Human Resource: Could be a complete drain on resources

One out of the three first employees that I recruited, turned out to be a rogue! He forged reimbursement bills, made issues about the work that he was supposed to do, tried to “poison” other team members. The fact that we are start-up, complicated things a bit more for us. I was ready to take his fussy attitude in my stride because these three people were amongst the first few in the entire history of their college to join a private sector job. Understandably, the change in attitude required would take some time. They were freshers.

Well, frankly speaking that reasoning is just a superficial reasoning. The real reason is that these youngsters have an academic qualification which is a basic legal requirement for our work and they were in short supply! The Govt seemed to offer jobs to all of them and let them have a job where pay was guaranteed but without any serious expectation of work!

It had taken us about 6 months to locate people, with the required academic qualification, who could be ready to join a non-Govt job! Once they did join, I was ready to treat them like kings. We had a great business model to operationalise and it was necessary that they  co-operate.

However, within no time I found out that this candidate was more than fussy. Much against the “rules” of a startup, I continued to “tolerate” this person for close to about a month. Incidentally, other than the difficulty of finding another replacement, the worry was that if he is chucked out, the academic institution will see my organisation as a  perfect example of the big bad private sector where people are chucked out at will and that would have killed the organisation because of the basic requirement of the academic qualification. Moreover, since our work was in the rural areas, students from one state could not be placed into another state due to language issues.

I started hoping that he leaves on his own. But when?

After a month of his being with us, he seemed to have been offered a job at another “private” organisation and at double the salary. It was a ridiculous amount. I somehow remebered those times when he was bothered about even the smallest of components in his salary. I had initially taken them as the widely held apprehensions in India about the “private” sector but later I realised that it is slightly more.

Anyhow, he decided to leave but not before claiming that a senior consultant, who was working with us, knew nothing. Moreover, he had rudely spoke to our HR person. Interestingly the consultant had had operational experience of 25 years including the top job at a semi-govt organisation and the HR person was possibly was one of the friendliest sort that I have ever seen.

The story does not end here because one of my worst fears became a reality 15 days later. More about that in the next post.

Learning: If your gut feel says that somebody is a bad guy, in all possibility he IS a bad guy.  Addendum to this learning in the next post.

“The world ain’t all sunshine and rainbows”

Possibly the best motivational speech in the history of cinema: Courtesy – Rocky Balboa.

The world ain’t all sunshine and rainbows. It’s a very mean and nasty place and I don’t care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t about how hard ya hit. It’s about how hard you can get it and keep moving forward. How much you can take and keep moving forward. That’s how winning is done! Now if you know what you’re worth then go out and get what you’re worth. But ya gotta be willing to take the hits, and not pointing fingers saying you ain’t where you wanna be because of him, or her, or anybody!

How can venture capital accelarate growth of SMEs?

Lately, there has been a lot of excitement about a bunch of new initiatives across the world which aims at tackling issues of poverty with the help of market-based solutions. The entrepreneurs embarking upon such initiatives are popularly called social entrepreneurs. Their intention is to find ways of improving affordable access to products and services for people who have historically found it difficult to have access to them either because they reside at some remote location or just because the cost of making the product or service available to them is too high for them to afford themselves.

In most cases, the social entrepreneurs are people who are well-educated, well-connected, and sometimes tech-savvy. These are people who are known as those who are not focused entirely around increasing their own wealth but have a passion to have a positive impact in the lives of other people. A bunch of social investment funds are focusing on these highly talented, well-intentioned people and making sure that they are not deprived of any financial support which they might require to achieve their aim. In fact, the social investors are even fine with a lower rate of return because they consider social impact more important than financial returns. There are no two opinions about the fact that we need more such well-intentioned entrepreneurs and investors.

However, two questions arise at this juncture, how many people in this world do not have access to the products or services that we are talking about? The answer is innumerable! And, how many social entrepreneurs or social investment funds will this world be able to create? The answer, unfortunately, is a handful.

