The ₹41,000 Crore Unicorn You NEVER Heard Of | GrowthX Wireframe

this B2B giant is doing 2.5 times the revenue of Zera two times the revenue of zato and five times the revenue of lenscart but I bet you never even heard of them this is the story of off business and how they breed a 41,000 CR Empire with a pat of more than 400 crores and today I'll tell you the four insights they have used to crack the Ganda in the unsexy B2B industry it all started in 2015 when Ashish mahapatra C his high paying VC job at metrix to start off business Ashish was a high performer he had seen all the peaks of his professional career and I literally mean this even if you see his career trajectory you would see that he has almost done everything he is an Ian he did his MBA from ISB became a consultant in McKenzie and eventually a VC at Matrix through all these years he had analyzed tons of companies and pictures and one thing seemed crystal clear to him that Indian economy was booming and this sector that fascinated him the most was msme B2B sector see MSM and micro small and Med Enterprises that have a revenue of less than 250 crores but this industry is so massive that it contributes almost 30% to India's GDP and provides employment to more than one3 of India and this is exactly where Ashi saw a couple of problems and being the bullish VC that he is he assembled a team of four other co-founders to crack this complicated market and by the way we even spoke to the man himself Ashish who helped us understand the hidden nuances of this industry in a better way so let's get into it with our very first Insight which is which is understanding customer patterns and value chain inside out see the msme industry is very complicated and to create a business here and earn margins you need to understand the value chain pretty deeply and out of all the categories they could have dealt in be raw materials semi finish goods and finished goods the category that excited asish the most was raw materials by the way raw materials have lower margins compared to other categories that I told you about but what makes this extremely lucrative is the higher frequency of capital turns which which makes this a sustainable business if you take Colgate Colgate will have North Bangalore as one distributor and there will be no other distributor who can in turn sell colgate's products there this is for a distributor buying from Colgate so there is a demarcation of a product and a geography cross-section on the raw material side that's not the case raw material side is humongous markets the number of Distributors are also far lesser the margins are much more wafer thinner typically the ability to actually put out that amount of capital is not very high the distributor and hence it's literally Doggy Dog nobody really has a clear demarcation of this is the area that they can do get into and hence it was relatively easier for us on the raw material Choice great so now before understanding what off business actually does let's understand the value chain and let's take a very simple example let's say steel sheets a popular raw material which is used everywhere so be it your washing machines fridge or cars now this value chain starts with a giant manufacturer on one end let let's say GSW who make steel sheets at a humongous scale of lacks of tons in their plants in let's say Karnataka and on the other end you have an SM based out Delhi which could be a fridge manufacturer now jsw never supplies raw material directly to this so between these two parties there are multiple layers of supply chain this layer starts with a giant distributor who is in the same city as a manufacturer which in our example is Karnataka because large manufacturers do not really deal with all the orders by themselves so they need a distri rutor who would take care it for them next in the chain you have a small Trader who is in the same city as the which in our example is Delhi now if this SM in Delhi needs let's say 15 Tons of Steel it cannot buy directly from GSW GSW distributor in Karnataka would sell thousands of tons to a Trader who would eventually Supply 15 Tons to this SM in Deli this is a very simplified way of how the entire supply chain works also there could be a subd distributor and a retailer in the chain depending on the raw material you are dealing in and the quantity that is probably buying so let's say that only wants to buy 5 tons then they have to buy it from a retailer and they cannot buy this very small quantity from the trader so in a nutshell the bigger the chain the more expensive becomes the raw material and now this entire ecosystem is very interesting because the industry runs on only one thing which is credit Cycles the old school danda way of buy now be later no one pays cash up front but before we get into that as you know we've been talking a lot about depth when it comes to solving big business problems so let me introduce you to something that will not only help you solve your toughest problems at work but also help you change your career orbits introducing craft by growth X see the most important leave over to go from early to mid senior to leadership in your careers is by creating business impact at work but how do you create exponential impact while being consumed with your day today that's where craft comes in craft heals Professional Drive significant business impact that is driven along with your daily work to give you an example a growthx member rajish who heads demand for K built a 10 CR event pipeline after applying the Frameworks taught in craft of event let growth today you can access four crafts each focusing on specific business problems the link to check them out is in the description super getting back to the point of credit Cycles see if you're anme who has just purchased raw materials over 10 cres you will not pay 10 cres to the trader today you get a credit line of 30 days to pay it back and it makes sense right because