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  • Entrepreneur’s Interview – Flower Aura

    Sachi: Welcome, Today we have with us Shrey, founder – Flower Aura. 

    Could you please tell us your background and something about flower aura?Shrey: I began the business of Flower Aura in Jan 2010, after working at Quetzal. The intent was always to have something of my own and that’s how I started this business. I and my cofounder always felt we wanted to operate in the e-commerce space. Both of us were from IT background so we felt online business is what we wanted to get into given our IT background, and also the financial restrictions, but we were not clear about which domain we would operate in. Gifting struck to me as an option since I had difficulty with the poor quality of service that I had personally experience – this let to us starting off with Flower Aura.

    We made a search of around 40-50 websites, even at that time – but they were not an e-commerce site really. They were florists who built websites for additional sales rather than having online business model..  We were confident we could do a better job than them.

    When we entered the market, our expertise was IT, but this is just a part of the business. Operations is critical in the whole game, and we are still learning, and this would be very important for our growth across cities.

    Sachi: Currently in which cities do you operate?

    Shrey: We have a reach in over 100 cities – These are through the affiliate networks of existing florists, which we built by visiting different cities over the last couple of years. We have handpicked these florists, and provide them with a checklist of things before they go and deliver.
    Not everything has been smooth sailing; there have been bad experiences in the past. We have sort of stabilized this now.

    One big challenge in the current mode is that – on Valentine’s Day typically 10% of the year’s transactions happens. When you do not have your own warehouse, and you are dependent on so many people who are not under your direct control. There are absolutely no issues through the year but on that specific day something goes wrong – we would have to show a sorry figure. This strains our relationship with the customers.

    Sachi: Feedback is critical for your business, how do you handle get this?
    Shrey: We encourage the recipients to send us a picture with the flowers they have received, along with some write up. These could be testimonials as well as some negative feedback.
    Flowers are agriculture based, extremely delicate – so we have to factor in the losses that might affect due to these. Our florists too have been very understanding of the fact and have supported us this far.

    Sachi: Your business requires you to negotiate with florists across the country – how was the experience been?

    Shrey: It has been pretty difficult – in all the major cities are able to do it, because we are in a position to provide them volumes. We can have strong terms with these partners. They were florists who built websites for additional sales rather than having online business model.

    In the Indian Context, As we have also started our workshop in Gurgaon, we can relate to their challenges and work more closely with them. Both founders work on this aspect. We have divided the cities amongst ourselves and closely work with the florists.

    In addition to this, there is the forecasting of such a perishable entity that getting as precise with the forecasting is important.

    Sachi:  Do you support your florist’s network in different cities with forecasting? 
    Shrey:  We provide our florist network with a forecast of how many orders we can provide on Valentine day before hand.
    We provide for only 5%-10% of our partner’s business so they do not heavily rely on us, hence there is no great dependence on our forecast. But we see this could be extremely crucial in the future as we grow larger.

    Sachi: Could you tell us a bit about your partner in business?
    Shrey: My partner is Himanshu, who was my batch mate from in my engineering days at NSIT Delhi. The cities we hail from were along the same route and that helped bond better during those days.
    Post engineering, while I worked at Quetzal in Mumbai, he was my roommate and used to work at TCS there. We used to discuss numerous ideas every day at that point of time and finally started off.
    At the point of starting off Flower Aura, we had almost similar skills, but over the last 2 years we have focused on developing complementary skills. He focuses on technology, while I take care about marketing. For the operations, both of us pitch in.

    Sachi:    How did working at a start up help you?
    Shrey:  I worked at Quetzal in the online and offline education space – I gained tremendous confidence from this experience. This helped me work on projects from scratch to scaling up. I started around 7-8 different products, and this experience of starting new things and meeting different people to make it possible etc was very valuable.  I realized that in a start up you need to extremely generalist to begin with and be pretty open to get moving quickly.

    Sachi: How was the experience of moving from online education to running an e-commerce industry?
    Shrey: Definitely the two industries are definitely different from each other. When we entered into the e-commerce business, we entered it with the assumption that the major component would IT based. We realize, getting orders is only one part, there are aspects like how to buy, purchase, manage inventory, forecast etc.

    The Marketing skills I developed while working in the educational space is what I carried over to this business. The other skills required today are the ones which we have acquired over the last 2 years.

    Sachi: Did you choose to get into the e-commerce business based on the trend in the industry?
    Shrey: We got into the e-commerce business when the industry was just emerging. We operate in a very niche segment of the business, not many people operate in this segment given the kind of challenges I have discussed earlier.  There are some funded companies which have a lot of money to spare for the business promotion unlike us. We have started off in a boot strapping model using the investment of the founder.

    Given that we have bootstrapped ourselves, and had a lot of learning by taking care of the operations ourselves, we are in many ways a head of the companies that we currently see.

    Sachi: Are you looking for funding now?

    Shrey: Yeah, I guess the time is pretty apt now. I guess this is the right time to grow and we will grow irrespective of the fact that funding comes in, but funding can definitely speed up the growth.

    Sachi: What would be your major learning other than the operations that forms the basis of your business?

