OfStartups

Author: ofstartups

  • Loss leader strategy

    amazon prime video is a great example of being loss leader in the OTT platform market with the intention to acquire more customers for amazon marketplace
    Amazon Prime Video is a great example of a loss leader in the OTT platform market with the intention of acquiring more customers for Amazon marketplace

    What is a loss leader strategy?

    Loss leader strategy is a business tactic in which companies sell a product at very cheap or free to attract a large number of customers or to cross-sell other high-margin products. This strategy is generally used by businesses to capture a new market or as a starting point to introduce their product ecosystems.

    For example, a grocery shop may keep the milk prices very low with hardly any profit margins. Milk is a daily used commodity purchased by everyone. The intention of keeping it at a low cost is that when a customer enters to buy milk in the shop, he would also be introduced to the other products which are placed inside and hence increase the chances of buying other products apart from milk as well. Often we tend to purchase things when seen in abundance, like in the grocery shop or a mall, that may or may not be used. This impulsive shopping and eventually building a loyal customer base is the main intention.

    Opportunities associated

    1. A new product can penetrate the market at a faster rate with a loss leader strategy. It gets the initial break-in momentum.
    2. An existing company can add more new customers along with its existing ones
    3. With cross-selling or up-selling other products that have high margins, a business has more opportunity to increase revenue.
    4. A company can get important customer data with a huge number of customers buying the product or service. This data can be used in a strategic way to favor ways to increase revenue and profits.
    5. Inventory-heavy businesses can clear up the excess inventory and outdated products
    6. A company can build a strong brand as more and more customers purchase the products and are satisfied with them. This provides an opportunity for building strong brand loyalty.

    Risks associated

    1. Loss leader strategy at a scale can be implemented only by businesses with deep pockets. There is a huge cash burn involved at the first to gain customers, as there are very less or no profit margins.
    2. Loss leader strategy is a high-risk and high-reward type of game. If the strategy is not well executed, the losses are very high.
    3. Even if the strategy is executed well and customers purchase the products as expected, if they are not satisfied with the product or service, it can reduce the brand value and hence customer loyalty.
    4. There is always a risk associated with the value perception by customers. If this loss leader pricing is used frequently or for a long time, customers might think the value of the product to be less than the actual value. This can impact the revenue when the increased price is set after the market gain.
    5. This strategy can force the competitors to reduce their prices as well. This condition can lead to a price-cutting game and is not beneficial to either of the competitors in the market.

    Example

    My favorite example of the loss leader strategy is for the OTT platform market.

    Netflix was an established market leader started in 1997. Amazon, who intended to be in the OTT space, launched its service Prime Video in 2006. The pricing, however, was not at all on a par with Netflix and was very low compared to it. This was the strategy by Amazon, where it used this service to attract consumers to the e-commerce market. With the consumers purchasing Prime Video service they would get an Amazon Prime membership by default, which had attractive propositions of one-day delivery and early access to products. This helped Amazon to compete with Netflix and cross-sell other services. The customer base as of Q3 2023 of Amazon Prime Video is 200 million as compared to that of Netflix’s 247 million

  • Startup mafias

    Why is it called a “startup ecosystem”?

    The success of a startup ecosystem is when everyone grows together. The creation of startup mafias is a sign of a positively growing economy. Startup mafias are a term used for a company’s alumni network who have created successful companies.

    A startup becomes successful when the founders, investors, and employees make financial gains. The founding team, and especially the early employees, gain rich experience in building a successful company. They learn how to start from scratch, raise funds, and scale the business. When the employees start their own startups, they already have the network and guidance in place. This leads to a cycle of reinvesting in talent, shortening the time from creation to exit and reducing the risk of potential failures.

    paypal has given many founders of successful companies including Elon Musk and Peter Thiel

    PayPal Mafia

    It started with the famous PayPal mafia, where it’s team eventually created impactful businesses.

