An evening with Krishnan Ganesh: Emerging business models in the post pandemic world.

Introduction

On Friday, July 2, we had a fascinating session by serial entrepreneur, Krishnan Ganesh. Mr. Krishnan is a distinguished alumnus of Delhi University and IIM Calcutta. He has held senior level positions with Wipro, Bharati British telecom and HCL Ltd.

But it is as an entrepreneur that Mr. Krishnan is better known today. He has promoted various successful startups (as a venture capitalist and as an angel investor) including Big Basket, Portea, Home Lane, House Joy, Hunger Box, Fresh Menu, Little Eye Lab (purchased by Facebook in January 2014, Delyver.com (purchased by Big Basket in 2015). He also runs a platform growthstory.in which has already nurtured 13 ventures. https://www.growthstory.in/team

Mr. Krishnan has made successful exits from various ventures. Marketics was sold to WNS for $ 63 Mn. In 2000, Mr. Krishnan started a BPO/Call Centre venture called Customer Asset. That company was sold to ICICI and is now called First Source Solutions. Tutor Vista was sold to Pearson for $ 213 Mn. IT&T was sold to iGATE in 2003.

Mr. Krishnan started his career with Telco (now Tata Motors) in 1982. With the sale of a big stake in Big Basket to the Tatas, the journey has come full circle for Mr. Krishnan.

Mr. Krishnan is a committed corporate citizen and has provided 6 million meals to migrant workers over a period of 60 days during the lockdown in March-April 2020. He continues to work with NGOs and government bodies to help the people affected by the pandemic in various ways, including oxygen concentrators.

Mr. Krishnan is a grounded person and started off the session in his typical understated manner. He acknowledged ICFAI’s pioneering contribution to scaling management education in the country. He mentioned that MBAs are good at making slick presentations and doing spread sheet analysis. They take the credit when things go well but are quick to blame external factors when things go wrong. He felt that the real credit for the success of many of his ventures should go to the frontline workers who make a successful venture possible. He referred to the delivery boys in Big Basket, the 4000-odd staff at Portea, supporting Covid patients (working for a paltry salary of Rs 12-15,000 per month) and the thousands of teachers of Tutor Vista waking up early in the morning to teach students in the US. He also acknowledged that success is not easy. Every day is a struggle and the dividing line between success and failure for some of his ventures is very thin.

New Age vs traditional business models

The traditional business models were mostly pipeline businesses (procurement, manufacturing, distribution and the end customer) and drew from frameworks such as Porter’s 5 competitive strategy and emphasized economies of scale. They aimed at higher EPS, gross margins and EBIDTA.

The new age business models are quite different. They have been shaped by an altogether different kind of environment. These business models have triggered off new trends such as direct to consumer, subscription-based revenues, pay per use, freemium services, etc. These business models are typically focused on expanding market share and waiting for profits to come over time. With each industrial revolution, as technology has evolved, new business models have emerged:

First industrial revolution: Steam power
Second industrial revolution: Electricity
Third industrial revolution: Information Technology
Fourth industrial revolution: Digital Technologies
In today’s VUCA (Volatile, Uncertain, Complex, Ambiguous) environment, the velocity of change has accelerated.

Technology disruption: Technologies in the form of Big Data, Mobile and Cloud are causing disruption. Using technology, startups can create an altogether different type of experience. Think of Uber and compare it with a traditional taxi. (In the past, we would haggle with the taxi driver and give him various instructions to ensure that he takes the shortest route. There would often be a heated exchange at the end of the ride on how much needs to be paid. But in case of Uber, the entire ride may be completed without even a word exchanged between the passenger and the driver!) The playing field has been democratized, entry barriers have been lowered and it is much easier for new entrants to compete with established players.

Changing Customer expectations: Customers are more aware, more demanding in terms of personalization and expect a lot of transparency. In the past, we would trust companies and brands blindly. Not much attention was paid to transparency. That is no longer the case today.

The pandemic: Has unleashed new forces of disruption. Protectionism, localization of supply chains and Make in India are some examples. Both traditional and new companies have to cope with this rapid pace of change.

