How to start a business in India - what to do and what not to - a thread. By the end of this, you'd know whether you should start a business, and how to go about it. (I run a gourmet food manufacturing company)
This is by far the best time to start a business. Your jobs have no security, and those with job security should even more strengthen their jobs by creating passive sources of income (not very passive atleast initially).
Should you start a business in India? If you're thinking of a traditional business, like restaurants, juice shops, manufacturing units - it's still possible to succeed, but you'll drown in regulatory bullshit and corruption that's deeply entrenched before you see any success.
I started Hankavalshier's back in 2016 when there were only 2 peanut butter brands (funfoods and sundrop) and both tasted like shit. I thought I could figure things out along the way and when i got my first b2b order, I put in my resignation at PayPal and decided to focus on this
I spent close to 1 lakh (back in the days of VAT/CST) odd rupees in registration for all legal procedures/licenses. Looking back I was a dumbass and a naive person to have spent so much on the legal processes that were largely unnecessary.
I took b.s advice from a CA, registered my company as a private limited, did unnecessary license registrations for pf/shop&establishment and so on. Trusting in that CA, as part of that 1L, he said a good portion of it was bribe. In reality, he swallowed most of that money.
For FSSAI license (1 year is 3k rupees in state license) he got 25k from me, and said close to 15k was bribe and remaining was his fees. I didn't know who else to approach, so I paid this too. Largely stupid looking forward, but also I was at a phase where I was gullible.
So, these charlatan CAs just enrich themselves in the name of helping you. In reality, for VAT/CST, or GST, company registration, FSSAI registration - for none of this you need a CA. You can do it all yourself, or directly go to the respective gov offices and they will help.
I took advice on PVT LTD being a better option keeping in mind future growth of company, and I trusted that and registered as a Pvt Ltd - and have been drowning in regulatory compliances ever since.
The difficulties in running a traditional business are as follows:
1. Commercial EB is a huge headache, and if you have machines and need capacity in higher KWs, you better be ready to shell out lots of money to even get the capacity expansion approved.
1. Commercial EB is a huge headache, and if you have machines and need capacity in higher KWs, you better be ready to shell out lots of money to even get the capacity expansion approved.
We needed 30KW, and we were asked to pay 65000 rupees by the AE of the branch of TNEB where we applied. He said he had to establish transformer and all that bullshit. We knew corruption and bribery was involved, but we didn't question it as we had to get the capacity to run.
We paid that amount in July 2019. You'd think if you complied and gave the bribe, the work will get over soon. There's no way you can get anything done in India without bribe. But that's not what happened. Even after fulfilling their wishes, our registration was delayed for long.
The branch AE didn't want to split his "kimbalam" (bribe in tamil) with his superiors, so he only approved what was in his capacity. We'd requested for 25kw, but he approved only 20kw, that's after us walking to EB office for 20 days between July and October asking on status.
By october he'd approved only 20kw, but it wasn't uploaded to the system, so we had to pay like 3k in penalty. We asked them to close the application with full 25kw load, he said "utilize this first, and pay next bill, will increase the 5kw".
So, because he didn't approve the extra 5kw (since it had to go to AD for approval and if it went, he had to pay AD some of that kimblam), december month, we got an extra demand penalty of 10k. I was beyond pissed. They gave me a receipt for 20kw and it said 16k odd rupees.
So, the total govt fees for 25kw expansion was 22k odd rupees. And this AE got 200% of that as bribe - and was still dragging us every day every month, resulting in us having to pay penalty for his fucking greed. We were close to begging him to grant approval.
The penalty kept coming for december month, february month also. He said he'll close this by jan, and jan turned to feb and then march - and then my father and I lost it - went to his office, blasted him for the way they are treating us despite paying everything upfront.
After like 60-70 visits and 100s of calls, the guy applied for 5kw remaining to AD and we had to make some calls to head office ourselves, etc., and by march 10th, we got the extension of 5kw remaining. By which time we'd already paid close to 20-25k in penalties due to this.
So, you pay government fees, and extra amount to "gavanikradhu" for these imbecile officers (no way around) and all these penalties, and still you'll be made to go merry go round chasing tails until you either give up or die or they grant some mercy. This is the state of EB today
2. If you're setting up a restaurant or mfg unit, etc., there's a lot of upfront costs in terms of machinery, and other related things. All the capital expenditure will cost you a lot of money and a lot of suppliers just fleece you out and out.
3. Rental is another straightforward but difficult part. Some people just charge exorbitant rates for properties in remote areas also that aren't worth that much, even for those which have been unoccupied for months. You have to do hard bargain and even then, you may not get it.
So, when you start a business, a lot of these costs are going to eat up your upfront capital. Outside of this, the amount you pay to CAs for doing things that they aren't needed for, the money you lose by trusting people who are only in it for their self-interest, etc., is huge.
4. Once you do this though, comes the earning part. For first few months to few years, you wouldn't see any net-profit. Sure there would be gross profit - but all that would go into improving your infrastructure, setup, reinvesting back into business, or in fixing dumb mistakes.