raw materials are not cheap and you're buying raw material which needs to be converted into a product and then eventually sold to a market and during this entire process you will also need to run day-to-day operations pay salaries take care of other expenses so you cannot pay for raw materials up front even the biggest companies let's say ITC dber even they operate on a credit cycle cool now in this entire ecosystem Ashish found out a couple of problems that both suppliers and msmes had both of them had three major problems let's talk about suppliers first for suppliers the first thing was that they wanted timely payments which makes sense right because they have zero guarantee that the will actually pay the money on time because all these relationship that they have withes are based on trust and just wood so there's a chance that might delay the payment and the supplier might have to follow up off business solve this by paying these suppliers upfront in a certain promised time period but what they've done really well here is that they never falter on their promised timeline because of the solid documentations in line the second paino of the suppliers was that they wanted visibility on who actually was buying the product because if you're a distributor and you supply raw materials to multiple traders in the market you have zero idea on which SM is actually buying your product which means zero visibility on your end customer but off business Sol this because they are like the Amazon that connects suppliers with smmes and removes Distributors and Traders in between giving complete detail and visibility of end customers the third problem is limited access to certain level of Traders and smmes what this essentially means is that if a Trader or is not doing well the supplier will also not do well as there's always a chance of irregular quantities ordered by these folks but off business solve this for them as a company gives access to so many smmes across country and it becomes very easier for suppliers to reach out to these smmes so now they have a wide audience to cater to on the other hand smes also had three problems the first is tracking the shipments and real-time delivery because Traders don't give you mobile app for you to track your raw materials you have to call them up and you have to ask them why there's a delay but off business again solve a big problem because they act as a platform in the middle they make tracking easy just like packages on Amazon in fact the ontime INF full average for industry which is a metric to measure the performance quality of ontime deliveries is 60% while off business has an average of 70 to 75% the second problem for smmes was the quality of raw material it's extremely difficult for an to be sure of the quality of raw material in every delivery because it could get damaged during the transit or it might be of cheap quality to begin with quality testing report arrives before the shipment whereas in the case of um if we not being there and they buying from the traditional ecosystem typically the quality testing report comes in months after the shipment not just that they also save smmes from delays thefts and quality check problems that happen all the time in India by also providing an additional service of transportation to do step by the way in case of imported raw materials this is called selling on F basis if the supplier takes care of the entire process of transportation and it is called selling on EX basis if the buyer takes care of the entire loading and supplier does not do the loading and transportation the final problem that smmes were facing was the favorable credit terms in price see smmes don't go to Banks because obviously the hassle of documentation and collateral is crazy in fact one third of them are not even eligible for formal credit so they are dependent on what interest rates their distributors or Traders charge them for their credit cycles and at these times most of them don't even have high negotiating power but by using off business smmes not only get almost the same market rate or cheaper rates for almost 500 plus raw materials like textile chemical agre products but also get unsecured credit at better or similar rates offered by Traders or suppliers that if you want 30 days credit of business can give it to you as long as you are credit worthy if you want more than 30 days credit we can't we you can take it from Oxo if if Oxo is a good enough financier for you otherwise it's un normal by the way this financing and Credit Service lines became so lucrative for them that they even created a separate nbfc called oxy Jo to cater multiple lending solution for these clients and by the way even this company individually has a billion doll valuation the principle for off business is simple do what's already happening in the industry but just do it a little better that's the master class for B2B businesses on user depth and understanding where the value is in the entire chain cool let's come back to the second Insight that off business crack which is nailing low npas npas are basically non-performing assets so while there's a technical definition of it in simpler terms it is basically the amount that may not get get recovered after lending so while the industry average for npas is 4 to 5% off business has cracked an NPA rate of less than 1% see financing industry is huge there are many players and while this business of lending sounds easy at the face value it's really not there's always a possibility that the company might not be able to get business revenues and it doesn't pay back which means that if off business has held a company financing the purchase of the raw material there's a possibility that a company defaults on paying back and off business does not get their money and while the company has separated oxy into a separate npfc arm that does multiple Lending Solutions off business still provides unsecured credit lines on