The famous management guru, Prof Clayton Christensen had explained that what leads to success today can lead to failure down the line. Many established leaders get derailed because inertia, risk aversion and fear of failure make the companies stick to the old ways of doing things. The message to the incumbents is that they should take disruption seriously.

For startups, the foundation is weak. The line between success and failure is thin. They too cannot take the rapidly changing environment for granted.

What is different about the new age business models? Mr. Krishnan summarized the key trends today:

New age customers: They are fickle and influenced more by peers and less by authority. They are more price sensitive and less brand loyal.

Explosion of data: Higher volume, variety and velocity of data means that the scope to offer personalized services to customers has increased phenomenally.

Increased velocity of change: Technology and competition from unexpected sources have increased the pace of change.

Central role of technology: There was a time when computers were used only for support functions like payroll and accounting. Today, technology is core to the business.

Customer Expectations: Thanks to the convenience enabled by technology, no one has the time to go to the railway office to buy tickets, visit a bank branch or wait for a movie to be released.

Direct to consumer models: Disintermediation is the order of the day as companies lie Amazon and Netflix reach out directly to us bypassing the middlemen.

Blurring value chains: Companies can be in several businesses. Think of WeChat and Amazon.

Three kinds of companies in the post pandemic world

Some sectors like cruise lines, travel and theme parks have been badly affected and will find it difficult to recover. A second category of companies has thrived during the pandemic. Think of Amazon and Zoom and Mr. Krishnan’s own ventures, Big Basket and Portea. The third category includes industries like restaurants and fashion/luxury goods which have been affected badly but are likely to bounce back. The strategy. going forward, will vary depending on the industry. In India, many industries have been badly affected. Their priority should be to survive and come through the pandemic.

Mr. Krishnan concluded his presentation stating that the pandemic, though devastating in terms of its human impact, is also a once in a life time business opportunity. The pandemic has disturbed the status quo and this is precisely when new opportunities also emerge. Unless we have had a severe setback and are in a very stressful situation, we should jump in and try to capitalize on the changing consumer behavior and consumer priorities. We should be asking: Where will the consumers’ time and money go? Can we cater to those new requirements? Such an opportunity is not likely to come again in our life time.

Q&A session

On identifying start up opportunities

Mr. Krishnan explained that one way to look for opportunities is to see what has changed due to the pandemic with reference to customer demand, customer preferences and customer behavior. More generally, if we identify the biggest pain points around us and come up with a solution, we would have cracked the problem. To do this, there is no need for a McKinsey consultant or any deep analysis.

Fortunately for us, many things are broken in India and we have an opportunity to fix them. In developed countries, where most of the basic problems have already been solved, one would have to be a genius to come up with something new. In India, the opportunities are far too many. For example, Portea has succeeded by addressing some key problems faced by patients during the pandemic in a country with very poor medical infrastructure. While identifying opportunities, we must remember that the Indian customer tends to look for “must have” rather than “good to have” things. Thus, fixing the tooth will sell but not a dental checkup. Similarly, antibiotics will appeal to customers but not vitamin supplements.

Thanks to the pandemic, people are taking health more seriously. So, healthcare will be a booming sector. People are also valuing their time more. So, anything which provides convenience will be valued, even if it costs a little. Similarly, the ability to learn and cope with the VUCA environment is being valued more. We can also expect business models built around shared resources to do well.

On platform models

If we look at the successful platform models in India, they fall in two categories:

National platforms which operate pan India. A good example is Flipkart. These platforms operate at scale and remove various hassles for small businesses be it logistics, warehousing or payments. For these platforms, having a full stack is important.

Hyperlocal chains like Swiggy and Zomato which do not have a national scale. They focus on individual areas and become aggregators (of all the restaurants) in that area. Here, having a full stack is less important.

But whatever be the nature of the platform, each side must grow to create benefits on the other side. Thus, by having more restaurants on the platform, more customers can be attracted and vice versa.

On the future of electric cars

The future of automobiles is clearly electric. They are far more environment friendly. True, there are some problems like battery cost and the range to be sorted out. But there is little doubt that solutions to these problems will emerge over time. Government intervention in the form of subsidies can also be expected. So, it would not be surprising if electric vehicles grabbed 80% + of the market share. The automotive industry along with other manufacturing industries will continue to benefit from the technological advances that have been labelled Industry 4.0. Real time data crunching and analysis in micro seconds will make the driverless car very much possible.

