General Blog

Analyzing E-commerce startups using basic business fundamentals

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Over the last two years, we have seen a large number of startup e-commerce companies shutting shop or downsizing. Many well-known companies like Snapdeal, Pepper Tap, Flipkart, Zomato, Tiny Owl, etc. reported huge losses, shaking confidence of investors and raising serious questions on the credibility of Indian e-commerce opportunity. Many of these were termed as Startup Unicorns, and were valued at over $1 billion. So how could so many companies, backed by some of the smartest investors go so wrong?

Let’s go back to the basics, and reiterate some high school fundamentals in accounting, finance and economics. The basic purpose of all businesses is profit which is a function of revenue and cost. The aim is to maximize revenue and minimize costs. So what is the basic revenue model for ecommerce companies? Most e-commerce companies earn commissions from transactions between buyers and sellers. Revenue forecasts are calculated by considering the average revenue per transaction and the number of expected transactions. Most venture capitalists and private equity funds over valued startups considering the large transaction volume. Going back to the fundamentals of valuation, a company is valued on the revenue, profit or cash flow the business can generate over the next 5-10 years. In case of many of these startups the metric used was Gross Merchandise Value or simply, Total Order Value, but is this revenue for the e-commerce platform? The revenue is merely a commission on this value unless the company is selling the products it is manufacturing. This led to inflated valuations and gave these companies access to funding which has not been used in the most rational manner.

Analyzing the costs, the cost of customer acquisition was very steep due to deep discounts, freebies, high marketing spend, free returns, free shipping etc. Even though a significant number of consumers have switched to online shopping, the actual reason of this switch is not convenience – but the availability of better deals online. So if the discounts are withdrawn, the consumer stickiness is at risk. The marketing ROI is debatable, and there is no easy way to reduce the cost without impacting customer loyalty.

Another significant cost component to consider is the hefty pay packages being offered to employees. Many senior employees were hired from leading technology or consulting companies globally. These companies have gone to the best colleges including IITs , IIMs , ISB to recruit. While it is understandable that having good talent on board is necessary to compete with well-established global giants like Amazon, it seems the rationality of deciding the salary costs was compromised in many cases.

Another factor which has contributed to failure is hasty decisions made by co-founders to make expensive acquisitions, expanding to new business areas or to new geographies without stabilizing existing businesses, spending lofty amounts on rebranding, etc. While the entrepreneurial spirit in the youth is a key driver of growth in these ventures, guidance and control from experienced industry personnel including investors can be a powerful guiding rail for the journey.

DALAL STREET- MOSAIC ’17

General Blog

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The IILM institute for business and management ,GURUGRAM organised a college fest MOSAIC’17 on 14th and 15th of February 2017 . It is a two day fest with a perfect amalgamation of  sports, business and cultural events where students work  hard to make it a success.

Out of so many events IILM has organised its flagship event ‘DALAL STREET’- it is a share market where buying and selling of shares take place. Earlier there was nothing digital so as a vegetable market there is a share market where in a big hall the transactions between the parties take place. The demand and supply decides the prices of the shares like a vegetable market people are shouting the prices of the companies share and the interested buyer purchases the shares. Sometimes people negotiates with the seller. A similar environment was created in the college event also teams brokers were running for their teams helping or  guiding them in deciding the shares to purchase or sell. The  dalal street atmosphere was similar, everyone was shouting the company’s shares they want to sell or buy. Teams were negotiating on the prices and fighting to earn the maximum profit out of it. There were 3 rounds were teams can buys or sell shares either from exchange or from other teams . In each round the news s flashed and teams have to take decision accordingly on the purchase or sale of the shares. After round 3 teams cannot purchase the shares and the 4th round news is flashed followed by it final price of the shares is also flashed. The team holding maximum net worth wins i.e the one having maximum amount of cash in hand and the maximum value of shares in hand. The event dalal street shows us even after so many technology advancement in the share market the real fun is in the open share market where you can negotiate in person  to purchase or sale of  the shares.

