Travails Of Returns(Part 1)

Building businesses in India is tough. Especially, when you want to build a squeaky clean, healthy, profitable and large business fast. And when, you are not the children of the glitterati.

We, at @OfBusiness, have been on this trail and for a weeks now, I intend to talk about our travails in our journey therein. This will be in a series, please do comment for me to sharpen it.

At 1^st, there is the fundamental choice of business that we need to make. When we started, we were faced with 3 choices.

1. High Beta Business – We could have started with a high gross margin, high corporate costs’ business. And hoped that with scale, the corporate cost would get amortized. These were the D2C, SAAS, Niche commerce businesses. These looked great on excel and were easier to get funding on the positive side. But in our mind, we reasoned out (and many have proven us wrong since then) that the outcome of these businesses maybe limited.
2. High Capital Businesses – These are businesses which have high capital intensity, due to either high capex (like say large manufacturing) or high working capital (like aggregation businesses that have high payment cycles). We, frankly, did not have the luxury of it. The last 6 seasons in India when we have been in operations, capital was largely deficient. In hindsight, it was good that the capital was not available. The problem that I see, again purely in hindsight, is that when you are locked into a high capital business, the barrier to exit (a term that we coined at OfBusiness) is just very high. Once in it, you are in it.
3. Low margin, low capital, high on returns business – We chose this 3^rd option. Low on gross margin, yet profitable. Because of extreme frugality on costs. But high on capital turns. Hence, decent returns on capital. And then, slowly inch it up with addition of services and higher margin, niche categories. We have figured that the key to this business is maintaining efficiency, sincerity and dedication (which comes from DNA and culture of the company) and mixing a little bit of innovation: aspects that we are known for at OfBusiness but a long way to go. High scale challenges both these traits, a position that we see ourselves in today. Also, it’s tough in the initial days in these businesses, the world around does not encourage you, so self-motivation and self-belief is key.

What you choose upfront is your destiny, and you have to live with it forever. And ever. So, choose it well.