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Solutions for the slowdown

56 Money Today I April 16, 2009

S T A R T - U P S

C

learly, even veter-

ans are fearful.

The biggest com-

panies are cutting

costs, laying offemployees, cosy-

ing up to regular clients and doing

whatever else is required to main-

tain their elitist status. Some are

even fighting for survival. If the big

fish are so threatened, imagine the

condition of start-ups, especially

those founded by the relatively

inexperienced younger generation.

Take three guesses, and you

may still lose the bet. For, these

young entrepreneurs are not

preparing to close shop, they are

raising the bar. A distinct advantage

the start-ups have over large com-panies is their small scale. They can

effect a greater change in their busi-

nesses to adapt to a market plagued

by restricted resources. With less at

stake, they are more experimental.

Heres how some of them have rein-

vented their businesses to gain from

the slowdown. You can learn from

their experiences and make your

businesses viable.

I believe that each of our companies needs to undertake a

critical review of its cash flow requirements. Business plans

with defined strategies need to operate in this difficult

period. Failure to manage this crisis could result in

irretrievable positions. Ratan Tatas letter to MDs and CEOs of the Tata Group

Ahead

Innovatingto Stay

Young entrepreneurs are facing their first major crisis: scarce capital,runaway clients and rejected products. It is possible

to deal with such situations by seeking out-of-the-box solutions

By Kamya Jaiswal

Start-up SOSDont be the last to know that yourstart-up is in danger of folding up.Watch out for these signs:

Low operating cash: Ifthe company account has expensesonly for about 15 days, you areheaded for a fund crisis.

Dependence on oneclient: Revenues will suddenly

dry up if the company withdrawsits contract.

Expenses that dontgenerate revenues: Factorin the cost of revenues. If it is toohigh, you may be wasting money.

Dipping into personalreserves: This is the laststraw. A company should becapable of surviving on its ownincome, not your personal savings.


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C o v e r S t o r y

April 16, 2009 I Money Today 57

Have Flexible Business Models

Krishna Mehra, 25, Aneesh Reddy,

24, and Ajay Modani, 25, set up

Capillary Technologies in August

2008. Originally, the company aimed

to provide retail information to con-

sumers through mobile applications.

But within weeks the trio realised

that the plan would require a longer

gestation period, something they

wouldnt be able to sustain.

So the youngsters did an about

turn. Instead of letting retail con-

sumers choose the vendors through

the mobile platform, we decided to

help enterprises reach out to their

customers through applications

such as mobile loyalty pro-

grammes, says Mehra. The change

paid off. Capillary Technologies is

now in advanced stages of discus-

vineetasingh 25 (top right)

devashishchakravarty 37

vishal prabhukhanolkar 27

COMBAT STRATEGY

COMPANY

Quetzal Onlineand Quetzal

VerifySTARTED IN APRIL 2007

bhushantapar 26

Allocated resourcesfreed up by lostcontracts to searchfor new clients.

Expanded product line.Quetzal Verify addedcampus and bulkrecruitment to trainingand backgroundverification. Quetzal

Online has added anEnglish-speakingcourse to its bouquet.

Photograph: BHASKAR PAUL


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sions with firms in apparel,

footwear, car rentals, etc.

Our product increases effi-

ciency and reduces costs for

our clients, the two top

parameters for giving the green

signal to a project, he adds.

A benefit of launching in a down-

turn is that your product is closely

scrutinised. Therefore, a start-up

must rejig its existing business

model if the market so demands. As

Mehra says, clients want a higher

degree of validation before handing

over the cheque. It is for our long-

term benefit. When the good times

return, our fine-tuned product will

be among the best, he adds.

Cash, Not Client, is King

Money is definitely a scarce com-

modity now. This is why Mohit

Goyal, co-founder of the Indian

Angel Network, says that you must

calculate the cost of the revenues

earned. Give up the projects or

clients for whom you run up heavy

expenses, but which do not gener-

ate proportionately large revenues.

However, do not be overly

dependent on one client, because if

he backs out, you will be cornered.

