February, 2012, Volume 10, Number 1
Innosight in India: Five Lessons from Five Years
We are often asked why Innosight, a small Boston-based consulting firm, established an early foothold presence in India ahead of other emerging markets. It started with an idea by co-founder Professor Clayton Christensen. He felt that India had the highest potential to leverage his theory of disruptive innovation. He was inspired by examples such as how New Delhi-based Bharti had deployed innovative business models achieve scale creating solutions across a range of industries, and how SKS microfinance brought financial services to rural villages that had no banks.
We opened our first tiny office in a small town before moving to Mumbai and now Bangalore. Along the way, we've worked with a wide range of clients, from Procter & Gamble to Medtronic, and we've experimented in launching new ventures. At each stage, India has been a testing ground for us around three business models: 1) consulting and advisory business, 2) investing in startups, 3) business incubation services. We have synthesized five key lessons garnered from our work across these business models:
Lesson #1: Serve the non-consumers
The principle of designing for people who have very little came into play during a 2007 workshop with Godrej & Boyce, a large Indian manufacturing company. Professor Christensen concluded that "given the number of non-consumers in India and the inherent value consciousness of the Indian consumer, disruptive innovations will thrive here." The observation helped lead to the development and commercialization of the ChotuKool portable electric cooler. The Mumbai-based manufacturing company committed itself to disruptive innovation in creating a new product platform while aiming to serve the nearly 800 million people in India who lacked refrigeration in their homes. Godrej is now scaling the business across India with unique channel partnerships to ensure they reach the target consumers, recently announcing a partnership with the Indian post office to reach the hinterlands.
Lesson #2: Think "jugaad" to approach problems differently
"Jugaad" literally means work-around with frugal resources. There is no equivalent word in English. Indians have a special pride in their ability to connect seemingly un-related things to solve a job at hand. For instance, in North India, farmers have been known to use top-loading washing machines for churning milk—it's cheap and good enough. We had to learn this concept early in our entry into India. Our bootstrapped approach helped us weather an early backlog of six-months in overdue receivables. The constraints forced us to look at alternative business models. So we jugaadoed our business model before we raised enough capital to begin investing in startups. Once the economic meltdown happened in late 2008, we re-vectored yet again to a services business, developing a business incubation service. However, by then we had a foothold presence and better understood the type of business we wanted to build in India.
Lesson #3: Prove your business model before you scale
In fast-growing emerging markets like India, it is often tempting to leverage early venture success and scale rapidly, trying to figure out the business model along the way. In 2006, Ginger Hotels (a unit of Tata) announced with huge fanfare that it planned to launch 70 budget hotels, offering room rates of Rs 1000 (about $25) with ‘smart basic' services. However, as Indian property prices skyrocketed, Ginger's room tariff increased as high as Rs 2500, and their growth plans stalled (currently, hovering around 25 locations across India). They locked into a business model too early and tried to scale, but market conditions foiled its plans. One of our own ventures, Village Laundry Service, has been in the market for over two years. Over that time, we have been through five business models, from mobile laundry booths, to retail stores, to centralized order processing. We have deliberately refrained from expanding rapidly until we prove which model is worthy of operating on a large scale.
Lesson #4: Invest in the team, not the idea
At the height of our investment in startups, we had over a dozen ventures being incubated at various stages across India. These included a venture that focused on processing organic cotton; a new technology to help preserve fresh fruits and vegetables, and a tele-dermatology business. Each of these ventures had disruptive potential and we saw multiple pathways to achieve financial success. However, we learned the hard way that having the right team to evaluate an idea is as critical as the opportunity itself. As with any new disruptive opportunity, the initial business plan is invariably wrong. And the teams that did well are the ones who had the action bias to quickly absorb learnings and adjust. These teams developed smart experiments to test the assumptions, identifying that were killing the business. This education led to our Harvard Business Review article by Innosight Managing Partner Matthew J. Eyring and board member Clark G. Gilbert in May 2010: "Beating the Odds When You Launch a New Venture."
Lesson #5: Prepare for a backlash by those who are disrupted
One of our ventures was an experiment in shaving products that featured mobile salons. Within hours of opening our first location, we almost faced a riot because the local barbers were angered by the new competition. Another classic example is the challenge faced by Meru Cabs in Mumbai. When Meru taxis launched its Web-based booking service, the local cab driver association created havoc by threatening to block its operations by refusing parking space at the airport. Meru responded to this challenge by setting up a telephone inside the airport which was directly connected to a call center. When the customer picks up the phone, it automatically connects the call center and the customer is asked to give his phone number to which an SMS is sent instantaneously with the car number and the name of the driver. It is for this reason we advise a "test and learn" approach where the premium is on finding a better way. This enables you to cope with the risks that can only come from being in such a chaotic but exciting market.