Even if you do all that, by random chance, others, your employees, vendors, your clients will fuck you up good. Suppliers will ask for 100% upfront payment. Clients will ask for credit and then not honor credit agreement and delay payments (sometimes for a year or more too).
Business as such in India is happening by the churn of small guys. It's a food chain. Those on top exploit those below them and it trickles down from top. Most businesses run with their vendors money and not with their own. Almost nobody honors credit agreement.
And in industries where the credit is against a physical product delivered, you lose all leverage once your product is in the client's hands. They take you for a ride and teach you life lessons along the way. Some even behave like you're begging and like they have to give you
their money. You are made to feel embarrassed and depressed for asking for what's rightfully yours. That's not a good position to be in, especially in the initial stages of your business. This is more so applicable if you're a manufacturer.
Indian legal system is also the worst kind of pathetic fucking hellhole that no matter how many cases you register, the only person it will affect is you - in all the bullshit you'd drown in. You register a case with MSME, and they don't even fucking pick it up for months.
But they get a mandatory payment of 1000 rupees for picking up the case upfront as demand draft though. MSME Samaadhan is useless. I registered a case against Drunken Monkey for default of payments in January and the case still hasn't gotten picked up even after paying.
If you go to court, the bigger guys almost always manage to win. Make in India, support MSMEs - is all bullshit. @PMOIndia will do no shit to help SMEs. What these brands do is that they tell you they have 30-45 days credit period, and they won't credit your money unless you ask
They will do the first or second payment on time. But then they will start slacking. They won't pay unless you remind them. They will think they are doing you some service by taking you on as a vendor. Some won't pay even after you ask several times, even for a year.
Some will go beyond that and treat you like a beggar for asking your money. Some will talk like goons and rowdies (like what happened with Drunken Monkey franchise in my case). Some just won't pay no matter what. They consider vendor money as interest free loan.
Banks charge 18-24% for collateral free loan. When you get that from vendor, and vendor has no leverage or wherewithal to pursue legal recourse, you can take advantage of the small guy and give him a run for money.
And so many brands don't even care about quality of products they use. They care about cost cutting and putting most of the money into their pockets as profits. So, they compromise on quality, health factors, and buy absolute garbage if someone else offers for a lower price.
This is especially very much pronounced in the food industry as it directly impacts consumer health and these owners just don't care as long as they get the profits. Vendors are pitched against each other on price, and there's always some new bakra coming in as vendor.
So, these brands and customer facing companies keep using this churn for their advantage and take all the interest free collateral free indefinite period loan they get and give you a run for your money. No two ways about it.
For instance, nature's basket charges 15 lakhs upfront deposit for onboarding, 45% margin on MRP, 5 lakhs per sku shelf cost per month (200g salted peanut butter is one sku and so on) and 6 months to prove yourself as brand, and return to vendor of all products that aren't sold.
In addition to this, they have a settling/credit system of 6 bills. Which means your first bill will be paid after your 7th bill. In my case, for one product to breakeven, i had to sell 10L worth of goods pm. Anything i sold above that is profit.
To drive that kind of sales, you need advertising and brand placement. Advertising in any form of media goes in lakhs. Social media advertising just won't cut it if you have to make such sales. You need TV ad spots, newspaper ad spots, etc.
So, when you calculate the effort, i needed to sell atleast 10k jars of 200g peanut butter per month. I don't think people buy that much of any brand in nature's basket these days.
And if i would get 1st bill after 7th bill only, at any time, I would have atleast 2-3 crores stuck with Nature's basket. If my brand doesn't perform, they will remove it from shelves, send all goods back after expiry and cancel the bills stating this reason.
There have been instances retailers sneakily put products behind counters or took them off shelves without letting the brand know, and then returned everything after expiry. Some brands find out by visiting the retail outlets now and then. Some are oblivious.
And they keep collecting shelf costs every month from you even if your product isn't visible or on the shelf. This is very very prevalent. Nature's basket, AB More, Reliance Fresh, all of them pull such shady shit.
So, if as a brand, the only way you can go into mainstream retail is by having atleast 10 crore upfront capital, you'd rather do better putting that 10 crore into deposit and living off the interest. Coz even after 6 bills, there's no assurance these guys will pay.
So, add to the legal overheads also. Coz you'll definitely need a strong network of lawyers and influential politicians/bouncers to collect money. Even if you have these, the bigger guys always win. So, can't fight the big guys and win. Even star hotels do this.
Other hurdles in running a business comes in hiring. If you hire family members/friends, you're punching a hole in your business before it even begins. By the end of it, you'll either have a strong family or have strained your relationship forever with the person.
It's often tempting to hire family/friends when they look/seem interested in the beginning and are also willing to work for lower pay or no pay initially. But trust me, you're better off hiring people properly and paying them properly. Even though it may cost you upfront,
You'll be able to get better output for long term results than if you hired your family/friends whom you can't reprimand and if you do - it strains the relationship. Sometimes the family/friends aren't as talented/interested as you thought and it's hard to let go of them.
