We are seeing growing discussion on the business models of new-age startups. How they are spending money without any plans to become operationally profitable? Some analysts are questioning the business models of these companies and wondering how these companies will survive once the flow of funds is stopped. These companies are coming under scrutiny from investors, media and pundits for their business models, customer acquisition strategy and the media spend.
However, this kind of scrutiny was never shown to the old age business in the same sectors in which these companies are operating. No one questioned the lack of innovation and customer focus in the old age business in India. This includes the public listed companies who failed badly in improving the offerings and developing new products, customer service and showed no intention to increase the customer base. I am not saying that the new age companies are following a right path, but they are here to do things in a new way, and certainly do not have the luxury of time with them to build the business slowly.
As we know almost 80-90% of these startups will fail, but those who will survive will change the face of the sectors in which they are operating and many of them have already changed the rules of the games.
Some key sectors in which we can see clearly the lack of innovation in all fronts lead to the sudden rise of startups
- Yellow Page: Justdial was launched in 1996 and went for an IPO in 2013. The company did a little to improve the product, even when they are seeing the increasing penetration of smartphones in India and launched a mobile app in September 2015. They never took note of the customer feedback about the vendors and the idea to check the quality. It was just making the old age yellow book more accessible by making it more accessible through call center agents.
This lack of focus on customer requirements and innovation lead to the rise of new age companies like UrbanClap, LocalOye, Zimmber, Taskbob and many more providing customers the ease of booking and helping in standardizing the pricing in certain areas. It would be great if the investors of Justdial raise few questions during the quarterly earnings release other than going through the financial numbers about the long-term product pipeline for Justdial.
- Economy Hotels: Shortage of hotel rooms and especially good economic hotel rooms was always been a problem for India. We have seen players like Tata entering in this area through Ginger hotels, but not been able to penetrate further due to the need of capital requirement. There was no standardization of hotel room amenities when it comes to cities expect for metros and unbranded hotels. New age startups like Oyo Rooms are solving this problem by using the existing inventory and investing in improving them instead of making fresh hotel rooms. Oyo still has to answer the questions about its long-term plans and sustainability, but they have done something which no one from the old age business thought of.
- App based Taxi: A lot is written about this segment already. The reason why customers moved swiftly to these app-based taxis from Meru and Kali Peeli is simply because of its convenience and price. Meru entered the market of radio taxi, and it was like a fresh breath in a country like India where booking taxi over the phone was just like a miracle in those days.
However, Meru failed in areas where customers wanted more convenience and that too on a cheaper price. Cab at 25-30/KM was always expensive and the company never thought of decreasing the price and increasing the user base. Apart from this, as the demand of cabs has increased, booking a Meru gradually become difficult for customers due to non -availability of cabs for short trips. Same was the case with Autos and Kali Peeli taxi. They took customers for granted from a long time and failed in moving toward improving the customer experience. Hence, as soon as Uber and Ola launched in India customers moved to them at a rapid pace.
- Organised Retailers: The biggest new age companies are in the online retail segment with the likes of Flipkart, Amazon, Snapdeal, ShopClues and many more. Organised retail in India took off in early 2000, with a great focus on opening new stores throughout the country. In the race of opening stores at a rapid pace, they failed in planning for long term and making the malls according to the footfall in future. As a result, most of our malls right now are in areas where there is too much traffic, limited parking space and the size of stores are not capable of handling the footfalls.
Long wait in front of changing rooms and billing counters is a normal scene in these malls. Above all, the big retailers like Shoppers Stop, Pantaloon, LifeStyle, etc. failed in providing the customer an omnichannel experience, where the customer can purchase online or select the product online and pay in store. This lack of apathy towards customer experience lead to a decline in footfall and customers moving towards online retailers especially in areas like electronics, clothing and footwear which are some of the categories with high penetration of organized retail. These old age companies just can’t run away by saying that it is the discount which is taking customers away from them, but it is the lack of long-term planning and focus on customer experience which will stop customers returning back to organised retailers when the discounts are over.
