The internet is making price competition more competitive while geographic markets of retailers are rapidly increasing from local buyers to customers across the country and even across the globe.
It has been a neck to neck battle since 2014 when Amazon announced $ 2 billion investment, Flipkart announced a $1 billion investment and Snapdeal was valued at $1,000,000,000 followed by funding from Softbank with investments worth $627 million in fresh capital.
It is the dampening of the valuation game that has recently led the CEO’s of Flipkart and Snapdeal switch to aiming at satisfying and retaining customers rather than talking up their sales numbers.
So, there is a shift from the earlier measure, i.e Gross Mercantile Value (GMV) which would valuate a company based merely on its gross sales values to the Net Promoter Score (NPS) that weighs customer loyalty and satisfaction as the primary basis for a firm’s valuation in the market.
Competition decides survival of the fittest or the exit of the businesses that cannot sustain competition. So, it is inevitable for the entrepreneurs to have a good understanding of their target customers within a particular sector and what their competitors are doing to make profits. To stay ahead of the competition, managers require a constant review of business strategies, but which are not short term.
Techies thrive on solving problems of millions of potential users, set outrageous goals, but the steps to get there are seldom laid out clearly. Chances are, they can’t seem to fathom the incisive questions to ask that would spot where a plan can go wrong.
The world of entrepreneurs and lawyers are not too far apart, considering how some of us, lawyers have to think of risk mitigating solutions for their client’s businesses.
As a lawyer, I act as a problem finder first, to be able to identify potential risks in a client’s business proposition and operations. As a regulatory policy advisor, my job is to dive deep into understanding the regulatory grey areas and to analyze competition concerns – see how markets work and how it may affect my client’s business model. Sometimes I have to think of new business ideas to differentiate the client’s business model, to protect their brand in a competitive marketplace.
It is often seen that innovative business and regulatory strategy is the key to creating and sustaining valuable business models.
So, what is a sustainable business model?
- First, it must be commercially successful – Commercial success is the first step to sustainability in a free market. What kind of products does the market need, and how do you build them? What does the consumer want and what are the deliverables to make the venture profitable?.
- Second, a sustainable business model must be future ready – In a market of volatile competition in terms of prices and innovative solutions how can you be ahead of competitors?. What is critical to dominating e-commerce in India, while the Policy allows 100% FDI only if you follow the marketplace model? What decides winners: discounts, better technology / business solution, valuation, countering competitor’s actions or regulator’s intervention that can erode brand value.
- Third, it must be part of a sustainable policy environment. It is not possible to be a sustainable business in an unsustainable economy. All business models rely on particular external conditions, most importantly on a country’s economic policy and regulatory framework. Can your regulators & competitors let your business grow without legal compliance with existing statues? So, have you adapted to legislations?.
Most emerging sectors and startup businesses make the mistake of focusing only on their valuations and neglect all other factors. They seldom realize that most often there are legislative gaps in newly liberalized policies, an inadequate regulatory framework adding to the grey areas and the government / regulator’s huge discretion can toss your valuations out of the window.
In such situations it is important for businesses to comply with the existing regulations and follow the law than to only go by valuations which later might not be a reliable source of measurement of a firm’s success.
Some practical tips that must be kept in mind for sustainable business models –
- Start the business with knowledge of regulatory compliance.
- Do not operate in uncertainty just because someone is funding or valuations are going up – usually your valuations are based on potential customers / competitor’s market and does not factor in potential regulatory risks.
- Create strategies by thinking deeply on the knowledge you have found and marry strategies to regulations, align strategies to be on the right side of law and policy.
- Consider compliance / training to be an investment like you do for branding – not a cost.
Now that you have a solid strategy you can operate your business without fear or doubt and dash into executing it. You will find that execution will be simpler and faster, avoiding too many gaps that you may have had to fill otherwise.
The environment today, calls for sustainable plans that foresees market changes in the future and can work with minimal regulatory risks.