When we were starting out Saral Designs 3 years back, my Dad told me an old famous saying from the Steel manufacturing industry, “Don’t think about breakeven or making money for the first 1000 days of starting your business, but you need to survive long enough to see the good times.”
Since we have survived the first 1000 days (Phew!), I took a pause to look back at our journey.
3 years ago, we started with 2 key insights:
- The raw material cost in a sanitary pad is less than 20-25% of the price of the pad. The price of pads is high due to distribution margins given to 4-5 layers of intermediaries/ cost of logistics which was higher for pads/diapers being voluminous)
- Women, irrespective of their income, wanted a good quality and high absorbent sanitary pad – because if a pad does not absorb well, no matter how cheap it is, it does not serve its purpose
There were a few social entrepreneurs and NGOs, who had identified the first problem and were making pads using small scale manual machines. These machines required 10-15 women and made less than 1000 pads a day, increasing the cost of production and made product quality inconsistent.
To solve both the problems, being Engineers, we came up with an Engineering solution (of course!). We conceptualized the design of a small scale fully automatic machine to enable local production and distribution of pads at a scale which was economically viable.
A simple (Saral) solution is prototyping
While most people still are surprised when we say our machine is completely designed in-house, we kept the process simple and gradual. We started making prototypes in my co-founder Kartik Mehta’s father’s office with the help of our first 2 interns. We looked at developing a very few critical components first, with the help of which we could make our first pad (manually).
We gave these pads for feedback to our friends, who loved it. Our friends helped us raise our first angel investment round within a few months of the starting our Company. We now had capital to work on adding new modules and automation. We were on the moon and that is where the confusion began.
Solving for the right need
While the process of developing the machine (R&D & hardware manufacturing) is fairly capital intensive, we started selling the pads in the market to get live feedback to make quick modifications. After speaking to a few investors and mentors in our network, we gathered that building a relatable, low-cost brand should be the first step. We came up with the brand name “Aisha” and started selling our pads in urban slums of Dharavi (the largest urban slum in Asia).
Since our machine was not yet full optimized, we were not making any profits on our sale of pads. While we challenged the production model by making it decentralized, we still retained the conventional distributor-retailer route of distribution and started working on creating brand awareness.
In our 1st year, we realized that we had not raised enough capital to build an offline brand. Organic sales were very tough as Dharavi was a very competitive market with many brands actively operating there.
This is when we shifted our focus to rural Maharashtra, where access to pads was the key hindrance in women adopting the product and bringing pads to the door step of a woman was the way forward. Read more about it here.
The response to the product was great and sales in rural areas were almost 4 times that of urban slums. We were able to reach many remote areas where women really needed the product as the women at an average had to travel 4-5kms to get a sanitary pad!
Our process became really last mile and focused, this made it difficult to scale with the limited team size and funds we had.
Brand building needs money!
People often say that you should raise equity investment when you don’t need it. This, in a non-cryptic sense means, only raise money when you are not desperate and have already found a way to survive without external capital.
But when you are running out of cash, you try everything. I think I would have met at least 100 venture capitalists, social impact investors, angel investors in the second year of our business.
- Some suggested to build an online brand (effectively, changing our target audience from low-income to high income women)
- Some questioned us that why are we into manufacturing at all – that we would be able to raise funds easily if we would focus only on building the brand and procure sanitary pads from China and create a distribution network in India
From a Venture Capital perspective, it was an easy path to acquisition by a larger company. Was our attachment to our own technology bringing us down? Was brand creation the only way of value creation in this sector?
Creating a buzz
Internal team size was limited, but talent and resources are unlimited, if we could find the right partners. We started writing articles, sharing stories about our work in media to put across to the world on what we were upto.
We had some amazing mentors who helped us rebrand to Active Ultra with better communication with the customer, highlighting the features of the pads that really mattered to a user.
