Fateh Singh (Fattybhai to his friends) was looking worried. He was sitting with his mentor, popularly known as the bearded professor, in a neighbourhood bar. And he was…well, looking worried.
You see, Fattybhai had launched a wonderful startup called NoCheeni.com, aimed at that massively growing number of diabetics in India who simply could not give up sweets. And those who did not want to turn diabetic. And those who wanted to shave off just a couple of millimetres from the yard and a half around their respective equators. And…
But you get the idea, don’t you?
Sugar-free sweets were an exploding market, and that’s why he had launched NoCheeni. He had set up a high-tech manufacturing plant, with all the latest bells and whistles to ensure standardised and hygienic products that he sold through Amazon and Flipkart, as well as though his own web site.
Sales were good, and were growing month on month. But to grow further he needed to add manufacturing capacity. And for that, he needed funds. Unfortunately, he had not been able to convince investors. And now you can understand why he was looking worried.
“Fattybhai, let’s analyse your business using the well-known PERSISTENT framework,” his mentor began. “Most investors use this framework – or something similar – to evaluate startups before taking an investment decision. Therefore, before reaching out to them, you need to evaluate your startup using the same framework. Agreed?”
“Agreed,” Fattybhai replied.
“So let’s start with the ‘P’ in PERSISTENT, which stands for PROBLEM. Are you solving a problem for someone? Of course you are – the problem of people wanting to eat sweet stuff without taking in excessive sugar. Right?”
“And then we have the ‘E’, or EARNINGS MODEL. Not only should you solve a problem, but your customer should be willing to pay you for it. Otherwise you are running a charity, not a business. And in this case the customer is paying for the sweets, so you do have an EARNINGS MODEL.”
“Next, the first ‘S’ in PERSISTENT, namely SIZE OF THE MARKET. Obviously you should be in a space that is large. Otherwise you will simply stagnate after a point. Now the market for sweets in India is H-U-U-GE. No problem. But it’s also a very crowded market, with Haldiram, Bikanerwala, KC Das, and all those lesser-known halwais in every nook and corner of the country. It’s never a good idea to get into a crowded market and try and compete with existing players. Fortunately, that’s where you have been sensible – you’ve identified a NICHE within this market – the ‘N’ in PERISTENT. A NICHE where you supply sugar-free sweets. This NICHE is less crowded – so you are not competing head-on with existing players. Its also large enough so you can grow and not stagnate.”
Fattybhai was getting the hang of it, and he nodded. But this is where the professor said something which set him thinking.
“Fattybhai, every business has RISKS – the ‘R’ in PERSISTENT. And one of the biggest RISKS is that of competition. Which is why you need an ENTRY BARRIER – the ‘E’ in PERSISTENT – which prevents a potential competitor from entering your business. Or at least makes it tougher. Now if you have an INNOVATIVE solution (the ‘I’ in PERSISTENT), particularly one that is tough to copy, that can form your ENTRY BARRIER. But do you have one? Anyone can make sugar-free sweets, isn’t it? There is no magic formula.”
Fattybhai nodded ruefully, “Unfortunately, that’s right.”
Brand identity
“However, you can build an ENTRY BARRIER over time,” the professor continued. “You see, when there are lots of similar products out there in the market, your brand can be the differentiator. After all, we are talking about food items, and people here would be concerned about both taste and hygiene. And they would like to buy a well-known, trusted brand. Now tell me, do you have a brand?”
“Yes,” was the immediate response, “NoCheeni!”
The professor shook his head,
“No my friend, that’s not a brand. At least not yet. Its only a name. It becomes a strong brand only once enough people have heard of it, keep coming back to buy it, and perhaps recommend it to their friends. And for that you need to…”
“Grow rapidly,” finished Fattybhai. He was now getting the hang of it. “If I grow the business fast, I’ll have lots of customers out there, and hopefully the brand will get built. But for that I would need to add more and more manufacturing capacity. Which means lots of time and money, isn’t it?”
But now Fattybhai did not wait for an answer. You see, he was thinking. And with a faraway look in his eyes, he said, “Sir, I can see what you are getting at. My current business model requires too much investment as well as time to set up additional capacity. And therefore I cannot grow rapidly.”
The professor smiled fondly at Fattybhai, as a hen might smile at her favourite chick. “Exactly, son. Your business cannot grow fast. In other words, it is not SCALABLE (the second ‘S’ in our PERSISTENT framework). And if you are not SCALABLE but your competitor is, what happens? Well, he grows faster than you, builds his brand more successfully, and you are left high and dry!”
“And what should you do to ensure you have a SCALABLE business? Simple – just outsource your manufacturing to partners. Standardise all processes using the one facility you have set up, and then ensure that these are implemented by each of your partners. You do the branding, marketing, and distribution. Importantly, you do not need to add capacity to grow. It’s your partner who needs to. And therefore, you have a far more SCALABLE business model.”
For the first time that evening, Fattybhai beamed.
But the professor had still not finished. “Fattybhai, there are two more things in our PERSISTENT framework. ‘T’ for TEAM, which starts with the founders. I’ve known you for some time, and I’m aware that you are passionate, ambitious, and very, very hard-working. So you tick the TEAM box perfectly.”
“And finally, the last bit – the second ‘T’ in PERSISTENT – namely TRACTION. Are you getting customers? Are they coming back for more? Are your revenues growing month on month?”
“Yes, they are”, blurted out Fattybhai in his excitement. “So all that I need to do is outsource my manufacturing, ensure quality standards are met, and my business becomes SCALABLE. A perfect PERSISTENT business model.”
And Fattybhai almost jumped, as he asked – no, demanded – a refill of his beer.
The bearded professor offered a final bit of advice. “If you have launched a startup, or are planning to create one, do evaluate it within the PERSISTENT framework. Not only will this help you get funding, it’ll also increase your chances of success.”
And then he raised his mug of beer. “Cheers!”
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)