    Jawed KarimCo-founder, Youtube
    Steve ChenCo-founder, Youtube
    Elon MuskFounder, SpaceX
    CEO, Tesla
    Premal ShahPresident, Kiva
    David SacksCo-founder, Yammer
    Max LevchinFounder, Slide
    Russel SimmonsCo-founder, Yelp
    Roelof BothaManaging Partner, Sequoia Capital
    Peter ThielCo-founder, Palantir
    Keith RaboisCOO, Square
    Reid HoffmanCo-founder, Linkedin

    Mafias in the Indian startup ecosystem

    The Indian startup ecosystem is now becoming a mature one, with the number of successful exits and serial entrepreneurs rising.

    Flipkart Mafia

    Sachin BansalCo-founder, Navi
    Binny BansalCo-founder, xto10x
    Sameer NigamCo-founder, Phonepe
    Sujeet KumarCo-founder, Udaan
    Manish SugandhiCo-founder, GrabonRent
    Ajinkya MalasaneCo-founder, Playment
    Mukesh BansalCo-founder, Cultfit
    Ankit NagoriCo-founder, Cultfit
    Punit SoniCo-founder, Suki
    Arpit DaveCo-founder, Runnr

    InMobi Mafia

    Abhishek PatilCo-founder, Oliveboard
    Vidit AtreyCo-founder, Meesho
    Prashant GuptaCo-founder, Clickpost
    Ram KakkadCo-founder, English Dost
    Gunaseelan RCo-founder, Houzify
    Hari GanapathyCo-founder, PickYourTrail
    Atul SatijaCo-founder, The Nudge Foundation
    Iliyas ShirolCo-founder, DoSelect

  • Product positioning

    How do you decide to purchase clothes from a particular fashion brand? How do you decide which laptop to buy? This essentially depends upon your previous experiences with the product, your thoughts about how the product is, and the things you have heard from others regarding it.

    city streets with outlets of different brands

    What is product positioning?

    Product positioning is the way in which you want to project your product in the market. It is the way in which your target audience sees how your product is solving their needs and how it is performing against the competitors. It is the thing that builds an image of your product in the customers’ minds. A successful brand positioning would be one that the customers feel is a valuable one.

    Consider examples of successful brands like Apple and Emirates Airlines. These brands are successful because they have presented themselves and are thought by their customers in a certain good way. Of course, the brand positioning will mean nothing if the product itself is not that valuable.

    Why is product positioning important?

    Simply, products are sold to humans at the end. And it is human nature to judge things. How you behave in the society creates your image. Your brand. And a good image is always respected. So is for a product’s image in the minds of the customers.

    Product positioning also defines how your product is doing better than the competitors. This is also a continuous check for a company to keep an eye on the competitors. It can be a guiding principle regarding how to update or build new products as the competitors get updated and the competition gets strong.

    How do you build your product positioning?

    Know your customer segment

    The first step is to have in-depth knowledge about your customer segment and customer persona. Identify the persona in the most low levels of detail. It can be done only by primary research by directly interacting with the target customer. It will help you in knowing about their choices, goals, influencers, and fears. Only after knowing the customers in detail will you be able to decide on the way to communicate your message.

    Know your competitors

    To position yourself in the market, it is essential to know about your competitors. If possible, it is recommended to use the competitors’ products. This helps to understand their strengths and weaknesses and decide where can your product perform better against them.

    Craft a unique value proposition

    After studying your competitors and finding where can your product perform better in a positive way, the next step is to actually put forth the value proposition of your product. An effective value proposition defines the benefits of the product to the target customers in a clear and transparent way.

    Put out the messaging

    After the value definition, it has to be communicated with the customers via different mediums. This is a case-dependent way which depends upon the type of customers and product. A consumer product might communicate the message through television advertisements. A real estate property might be communicated via newspaper advertisements. An e-commerce brand might do it through social media. This is where the first step of knowing your customer segment comes into the picture.

    Get feedbacks

    It is a difficult task to position your brand successfully in the first go. It is necessary to test your hypothesis continuously. Keep a continuous check on how well is your positioning working and adapt with the feedback.