It was a great opportunity for us to be a part of the dalal street team and also learned a lot about how the news effects the share prices of the company, how to minimise your risk with diversification it was like a live project with lot of fun and learning at the same time. Before entering the corporate life getting a chance to work in a practical way which taught us how to work in a team, how to guide the other team members, how to deal with the team mates not working and feeling happy at the end when the team work gives the positive results.

At the end we would like to thank VISHAL GOEL SIR for keeping faith in us and giving us the opportunity to work with him also supporting and helping whenever required  and also the  whole team of dalal street for the hard work.

MANAN KAUSHIK (PG1)

KANAV GOYAL(PG1)

DALA STREET TEAM

mosac

MOSAIC’17- SPORT-O-MANIA

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Sport-O-Mania

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14th February, Guess what a day it was? ‘Game Day’, a day of igniting innovative ideas.

IILM Institute for Business and Management was all set for game fever. Posters all around and decoration was mind blowing. The décor was elegant and traditional.

Day  started with a basketball match. ‘Basketball is not just a sport it’s a lifestyle’. There were 4 teams in total, out of which 2 were selected for a final match. The match was very interesting and all enjoyed the last quarter of the game. The final game was between GD Goenka and IILM Institute for Business and Management, Gurgaon.  What a game it was, Game completely overturned in the last quarter of the final match & in the end it can be only one, GD Goenka won with a score of 51 and IILM was at 44 Points.

The day continued with Carrom and Table tennis matches. Carrom is a ‘strike and pocket’ table game where it is important to follow rules & regulations of land. 20 Teams from different colleges participated and it was a delight in match.

Then clock strikes 1:00 p.m. time for lunch where delicious food was calling at different food stalls.

Post lunch there was a game of ‘Fun Cricket’, sport met with innovation. It was a game of Cricket with a twist in it, with new rules and regulations. A game without sixes, Fun cricket was a team play where there were 6 members (2 female and 4 male participants). 8 teams in total registered for the game and I must say it was a very tough competition.

The event came to the end in the evening with Prize distribution ceremony. Winning teams were honored with a trophy and Medals along with a cash prize and Certificate of appreciation.

 

~ Aditi Gupta
PG 16-18

Girl Up Club Session on Demonetization

Girl Up Club session on Demonetization

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It was a shocking moment for whole world when our Prime Minister Mr. Narender Modi Ji  declared demonetization of Rs.500 and Rs.1000 notes. The decision was taken to curb the black money from the Indian market and control the terrorist activities taking place on a large scale.
Girl Up Club Session on Demonetization Blog

Girl Up Club, that aims to uplift the women and provide them an environment to live with dignity in the society, has recently conducted a session on demonetization and cashless transaction of money in the premises of Navjyoti India Foundation, Gurgaon. The session was conducted with a motive of educating the women and making them realize how easy  it is to move to the cashless mode of transactions. It is very important to educate them because they are the first member of a family and if they are convinced, it is considered the whole family is convinced and thereby uplifting the society.

They were also told about the use of debit and credit cards which will simplify their lives to a great extent. They were made to install the app of paytm and a demo was provided to them about its use. Some of them were already using the app. Dr.  Kiran Bedi-  Lieutenant Governor of  Pondicherry and social activist of our country and founder of Nav Jyoti  appreciated the efforts put in by the club members towards up-liftmen of women and society at large.

 

Are Dividend Announcements Informative Corporate Events ?

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The value of a firm keeps changing due to changes in economic activities. In academic literature, these economic activities are precisely termed as ‘corporate event’. Corporate actions/events and changes in corporate payout policies are important considerations for the finance managers while taking financial decisions. In particular, corporate actions such as cash dividend announcements have information content and are used by managers to signal the future prospects of the firm. They reduce information asymmetry between the mangers and shareholders through the private information reflected in the stock prices. The significance of dividend payment/announcement is expressed by Ezra Solomon in these words: In an uncertain world in which verbal statements can be ignored or misinterpreted, dividend action does provide a clear-cut means of ‘making a statement’ that speaks louder than a thousand words. The same has been expressed by Gordon (1963) as payment of dividends (in the hand) is worth more than retained earnings (in the bush), due to the risk of sub-optimal investment decisions by managers.

