Small companies's big business

NEW DELHI: Forty years ago, economist Ernst Friedrich Schumacher published in Britain his book ‘Small is Beautiful’ in which he argued in favour of human-scale, decentralized and appropriate technologies which small businesses could harness effectively. Closer home, socialist thinker Ram Manohar Lohia propounded ‘alpa praman yantra’, stressing the need to limit use of technology and exploit the potential of small industries to offer employment in large numbers.
Cut to the 21st century, small is no longer very beautiful. So early last year, R Narayan thought of a business idea that would make India's small and medium enterprises competitive and, therefore, more relevant. The 46-year-old cost accountant focused on one of the ‘costs’ that small businesses find a serious handicap — the cost of raw materials and other inputs.
“If a large-scale industry wants to buy steel in big quantities it goes directly to the steel maker who works out a handsomely discounted rate for it. If, however, a small fabrication workshop wants to buy 50 tonnes of steel he is forced to approach the wholesaler who does not offer any great discount or rebate. If a public sector bank wants to order five laptops it will get a quote of Rs 35,000 per unit but a small scale business will have to cough up Rs 42,000 a piece even if the order is for a dozen machines,” says Narayan.
Narayan had noticed this treatment of small businesses during his stints as the country head of distribution for software giant Microsoft and later as the promoter of Denave, a company that manages the distribution channel development as well as operations for national and multinational corporations.
Power2SME was thus born early last year as an online ‘buying club’ for small and medium enterprises (SMEs). Its business consists of purchase aggregation services to SMEs that include obtaining the best pricing for their procurement, providing doorstep delivery of the material, online tracking of orders and flexible payment options. The company works directly with a large network of vendors (manufacturers), taking title of the goods and then selling it directly to the end consumer (SME). The SME gets a price benefit of about 20%.
The supplier base of Power2SME currently comprises steel, metals, cement, chemicals, paper, plastics and paints and the list is getting longer as more SMEs register their demand.
Says Narayan, “SMEs are often called the backbone of the economy, and offer employment to millions. It’s obvious that if SMEs become more competitive the economy too will become so.”
Convincing either side of the supply chain was however difficult. Vendors were averse to even considering the small customers’ needs. Narayan made them an offer they couldn’t refuse. “We offered to pick up our order from the manufacturing location and also agreed to a milestone-based discount system, which meant that the discount we got went up with the quantities ordered.” Power2SME has tied up with third-party logistics providers who collect material in bulk from the manufacturer’s location, reaload it into smaller lots according to the orders received and deliver at the SME’s doorstep. The SME customers, too, were sceptical about the concept but developed confidence once they saw the benefit. In the first six months of going operational, Power2SME clocked a turnover of over Rs 100 crore and Narayan says this will grow at a much faster pace as the company adds customers, vendors and range of materials. “We are looking at procuring even from overseas suppliers,” says Narayan.
The son of a personal assistant to a jute mill owner in Kolkata, Narayan had worked with a clutch of companies, including Pertech Computers, ICI Paints and Tata Unysis before moving to Delhi to work for Microsoft. He began his trip into entrepreneurship with his close friends Debabrat Mazumdar whose father was a deputy MD in State Bank of India, and Snehashish Bhattacharjee, son of a Planning Commission official who later moved to the private sector. They established the sales enabling services company Denave.
Mazumdar and Bhattacharjee are continuing in that venture, and have left Narayan free to focus on Power2SME. Power2SME began with an investment of Rs 2 crore, but soon got funding support of Rs 10 crore from private investment firms Kalaari Capital and Kanwal Rekhi’s Inventus Capital.
Narayan says he does not want to stop at helping SMEs save on raw material input costs. “The next phase is to help them find customers – both in India and abroad.”