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Book Extract: Innovation Catalysts
How entrepreneurs are addressing complex issues at work using digital technology
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One of the many things I like about Saroja Yeramilli, founder and CEO of Melorra, is that she, along with other colleagues at Titan Company Limited, proved me wrong.
Like most people, I like being right about things. But it is also good to occasionally be proved wrong in a judgement, especially when you were sceptical about a new idea. As mentioned earlier, in 1999 I was doubtful about Titan’s strategy to enter the branded jewellery market with the Tanishq brand. I saw the jewellery and gold trade as one of those typically complex traditional Indian businesses to which it would be hard to apply the ethos of modern design and manufacturing, and the concepts of branding and retailing. Indian consumers tend to have, I thought, an entrenched and conservative taste in jewellery and appreciate the highly individualized services of the traditional trade. Many Indian families have favoured particular jewellers over generations, partly out of fear of being cheated over the count of the gold offered. Moreover, a family jeweller would offer wealthier clients the convenience of being shown a selection of designs in their homes and much of the business would be transacted in cash. Despite all of this, Saroja was part of the team that made Tanishq one of the early successes on India’s high streets.
Sixteen years later, Saroja and her recently launched Melorra jewellery brand embody many of the threads that have merged to create the entrepreneurial opportunity now emerging in India. Above all, she is demonstrating how the application of digital technology can address complex, fragmented consumer needs in entirely new ways. Technology offers many solutions to conquer the chaos that is India.
Melorra, meaning ‘forever young and beautiful’, is a website offering affordable but fashionable jewellery. It is aimed at modern-minded women in India and abroad, a positioning Saroja calls ‘the Zara of jewellery’. Rooted in a global sense of fashion, the website offers a great deal of insight and comment on the latest trends in New York, Paris and Milan. The company launches a new selection of pieces every week, although older designs can also be found in the archives of the website. None of the featured products physically exist when a customer browses the site; the images are all computer generated. A customer purchase online triggers the manufacture of the ordered design using a 3D printer and its rapid delivery through a courier. The business model combines a sharp focus on addressing the growing aspirations of a rising, international-minded middle-class consumer, interested in design and branding, together with the smart use of technology. Low inventory, prepayment and flexible manufacturing to order make for sound financials. The contrast with the traditional jewellery trade could hardly be starker.
Saroja does not fit the stereotype of the New Generation Indian entrepreneur. She is a woman, she comes from eastern India, she did not attend an IIT, and was mid-career when she started Melorra. With her strong record of success in corporate life, with Titan, Marico and Dell, she could have secured a senior position in a large consumer-facing business after she had taken time out to work on Nandan Nilekani’s unsuccessful election campaign in 2014... Saroja was encouraged to consider entrepreneurship by her husband, Shantaram Jonnalagadda, who has launched several ventures himself.
A chance introduction to Siddharth (Sid) Talwar of the VC firm Lightbox made her start putting her ideas on paper, and Sid coached and supported her for some nine months as the business idea developed. Saroja recalled, ‘I asked them [Lightbox] for $2 million and they told me I was underestimating what it would take to build an e-commerce company, especially a brand, and that I should ask for $5 million, which they would give me.’
Technology and the chaos of India
‘Opportunities for entrepreneurs abound in India, especially if you look for the pain points,’ Pramod Bhasin, formerly of Genpact, told me. ‘Suddenly people are realizing the opportunities in India, despite all of its issues. There are so many gaps, things that are available everywhere else in the world which you could bring here. E-commerce is just one of them but frankly it appears in every sector: Transportation, logistics, supply chain, healthcare, financial services…everywhere. It’s incredible what’s happening in financial services and healthcare delivery. I think it’s very exciting because [there] were so many gaps and people are finding new solutions.’
At the core of so many of these new solutions lies the intelligent use of digital technology to overcome the challenges represented by what Narayana Murthy calls the ‘frictions’ of doing business in India, just as Saroja is doing at Melorra, Bhavish Aggarwal at Ola, or Sachin Bansal at Flipkart. India’s success in the IT sector created its leading export industry and has attracted investment from the largest companies in the world. New ways of addressing some of the fundamental needs of the country are being born out of the skills honed by the IT sector and these offer huge opportunities for new entrepreneurs.
The focus on technology, especially digital technology, as a key booster of such opportunities, as well as a significant factor in reducing barriers to entry for new businesses, will inevitably impact digital entrepreneurs. Just over a third of the 92 entrepreneurs I interviewed were in the digital space, though, of course, almost all of them are applying digital technology in some form or the other to their businesses. My point is not that technology, digital and e-commerce, dominate Indian entrepreneurship. I believe that the new wave of entrepreneurship transcends sectors. Rather, the dramatic technological changes of recent years have been an important strand in the multiple changes that have freed entrepreneurial zeal. The discussion of solar entrepreneurship, another beneficiary of silicon-based technology, for instance, demonstrates how innovation in fields other than communications can have similar dramatic impact on the opportunities for new business...