Then once you have all these taken care of, you're often going to have to compete on price. No matter how much you lower your price, the competitors can stay long enough in the game with a lower price and kill your business. Initially you can't afford it as you don't have scale.
Economies of scale kick in only once you take on few big clients with decent profit, but they often threaten you with replacement with another vendor and hard bargain the price with you. It sucks because initially you need big clients to grow, but that also concentrates too much
power into a single or few businesses' hands. So, initially there are a lot of single point failures that you need to deal with and hope it gives you enough time to grow and that they don't behave unethically and break your business.
One such single point failure for us was Drunken Monkey which was a relatively big client who ordered our product (in tons) for their franchisees, after two orders, they stopped ordering and didn't pay for close to a year and payment is still pending.
So, if you manage to survive long enough, you will start seeing some profits and there will definitely be growing pain. You won't be able to take salary. Sometimes, some of your clients will stop ordering or change vendors. Your suppliers may not be reliable and send you
subpar products. You'll incur a lot of logistics costs. Some of these big brands you work with will demand so much out of you and try to pocket as much margin on their end as possible. Some big brands bluff about the cost they already incur to reduce your final agreed price.
And they behave like they can afford to do without you (which they mostly can) as they are doing fine. So you will face a lot of such hard bargains. Your suppliers won't supply without 100% advance mostly. So, you will have to put up your own money.
And in these brands you supply to, they will put you at the least priority list in terms of paying you even when they default, so they will keep bluffing, and trying to postpone paying you as much as possible.
Crossing all this and succeeding as a business in the industry is difficult. All the while you do this, you also have to comply to government/mca/roc regulations, you incur fees for all that, and CAs charge a bomb for moving their finger or just simply affixing DSC on pdf.
For NIL filing of GST, CAs charge 1000 rupees. Fucking hell. NIL filing doesn't take much effort. Even proper GST filing doesnt take much effort after 1 or 2 months of properly filing it. But a lot of CAs are the most greedy and unethical bunch.
They are also the people who give ideas to big companies on how to take advantage of everyone from small vendors to the government/tax department, everyone. That's why you see a company like Asian paints extending their credit period on their own despite an agreement in place.
The only way you can manage to make it in business is by having lots of money, some background in the industry, upfront knowledge of all the risks in getting into that industry, all the existential risks, network of influential people within that industry, etc.
Having the best product is in no way means to success. I can say that we have the best peanut butter in India with flavors no other brands offer. Even the regular salted PB of ours is way better than even JIF or Skippy (some clients have replaced skippy with our brand).
But people buy Sundrop or Funfoods. Why? Brand visibility, placement in supermarket shelves, advertisements, online reviews, etc. So, by default if you have the best product, you won't be successful. You need strong marketing and sales for that backed by strong financing.
No matter what business you start. These are the facts. You can translate these into any industry and there will be significant risks of failure. Any business that you can start easily - will have a lot of competition and won't be that much profitable.
Just like stock market, if the strategy is easy or easy to trade or whatever, there will eventually be too much crowding into that space/strategy that you won't have a significant edge. The only way to have a significant edge is to develop something customised with hard work.
And that takes time, and before you are able to do that, you will make some losses, and you'd probably blow up too. Same thing happens in business. Easy entry makes the business less attractive as there's a lot of competition. High barrier of entry in markets also make it
difficult as you have to incur a lot of costs upfront. If the market is monopoly/duopoly, it's hard to break into such an industry as a second or third entree and survive. So, if you don't fuck it up yourself, most ppl you do business with, in one way or another will fuck you.
So, these are the facts, applicable to any industry - albeit in different terms/conditions/format. Big guys take advantage of small ones, mostly unethically and illegally. Most can't survive that and go out of business in few years.
50% of all businesses fail in first two years. Of remaining 50% - 90% of all businesses fail before five years. Of the remaining 5% businesses, most survive and scrape by and make do with what they have, and only 1% of that 5% truly succeed.
Somehow this is also the kind of odds with trading, and i think these are the odds in any field where the top 1% take 99% of the proceeds. The reason this is more pronounced in India is that nobody will help you. Those who seem like they help you always have some self-interest.
In India, legally you can't sue and get anything 99% of the time. You'll lose more by suing/pursuing legal recourse than by letting it go even if it is a big amount. Political system, judiciary system also favor the bigger guys/companies/corporates.
You can see that in how gov treats the bigger guys who default on loans vs the smaller biz/farmers/self-employed who are unable to pay loans. A system which incentivizes big guys and disincentivizes small/medium biz is always setting you upto fail.
The only businesses you can create in india and stay profitable are those that won't scale and offer much in terms of the time value you put in - which will almost be like a job only - which makes them unattractive as businesses.
Succeeding in business then is a confluence of so many factors and is anything but easy. So, if i haven't discouraged you from pursuing any business by now, I'll post the next thread on how to set up a business, keep your risks small, and set yourself up for success.