Interestingly, at the same time, there are millions and millions of less educated, less resourceful people who are natural residents of a place, who try to earn a living out of producing or selling possibly the same kind of products/services that the social entrepreneurs intends to bring to the people of his/her community. Let us call him/her the desi-entrepreneur. The desi-entrepreneur’s life is dependent on being able to able to produce and supply these products and services. However, the difference is that this less resourceful desi-entrepreneur either does not have know-how, the sophisticated technology, the business linkages or the training which the social entrepreneur possesses. In fact, the biggest pain point is that even if he knows where the technology and the linkages exist, he does not have the money to invest in capacities or meet his working capital requirements just because the local financial institutions (LFI) think that his “enterprise” is highly risky. This means that this desi-entrepreneur continues to perform at sub-optimal levels, the products and services that he delivers are either not of very good quality or not available at an affordable price. This results in situation that the people in his community do not have access to them or what he produces does not give him adequate returns to support his living.

Interestingly, if he could have access to finance from the LFI, he could possibly have the same positive impact on the lives of the people in his community without having required any social entrepreneur to come in.

A very simple theoretical solution is to have the social venture capital investors invest directly in these so called desi-entrepreneurs! And that is where the problem begins.

The amount of money required to fund all such desi-entrepreneurs is huge and unfortunately there is a limit to the amount of social investor money that the world has! Moreover, these entrepreneurs are too scattered and the size of investment in each enterprise is too small to justify a team to professionals in the social investment fund to do due diligence and make equity investments in them. The volume of work required simply complicates the whole picture. LFIs are however located geographically closer to these enterprises and are better suited to assess and finance them. However, given that equity is certainly not a business of the banks or the LFI, the perceived level of risk of the desi-enterprise is too high and hence the LFI ends up not lending to them at all.

The source of the risk in most cases are as discussed above, uncertainty of supply and price of raw material, lack of advanced skills and lack of affordable access to advanced technology necessary for enterprise viability, with all of this leading to an uncertainty of demand owing to the uncertainty of prices for products or service offered by the enterprise.

Incidentally, if we categorise the enterprises into sectors, we would realise that there are a few key missing links specific to a sector that contribute to the risks for most enterprises in that particular sector. If a solution is devised to address one or two such key risks per sector and such a solution is made available to the all the enterprises in that sector, we may end up unlocking growth potential of hundreds and thousands of enterprises by making them less risky and thus making them attractive for the local financial institution to directly provide debt financing.

For example, a rural tourism company that aggregates and distributes information about rural home stays, provides a payment gateway to potential travellers via an online web platform and provides accreditation facility to the home stays, can provide a steady base of travellers to qualified properties and ensure their revenue certainty. Once this happens, the ability of the home stay owner (desi-enterprise) to leverage debt goes up for every single rural home stay in the country.

An equity investment into one rural tourism supply chain company can thus potentially unlock growth of millions of rural home stay properties, agents and other members of the rural tourism supply chain.

[Disclaimer: This line of thinking is borne out of the work that I did in the past but the views are personal. ]

How to “serve the BoP”?

I have come to a few conclusions based on three years of my personal experience of building businesses for the last mile remote rural customer. The segment that I have been looking at is similar in a lot of ways to the segment referred to as BoP in popular development literature. I, do, however, feel that the term BoP business model is a misnomer because I am increasingly being made to believe out of my experience that such business models do not exist. Even if they do, they are not sustainable. That might be a big statement given the new found belief across circles about the viability of BoP of business models. My experience is limited to a few states in India and limited to the following supply chains like dairy, clean energy, rural tourism, agri, drinking water, etc.

Here are my “learnings”:

1.)I think that instead of segmenting customers into BoP and non-BoP, it is much more useful for companies (those companies who want to reach out to the excluded categories) to segment the customer base in terms of a.)who can be reached easily and b.)who can NOT be reached easily. This is what I call the distribution channel lens of segmenting.

For eg:In a remote rural location there might be both a BoP/low income household as well as a slightly well off household. Similarly so in urban locations. If we design  business to serve only the low income household in remote rural locations I doubt if the business can ever be viable. (I will be very happy to be proved wrong.) In other words, I think the business models should be designed in such a way that “Access” is provided to both the low income as well as the high income customers in a particular geographical area. This, according to me, makes more sense in terms of distribution channels AND company viability.

