A discussion with a newly turned entrepreneur friend regarding the opportunities in India got me thinking. She was convinced that it was impossible to compete with the Reliance’s & TATA’s in a mass market and it was best to focus on niche markets which had plenty of opportunities. Though I do agree with her, I don’t believe the story ends there. I believe that going for a niche market is a great innovative strategy to enter a market. From there you can innovate to capture a larger market. So here is my take on innovation:
Innovation:
Innovation happens in two ways:
1. Innovation in:
a) Product: For eg. iPad, is a product which nobody had a requirement, but was innovative & hugely successful.
b) Service: Ebay is a great example of service. Connecting small sellers to their customers directly with no limitation of location.
d) Delivery: Zara is a great example of innovation in delivery. What they have essentially done, is reduce the design to market time from a year to a few months. They don’t have the greatest designs, but what they do have is a great supply chain network to innovate and supply as per immediate customer tastes.
e) Customer acquisition: Hotmail: By letting recipients of hotmails mails open a free account, they acquired customers virally.
Facebook got users to spread the word about the product.
2. Serving a niche market which nobody else wants to serve: In 1994, amazon went about selling books online at a loss in order gain customers. As the number of users online then were miniscule, none of the larger book publishers found it either profitable, worth their while or able to allocate resources.
By providing better pricing & service, amazon was able to convert brick & mortar customers to online buyers.
Where we stand:
I keep hearing that custom t-shirts are a niche space & our challenges would be of scaling, differentiation & customer acquisition.
However, having firmly focussed on innovation & organic growth, I see things differently. I believe that any business involved in food, shelter or clothing will not find it very difficult in finding customers. From that base it is upto to you innovate into a larger market. It is only where challenges exist that innovation is possible. This is how we innovated:
Acquisition or marketing could be defined under 3 categories.
a) Strategic: Strategies are long term. Strategies show steady organic growth and are sustainable. Our SEO strategies were put in place from inception. After 3 years they now give us around 1500 visitors a day. We have tripled our organic visitors through search every year. Once India shows a positive conversion ratio, we shall include an SEM strategy. Strategies create clear differentiation and increase the barrier to entry. We have also innovated by focussing an underserved segment of customers wanting a small number of custom products like groups etc by using technology.
b) Tactical: Tactics are short term but effective methods in customer acquisition & marketing. Our partnerships with events & brands like Sunburn, Delhi Half Marathon are tactical. The reason being, partnerships in essence are not permanent. Interests remain permanent, partners do not.
c) Marketing gimmicks: Ecommerce companies using discounts to acquire customers is a marketing gimmick. This is especially true if all companies use the same method. The number of users online in India are not sufficient for this to be an effective strategy or tactic. A similar example of this would be the US companies in late 90’s which invested heavily in laying cables connecting continents anticipating growth in online users. They were a bit premature and most went bust only for others to pick them up for pennies.
To put things in perspective, one of the largest online platforms for lifestyle products, Myntra, had total revenues of 210 crores & generated a loss of 136 crores last year. It would require serious innovation to reduce this gap to even break even. At the very same time, a single lifestyle offline brand, US Polo, has a market cap in excess of 250 crores.The point here is that the potential market size, which is the number of users unexposed to ecommerce are far too high to expend such huge marketing budgets at the current moment. It would be much wiser to do this ad spend when e commerce usage is closer to the tipping point.
Do we have a chance?
Does a Myntra, with total sales of 200+ crores, have the ability to compete against a Reliance, with a market cap of 300,000 crores and a massive offline retail presence, whenever they decide to enter the market?. Who will be better able to withstand a discounting strategy longer?
History has time & again shown that moments of great uncertainty in the economy are the best opportunities for entrepreneurship. When larger, slow moving corporates are reducing marketing spends, agile startups have the opportunity to innovate & capture an underserved market quickly.
So, the longevity of any start up would depend on if they have the innovation DNA & the ability to continue innovating to expand their market. What google has been able to do well is continue innovating and expanding their services to emails, mobile operating systems etc. They have continuously worked at never getting into a large monolithic mindset which would be spell doom for innovation.
An innovative Indian company would be Reliance. Initially, they took advantage of the need for polyester fabrics & continued innovating to extend their reach to various other sectors like petrochemical, telecom etc. Did Dhirubhai foresee when he started that he achieve all this?. unlikely. However, at every opportunity he innovated to take advantage of the existing situation to extend his presence.
In time, we too will have the opportunity to extend & expand to become an apparel brand. Question is, will we firstly, spot that opportunity and more importantly be innovative enough to take advantage of it! Time will tell..
