Sustaining the chutzpah of an innovative fmcg start-up

8th July 2016, BUSINESS STANDARD

Bill Gross, the founder of many start-ups and the incubator of many others, delivered a TED talk in June 2015. While he is passionate that start-ups are the biggest drivers in any economy, he was also curious about why some start-ups succeed and other fail;

8th July 2016, BUSINESS STANDARD

Bill Gross, the founder of many start-ups and the incubator of many others, delivered a TED talk in June 2015. While he is passionate that start-ups are the biggest drivers in any economy, he was also curious about why some start-ups succeed and other fail; so he gathered a huge volume of data, available from his own investments and those of others. He ranked each start-up on five factors: (i) idea, (ii) team, (iii) business model (iv) funds and (v) timing. Clearly all five are key to success, but which is the most important, what is the hierarchy of their importance? His findings: wonder of wonders, it is the timing of the innovation that ranked first (42%), followed by the team (32%), and third, the idea (28%). Considering the number of passionate-looking innovators, who imagine that innovation is the act of thinking of an idea, this is a lesson! The business model (24%) and funding (14%) came up fourth and fifth. These results are surprising, and they surprised even Bill Gross!

In the relatively staid Indian FMCG market, an ‘upstart’ has made huge impact through a superb timing of entry and scaling up: the Patanjali brand has made a significant consumer impact in a very short time. I reflected on what the company (Patanjali Ayurved or any other such FMCG entrant) must be watchful of to convert such a big-bang beginning into a sustainable, long-term business. What are the risks that they must guard against?

First is excessive brand extension and distraction. So long as the product range is squarely in the wellness space (I include personal products and ghee in wellness, but not mustard oil or detergents), it will pass muster with the consumer. Stretching the image into jams, noodles, detergents and cattle feed is neither smart nor image-consistent. Patanjali has a choice to make: create scale by being a minor player is a very huge number of categories or being a significant player in chosen categories.

Second is the ability to deliver a consistent quality, day after day, year after year. FMCG companies have built systems of quality assurance, safety, food standards and general excellence over decades. These are not rocket science, but delivering results reliably requires a strong systems-orientation. Because consumers are hassled with lifestyle pressures, they long for the natural, grandmother, and ayurveda remedies, which stand pre-sold in the consumers’ minds. They trust blindly, and that trust must never be broken in terms of ingredients, quality, and freshness. That is a tall order to deliver. Some of the the quality complaints displayed in the social media are horrendous.

Third is to remain focussed on the consumer rather than on the competitor, an imaginary enemy. Patanjali should remember that long-lasting, value-creating consumer companies are rarely controversial entities, they are almost self-effacing because they are always trying to strengthen consumer trust! Advertising or product claims that get struck down by legal courts or by Standards Councils do not augur well for Patanjali. Suggesting that other edible oils in the country carry carcinogens or adding sodium benzoate as a preservative and claiming that the product is ‘chemicals-free’ are avoidable! How can a detergent be chemicals-free? The consumer does not really care whether Patanjali deals a death blow to MNCs or Indian manufacturers.

Fourth is product distribution. ‘Hero-related’ brands like VLCC and Body Shop rely on exclusive stores rather than general trade. Patanjali’s ability to get corporate stacking in modern trade is impressive. Currently Patanjali offers tight retailer margins, but reaches well under ten percent of the retail universe. It is expanding distribution gradually on the strength of consumer pull, but there is a long, long way to go. Fifth is to dilute the political connections of the business. Consumer research data shows clearly the disapproval of consumers when the Patanjali brand ambassador got involved with political statements or movements. Changes of government regimes can change fortunes, for example, the availability of bank loans, favourable tax breaks, easing up of investigations into pending quality/tax cases, access of the business to powerful people and so on.

Sixth is the Icarus syndrome. If an entire business is constructed on the platform of one brand ambassador, there is inherent risk for life-after. With growing success, differences of opinion and compatibility among the stakeholders could crack open. History shows that it is only when commercial god men die that the putrid remnants of their ashram or empire became visible to the public.

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