2.) Good intentions ONLY are not sufficient for designing business models. My personal experience with the dairy healthcare backed on the spot cattle insurance product told me that though we assumed that there is a need for the product and that the customers were ready for it, we realised that the ground situation was quite different. No doubt, there is a need for the product but the inertia against a paid service when a free service is available (no matter how bad that quality is)is so huge that it is difficult to ensure that customers pay to buy some product or services. I had a similar experience with smokeless stoves. I think the solution to this type of problem requires a more involved approach which I discussed in an earlier post.

I think any model looking at reaching out to the excluded groups (or BoP) has to involve iterations to come to a final product based on “extreme” customer understanding. Lot of work is needed there. Anybody who says that “BoP” businesses can be low touch is not talking about the BoP market at all.

3.) The distribution channels has to have a very local nature and in all possibility they can not be owned by ONE “company”. They would essentially be multi product channels but similar products flowing through a particular channel. Eg: White goods/capital goods like stoves may pass through a different distribution channel and fast moving goods has to flow through a completely different channel. The channels have to ensure that the last mile customer facing people are a part of the local community AND they are well conversant with the product/service features AND are capable of basic troubleshooting. This most certainly requires a lot of standardised training. Again, a reason why I said these efforts would be high touch. (You might ask, who takes the initiative to build these localised channels? My answer is professional NGOs. They can use some of their “low cost or no cost” money to make an angel investment in the local “distribution companies”)

4.) A big reason why products do not reach the last mile is because there is no one to fund the inventory! Something has to be worked out at the small town levels or the cluster levels to ensure that banks/financial institutions lend to small distributors. I think the big companies should work with banks to promote financing of inventories and building ware-houses in the small sub-sub taluka towns. This will free up tremendous scale. The financing has to target small distributors and NOT purchasers or retailers as has been tried through some MFI and SHG backed models.

Now comes the difficult part. To make sure that the banks lend to small distributors in the small sub-sub taluka towns,the companies might need to give some kind of a guarantee to the banks to start with.  (And this is extremely difficult given the corruption ridden last mile banking system in our country. But I think the big companies should be able to manage this.)  My assumption also is that the companies will need to bear the cost of doing proper due dilligence in identifying their local area distributors. This is a one time cost. The local banks can then finance the inventory. This reduces the extent of monetary loss in case the distributor identified by one company is poached by another.

5.) There is a good reason to leverage public/Govt infrastructure or funding wherever available: We leveraged govt universities, facility centres, staff in our work. We identified what they were good at and left it to them. It saves a lot of money.

6.)There is no harm in starting with selling a product or service that gives good returns or working a high gross profit pricing model. This would help in ensuring that the business model is sustainable and can fund itself in future when you need to get into the lower margin products. Starting with a difficult aim of making the business sustainable with low margin product/service could end up killing the effort all together. Eg: when you are looking at building a procurement network you might as well start off with a cash crop that gives higher margin, rather than a food crop. You can then start with other types of crops. We had started with castor in our work. It helped!

I say again, instead of a BoP/ non-BoP segmentation, I think it is the distribution channel lens that is a better way of segmenting customers. Given the fact that the unit margins in serving the BoP segment of customers is thin, it is necessary to have huge scale and huge scale is possible only if the distribution model is robust, sustainable and adequately financed.

What do you think?

Do they “need” us?

A friend, who is doing some great work in the space of delivering quality healthcare to remote rural customers, narrated a story of how she went to meet an old lady whose medical tests revealed that she had a high risk of cardiovascular disease but when suggested regular monitoring and diet restrictions,the old lady said that she is doing absolutely fine and that  she does her daily chores without any problem!  Even her family thinks she is fine.

My friend asks, do they need our “help” at all? Who are we to them? Are we being forceful ? What is their purpose and what is ours? A good set of questions for all those “BoP enthusiasts”. (I admit I am not very impressed with the way in which the term BoP is used by most “experts” today.A clear urge to sound “cool”. For all that you can see, I avoid using the term BoP. But then, who cares if a minnow like me is not impressed?)