Samresh Kumar and Manuraj Jain,

both 31, were caught napping whena business house that contributed a

huge proportion to the revenues of

their Delhi-based investment

banking firm, Vinculum, can-

celled the contract. We were

victims of being in a space

that has been at the epicen-

ter of the economic crisis,

explains Samresh.

One way of pre-empting such

shocks is to keep an eye on ope-

rating expenses. If you draw a

blank after accounting for 15 days

expenses, ring the alarm bell. Goyal

suggests that you give discounts to

vendors and clients for making pay-

ments faster. They are aware of

the situation and will appreciate

such creativity, he says.

Woo New ClientsThe other way to reduce depend-

ence on a few clients is to get new

ones. This is easier said than done.

In fact, with companies scaling

down work and hesistant to experi-

ment, start-ups are more vulnera-

ble to losing the customer base they

have built. Quetzal Online and

Quetzal Verify, two Mumbai-based

companies started in April 2007 by

a group of four friends, fell victim to

runaway clients in 2008. Initially,

we focused on servicing the existing

clients, partly because we did not

have enough resources. But when

business from these companies

dried up, we aggressively hunted

for new clients. This strategy ulti-

mately worked, says Devashish

Chakravarty, one of the founders.

Thanks to this quick adaptability,

the revenues of the company are

poised to grow by 40% this year.

When the aim is to stay afloat,

you cant, and shouldnt, be choosyabout either the work or the clien-

tele. No one knows this better than

Arun Balakrishnan and Kaushik

Mukherjee, founders of Akventure

Web Businesses. The company

builds offline support for Net busi-

nesses and has successfully com-

pleted projects like lootstreet.com

and bolcitybol.com . When cash

flow became sluggish last year, the

Solutions for the slowdown

58 Money Today I April 16, 2009

S T A R T - U P S

venkatsubramanian

COMBAT STRATEGY

AGE

34

COMPANY

Symbiometrics

STARTED IN

September 2008

Built a strong team atrelatively low cost. Abusiness manager

previously employedwith an MNC and 3 IIMgraduates have joinedthe company recently.

Positioned itselfas a consultancythat specialises inagro-based industriesand provides businesssolutions at a muchlower cost than thebigger groups.

In a downturn, a product isclosely inspected. So rejiggingthe business model is a must.

Photograph: SANJAY RAMCHANDRAN


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Rarunbalakrishnan25

L kaushikmukherjee26

COMBAT STRATEGY

COMPANY

Akventure Web

Businesses

STARTED IN

2008

Cut costs by reducingthe marketing andadvertising budgets.

Removed the frillsfrom its services,

which automaticallyreduced the price.

Took up short-term consultingengagements whenclients dried up.

April 16, 2009 I Money Today 59

duo did not hesitate to take up

short-term projects, such as build-

ing databases for chit funds and

providing tech support to timber

factories. Read between the lines

and you realise that it wouldnt

have been easy to get these assign-ments. We networked aggressively

to lay hands on them. And yes, it

helps to keep an open mind in tough

times, says Mukherjee.

Offer Customised, Innovative

Products

You may need to redesign

your products and services,

or add value to the existing

ones. One option is to widen the

offerings. Quetzal Verify, which

dealt with recruitment, background

verification and training of new

employees, added bulk campus

recruitments to the package. It

expanded the product line toinclude English-speaking courses

to the existing offering for schools

and colleges.

What if, despite all tactics, the

start-up fails to get back on track? Is

this an indictment of the incompe-

tence of the entrepreneur? Not nec-

essarily. A product may not be

designed for companies struggling in

a downturn. For instance, Web-

advertising start-ups may find it dif-

ficult to look for clients as it is one ofthe first expenses to be cut, says

Goyal. So if you are dipping into your

personal reserves to keep your start-

up afloat, stop right now. Dont be

stubborn or continue to be in love

with a business idea. A good

entrepreneur also realises

when it is time to pack up.

And when it is best to come

backbetter prepared.

C o v e r S t o r y

Give up projects for which yourun up heavy expenses but

dont get proportional returns.MT

Photograph: MANDAR DEODHAR

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