    Brand positioning examples

    Emirates Airlines: Premium and luxurious flight experience
    Apple: Premium and state-of-the-art technology
    DMart: One-stop shop with the most affordable pricing

  • Recession indicators

    Layoffs have become a frequently heard word in recent times. The venture capital flow has been reduced in companies. Macroeconomic conditions have forced the corporate world to let go of employees and freeze the new hires.

    recession has led to a global slow growth in 2022 and 2023

    What is a recession?

    A decline in the economy for consecutive quarters in a nation is when it’s called a recession. It means negative GDP growth for continuous quarters. There can be a number of factors causing recessions. It can be wars, pandemics, political instability, etc.

    The economy is a cyclical thing. There are continuous expansions and contractions in an economic cycle. When the economy reaches its peak, it gradually starts declining with time.

    Recession is a tough period for the economy. There are layoffs, hiring freeze, and dissolution of companies. During this period, it is difficult to enter the job market. For people in the job market, it is difficult to get raises and promotions.

    Recession indicators

    Gross Domestic Product

    The very first and direct sign of recession is negative GDPs for two consecutive quarters. The GDP of a nation is dependent on consumer spending, private investments, state investments, and net exports. When there is a reduction in GDP growth, there is a decrease in one or more factors that contribute to it. It can eventually lead to the decrement of other factors.

    Essentially, a negative GDP means lesser productivity of the nation and lesser amount of capital flowing into the economy.

    Manufacturing growth

    The net export is often heavily dependent upon manufacturing sectors. It naturally works on the principle of demand and supply. When there is a lesser demand the manufacturing sector, which gives employment to a huge number of people of all types – blue-collar and white-collar, contracts. This can lead to the lesser income or even loss of jobs.

    Unlike services, manufacturing is a more important indicator because of the large number of blue-collar employees working in it. Especially for developing economies, blue-collar workers are significant in number. And a dip in the income of this mass leads to a weakening economic activity.

    Retail and wholesale

    With the slashing of incomes, the retail and wholesale markets declined in the recession. This dip again leads to a low demand from the market for manufacturers to produce their products.

    Unemployment

    Unemployment during a recession rises with all the above factors contributing. With less income at hand, people try to save more money. Hence, there is less demand from the market leading to a gloomy environment. This makes the manufacturers slow down the businesses which can lead to layoffs and hiring freezes.

  • Business risks associated with early-stage startups

    Starting a business is not easy. 90% of the startups fail. Though there are a number of risks associated with a business, some risks are more common in the early days of a startup. Mitigating these risks can lead to a higher probability of the startup surviving.

    90% of startups fail

    Market risk

    When you build a product, what essentially means is that you are solving a pain point for your segment of the market. For this, you need to know your customers and the market in depth. What is the use of building a product that no one wants?

    Hence knowing your customers in-depth, their spending pattern, their needs, and the influencers in your customer segment is an important study to do before entering the market.

    Achieving the product-market fit is crucial to overcome this market risk.

    Financial risk

    Capital is the lifeline of any business. For new startups, where the capital available is limited, the risk associated with the drying up of the capital is high. Startups have to create well-articulated business plans with realistic financial milestones. There should be clear timelines with financial milestones of when the company would need more capital, and when would it be profitable.

    In the initial days, startups often go into negative cashflows. If this negative cash flow cycle stays for a very large amount of time, there is a risk of bankruptcy. When startups are relying too much on external funding, there is a risk involved when the funding dries up or investors back off. Similarly, financial risk can emerge from relying on limited customers or product lines. Diversification of customer types and product lines is a good way to mitigate it.

    Team risk

    Early-stage startups have limited resources. Hence it is important to make the best out of the limited resources available. In the initial days of a startup, the team is everything. Other than any other factor, it is only the founding team that matters the most. Products can change, markets can change, and strategies can change, but only if the founding team is strong and consistent enough to make anything for the survival of the company. A founding team with the right and complementary skills, ruthless execution, and high consistency & motivation is the key to success. In fact, investors bet on the founders, than the product in the early stages of a startup.

    Lack of complementary skills, lack of communication between the founding team, and cultural misfit possess a risk of failure in the early stages of a startup.

