Why the business of opportunity works well in India?
I am Aarihant Aaryan! Welcome to the Iron Sharpen Iron newsletter,
I share my weekly homework from my startup journey, learning about human behavior, and sometimes decoding industries and business models for fun.
I can’t control my curiosity :) )
India with a population of 1.4 Billion has more than 54% of teens and youth.
India has a working population of 500M - we are still exam-driven not skill-driven.
Even with all government reforms, India is the most challenging country to build a business in.
Only 500K businesses make more than 10crore per annum, and close to 5 million businesses in India don’t even make Penny
Close to 10,000 businesses make more than 500crore in revenue every year
The reason? Our per capita income is meager, most homes are single-income households
India's per capita income is INR 150,000
If you make more than 25,000 you belong to the top 10% of India
Solve for opportunities:
I started looking into top revenue-making tech companies and all of them worked on one common function that made them so much money.
That is the business of opportunity, if most people don't make sufficient money - the best way to create wealth for yourself is by helping other people make money or get opportunities.
In FY 21 - Amazon's total revenue was 16,200cr, and their entire gross merchandise value was more than 90,000 cr.
Flipkart's total revenue was 43,000cr and its gross merchandise value was 80,000cr
We assume that e-commerce is in the business of selling things and making products accessible to us but that's not true e-commerce is in the business of making sellers make more money.
The real customer for Amazon and Flipkart is the seller.
Imo, the very fact Meesho experienced so much uptake in the early days is because of their reseller program that helped people make money by selling products to their circle - no capital business it was. Today meesho GMV is $5 to 6 billion
Zomato has more than 7,000cr in revenue and Swiggy's revenue is more than 5,700cr - they are in the business of helping restaurants more money. Their core customers are restaurant partners.
The stock market is considered a place of opportunity, a platform that will help people make more money, but that is not true - it will help you multiply your wealth and beat inflation but it can't give you the bread and butter.
It is considered a hopium platform, many families in India are opting to teach women in their household to trade and invest since most of them are housewives.
Zerodha's revenue is close to $750M, they are perceived as an opportunity platform that could facilitate all your trades and investments.
In low prosperous countries, - hopium products take a massive rise
The exam is such a hopium product, they perceive it as a gateway to prosperity - Indians spent more than $100M for paying exam registration fees.
Dream 11 / MPL revenues are in the hundreds of millions because they help people make more money by doing something within their capability.
Yes, people want to make money, but their core interest is to make money easily.
Solve for opportunities by building a marketplace:
Amazon, Flipkart, tinder, swiggy, Infra Market, No Broker, Zerodha, and Zepto all of them are marketplaces.
The marketplace business isn't new, it has existed for many centuries - Marriage matchmakers are marketplaces for arranged marriages.
Educational institutions are marketplaces that connect you with teachers and help you get a job.
Malls, airports, railway stations, and local markets are marketplaces - they help shoppers and retailers connect. Fantastic the shoppers greater the cost to rent space in that area.
Marketplaces primarily minimize transaction costs and friction - Transaction cost is calculated in time, effort, and money.
E-commerce companies bring down the transaction cost for sellers by a huge quantum as they connect them with demand.
A product or business becomes successful when they solve frictions and make the user spend less energy, In the early 2000's you had to go to the marketplace - search and buy but look what Amazon has done!
Marketplaces create efficiency for everyone in the ecosystem, which creates immense wealth.
Marketplaces become stronger as there are more transactions that keep happening on the platform that becomes their MOAT over time, also it opens multiple opportunities to different lines of businesses.
As India is a low-trust country - marketplaces are not just a place to connect but a place where there is high trust - high trust is generated on the platform because the marketplace takes all the risk.
All Marketplaces have chicken and egg problems - but the first thing to be solved is supply, the density of supply is correlated to how well the multi-sided platform works.
Final thoughts: I always think in a country like India, where there is a scarcity of money - the best way to make money is by helping others make money and take a cut.
Essentially all marketplaces help sellers or the people who solve for supply make more money.