their own platform and in both their businesses they have cracked two things really well one is underwriting and second is collection let's discuss both to simplify underwriting is basically a full-fledged process to judge if someone is credit worthy or not and collection is basically the process of collecting payments back from the borrowers and off business has cracked it really well because they not L to companies who do not have a minimum revenue of let's say 20 crores and do not have a certain level of credit worthiness and what's interesting is that to this very date Ashish heads collections at off business and brings his brilliant discipline to this cumbersome process also another reason apart from the great diligence is the fact that these smmes use off business regularly right just imagine that you're a hospital equipment manufacturer and despite your monthly deliveries fluctuating a little bit you still won't be changing your supply Source every month it's very difficult and this sole fact of being a repeat customer make these smmes pay on time as they don't want to mess up their ties with off business because of the great service they are receiving now coming down to the third Insight they cracked is becoming Amazon of B2B see Ashish has been very smart about adding vles to the business to grab margins wherever he could and honestly in B2B there are basically four ways you can earn money one is you become a distributor or wholesale of raw materials and Supply them to smmes second is you provide a support service like warehousing quality checking and Logistics third is you enter a finance where you basically lend money in the ecosystem to any party and earn interest and fourth is manufacturing where you manufacture a raw material like steel sheets and Supply it to businesses like car companies so once he crack two areas out of these four which is aggregation and financing with off business in oxido he went after the third area which is manufacturing and processing and it's pretty similar to why Amazon started manufacturing their own clothes under Amazon basics and the reason is simple higher freaking margins and higher customer stickiness in fact today this vertical comprise 27% of their business revenue and I'll tell you why it turned out to be another master store by them because once get raw materials they do another layer of process be polishing sorting cutting and shearing and this is exactly where they started to offer this value Edition service and the next thing they went after is manufacturing because they literally have so much data on what raw materials are in demand and what are the the prices and which companies are buying these raw materials so whenever they see a higher demand for a particular raw material and they are not enough suppliers they enter the category by themselves and the way they have entered processing and Manufacturing is great because they have done it by Acquisitions and if you see this list you would see many companies they have acquired over time in different sectors like steel aluminium farm products textiles Etc now coming down to the four thing they have cracked beautifully is zero customer acquisition cost see Ashish has been super focused on profitability since the day Zero he wants to earn profits not holistically on business but on every single transaction a DNA that runs deep into his company and that's why Ashi didn't want to go to the b2c route where you spend a lot of money on Performance Marketing and mainstream advertising to acquire a single customer he thought very differently and in fact created a full-fledged customer acquisition tool called bid assist I'll explain this because it's super interesting now you already know that the target audience of off business has been smmes right and these companies regularly hunt for good government contracts because these contracts are usually big and very lucrative for s in fact in India almost 12 to 17,000 tenders are flown by government every single day now let's say the government is making a new hospital and for this they need operation theater machines so they would flow out Tenders in the market so that all machine manufacturers can give their cat and apply and just put yourself in the shoes of this machine manufacturer imagine how difficult it is to analyze different tenders and figure out your eligibility every day because because every tender has different multiple criterias by the way government does have a website for this called gem where you can create an account and stay updated about trenders but bid assist goes one step ahead and crawls all gem tenders and makes it interesting by adding a touch of AI bid assist not only tells you whether a tender is good for you or not but also give you probabilities of whether you would get the tender or Not by calculating a success rate and since it's a free tool smes easily registered on it and give their details to stay updated about tenders and and this becomes their lead magnet that even has got them 20 lakh smes on platform this is pure genius by the way their financing angle also really helped them in this because lot of suppliers had a problem with their clients not paying on time so these suppliers thought why not share their leads with off business as off business can help these smmes by providing financing and suppliers will get money earlier on to rotate Capal and this is just pure Word of Mouth an infinite Loop to new clientele that got opened for them awesome so these were the four insights that off business used to become a rare case of a billion dollar valuation company that is also profitable that's it for today and I'll see you in the next one don't miss out on checking out crafts the link to check them out is in the description

Channel: GrowthX

Views: 327,416

Keywords: Growth Marketing, Growth, Startups, Digital Marketing, growthx

Id: ssfj6qo3vfQ

Length: 16min 14sec (974 seconds)

Published: Tue Apr 30 2024