On why ecommerce is still making up only 5% of total sales in the country

The pandemic has helped ecommerce move ahead by 5 years. It has forced reluctant shoppers to go online. When Big Basket used Sharukh Khan as the brand ambassador, sales did go up. But it is the pandemic which has provided the real impetus driving up volumes by 10X. Ecommerce offers a degree of convenience that is not possible in the old world. There was a time when we had to spend half a day to go to the railway ticket counter to book our tickets. After the pandemic is over, some of the online demand may go away but it will settle at a much higher level compared to the pre pandemic days. However, brick and mortar will still play a very big role. Even in the US, ecommerce makes up a small proportion of the total sales. In India, for example, Kirana stores will not go away but their operations will be increasingly powered by technology.

On the localization of supply chains due to the pandemic

In India, due to restrictions on interstate movement of goods, local sourcing did increase. All over the world, people like to support local enterprises. Hyper local chains have always thrived and will continue to thrive. Following the pandemic, there have been discussions of the perils of global supply chains and the need to make them more local. But this is possible only to some extent.

Will technology undermine the human touch?

Some businesses can never be automated because they involve a physical experience. However, many mundane tasks will be automated. We should not see this as a threat. This will enable us to spend our time meaningfully, doing the work that we enjoy. Algorithms can improve the quality of life in various ways. For example, they can improve healthcare by predicting the onset of disease. They can also help farmers improve the productivity and also enable them to know the prices for their crops in advance.

On entering diverse areas

Mr. Krishnan has set up businesses across a range of industries. How has he managed this? He is more of a generalist and believes that being a generalist has its own advantages. Mr. Krishnan essentially looks at the opportunity and then takes the call on making an investment. The probability of success for a startup is very low. So why not do something which will generate high enough returns for the risk being taken? Moreover, it is simplistic to assume that we can execute better than the established players. So, it makes sense to be the first player in the space and address a large pain point. The venture may not succeed but if it does, the returns can be handsome.

On dealing with the legacy mindset

The legacy mindset often stands in the way of change for established organizations. This is understandable (and what Prof Clayton Christensen refers to as the Innovator’s Dilemma.) When heavy investments have already been made, it is difficult to think like a startup which is taking off on a clean slate. Moreover, startups can afford to run losses for a long period of time but the established players are answerable to shareholders. However, these incumbents have no other option but to revamp their business models. One way to do that is to acquire startups with the required technological capabilities. Even the new age companies must do acquisitions from time to time to stay ahead in the game. Recall Facebook’s acquisition of WhatsApp and Google’s acquisition of YouTube.

On how the ICFAI Online MBA has been designed and how the legacy mindset has been addressed.

As Prasad mentioned in the session by Dr Janat Shah, he is not directly responsible for our campus MBA program. To that extent, the legacy issues have not posed a major challenge. Survey responses for the online MBA have been encouraging for Prasad and his team. They are convinced that the online MBA has a bright future. Meanwhile, the regulator (UGC) has also forced fresh thinking into how the program should be designed. Only one hour of live teaching is allowed per week. This means Prasad and his team have had to work hard to design the appropriate content for the students. Plenty of choice has been provided to the students so that they can customize their learning paths. Prasad’s own generalist background has ensured that he is not weighed down by deep knowledge in any one domain.

How do we provide a better learning experience to students? How do we retain their attention?

We have to move away from being the sage on the stage to being a guide on the side. We should have a lot more interaction and encourage peer group learning. Hands on training will be appreciated by today’s generation. The millennials are also looking for immediate feedback/ reinforcement. We must teach skills which are valued in the job market. Many of the courses taught today are antiquated. Of course, the challenges of teaching in asynchronous mode should not be underestimated. There are many distractions today for students thanks to social media.

A very insightful session by one of India’s most successful entrepreneurs. Our own Masayoshi Son! Well moderated by Prasad and Sudhakar.

We thank Dr. Vedpuriswar for bringing out the highlights in the form of this note