    Execution risk

    Everything boils down to execution. What is a great product idea without execution? Execution risks are the challenges involved in implementing the vision of the startup.

    Technical difficulties during product development might pose a risk of failure with delays in the release of the product. A startup’s reputation is highly risked if the customers using the product are not satisfied because of quality issues, and a lack of good customer support. Entering the market too early or too late can be a risk factor resulting in failure. Lack of adoption with respect to the changes in the markets can lead to detrimental effects on the startup. In case the product does not work, a lack of pivoting can lead to the startup failure.

  • Growth of Aviation Sector in India

    India is today the third largest aviation market in the world, only behind the United States and China. It is also the world’s fastest-growing aviation market.

    India is the thi

    The start of the Indian aviation industry

    The Indian aviation story started in 1932 when its first airline, Tata Air Services founded by J.R.D Tata, was starting to operate. It later became Air India with the government taking a majority stake. In the 1950s the airline industry was nationalized by the government. This was the period of state-owned industry. It was in the 1990s when modern aviation, which we today see, actually started when the government opened the market. This started attracting private companies to set up their airlines.

    Factors in favour

    Being the fastest-growing aviation market, Indian aviation has grown by almost 10% in the last 10 years. There are several factors that could be attributed to this growth. The main reason for growth is due to the rising disposable income of the middle class. If we see the growth of per capita GDP for the last 10 years, it has grown from $1,400 to $2,100. Along with this, India has the largest youth population which has a greater desire and need to travel.

    The boom

    This growth cannot be supported without the right infrastructure. Over the past 9 years, the number of operational airports has drastically increased to 140 from the initial 74 airports. The government plans to operationalize 220 airports in the coming 5 years. The metro cities and busiest airports of Delhi and Mumbai will be getting second airports in the coming years.

    Air India, in February 2023, made the historic deal of 470 new aircraft orders with Boeing and Airbus. This deal is worth $70 billion and is the largest deal in the industry. Soon, in June 2023, Indigo Airlines which is the largest airline company placed an order of 500 aircraft to Airbus. By 2035, both orders would be completely fulfilled and ready to fly.

    The difficulties

    Not all side is greener. Airlines is one of the toughest industries to be successful. In the past 29 years, 27 airlines have gone out of business or merged. Gofirst recently shut down its operation in 2023. There are strong reasons why this is a difficult space to operate. India is a cost-sensitive market. Most of the companies are hence low-cost carriers aiming to serve the majority of the market. But with more and more airlines entering the competition, the cost reduction game begins. With the affordable prices for the customers, airlines have to make sure to pay out the salaries, interests, fuel charges, aircraft leases, and other operational expenses. Fuel is the major cost and its rate keeps on changing.

    Conclusion

    All in all, the future of the Indian aviation industry is bright. But with the increase in the passengers, the increase in the aircraft, it has to be matched with a robust infrastructure. Despite the challenges faced, the industry will continue to thrive.

  • Capitalism vs Socialism

    Economic systems are the ways in which governments distribute all the resources among the public. Socialism and capitalism are the two most common systems of economies. What is the difference between them?

    capitalism and socialism are the two most common types of economical systems

    Capitalism

    Capitalism is an economic system that promotes private ownership in the society. It is a free economy where anyone has the liberty to start their own businesses. Leaving some exceptions, a capitalist economy is not regulated by governments or has a very minimum amount of regulations.

    Control over the production is in the hands of the owners. Since there are no regulations, the decision-making is solely focused on the interest of the company. Decisions about what to produce and how much to produce are made based on the supply and demand. The pricing of products is totally controlled by private members, and it may be raised depending on higher demands, and vice-versa.

    The goal is to maximize the profits.

    Socialism

    The exact opposite of capitalism, socialism promotes the idea of collective ownership rather than a private one. The idea behind this is to create a classless society where no one is above others. Since there is a collective ownership of things, a socialist economy is heavily regulated by the government.

    Control over the resources in socialism is in the hands of the central planner, normally the government. Hence the decision-making of a socialist economy is based upon the well-being of a larger society. Though the production is based upon supply and demand, the pricing is heavily controlled by the governments and is not drastically changed frequently.

