Building B2B startups in India
Myths and Reflections on the Indian B2B supply-chain
Namaste Dear Reader,
The B2B (Business-to-Business) opportunity in India is a core area of focus for me and I spend a lot of time looking at startups in the space. Given the capital-deficient (previously), labour-heavy structure of the country, B2B supply chains have developed in a unique manner to allow them to operate on wafer-thin margins.
For context, Indian B2B trade (estimated at $2 Tn +) is one of the largest and fastest-growing markets globally and is ~2x the size of the Indian B2C opportunity. Naturally, this has attracted a lot of venture dollars to ‘organize’ & ‘digitize’ supply chains. Over the last 5 years, over $5Bn in venture money has been invested purely in B2B e-commerce startups in the country.
I am sharing some of my learnings while evaluating and understanding opportunities in the space. A disclaimer here that every supply chain is independent and warrants nuance, however, my objective of the post is to share and shatter some commonly-held beliefs on the state of B2B opportunities in India:
Myth 1: B2B in India is unorganised, organizing it will result in making money!
A standard introduction slide and perhaps the most prevalent trope when making an elevator pitch is that the unorganized nature of the Indian B2B economy presents a blue ocean for Indian startups.
However, this cannot be further from the truth
Unorganized does not equal Inefficient
The Indian supply chain is, for the most part, quite efficient and generates incredible throughput despite structural deficiencies. Consider the following examples:
Businesses in rural Karnataka distribute their products via local state transport buses by placing them in the luggage section of these buses
Local distribution in talukas often functions on the back of a single person delivering products on his bicycle
Now, imagine being a logistics startup wanting to disrupt disruption in rural Karnataka. It is practically challenging for a startup to compete with this system – no level of tech digitization will let you compete at the existing price points in these parts. Yes, one can argue about fill rates and lead times in such a system but then you are really tackling very specific, niche use cases with limited propensity to pay.
A startup needs to break down a supply chain to its nuts & bolts and identify profit pools while being conservative in its cost structure to truly disrupt a lot of B2B trade
Reality 1: Indian B2B trade is unorganized, but quite efficient across several parts.
Myth 2: A B2B company needs to be full-stack across the supply chain to make money
One premise of several B2B companies is to become the Amazon of the industry and control the supply chain: inventory, logistics, payments, the works, etc. In the ZIRP (Zero Interest Rate Policy) era, several companies made the call to drive more GMV (Gross Merchandise Value) onto their platforms. However, more often than not, becoming full-stack adds several layers of costs (vs existing offerings) for the customer – thereby nullifying the value proposition. The recent struggles of giants such as Udaan are a testament to this.
Meanwhile, several prominent listed examples shatter the myth of being full-stack in B2B: Indiamart, Naukri, CarTrade, etc. amongst others.
I am optimistic about full-stack supply chains in some specific categories but as a horizontal trade platform, being full-stack very early is generally a capital-intensive idea. My personal view is to build out a startup as asset-light as possible and build out adjacencies where there is clear scale benefit
Reality 2: Understanding which ‘stacks’ of the supply chain can realistically be improved, will make or break a startup
Myth 3: Selling a lending company as a platform company
One way several B2B companies have sought to disrupt the supply chain is by offering credit to stakeholders to incentivize the flow of GMV through their platform. Mind you, there is no real disruption here as the startup is effectively playing the role of a traditional distributor.
Once you peel the layers of the business model, one realises that there is very little value added to the myriad services provided by such a company. There is money to be made here if one is disciplined about credit and collections (unlikely when a startup is chasing topline growth). However, then you are not a platform company but more of a financier and should be built out as such.
Reality 3: If you need to provide credit to run your business, then you are in the business of credit.
Does that mean I am not bullish about opportunities in the B2B supply chain?
Quite the contrary, in my view, the last few years, have provided numerous structural tailwinds to reimagine B2B trade in India. GST implementation, demonetization, Covid, China+1, digital payments, improved availability of credit, and acceptance of software, have created bountiful opportunities for startups to exploit.
I honestly believe that the next 5-10 years present an incredible opportunity to build several large companies across different categories. However, the bar to succeed is quite high, and rightly so, in the B2B world, real value-add by startups must exceed revenue charged to customers to create lasting companies.
If you are building for B2B in India, do write to me on Twitter or LinkedIn
I would love your (anonymised) feedback! Do share your comments & questions below or write to me @SaneDhruv on Twitter