Powering the SMEs the Narayan Way with Power2SME

R. Narayan’s tryst with entrepreneurship started with his first job at a startup that had only him and his boss. He is now the founder and CEO of Power2SME. A cost accountant by education, most his earlier stints were in marketing and sales.

From the startup, he went on to become the Sales Head for the Eastern region at the Tata group. He was then hired by Oracle for their sales team as Regional Head for the Eastern Region, where he cracked a good number of enterprise deals. From Oracle, he became the head of SME channel distribution for Microsoft. This rounds up the varied experiences of Narayan across diverse sales roles.

Talking of his role at Microsoft he says, “When I joined we had 200 dealers across the country, and the mandate was to increase it to 2,500 resellers.” Account of 3000 resellers was achieved in 24 months itself. Narayan was quick to grab an opportunity that presented itself. He explains, “I realized that

Microsoft wanted business services and there was nobody there. It means this was an open territory. After achieving the target, I quit and started my first company, Denave.”Denave India, which has been running for 14 years and has over 3500 employees, with footprint in Indonesia, Australia, and New Zealand. “My customers there are Nokia, Cisco, HP, Lenovo and Microsoft,” he adds.

The idea to start Power2SME came about during Narayan’s experience on the field. He says, “I used to deal with both the SME and enterprise segments. I would see a request coming in from an SME for a laptop, which would be quoted at Rs. 42,000. A similar request from a large enterprise, say SBI, would receive a quote of Rs. 28,000.” With 70% of Indian job market powered by SMEs, Narayan felt this was an unfair gap between SMEs and enterprises. In 2009, he conducted research using IIM-Lucknow students which validated this notion of unfair advantage enjoyed by corporates. “If you look at bodies like FICCI, they are represented by large companies and they lobby for these large companies. SMEs don’t have a voice there,” he explains.

Narayan decided to build a portal where SMEs could submit their requirements and he would buy on their behalf.”

An SME with a turnover of Rs. 120 crore - Rs. 10 crore a month - laptops and PCs are just 5% of the total spend. Rent and other purchases make up 80%. So Narayan decided to play in this 80% space.”

Power2SME was started as a subsidiary and when sales ramped up quickly, it was incorporated in 2011 as an independent company. The business built up rapidly and Narayan beams, “Today my monthly revenues are over the tune of $1 million [approximately Rs. 5.2 crore], 10,000 SMEs are registered on my portal and over 70% of my customers are repeat.” Power2SME supplies inks, steel, polymers, paints and chemicals & additives to SMEs, procuring these in bulk from manufacturers. For example, if a business wants 10 tonnes of polymer every month, it approaches Power2SME. By clubbing similar demand from other SMEs, bulk orders are placed, creating a win-win situation. This is what has led to the stickiness of customers for Power2SME. Inventus and Kalaari Capital invested in Power2SME, in quick succession in 2012.

Narayan believes in testing new waters when he starts businesses. He consciously didn’t approach his former employer Microsoft, for the first 4 years after starting Denave. He did a similar acid test with the construction sector in Delhi for Power2SME. It worked because he leveraged the Internet to good effect. The business model is simple, and in Narayan’s words, “There are a lot of people doing the matchmaking between SMEs and suppliers, but their model is completely broken. What I do is to group SMEs and procure from suppliers at much cheaper rates.” Elaborating on the business model, he says, “Growth was pretty rapid because I was not creating a new market or building anything new. I just targeted the existing SME who needs 20 tonnes of steel every month. All I said was that I would procure more efficiently. Getting suppliers to believe our model was key, because they don’t look at the Internet all day. The supplier is a guy who just puts his head down and gets the line work done. He doesn’t understand what the Internet can do for him, and how his supply chain could change.” Steel Authority of India was an early adopter of Narayan’s model. Convincing GAIL and SAIL to supply to SMEs was tough initially. He knew that making piecemeal purchases from suppliers would impact his margins. Talking of this, he says, “I realized that plastic, steel and polymer are the largest chunks of material that SMEs are looking for.” So he grouped SMEs based on their needs and began purchasing to the order of 40 to 50 tonnes of steel. This bulk purchase tremendously helped in cost savings for SMEs.

