Understanding innovative businesses

08 August, 2014

Businesses rarely have something fundamentally new to offer to consumers. Consumers still have the same needs that they have had for generations. However, the tectonic shift from disorganised to organised consumption in India is already impacting the way that products and services are delivered and consumed and the ability of a brand to influence and engage the customer. 

To be significant as an innovator, your business needs to lead the paradigm shift to organisation. The challenge is that traditional markets and practices are so entrenched in Indian culture and memory that there is a high degree of scepticism that things can actually change in our lifetime. 

For example, there is immense scope to modernise traditional retail. It is widely accepted that traditional retail will continue to account for the lion’s share of retail sales, because infrastructural deficiencies in crowded urban centres mean that people will stay local for their daily purchases in stores which remain small format, due to expensive real estate. 

However, there is a Darwinian reality to the challenge faced by traditional retailers. It is unavoidable that those who modernise their practices will thrive, whilst others will not. How relevant will the traditional kirana be when your child develops a taste for cheddar cheese and peanut butter? 

I have a client who has built a transformational retail fixturing solution that brings the benefit of best practice plannogramming and merchandising to unstandardised traditional retail spaces. This innovation comes at high personal cost – the promoter has invested heavily in his belief that the Indian shopper, retailer and brand owner are all underserved. The product has generated strong interest as it is well priced, feature rich and can be executed simply and quickly with minimal loss of trade.  

Along the way I cannot recall the number of times that I was told that it’s a great idea but that the target market would not modernise—“you don’t know the kirana owner”. In spite of all the changes that India has seen over the last few decades from winning Miss World to a tea seller usurping the mantle of leadership we still revel in the belief that the more things change, the more they stay the same.

There is some logic in a conservative approach to change. Who would build a business case on teaching an old dog new tricks or changing customer habits? However, as investors or spectators we often confuse innovation with dramatic change. By modernising traditional retail we are not creating a new sales channel. Instead we are reacting to elevated shopper expectations and a plethora of new brand offerings, all competing for a share of a growing consumer wallet. 

This is the innovation that is all around us from cell phones to air fryers, but why are we so fearful when we recognise the ability of a product to transform? Because investors rationally try to seek precedent either from within India or from other geographies for cues to understand the way India will modernize—If you can understand what worked and what didn’t then you can create a template for success. The problem is that much of what we are looking to change in India lacks a modern precedent. 

Think of the way that consumers have always enjoyed doorstep delivery of fresh food. At first this may have been a practical offering, given the low penetration of refrigerators in homes. However, it is now something habitual and something that customers have come to expect. Some investors see innovation in this interaction with the housewife as taboo as it is classified as an attempt to change her consumption habits. 

The reality is that effective innovation does not attempt habit change, but instead understands how customers are underserved in the existing practice and then offers benefits like hygiene, consistency and a brand promise to win the customer over. 

Now to investors. We have an exciting investment thesis which lacks precedent. This will exclude most in the first wave. However, to appeal to the visionaries who are taking a calculated risk, businesses need to make investors comfortable with understanding the tenets of how to successfully navigate transformational businesses. 

Innovative businesses must present their insights into client behaviours to demonstrate that there is a wave of change that they can lead. Demonstrate that consumers repeatedly take your branded product in favour of the disorganised alternative. Show that you can continue to deliver in spite of entrenched practices.  

Use your early successes to identify a visionary team of professionals who believe in the upside of your business plan and incentivise them with equity. Then work together to build and execute a meticulous go to market strategy. 

(The author is founder of Mentor Growth Capital Advisors, a Mumbai-based firm working actively with emerging consumer businesses.)

To become a guest contributor with VCCircle, write to shrija@vccircle.com.


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Understanding innovative businesses

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