Shareholders’ wealth is represented in the market price of the company’s common stock, which, in turn, is the function of the company’s investment, financing and the dividend decisions. Dividend decisions involve the periodic determination of the proportion of a firm’s total distributable earnings that is payable to its ordinary shareholders. They are considered as the fundamental building blocks of the corporate payout policy. Historically, cash dividends have been considered as the most important form of the payout policy. They are one of the principal mechanisms by which firms distribute cash to their shareholders. These decisions typically carry informational content concerning the value of the firm and, by and large, impact the return, risk and liquidity of the shares.
The market reaction of dividends (by and large) in India supports the Lintner’s (1956) model to be the best fit explanation for dividend behavior. Announcements of corporate actions and their impact on share prices are likely to affect the value of the firm and returns to the investors. It implies that dividends serve as a ‘signaling’ mechanism implying the firm’s future promise to disburse free cash flow and positive future earnings prospects. However, apart from the instant market reaction (represented through returns), it is desirable to understand the fundamental and the psychological factors behind these decisions/announcements. The Indian stock market has huge information asymmetry existing between the managers and the shareholders. Dividend decision is amongst the major financial decisions taken by the firm, the top level finance personnel (Directors/ Vice President/Company Secretary/ Managers) are directly involved in taking these decisions. Hence, it also becomes desirable to gauge/understand the viewpoint of the Indian finance managers behind the announcement of cash dividends. In other words, what are the driving forces and the motivations/perceptions of the management announcing these decisions?.
The Indian managers companies rely both on the past dividend and current earnings in deciding the current period’s payment of dividend. These companies also place more emphasis on dividend stability, as evinced by the fact that the dividend practices of Indian companies have been found to be unaffected by the financial crisis. At the same time, dividend announcing companies are considered to have a strong outlook regarding their future earnings prospects as perceived by the investors.In India, cash dividends also serve the purpose to attract more investors. Investors have strong preference for cash dividends, thereby increasing the market value of the firm. Cash dividend provides a positive impact on the firm’s future prospects and facilitates in maintaining a stable stock price. Dividends are a definitive statement about the ability of management to achieve profitable growth on a sustainable basis among Indian investors as supported with Black’s (1986) suggestion; “I think we must assume that investors care about dividends directly”.

The reaction of the investors subsequent to these corporate announcements helps the corporates, practitioners, market analysts, institutional investors and financial system in evaluating financial decisions like payout policy, investment strategies, construction of optimum portfolios and the availability of information to the investors. They would also provide an insight to the academicians and researchers into how Indian finance managers use the assumptions, models and decision rules generated in teaching/making financial decisions. Further, these decisions are also meant to be considered by various regulatory authorities to improve the informational efficiency of the Indian stock market. Since, these corporate actions have signaling power to indicate the future prospects of the firm, it becomes vital for the managers to identify the growth and investment opportunities prior to taking such decisions. At last, the instant reaction emanating, might help understand investors and the firms to examine the wealth and enhance the value of the firm.

References
•Black, F. (1986). Noise. The Journal of Finance, 41(3), 528-543.
•Gordon, M. J. (1963). Optimal investment and financing policy. The Journal of Finance, 18(2), 264-272.
•Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 46(2), 97-113.