A retailing revolution, at last
When Jardines launched some of India’s first organized retail chains in the 1990s, including Foodworld supermarkets, Health and Glow drugstores and Concorde Motors, we expected that well-run, large stores, supported by efficient supply chains, would rapidly revolutionize retailing in India. Today, modern organized retail, led by Kishore Biyani’s Future Group, still only accounts for about 20 per cent of sales in India, compared to 90 per cent plus in most advanced countries. Yet, India is jumping with extraordinary speed to the online retailing of Flipkart and ShopClues, as well as more specialized e-commerce players. A recent McKinsey estimate valued the digital and technology industry in India at $110 billion today and suggested that the sector has created nearly half of the new formal jobs in India in the past 5 years.
The persistence of traditional, apparently inefficient distribution and retail models, symbolized by small kirana stores or traditional jewellers, has many causes. International retailers tend to blame the protectionist policies of the government that still restrict foreign investment in retailing. However, India’s physical geography and poor infrastructure have, almost certainly, played a more important role as, unlike in developed countries, it is difficult for consumers to travel any distance to shop given congestion in cities and poor roads in rural areas.
The economics of retailing are further squeezed by the high cost of urban real estate and the hassle of a supply chain, further complicated by atrocious infrastructure and government impediments such as myriad regulations and multiple taxes. Mohandas Pai, co-founder of Aarin Capital, also formerly with Infosys, told me that logistics in India accounts for 14 per cent of GDP, compared to just 6 per cent in China and 5 per cent in the US, an indicator of how much India is disadvantaged by poor physical infrastructure. A truck can take five days to travel from Chennai to Calcutta (approximately 1,037 miles), given the state of the roads and repeated points of inspection and fee payment, compared to about two days in China or the US to travel the same distance. Most consumer businesses are forced by local taxation rules to maintain sub-scale distribution centres in each major state rather than consolidating into regional hubs, an inefficiency that the introduction of GST should help address.
...Around 2000, Jardines’s supermarket chain in southern India, Food World, developed a direct supply of fresh products from a number of villages with great benefit to consumers, farmers and the company itself as fresh food was delivered quicker and cheaper without the traditional tiers of middlemen. These structural issues persist today, but might now, at last, be addressed by new investment in cold chain and the application of technology.
Kumar Ramachandran of GS Farm Taaza Produce, which was set up to modernize the fresh supply chain through technology, told me that, even now, the supply of fresh products remains the ‘dirtiest business’ with very weak controls over who is buying what and where it might end up. His platform is designed to address these issues, for the benefit of farmers at one end and retailers at the other.
Urban Ladder is another e-commerce business that solves problems for the new middle class through technology, as also through excellent design, affordability and convenience. It was Rajeev Mantri of Navam Capital who first told me about the company after he kitted out his new home in Delhi from the website that focuses on furniture and home furnishings. Inspiration for the site came when Ashish Goel, co-founder and CEO of Urban Ladder, and his wife were switching homes in Bangalore. Ashish recounted, ‘We moved into our place in early 2011 and had a horrible experience trying to furnish the place through traditional furniture dealers. That was the trigger to realize the market opportunity and the consumer need in home furnishings.’
Ashish’s background is more typical of a Bangalore tech entrepreneur than that of Saroja Yeramilli or Kumar Ramachandran – ‘the classic IIT-IIM thing’, as he termed it. Born and schooled in a small town in Uttar Pradesh, he was heavily influenced towards entrepreneurship by his years at IIT Bombay and the role models he was exposed to there. ‘The biggest shift that happens at IIT is that your aspirations get reset. Suddenly, there are lots of people around you who are incredibly smart… I was just amazed with the world view of my classmates.’ After IIM Bangalore, Ashish was ‘clear that I wanted to be an entrepreneur, but very honestly I was a little under-confident’. So instead of taking the plunge into a venture immediately after college, he joined McKinsey and then did two general management jobs in the publishing business, first at Amar Chitra Katha and then India Book House.
Still wanting to be an entrepreneur, Ashish closely followed the clean energy business while still working, writing a blog on renewables – which also featured an entry covering our start at Kiran Energy – and toyed with the idea of starting an electric bike company. Then, in 2011, he left his job to start something, not knowing quite what, and persuaded his business-school friend Rajiv Srivatsa to leave Yahoo to join him. They worked first on an e-commerce idea around baby goods but found that the numbers did not work out. Then came insight into the market failures in furniture and the idea for Urban Ladder was born.
With permission from Hachette India