    What is better?

    Well, there is no straightforward answer to this.

    A capitalist economy motivates individuals to work hard to earn more profits and control. A socialist economy doesn’t.

    A capitalist economy leads to innovations to win the market, a socialist doesn’t.

    In a capitalist economy, a huge portion of the wealth is controlled by a handful of individuals, but in a socialist economy, it’s ideally fairly distributed.

    A capitalist economy can be a winner-take-all situation, but a socialist is good enough for everybody.

    A capitalist economy leads to better products and services eventually, but this might not be the case in a socialist economy.

    There is no perfect answer to what is better. According to me, it is a mix of both with a significant majority being capitalism and a minority as socialism. I think so because a nation needs innovation, a better life for individuals, and motivation to work hard leading to a growing economy as well as a minimum financial status for individuals. Rather, this is the most practical approach as well for any nation to progress. We have seen countries progressing well with this approach to economic distribution.

  • Value proposition

    Value proposition gives you the reason why you should buy a product. It is the promise made by the company that builds the product and is the main purpose for which a customer should buy the product.

    value proposition is the promise a company makes about the benefits to its customers

    What is a value proposition?

    A product solves a pain point of the target customer segment. The value proposition of a product is the end output that the customers get after using the product. It defines what is the end benefit that would be availed by the customers.

    Features are not value propositions!

    There is often confusion between the features of a product and the value proposition. Features are the means by which the benefit is delivered to the customers. The value proposition is the benefit itself.

    Consider the example of WhatsApp.

    The value proposition i.e. the benefit delivered by Whatsapp is easy communication. To deliver this benefit, it has different features like adding photos, videos, status, communicating in groups, and so on. But the value underlying all the features is only one – easy communication.

    How do you define a value proposition?

    Defining the value proposition is important, as it conveys a clear message to the customers regarding the output that the product is going to deliver. A well-crafted value proposition is crucial for effective marketing.

    Things to know before defining a value proposition

    1. Customers – Before anything, you should know who your customer is, in as much detail as possible. Narrow them down to the finest of segments. It can be based on individual or a combination of, but not limited to, industry, age, geography, gender, habits, etc. Knowing your customers keeps you focused.
    2. Pain point – What is the pain point of your customer? How intensely are they currently facing this issue? What are the present ways in which they are tackling this issue? This is The most important thing to know which will help you in building your product, and hence the value proposition.
    3. Cost-benefit analysis – When a customer is purchasing a product from you, he is going to measure it against the benefit that he is receiving versus the cost he is paying for the product. So you should know the cost-benefit analysis before presenting your value proposition.
    4. Know your competitors – There will always be direct or indirect competition for your product. Knowing your competitors will help you position better in the market.

    Defining your value proposition

    A strong value proposition is always customer-centric and defines how they are benefitting good from your product.

    1. Identify the main value of the product – Though there can be a number of potential benefits, list the one that is the most cared about by customers. Eg; “Increase your sales”.
    2. Identify your differentiator – List what differentiates you from the competition. This would give you an edge over others and provide a unique positioning in the market.
    3. Quantification – Add quantified data to the value proposition, so that it is easily understandable by your customers. Eg; “Increase your sales by 20%”.
    4. Craft a clear statement – After assessing the above points, craft a clear statement based on the learnings so that is is effectively communicated to the customers. Strong value propositions have crystal clarity about the benefit that would be gained by the user.
    5. Amplify – After crafting the value proposition, add it to all the possible customer-facing mediums to convey the message. It can be your website, brochures, presentations, advertisements, etc. Adding it to multiple places reinforces the proposition to your customers.

    Characteristics of an effective value proposition

    A successful value proposition includes –
    1. Clarity of the benefit to the customer
    2. Quantification of the benefit
    3. Relevant to the customer segment
    4. Removes any confusion from the customer
    5. Resonates with the customer’s needs
    6. Speaks the customer’s language

    The value proposition is an iterative process. After crafting, it has to be tested continuously among the target customer segment. As mentioned, it should resonate with the customer’s pain point and should have the customer’s language. You should always keep close monitoring on how it is performing among the customers, and based upon the feedback changes should be made.