Tapping customer cash to sponsor your start-up

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“Money is only a tool, it will take you wherever you wish, but it will not replace you as a driver” Ayn Rand
In todays’ entrepreneurial spree, the terms like angel investments, venture capital (VC), crowd financing are so highly ranked that starting a start-up seems a cake walk. At least, the angels, crowd financing and VCs take away the first biggest hurdle to execute the great business ideas. One person every 150,000 Indians is aspiring for initiating start-up. The notion is that the short-cut to being richis to have a great business idea, arrange finance from the venture capitalists, angel investors or in crowd funding and immaculately accomplish success.
The recent Nasscom report is also an encouraging for the start-ups, according to which India has progressed to third position after the USA and the UK in the total count of the start-ups. India is found to be projecting commendable growth from the year 2015-20 with 9.5% nominal growth, where India ranked first among USA, the UK, Israel and China. The report projected that the rate of the start-ups initiating the new business has increased from 3-4 per day in the year 2015 to 6-7 per day by 2020. The next great news for the Indian start-ups is that the growth rate in India is exceeding the China’s growth rate in the year 2015. The enhanced growth rate is accentuated by the various reforms on ease of doing business, better governance, reduced inflation and reforms on digitization, among other initiatives. With increasing number of the venture capitalists at 156 and angel investors at 300 in the year 2014, Indian investment still contribute only 5% share of global VC funding. Thus, the next question arises what exactly is the criteria to attract VC funding?
The recent research supported that the businesses catering a smaller market than $1 billion of net revenues in the time span of 5 years fail to attract VCs and angels’ attention. The significant market sharebolsters against the possible future market entrants and strive to combat that level of business scale. With this criteria, the petite business models like gardening, music listening groups, or some models for the challenging sections of the society might not fit in it, however the whopping e-commerce, food and beverages, healthcare, might hail here.
Having talked about the business scale, the new start-up model should counteract bootlegging business model, else there is no dearth of the business to introduce the new business model to their existing line of businesses. The promoter’s qualification and professional experience, innovative projects undertaken also attracts the funding from VCs and angels. The extent of imitation can be conjectured from the patents filed for that business idea, and lead time to duplicate.For instance, the ecommerce models with already existing Flipkart, Snapdeal, Amazon might fail to attract many new VCs and angels.
The question arises here that how many business ideas get funded and are able to give good returns to the investors? According to Nasscom and Zinnov, 2015 report, total financing reaching the Indian startups till 2015 was estimated at $6.5billion, but one thig to be noticed that this the major funding has been for the technology related business ideas like ecommerce, analytics, health technology, payment portals among others. According to the Bain VC and PE report, the total number of the funds reaching India has grown by 40% during 2013-14 and India witnessed total of 456 funds. Having appreciated the growth, the number might not look very impressive in comparison to the number in the United States which is approximately 301,300. Thus, two prime issues have been identified here:one is available of the seed, angel or VC, and second is concentration of the funding for the technology related business ideas.
The research team led by John Mullins have suggested some business models which employs the customer cash to execute a business idea. These business ideas can be the rescue for the cash starved startups. He researched on these business ideas after being exposed the foundation of Airbnb. The founders of Airbnb helped some conference graduates by offering them the space in their homes during the conference, and a year later they formally announced the same as their business idea-helping people find an affordable and home-like place to stay. Airbnb made a great headline about their fetching the million dollars venture financing, however, there actual growth came from the advance booking amount that the customers pay them. This advance from customers helped them grow organically and be least dependent on the external financing as most start-ups are. Technically, this is also termed as negative working capital.
The businesses models that require a middleman services to bring together the customers together, for instance the real estate brokers who have no products to sell, but builds trust between two unknown customers and deploy their expertise in carrying out the property deal smoothly and legally. The business models like Yatra.com, expedia.com help customers find the required flights, hotels, or complete tour packages. Ebay also fits in this model of providing a platform to bring the buyer and seller together and charges the fee for their services. Tutorhunt.com is also peculiar for bringing the teachers and students together, thereby charging the commission. The peculiar feature is that the huge investment is not required for the products.
The news headlines like Maruti is accepting the advance booking for their new sub-compact SUV-VitaraBrezza can also be the pathway for some startups where they can come up with the business idea of seeking advance for the job to be done. Consider the model of the construction contractors, who work on the advance payments. The ‘Via world’, formerly ‘Flight raja’, identified that the penetration of the internet users were very limited in India. The website provided real time space to travel agents, for which they sought a deposit of Rs. 5,000 from travel agents. This business was in profits just three months after foundation and was able to attract VCs subsequently. The businesses seeking advance subscription requirements like the coaching centers, newspapers, cable networks, can also flourish on negative working capital.
The youth aspiring to start a startup which is cash starved can count on the aforementioned business ideas to quickly grow and grab the VCs and angels attention. The growth of the new businesses that can prove themselves viable in a short span of time cannot be prohibited. Thus, finance is not the only factor that holds back a startup, it’s the drive in the founder to prepare a business plan given the resources constraint; which can be managed using customer cash, or working out the negative working capital model for your business.

