 10 articles a month. Trust me, it is a good idea to register free for that! Better still if you can go for a premium membership.

10 questions you should always ask once a month

Though the original blog article is meant for entrepreneurs (read here), I believe that a few of the questions would apply to you if you are a manager as well. (Of course, only IF your organisation gives you the liberty to take decisions and implement initiatives. 🙂 ) I have split it up into two parts. The first set applies better to the “managers” but the entrepreneurs would have the tougher job of answering both the sets! 😛

Set One:

  • In one sentence, what does your product do and who buys it?
  • In one sentence, why does someone buy your product?
  • What one thing is most responsible for preventing sales?
  • What’s one thing you could do to get more feedback from customers, potential customers, or sales you’ve lost?
  • If you were forced to hire someone today, how would you define her job such that she would contribute enough revenue to cover her expense?
  • What initiatives could be done half-assed without significant impact?
  • If you could get one solid hour of advice from a guru you respect, what would you discuss and what would be the goal of the meeting?

Set Two:

  • If you had zero revenue from now on, on what date would you run out of money?
  • If someone handed you $100,000 today, how would you spend it to maximize future profits?
  • Which of your business operations do you hate?

These are a brilliant set of questions which brings clarity of thought and clarity of thought is something which is at a great risk always when you are dealing with a highly fluid situation like building a new organisation or spearheading a new product launch.

DNE Blog: Insights from the Livestock Roundtable

Last week, the Centre for Insurance and Risk Management, IFMR, convened a roundtable on Livestock risk that was attended by all the major stakeholders to talk about the various issues and challenges faced by them in bringing effective risk management solutions to livestock owners. The participants involved all the major insurance companies, NGO like PRADAN, apex institutions like NABARD and NDDB, co-operatives like Amul and DRDA, MFI like SKS Microfinance and international organizations like World Bank, ILO and ILRI among others.

Here are the key highlights of the discussions at the roundtable:

  • Lack of dependable information on insured livestock
  • Highly specialized service providers catering to a limited range of services
  • Limited bandwidth of MFIs to offer livestock registration/healthcare services to its clients
  • Difficulty in uniquely identifying livestock and complications in the process
  • Need to build awareness on terms and conditions of the insurance coverage and benefits of livestock insurance
  • Need to evolve models based on community involvement or TPA

Read the details of the event and the insights of DNE at the DNE section of the IFMR Blog .

Milk Quality Testing and Payments

There are different “states” through which a milk collection activity in a cluster move. Each state depends on factors like location of the cluster, volume of milk produced and competition amongst milk buyers.

At the very outset, we will make it clear that according to DNE, quality based payments for milk wherein each farmer gets paid exactly according to the quality of milk poured by him is the best situation that we can have and that is something that DNE hopes to achieve through its interventions.

Before we go further we would also like to clarify that by quality we mean the nature of chemical composition and extent of microbial content in milk. For a dairy processing unit which converts raw milk into various dairy products, what matters is the solids content in the milk. If we go deeper, the solids in milk consists of fat, proteins, lactose,minerals. Depending on the product manufactured in the dairy plant, the milk may be valued at a higher price if it has a higher content of one of these components. However,the most common method of quality based payment is on the basis of the total solids content in milk. This is the easiest to find out and it requires a simple lactometer dip.( Lactometers measure the specific gravity of milk and hence the solids content.)In slightly better cases, milk is paid on the basis of fat.

The different forms of payment that the farmers get are:

Volume Based:

This method is normally followed in case where the farmer sells milk to a milk vendor/agent or sells it to households directly. S/he may bargain for a better price just on the basis of the perceived “thickness” of the milk.
More volume you pour more money you get.
Why is this good: No hassles of measurement. No investment required to collect milk or keep track of the payments to be made.
Why is this bad:The farmer has no incentive to produce good quality milk. S/he adds water.Entire dairy supply chain suffers.

Entry of an “organised” player into an area for milk collection does NOT guarantee “right” price for milk. There are multiple systems under which the organised players collect milk.

They may let a milk agent collect milk for them.

Quality Based:

Normally followed by the organised sector or to some extent by milk agents in case of competition.

Why is this good: Farmers have incentive to pour better quality of milk, the rest of the supply chain gets benefitted immensely.

Why this is bad: Requires different level of complexity and investments to implement.

Different “versions” of quality based payments

  • The milk buyer may collect milk from farmers and NOT measure the quality of individual sample separately and pay all the farmers in a cluster according to the quality of the bulk sample of all the milk poured in that cluster. The farmer gets paid as per the volume of milk poured and as per the quality of milk poured by the entire village.
  • The milk may be collected from farmers and the TS content measured for each farmer separately. The farmers are then paid according to the TS content for each farmer. The equipment required at the village level is a simple lactometer and a measuring cylinder.Cost Rs.200 (approx).
  • Milk may be collected from farmers and individual samples taken for milk poured by each farmer. The samples may then be taken to the nearest chilling unit/dairy plant to measure the fat and Solids Not Fat content of milk. The equipment required at the village level is a sample bottle tray, a lactometer and measuring cylinder. Cost Rs.1500 (approx)
  • Each milk sample is not tested daily. It is randomly tested and each farmer gets payment based on the quality of the milk that gets tested once in a week/fortnight/month.
  • Milk is collected and tested at the village level for fat and TS. the testing of milk may be done using a manual system where all samples will not be tested everyday. The equipment cost would be about Rs.5000-6000.The farmer gets paid according to the quality with the fat being tested once in a two days/week.
  • The testing of milk may be done using an electronic equipment. The total setup would cost about Rs.30000-60000. This would enable payment as per fat and SNF for each sample of milk poured.Farmer gets paid for every sample of milk that s/he pours differently based on quality.
  • There is an automated milk testing setup available which would enable creation of records of payment automatically through a computerised system. The setup costs Rs.80,000-1,20,000.

In other countries, the microbial load of milk is also judged for payment. In some cases (cheese plants), the protein content of the milk is considered for payments.