Getting SMEs online wasn’t much of a problem because of the e-commerce boom. SMEs had come online already.

SMEs are very much dependent upon raw material supply to keep their businesses running. Hence, for Power2SME the perennial demand exists for supplying materials. Power2SME makes money simply, through margins that exists between their procurement price and the price at which they sell to SMEs. After all, if SMEs were to approach suppliers directly, they would have to pay much more than what they would pay Power2SME. SMEs do face cash flow problems that hinders their business. Narayan is helping SMEs raise money from banks by convincing banks to lend to SMEs. Banks that are usually wary of advances to SMEs are now warming up to them.

Narayan realized the benefits of having an investor early on in this venture. When he started Denave in 2001, he didn’t know that VCs existed. “This time around, I decided to go to an investor soon. I can’t do what I have set out to do without support as this business needs massive scale,” he explains. A round of investment is usually to the order of Rs. 10 crore. Vani Kola from Kalaari and Parag Dhol from Inventus are on the Power2SME board. Narayan credits Vani with thinking out of the box and adds, “She brings lot of energy to the table. If I give her an idea, she is able to crystallize it and tell me how to run. She has been there and done that.” He adds, “They have also opened up doors to a lot of potential partners. When people of that profile put you in touch with someone, it really helps.”

Narayan expects Power2SME to be a Rs. 150 crore business next year. And in five years, he believes that becoming a billion dollar company is a good possibility. 40% of steel manufactured in India is consumed by SMEs and steel industry transactions are valued at Rs. 60,000 crore. Power2SME has recently opened up in Mumbai, Gujarat and Rajasthan and is doing about Rs. 1 crore every month in these locations. For the next leap, he says, “The only thing that is very important here is discipline. Choosing the right SME, ensuring that the is not going bust soon, and getting all the documentation in place are the right things to do here.”

SMEs are always operating on low margins and don’t spend on R&D, for example. Talking of possibilities, Narayan promises to increase EBITDA for SMEs from, say, 5% to 8%. He says, “The extra money you generate can be put in sales and marketing, and more importantly put it in R&D. Engineering consultancies can come up and solve these problems.”

Instead of operating as a one-person company, Narayan recruited people right at the beginning. “I immediately hired my head of sales and head of purchases. These are two highly entrepreneurial guys,” he says. One was from Bajaj Auto. The other was in channel sales and had come out of a business following a difference of opinion with his partners. When the investors came, Narayan’s operations were 3,500-people strong. Because he was an entrepreneur before and had proven by scaling this business, credibility was not a problem. He is frank to admit that the two professionals might not have joined him had he quit a corporate job to do this business.

On his exit plans, Narayan explains, “If I can become a Rs. 5000 crore business in 5 years, IPO is the best exit.” He believes that India needs good exits for building up a robust ecosystem for investors and entrepreneurs.

This success wasn’t easy. The first six months after he started Denave Narayan was blinking at exit. It was his father who arranged for cash to keep the business running and told him, “If you still can’t turn around in three months, go back to the corporate job.” Luckily, he bagged two corporate accounts and then there was no looking back. Hailing from a typical middle class background, he wanted to prove himself after his parents had so much of faith in him. “They spent all their money educating me,” he says.

Narayan advises entrepreneurs to build a good team early on, which he thinks is crucial for success. This apart, he adds, “Establishing ethical values in your business is very important. Then business will automatically start coming to you, and you don’t have to chase anything if you establish credibility.”

What he learned hard is that raising money early on is important. He ruefully says, “What I had done in 14 years with Denave, I would have done it in 7, had I raised money. That was definitely a learning.”

We are surely rooting for Narayan to build the billion dollar company!

Website: Power2SME