It Is Brexit : United Kingdom Votes To Leave EU. How It Impacts India?

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Announced and confirmed, it is Brexit. The referendum declares Britain’s exit from the 20 member European Union. It will certainly ripple the global economy and markets, may be in just a blink of an eye. But the question now lingers, will Brexit impact India? If yes, will be on the negative grounds, or positive?

In an article in The Wall Street Journal , Grer IP termed the possible exit of the UK from EU as “the starkest repudiation yet of the postwar consensus favoring ever – deeper global integration”

“A further unraveling would undermine global growth prospects already clouded by aging populations and miserable productivity,” he said in the article.

Indeed, Brexit will have a deep impact on the global economy and in turn on India –

1. The Relationship Of Trade, Export And Import Between India And UK 

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In the last five years, the trade has been more or less stable. The figures of India – UK Bilateral trade are considerably going on a much settled note.  Since the two-way trade between India and the UK has been fairly stable, the impact is likeyly to be minimal in this area.

In an article, Biswajit Dhar, a professor of economics at the Jawaharlal Nehru University (JNU) stated “Britain’s exit from the EU probably won’t have any significant impact on this”


2. India Is One Of The Largest Source Of FDI To The UK 

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India invests the maximum in UK than in any other country.  According to Deloitte, as stated in an article, “There are an estimated 800 Indian owned businesses in the UK, including companies like Tata Motors (Jaguar Land Rover – UK Company) with more than 110,000 employees. Further, the UK is also India’s largest G20 investor,” it said.

FDI getting effected by Brexit is an inevitable impact on India.

3. What About The Companies And Profits 

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UK is the maximum revenue generator source for Indian companies. Maximum of Indian businesses choose to establish their European offices in the UK, to gain the flexible working operations in the UK and to avail the benefits of staying in Europe. Removing this gateway would be problematic for Indian businesses in the UK, who may choose to relocate and direct investment someplace else.

Nasscom recently in an article said a Brexit will have a negative impact on the $108 billion Indian IT sector in the short term. However, it said the exact nature and extent of the impact will emerge over a longer period of two years or more.

4. Status On Currency And Markets  

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Wait for the snowball effect on India, as UK and the US takes the major hit back with currency downfall. This might be due to  foreign investors winning over their losses by sell-offs in emerging markets, including India. Global market volatility will be certainly expected, the pound will depreciate against major economizes. Hence, India cannot escape from this, Sensex and Nifty will tumble in the short-run.

“For India, it would be more of a reaction to global news, which does not affect it directly to a large extent, except possibly some of the corporates which have large exposure to UK. Post the knee-jerk reaction, we may again get on track due to benign domestic factors,” said Ambareesh Baliga, an independent equity markets analyst.

5. All About The Commonwealth, Travel And Workforce 

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Britain will always need a continuous inflow of talented workforce, and India has been generating the needs due to its English-speaking population. Migration from European boundaries will be drying up, Britain would will certainly reach out for migration from other countries, which will suit India’s interests.

The UK is one of the most popular destinations for Indian tourists going to Europe. Further, Britain is one of the most important destinations for Indians who want to study abroad. With Brexit, the universities will free up funds and scholarships for students from other countries, just not limited to EU.

