What hitech Entrepreneurs can learn from a Sabzi Waala

For our foreign friends, a “Sabzi Waala” is a small road-side vegetable shop found commonly in India / Pakistan. The people running these have typically not gone far on the higher-education track, and many wouldn’t be able to write or read well.

I was buying vegetables the other day and the way I am I thought I’d spend the time to learn a little about his life from him. So I asked him about carrots “Why is the price high here in the off season?”

His response made me feel like asking him to start a blog. He said:

Look, you have an increase in demand for carrots right now, whereas supply is limiting, so prices have to go up as we compete to get our goods from the wholesalers and distributors and their limited supply.

You see, you have to think that with the summer heat and rising costs of commodities, most people today would prefer a quick vegeterian meal rather than a bigger meal with meat – so you take your potatoes, capsicums, onions, 1/8 kg carrots etc and you can get by for a couple of days.

We have to forecast this in advance to get carrots on time. To get these carrots, in fact, I had to really cut some harsh deals with the distributors.

Think about it — if someone comes to me today and gets onions, potatoes and capsicum, but I say I dont have carrots — what will he think? It doesn’t matter if I have 5 of the 6 things a customer needs, he is likely to say “Well why dont I shop at the one place which has all 6 items instead of dealing with two people”. So even if I carry all the 5 other things, I lost a customer didn’t I?

So we’re actually selling these carrots at loss here – sometimes you have to sacrifice the margins on one product to ensure you retain customers. Sometimes you make a loss at one thing so that the whole suite covers for it.

Well said (and he literally said margins and the last paragraph)! Maybe he should be a guest writer at G&W.

So why should all these proud, cynical, “techy”, geeky hi-tech entrepreneurs with access to VC funds or with “tens of dozens of customers” (you know who you are) care about what a vegetable man says on a street corner?

Because almost every month I meet one or two tech entrepreneurs running 10-20 person companies who have no knowledge of running businesses by creating a value-chain in their operations. I always offer to help them — often for free — but typically get smug answers about how no one but them would know how to run a PHP development shop.

These people are way too focused on building the next “.NET library that can optimize data access by 20%” or the new “video portal with a predictive analysis engine that gives better search results” — losing complete sight of what they are actually doing! Building a business!

Understanding the value their customers want from them! Seeking distributors of that value! Managing the logistics of that value!

Here are some of the key lessons a vegetable man in a street corner can teach hi-tech entrepreneurs.

1- Understand your Marketplace

No, I dont mean understand your customers, your target market, blah blah.

I mean, understand the one abstract item on which transactions occur between two people. Who is consuming or producing something? How much of a premium can you get from the market today? What forces affect this balance and how can you remedy them? It is economics-101 but grease up your mind with it.

For carrots, one marketplace are people willing to consume carrots for eating. Another is a group of people consuming shipments of carrots for retail which distributors are “producing”. There are mini-supply-chains in place here.

For your hitech product, there might be people consuming Shipments of Information (in case of Weblogs.com), consuming the unique social status of a stranger (in case of MySpace), consuming your taste in photography (in case of Flickr.com), or even consuming their own creative talents (in case of Zazzle.com and SlimDevices)

The marketplace MUST be identified first. The platform comes next. The technology-stack and the “cool P2P algorithms” are irrelevant.

2- Understand your product

Oh but you’re a “services” company? Well in that case YOU are the product; your insight is the product; your unique secret sauce or trade-secrets are the product that you are licensing.

In other words, what people are willing to consume from you at a premium is the product. Take time to understand it.

For carrots, all of the vegetable Suite is the product, not the carrot itself.

For hitech ventures, find out what people want to pay premium for before you make yourself into a hitech venture in the first place. The example I give is

“What if your consumers want to pay premium for paying utility bills in an easier way? One option is to build a highly-scalable mobile transaction management system running over ATM networks. The other is to do what Pakistan Post has done“

To get this premium, you might realise that you need to build a long product suite, or you may identify strategic integration requirements with popular software suites, or you may need operating partners to further build value on top of your product before it is ready for consumption.

Note: Your product in turn become your commitments to the people who come to shop for you.