- Organized Grocery Stores: Grocery purchase through organised retailer was a good experience for customers initially, with the facility of moving through the store and picking products as you see them. But as the footfall increased, grocery shopping in stores like Big Bazar, etc. was much worse than shopping from a local kirana Long billing lines, stores filled with products, with limited space to move, apart from the usual infrastructure problems of parking and traffic outside these malls, makes grocery shopping an easy area for companies like Grofers, BigBasket and PepperTap to enter the market and start serving the customer who is already purchasing electronics, clothes and footwear online. The financial model of all these companies is yet to be evaluated, but again they entered in a space ignored by organised grocery stores.
- Food Delivery and Food Tech: Food delivery is one business where customers wait patiently after listening to the dialogue “ladka nikal gaya hai” from all the restaurants in India till the time they saw companies providing time bound delivery, online payment and tracking options for food delivery.
However, in this area, the intention of not adding cost to the existing business of running a restaurant prevented restaurant owners in investing in the food delivery infrastructure. This provided space for companies to fill the gap of improving the customer experience, and we have seen the rise of FoodPanda, Zomato order, Swiggy, etc. The lack of innovation in food offerings, flexibility of menu and prices, allowed companies to enter the food-tech segment where they opened the Food market to more independent individual entrepreneurs to provide more options to customers.
What led to such ignorance and lack of focus towards innovation and customer experience in the mindset of old age business? Funding cannot be the only reasons because if young first-time entrepreneurs between age 25-30 can raise funds from investors, I am sure the old age business could also have raised funds based on the experience and assets they had. Funding was not the problem it was the sheer ignorance of accepting technology, and using it to improve operations and customer experience was the main reason. I am not sure if the old age companies are now thinking in that direction or just waiting for the funds to dry up for the new age companies. But waiting will not bring the customers back to them as even if 10% of these new age companies survive they are not going to let the customers go away from them.
Are there any other sectors in which we see lazy companies? Yes, there are many and let me share few.
- Healthcare: With increasing income, the need for good healthcare facilities is going to increase. This is one sector where we see the situation similar to hotels in India. We are seeing companies opening new five-star hospitals to cater to the upper middle class and the medical tourism. Given the disastrous public healthcare system, we have in our country the demand for affordable and standardised hospitals throughout the country is required. The easy way to do is to use the existing stand-alone hospital throughout the country and upgrade them just like Oyo Rooms did for hotels. Oyo for hospitals is something which is required to provide accessible healthcare throughout India and opening only new big hospitals won’t totally solve the problem.
- Mobile Payments and Banking: Both public and private banks failed in bringing more people to open accounts till the time government took this on a mission mode through Jan Dhan Yojna. The next phase of financial inclusion is to allow people to use bank accounts for doing transactions. Payment bank license given to telecom operators and companies like Paytm will certainly have the advantage over the traditional banks in tying up more merchants and customers to make payments via mobile wallets. These companies can enroll merchants and incentivize customers to use mobile payments which is going to be much faster in speed, and also beat the traditional banks in the volume of mobile payment transactions.
- Women Centric Business: Women is the main decision maker in case of most of the purchases in India. But they never had access to retail in the past as compared to what they have now with the rise of online retail. Still there are areas like Saloons where the need for standardisation and comfort is not yet solved. We have already seen companies entering in the beauty on demand segment where they are providing beauty services at home like VanityCube, Belita and Vyomo, but the demand of service standardisation is still not fulfilled. This makes this area open for more innovations in coming days. Other such areas include jewelry, designer wear and luxury products.
- Agri-Tech: In the hype of innovation and technology improving the services sector, there is a lot to be done in the agriculture sector. With the increasing demand of quality products in grocery, fruits and vegetables a lot of focus is required in the agriculture segment. New methods of farming including urban farming, protected cultivation, contract farming, etc. are to be explored further in detail. This along with investment in moving technology towards farming is one area where lot of money and ideas are required.
In the end the new age, companies are solving problems neglected by the old players and after seeing the consumer adoption of ideas like online retail, app-based taxi bookings companies who are not thinking of innovation in their areas of operations should start devoting resources and time to improve customer experience and product development to stay relevant in coming years. I am sure we will see startups shutting shops in few years, but old age businesses are also not free from the threat of that.
Disclaimer: The views expressed are those of the author in his private capacity.