References : 
Vox World
NDTV

Top-5-Achievements-Of-Raghuram-Rajan-As-RBI-Governor

Top 5 Achievements Of Raghuram Rajan As RBI Governor

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Raghuram Rajan is the 23rd Governor of RBI, the central bank in India. He assumed charges on September 4, 2013. During his stint of almost 3 years, there are some commendable highlights of his contribution in the financial system that is hard to look by.

Here are his top 5 achievements as the RBI Governor – a financial master who is willing to take challenges head on, following facts and numbers about his work is certainly a hard look away.

1. Inflation

Rajan is known for his primary focus on curbing inflation. His biggest achievement is that he successfully brought down retail inflation to 3.78% in July 2015 from 9.8% in September 2013 – the lowest since the 1990’s.

2. Consumer Price Index (CPI)

Under Rajan, the RBI adopted consumer price index (CPI) as the key indicator of inflation, which is the global norm, despite the government recommending otherwise.

3. Strengthen Forex Reserve

India’s Forex Reserve is now stronger by about 30% than it was two years back. During the recent depreciation, Rajan said the central bank has Forex Reserves to the tune of $380 billion, which is a comfortable level, and would intervene if there was a need.

4. New Bank Licenses 

Under Rajan, two universal banks have been licensed and eleven payment banks have been given the nod. This is expected to extend banking services to the nearly two-thirds of the population who are still deprived of banking facilities.

5. Futuristic

Rajan has made an immense contribution to the field of economics, the greatest being his prediction of the economic turmoil in the US and Europe during 2008-2012. The prediction cemented his position among some of the greatest economists of our times.

Most of his reforms and policies are being praised highly. However, Rajan has been criticized on interest rates and inflation issues. He is known for his forward and practical approach as an instrument in battling the inflation which plagued the nation when he was designated the role of RBI Governor.

Ideation , Innovation & Creativity in Business

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If you want to study business, launch your own startup or manage your family business, IILM is the place for you !

Requirements in the job market are dynamic and change constantly.  At IILM we have introduced an exceptional programme to incorporate the trend of startups and entrepreneurship. We have collaborated with the SBS Swiss Business School to bring to our students the change to earn a BBA in Entrepreneurship. The degree is awarded by the Swiss Business School and teaches modules that are aimed to equip students with the skills need to start their own ventures ,take on the responsibilities of entrepreneurship or manage their family business..

The programme spans over 3 years or 6 semesters and covers a variety of topics starting from the basics and moving up in difficulty. The initial semesters have introductory modules that introduce students to concepts of Accounting, Marketing, Management, Information Systems, Economics, Finance, Statistics and Law. These basics are aimed at bringing all students on the same platform as we have students from varied backgrounds applying to this course. Similarly, Foreign Language is also offered to students over the 3 years in order to diversify their knowledge base and give them an edge in the job market.

After the basics students study modules like Small Business Field Studies, Venture Capital and Private Equity, Entrepreneurship Case Studies and Mergers and Acquisitions – topics related to managing real world situations. These modules as well as the others offered are not only case study based but also incorporate learning through simulations in order to effectively instill the theories involved.Case studies used are from the Harvard Business School so that our students have access to the very best resources.

Experiential learning is also encouraged through Company Visits as a module students visit various companies belonging to various industries and interact with staff and department representatives to gain understanding of the working of the companies and respective departments. In tandem with the aim of experiential learning is the module of Internships. Students are attached to a company for a month long internship during their breaks and learn what it is like to be on the job in real life from experts.

Mentoring is a unique aspect of student life at IILM. Faculty and industry mentors are assigned to the students to guide them through the course of the programme. They advise the students so that effective decisions are taken with regards to modules, internships and careers. Students gain a lot from their expertise and experience.

Our programme is exceptional because of the unique mix of theory and practical application. We have understood the need for dynamism in curriculum and have molded our modules based on the requirements of the time. Our students study with the best resources, the best faculty and the best industry mentors, making them a cut above the rest when it comes to taking on the roles of an entrepreneur or top management of their family business.

Learn more about our exceptional programme at www.ubs.iilm.edu

Ms. Lekha Mukherjee