Listening to the customer
Interestingly, with the buzz about our work, we were getting a lot more interest from people to buy our machine technology. Entrepreneurs from Tier-2/3 towns, NGOs from India and other developing countries were reaching out to set-up our machine and sell in their own brands (or white label). We ignored these requests for a long time since we were focused on building our own brand.
A friend once told me, listen to those who give you money. There were customers willing to give advances for buying our Swachh machines, even when we had not sold a single machine. We just thought of experimenting a bit and explore the machine sales model in Bangladesh first (read more). After 6 months of successful pilot at Bangladesh, we realized with appropriate training to the entrepreneur, selling machines to entrepreneurs really made a lot of sense. Though we did not hold on to a common brand, we, as a company, did not have to invest heavily into machines, to increase our reach.
Listening to the customer, we pivoted to moving from a “single brand decentralized production model” to a “multi-brand business in a box model”. And, to our surprise, it had multiple advantages –
- Localization of brands: Each location where the machine is installed has a local brand name with localized packaging. It creates a higher sense of belonging for the customer, – “this pad is made in Bangladesh/ made in Nepal”. The local entrepreneur also brings in a wealth of local insights and networks to have a more engaged market penetration.
- Customized pricing: The paying capacity of a customer in different geographies varies significantly, and so do the costs (like rents, labor salaries etc). Having different brands in different regions provides flexibility of selling the product at different prices, enabling healthy unit economics for every manufacturer and better pricing for the customer
- Product customization: Different manufacturers can choose the shape, size, type of sanitary pad that works best for their geography and order a customized machine
- Access of funds: For one entrepreneur to set-up 600 machines across all districts of India, requires a significant amount of funding. But, for 1 entrepreneur to set-up only 1 machine, financing is available via several government loan schemes, like Mudra loan, Stand-up India, PMEGP etc. Multiple NGOs also have the capacity to raise smaller grants to set-up 1 machine in their target geography
And, here we are. From 1 machine and 20,000 happy women, we are now at 15 machines and 300,000 happy women without raising any external venture funding.
While we arrived at this model after several iterations of brainstorming sessions within the team, design thinking workshops, meeting industry experts, I later found that there are many books on “Customer funded business” written by experts.
Before I go back to my daily work, here is something really important about running a startup.
DO NOT DIE
Necessity/ Perseverance/ Desperation is the mother of Invention/Jugaad/ Frugal innovation.
While we were seeing some small successes, as a hardware company focusing on R&D and last mile delivery, our costs were quite high. Every month almost felt like the end of funds. Some not-so-obvious money management strategies came really handy to us and we found a way to survive.
- Assets to revenue: We had a machine that was being used for in-house production which was a fixed asset for us. One of our really early supporters and a keen believer in the Company, purchased the machine from us in a “Franchise owned, owner run” model: where he owned our machine and we continued to run the production and share a profit margin per pad with him. Converting our fixed asset into revenue helped us with our cash flow.
- Credit, Cash and Fixed Deposits: In our good times, we had made Fixed Deposits for procuring credit cards for key employees for office expenses. Since many payments cannot be made through credit cards, we cut the credit limit to half, withdrew half of the FD amount, adding to our cash inflow. This is just one of the various techniques of adjusting cash in hand, cash in deposits to manage cash flows better. We also extensively invested in relations with both suppliers and buyers to get better credit terms which significantly reduced our dependency on external capital
- Transparency: Though it is extremely heartbreaking, but there were a few months, where we had to delay salary payments to manage cash flows. In times like these, the team at Saral showed amazing solidarity and stuck together. What everyone told me later, was that everyone had visibility of the cash flow situation and also immense hope about our future prospects, hence, they could have faith in the Company despite the ups and downs. Even our interns knew how our unit economics worked and how much sales we needed in order to survive, which made everyone work harder towards achieving their targets
- Start-up grants Awards: The start-up movement in India has brought about many opportunities for entrepreneurs to apply for small grants and awards even when they are in their idea phase. As a commitment to the Open Sourcing movement, here is a list of some grants that we found helpful for hardware and social startups. Enjoy!