3- Find the quickest way of sourcing that product

Build VS Buy?

Why doesn’t a vegetable shop owner start growing his own crop on the street corner? Obvious, right? It is more economical for him to partner with distributors – they allow him faster time-to-market and greater volumes of shipments to better meet demand.

Note: this isnt validation for the offshore model or the open-source-business model.

Instead, hitech entrepreneurs need to think about whether it even makes sense to build a product in the first place – maybe it would be just much simpler to get a license of an existing engine that allows you to whitelabel and rebrand it (Zimbra / HTC / others) and sell to a niche.

On the other hand – the item consumed in the marketplace might be so rare, and the premium large enough, to justify building it yourself. Gold carrots studded with diamonds might be an example.

4- Find the Total Cost of Ownership (TCO) for customers working with you

Again, I dont simply mean cost of servers ; hosting VS firewall deployment ; blah blah.

If the product is the whole suite of vegetables required for making a meal, then how much would it cost the customer to get the product?

If you dont have carrots, the customer will drive to you, buy 4 things, drive elsewhere, buy 1 thing – the total cost includes driving, fighting traffic, walking from parking lot to the storefront, checking out, dealing with people, bearing the heat, spending petrol, and more.

In other words, the customer would just rather save this economic cost and work with the person who has the whole suite of vegetables to begin with, carrots included.

For hitech ventures, its not just infrastructure costs, but the pain of actually putting it together, learning it, feeling comfortable with it, and dealing with abnormalities.

This affects the plan you have for customer support, product training, product development and more.

From a technical standpoint this is the area where Usability Design matters. Its not about making your interfaces prettier, cleaner, putting in “breadcrumbs” and “features”. Get over it.

It is simply a matter of reducing the incentive your customer has for dealing with some other vendor instead of you.

5- Forecast the Puck!

I think roughly half of the Java development firms I’ve come across missed the boat when the industry shifted to .NET and mobility. Oh wait, I’m talking tech…

Ask any VC and he will tell you that one of the biggest reasons for startup failure is cashflow management, and limited, poor or non-existant ability to forecast changes in the marketplace early enough in the game.

For Carrots, the change that heat and rising costs bring to the vegetable shop’s marketplace is collective-value and personalization.

It used to be that people would go once a month and get carrots for the whole month, and many people may still do that. There are, however, this niche set of consumers who only want to buy 1/8kg of carrots that last just a few days — who would rather cook on a “Just-in-time manufacturing” model depending on the amount of heat, stress and budget relief available to them at any particular day.

By forecasting slumps, or changes in the consumption behavior of your marketplace you will be able to change your operation plan accordingly.

Personalization, or micro-markets, made popular by the Long Tail meme, is also a trend that was picked up by Zazzle.com, MySpace, WordPress.com and others to build products that succeeded in all micro-markets.

6- Finally, know your margins

So you must have heard that its a bad idea to stretch yourself too thin across too many channels.

I say its a bad idea to stretch yourself across business lines that are not complimentary or highly integrated, but diversifying your risk across different channels is useful.

These channels can be as simple as four different packages of your basic product, or as complex as unique business lines that support each other.

Understand all the different marketplaces that exist around who you are. If you choose to take a loss in one place to retain customers, does it necessarily increase the revenue from the other channels?

E.g., you might be a performer (askaninja.com) and realize that even if you give your basic show away for free, there is a marketplace for people who would want to pay premium for “previous shows” packaged in a DVD, or for seeing you perform live.

The Freemium model for distributing software was also made in this way.

Conclusions

As a tech entrepreneur, sure you could “just get going” and — with the recent history of bets — you may have a 1-in-10 chance of success, which is decent.

But there are certainly things you can do to improve your chances, and that involves either studying value-chain management or work with someone who’s made $$MM value-chain decisions before. Get a consultant or Advisor or Board Member who can provide you with this insight.

Dont carry the attitude that says “But the consultant will just make a report with recommendations — cant we just use that money to hire 3 more developers?” That will almost surely kill you in the market of creating unique value.

Instead, be a Sabzi Waala, and be proud to own sustainable operations.