Ok, coming back to the topic. I face a similar situation. In the work that I do, we sell cattle insurance, purified drinking water, smoke free stoves, all of which, by all means have little or no felt need amongst our existing remote rural customers. If need for healthcare is not felt, it is obvious that the same people will not value any of the things we are selling.

I hav a very different analogy for this. Imagine the world before iPods. People were happy with normal MP3 players and could never believe that hearing experience could be better. Even if they knew that hearing experience could be better, they couldn’t justify spending the exhorbitant amount for ipod. They said, whatever quality the normal MP3 s offer, is good enough and that there isn’t any problem with that quality of listening.

Then some of the rich brats started purchasing iPods either because they appreciated better quality of  sound/design or because they wanted to be a part of the elite tribe that owned sleek,stylish and expensive ipods. Slowly, more and more people wanted to buy iPods and soon a lot of the “normal MP3 people” now wanted to buy the ipod! They were suddenly dissatisfied with the sound quality and clumy shapes of the normal mp3 players. After a while, iPods became the defacto music player for the great “discerning” middle class. The “normal MP3 people” have  now started seeing and appreciating the better quality of sound/design of the iPod.

I believe, the same route has to be followed for the things like cattle insurance, purified water, quality healthcare and smokeless stoves (and possibly even information). This means we have to use a sly marketing plan to first break in to the “territory of aceeptability” of those who can spend and then ensure that the “fad” becomes a normal way of life. I must point out here that, aside from the great marketing, iPods are inherently a great product. It has a great sound quality and a brilliantly done design. This means that there has to be an underlying benefit in what you are trying to provide. The product and service quality has to be brilliant if not flawless.

I know I sound like a dirty capitalist (and it might be too simplistic to compare healthcare to iPods) but some where back of the mind I know that the stuff that I want them to purchase (healthcare, cattle insurance, purified drinking water, smokeless stoves) has some underlying benefit which would positively affect lives. Customer “education” as a way of “changing” habits and adopting better products/practices has proven to be expensive and fairly unsuccessful. We have to be sly. Not emotional. Anybody is free to argue against what I say. Opinions invited.

Off course, I do not want a moral debate on what should be available for free and what the job of the state  (a la healthcare, primary education, market information)is to provide. Let us get real and accept the fact that the state run machinery has not been able to do a good job of making these available. However, you are free to question whether  better risk mitigants like healthcare, purified water, smoke-less stoves and better risk transfer mechanisms insurance are needed at all!

Would you pay for “Information”?

The biggest problem plaguing rural supply chains is lack of information and/or information assymetry. However, owing to the developments in technology in recent years, it is now possible to reach out to the remote rural locations and make such information available at a fraction of a cost than what was possible in the past. The Govt. has tried several measures to reach out to the remote rural locations through pamplets, radio and now television to provide the information for free. However, the fact that there is a huge difference between the prices of vegetables leaving the villages and the prices of vegetables reaching the urban consumers’ table indicates that there is a certain case of lack of information (on how to sort vegetables, how to grow vegetables which spoil a little slower) or information assymetry (demand for the vegetable on a particular day).

 It is obvious that availability of such information with the rural entrepreneurs/rural masses enables them to improve the way in which they run their business/ take care of basic needs (like education, health). It is also true that technology has improved and penetrated to a great extent and permits the development of  a platform that can deliver information at a very low cost.

The hitch here is two fold: 1.) Would people be interested in paying for the information?

2.) Do they have the money to pay for the information?

When it comes to businesses or life saving information, the second question is not important. Off course, there is a need to share information for free (something like where is the nearest shelter in a floodhit area) but in cases where you get to know a better agricultural practice which can be implemented at almost no additional cost, would there be people who would pay for it?

The “sale” of information on better methods of crop production, crop prices, better dairy management, etc is something that a lot of people have considered with the use of technology but only few have been able to monetize it.

