In the context of bootstrapping it is worth exploring what are we starting. There are millions of small businesses in India but not all of them are called start ups. Whats the difference? In one sentence: a start up is the first phase of a scalable business started by entrepreneurs. This eliminates new businesses started by existing businesses. So Reliance Fresh doesn’t qualify. This also eliminates your one-person consulting business. In my opinion, if the business is not structured to scale (in terms of revenues) practically indefinitely or is totally dependent on the founders for ever it doesn’t qualify too.
Digression: Product or Service?
Traditionally the word start up is associated with high technology software product companies in the valley. Folks in valley look down upon the service industry and see limits in scalability due to the linear equation of people and revenue. That may make sense given the high cost of human resource in western countries. However, in the Indian context service sector is full of opportunities. Having a huge number of people is a resource that needs to be leveraged rather than shunned.
It is time to look beyond the traditional views of products or services and only concentrate on scalability, sustainability and growth. Contrary to what people may think, bulk of revenue of companies like IBM and SAP comes from services and not products. Profitability of Microsoft and Infosys is almost the same. A business model of hybrid companies with both product and services angle to it may suit Indian start ups much better. The ideas on hybrid companies are explored much in detail in Business of Software.
Back to the topic at hand
With your own start up, look at whether it scales. Lets take an example: Say you are creating a restaurant which serves Kati Rolls. If you rent a place, create fresh filling every day with a good chef, put a tawa and start creating yummy rolls which people queue up to buy what you have is a nice small business. Instead of that if you standardize the recipe first, making sure following the recipe produces the same roll each time, create half cooked roties and filling which can be frozen and re-heated with consistent taste every time you are on to a start up. The second approach will create a business model like the bangalore based kati zone which is growing very well and once its processes have stabilized is able to scale. In this case the product is the recipe and the process which can be replicated successfully. If you are opening a coaching centre you could take a place on rent, advertise your credentials and start teaching students or you could create a training material, build a nice train the trainer course, build quality control, standardized examinations and follow the success of FIITJEE.
So you can look at scalable/replicable processes in the same light as products. In the Indian context you will be able to get the man power and manage it if you use the right strategy. As long as you are wired for growth you are a start up – product or service (or a combination) doesn’t matter.
Sometimes you may start in the mode of a small business. Learn the trade, identify the scalable attributes and then change gears into the scalable business. What is important to realize is that unless you don’t have the scalable ambition baked in from day one you are not a start up. Also, it is much more difficult to build the scalable dream rather than a small business. That is why there are so many burger shops but only few McDonalds or many ABC Coachings but only a few FIITJEEs.
By the way I have nothing against opening a small business. It may suit many people and their ambitions. However, this blog is not about them and that is not what I want to promote. This is about bootstrapping a start up and not a small business.
Suresh said
What I liked about this article is the emphasis on scalability and processes. The small businesses often are not aware of it. This awareness is important for people to grow.
There are many examples who did without knowing these terms consciously.
The famous ‘dabbawalas’ (डब्बेवाले) in Mumbai, Kamats, Haldiram to name a few. But amazing are Iranis (corner tea shops in Mumbai) and Udipi restaurants all over. They are not owned by one single person or organization but have adopted almost similar processes and bouquet of products. It may surprise many that ‘chana chor garam masalewala’ (चनाचौर गर्म मसाले वाला ) is another scalable business going on for decades. The ‘khomchas’ (खौमचा) of these ‘chana chor garam masalewalas’ (चनाचौर गर्म मसाले वाले) are owned by one person in a big locality/city. As the city expands – more ‘khomchas’ (खौमचे) are added. Even begging business, if it can be called one, is run on similar lines.
The article has a great value to put the concept in the conscious mind of young ones to become bootstrappers for we know many concepts but seldom put them in practice
Anshul Gupta said
Hi Saurabh,
I am a 2004 chemical pass-out from IT-BHU and a regular follower of your blog.Would like to thank and congratulate you that you are doing a wonderful job by writing down your experiences and learnings acquired during the journey of entrepreneurship.
I agree with you that unless one plans to scale-up and unless one creates a environment where the start-up is not dependent on the founders, one cannot be called a successful entrepreneur.
Its like untill your baby can’t walk on itself without holding your finger, it cant be said it has learned to walk.
I know that best way to finance your start up is through boot-strapping but sometimes even that may not be sufficient.Like I,along with another IT-BHU batchmate, am planning a cafe a kind of concept.Given the high real estate cost in bangalore I need a hell lot of money.
I would like you to guide me to some resources/banks/FIs/individuals who offer loan facilities for such kind of thing.
Regards
chandrasaurabh said
Thanks, I am glad you find this useful.
Firstly, I would like to clarify that bootstrapping is not the best way to start up. As I mentioned in an earlier post why bootstrap that you should consider it because you can and since other means are not easily available. The best way to start would be to raise money!
Any retail business like you have in mind is usually high investment. Given that you probably do not have prior track record in this field having people put in money would be really tough. This might be a candidate where the idea is good but with the wrong person! See both things have to fit – a good idea, and the right person to execute it.
But I would surely not like to discourage you though. I believe entrepreneurship is about overcoming supposed impossible situations. I would suggest you read how Richard Branson started. Also, a koramangala, bangalore based restaurant by iim grads http://www.brewhaha.in/ may be a case study for you. Go meet up those folks.
Some basic accounting « Bootstrap in Bangalore said
[...] Depreciation works like this – any asset you buy has a life. Since you buy a chair and can use it for the next 5 years, the government will force you to expense it piece by piece over 5 years. Lets take an example – say the chair costs Rs 100 and has the life of 5 years (government has prescribed these for various categories, so this is just an example). For simplicity, assume you only made Rs 150 in that year and all you bought was a chair. No other expenses happened. Your bank would have Rs 50 left but your tax won’t be Rs 15 (30% of 50) but Rs 39 (30% of 130). Since only Rs 20 (20% of 100 in the first year) is allowable expense and the rest Rs 80 is an asset that you have created. Fortunately, taxes are paid in in September of the following year which gives you some time to earn the money you need to give to the government. If you are a young business, most likely your revenues are going so fast that last year huge tax looks like this years change (if not, you may not be growing fast enough and maybe on your way to becoming a small business). [...]