  • What are economic indicators?

    Macroeconomics deals with the study of high-level impacts of a given economic, social, and political environment of a nation. Economic indicators, for a given time, help in determining the health of an economy. It helps in getting the answers to questions like – Where is a nation heading? What is the further growth looking like? As the demand and supply change, so is the production, and so do the economic indicators. These indicators are used by investors to make the investment decisions.

    economic indicators measures the macroeconomic performance of an economy

    Types of Economic Indicators

    Leading indicators

    Lagging indicators happen or are measured when events are already occurred. These trailing indicators are used to measure the final result of the economic event.

    Eg; unemployment rate. After the implementation of all the policies in a country by a government, the unemployment rate is calculated. This is the final quantified result of the policy implementation.

    Lagging indicators

    Lagging indicators happen or are measured when events are already occurred. These trailing indicators are used to measure the final result of the economic event.

    Eg; unemployment rate. After the implementation of all the policies in a country by a government, the unemployment rate is calculated. This is the final quantified result of the policy implementation.

    Coincident indicators

    Coincident indicators are in sync with the current event occurrence. They are real-time indicators that denote the present state of an economic event.

    Eg; producer price index (PPI). Tracking the price changes in all the sectors indicates the current condition and is the first accurate signal of future changes in inflation.

  • Digital transformation: A Necessity for legacy companies

    digital transformation is no longer an option for legacy companies

    Digital Transformation

    The combination of customer needs and innovation is the formula for disruption. Today is the world of technology. Legacy companies are at risk of digital disruptions. With new cutting-edge technologies emerging every day, and new businesses with technology enabled right from their start, legacy companies are vulnerable to losing the market. To be relevant, legacy businesses need to always be on top of changing market scenarios and hence their business models. Digital transformation is one of the important business models to stay relevant with time and ensure a strong market position.

    The digital transformation for legacy companies is broadly of four phases.

    Identification

    It all starts with an understanding of all the business processes.

    What are the processes across different departments on which the company works? What processes have to be redefined? How are they interconnected to each other?

    Listing all the processes gets the whole picture of the company’s operations. Reimagining the processes is the key to transformation. This is the step to identify specific goals and objectives a business wants to achieve through digital transformation. These could include improving customer experience, increasing operational efficiency, or entering new markets.

    Evaluation

    After the identification of all the processes that have the potential to be digitally transformed, the next step is evaluating the technical feasibility and the investment. All the processes are not of equal importance. Some processes are high-income generating, whereas some might be bottleneck processes. Also, the budget for transformation is not unlimited.

    Businesses need to assess current technology infrastructure and skill sets. This includes evaluating existing systems, data, and the organization’s overall digital maturity. According to the strategy of the business, each process would have priorities. Based on the priorities and the budget at the given time, the transformation has to be executed accordingly. At last, it’s not a one-time process but a continuous improvement one.

    The outcome of this step is to determine the processes to be transformed and its budget.

    Implementation

    The actual implementation starts after deep research into the technical feasibility and availability of finances. This step can include installing additional hardware equipment & sensors, getting third-party data via integrations, and new software configurations. In short, all the possible means are required to collect and share the data between systems.

    This process is not an easy one and can have multiple challenges.

    It also includes hiring new resources for the projects to execute.

    Feedback

    As mentioned, digital transformation is not a one-time process. And certainly, it is not a monotonous process as well. It requires a good amount of continuous effort from all the stakeholders. After the implementation, the outputs from it have to be measured. Whether there are any improvements in the systems or not, in either case, one needs to find where the system can be improved. Digital transformations are meant to get minimum turnaround time, better customer service, and savings on costs, which will ultimately lead to becoming an edge over the competitors.

    In short, this phase involves regular tracking and assessing the performance of the transformed processes and technologies against the defined objectives, and adjusting strategies as needed to meet evolving goals.

    Check this article to learn about the challenges of Internet of Things implementation.