Is it completely impossible to monetise information dissemination? Is giving infromation as a Value Add to existing product or service sales the only way? Should the channel partners delivering products/services to the rural masses finance the cost of delivering the information or should the rural masses (who make use of the information and services to increase returns) also pay for it? How do we make them pay?

You may find it interesting to go through a presentation on the use of ICT for Agricultural development, which lists out the various methods used to make information available to the farmers using technology.

Characterisitics of good franchisees

  • Methodically screened agents (Implies that a fair amount of trial and error has to be done to decide upon the best fit profile of a potential franchisee operator.)
  • Strict quality monitoring and follow-up training (Standardised and exhaustive training modules )
  • Uniform branding and product mix (Centrally experimented and released based on the learnings obtained by the franchisor on the effect of tweaks on different aspects of the product mix. Implies a lot of trial and error again.)
  • Effective promotions
  • Low cost of goods achieved through scale (This is crucial. In order to ensure the quality of the finished product, it is essential to ensure that the raw material that goes in is standardised and of the same quality. The only way this can be ensured is by offering the raw materials at the least price.)
  • Stiff penalties for violating the rules (including expulsion)

Niche in life

Wrote this sometime back for my friends but thought I should put it on the blog.

When I was a kid, I was not very good at games….frankly speaking, I never had the opportunity to play many games. The only game that I ever played was football. In fact, childhood Bengal was a football academy. From Kolkata’s maidaan to the the small muddy villages, it was football allover. From the wooden spikes to the naked feet, it was football allover. From the anklets to the crepe bandages wrapped with safety pins, it was football allover. From the twisted ankles to the badly swollen shin bones, it was football all over.

Every year the city and the towns (not the villages generally because the people in the villages wouldn’t normally have enough to drape themselves) would be draped in Green and Maroon(colours of Mohunbagan club) or Red and Yellow (colours of East Bengal club), every four years the city and towns would be draped in Blue and white (colour of Argentina) or Yellow (colour of Brazil). Practically everybody was a footballer! Even if somebody did not play, HE had something to say about the game. (Frankly speaking Bengalis play a very few of the “games” on which they have a strong view).  The HE is capitalised here to point out that Bengali women were completely missing from this area of having a view on football. The women grew up attending music or dance classes, learning how to cook and getting ready to become a good marriageable “package” right from childhood. Once they are married, they concentrate on controlling the lout who happened to spend time mostly outside the house solving away all strategic worldly affairs. This lout is the husband.

By the way, all that is history now. People do not discuss football and girls are not limited to the home. Its cricket and its Mamata Banerjee.

Anyways, I was digressing a bit too much. My point was “Practically everybody was a footballer!” so finding a place in the class team, college team was always difficult. Given my physique which was several times worse (read thinner) than what you see now, football was a difficult game for me. Well, that is what people thought when they would look at me to decide whether I could join the team or not. Certain answer was a no. I figured out a strategy to ensure I was in the team because I knew that once I was in team I would give my team ample reasons to continue having me in the team. The strategy was, I said I play in the wings (a winger sticks to the right or left flank of the ground during the game).Nobody wanted to play in the wings. Everybody wanted to be in the middle. Everybody wanted to be a midfielder, a forward! But, I said I would play in the left wing. Playing in the left wing meant you’ve got to be able to kick with your left foot. I was lucky to be able to kick with both my feet. So there I was, giving my team a proposition to play in a position where nobody would play! Normally amateur football happens in the middle with everybody chasing the ball around the middle, the flanks remained empty. There lied my opportunity. I took the ball right down from the bottom and went past the midfield upto the corner of the opponents side. Nobody stopped me because every player of the opponent was stuck in the middle of the field! By the time I reached the other end, the opponent players would rush from the middle towards me in the side to prevent me from scoring. Now the middle would get empty. I simply lobbed the ball and centered it in front of my forward who would wait in front of the goal, unmanned and then a smooth header or a slow nudge saw the goal!

I scored a goal only on rare occasions but I had to adpot this weird strategy to ensure I was in the team. To ensure that I could strategically be at a place where no one else wants to be and yet have a ball!! I enjoyed my game.