    Shrey: I would say the major learning we have learnt is on the business front is the human resource management. Questions like, how to get the right people, hire them, retain them etc. Nearly 40% of my time is spent on managing people and handling issues related to them. From my experience I realize that, if you take care of people who are working with you, most of the operation and marketing things will be taken care of automatically.

    Sachi: What is your message to aspiring entrepreneurs? 
    Shrey: My message is follow your heart and be smart.

    When people come to me with the take that being an entrepreneur is extremely risky, I simply say – It’s not very hard to earn what you are getting now, so where is the Risk?”
    Yes it will require some of your patience The entrepreneurial experience one has would be extremely valued and cherished.

    Sachi: Thank you Shrey for the interview. Thanks.

  • How TCT applies to Multidimensional form organization

    In the last blog, we looked at the application of TCT to understand vertical integration. In today’s blog we look at the application of TCT in understanding the Multidimensional (M) -Form of organizations.
    When functionally organized organizations expand their operations, size and diversity increases. The top management at such a juncture would find it extremely hard to deal with such operations; the interdependence of the various functional units makes it difficult to assign responsibilities for the outcomes of the business. 
    The M form of organization resolves these difficulties by organizing the firms into product or geographical divisions where operational decisions and performance accountability are assigned to the divisional manager. The top management retains only the strategic decision making. This way the source of such a problem – bounded rationality of the top managers at the corporate office is resolved.
    Another side-effect of this structuring is – the firm could function like a miniature stock market. The highest revenue generating unit would get a larger budget in the next cycle. The top management is also free to look out at diversification, acquisition and other activities of that nature. 

  • Analyzing Vertical Integration using Transaction Cost Theory

    In the last blog we looked how Hierarchy mitigates the risks of transaction specific investment. In this blow we begin the discussion on the application of transaction cost theory and briefly understand one of the applications.
    Transaction cost theory could be used to understand numerous the following types of organizations better

    • Vertical Integration
    • Multi-divisional form or organization
    • Markets, Bureaucracies and Clans
    • The Multinational Enterprise
    • Hybrid form of organization

    Now we look at the first of these – Vertical Integration. 
    Vertical Integration is a process by which companies expand their business in the same production path, along the supply chain. Reliance’s expansion from polyester to petroleum refining is an example of this vertical integration. It could be forward or backward. We shall discuss this and more elsewhere when we talk about strategy.
    Vertical Integration is one of the most researched applications of TCT. TCT scholars typically use transaction as their level of analysis instead of viewing it as an aggregate measure of value adds for the entire firm. Simply put it deals with the “make or buy” decisions.
    Research has found that a high transaction specific investment would yield the decision to internalize the operation; independent of the type of transaction (which could be capital, human resource, specific skills, and location. Uncertainty is found to be less consistent in when compared to the transaction specific investment in the decision making of firms.

  • Use of Hierarchy to mitigate-possible abuse of transaction specific investment


    In the last blog we looked at how bounded rationality is addressed in the 2 governance mechanism and what are the problems associated there in. In today’s blog we look at how transaction specific investment influences the 2 governance mechanisms.

    In many transactions, it could be realized that one of the parties involved in the transaction would have to make an investments in the specific transaction to facilitate its completion. This investment could in a physical modification of the technology or, modification in policies, or learning a new thing. While some of these have value only in the specific transaction, for some others it could be transferred to some other party transaction too. Transaction specific investments in general are much more valuable in the first scenario than any other use.

    The existence of transaction specific investment raises the threat of opportunism. In fact, greater the transaction specific investment – greater the threat of opportunism. In such a scenario, the market governance mechanism would find itself short of satisfaction, despite the additional cost hierarchical form of governance would be chosen. The two activities done by the parties would be brought in together under a “manager” who mediates the relationship between the parties. Thus the issue of opportunism when a transactions specific investment is made would be mitigated.

    Thus – hierarchy arises to resolve the problems in market governance when transaction specific investments are made and under conditions of uncertainty

  • Entrepreneur’s Interview – Taxi4sure

    Sachi: Good afternoon. Today we have with us the founders of Taxi4sure. Welcome to the interview Raghu and Aprameya. Could you please introduce yourself as the starting point of this interview?
    Raghu: Hi, my name is Raghu. I am a Computer Science Engineer from KREC Surathkal after which I worked at Texas instrument. I then did my MBA from IIM Ahmadabad, followed by a stint at Feedback Ventures. My hobbies include reading books, running Marathons.
    Aprameya: Hi my name is Aprameya. I have known Raghu from the past 13 years. We were being batch mates from engineering and I was a year junior to him at IIMA. I worked at Infosys before my MBA. Post MBA I worked for Jones Lang LaSlle where I used to head Business development for India so one of the vertical.
    Sachi: Could you briefly explain what Taxi4 sure does? 
    Raghu: Taxi4sure is an Online aggregator  of taxi, we intend provide a customers a one stop solution for booking any kind of taxis and for a operators  to actually aggregate their inventory and try to  get customer.
    For the customer, our value proposition instant booking of taxi, a choice of all taxi operators across cities, price advantage, reliability, safety and surity of the taxi when you book it one line. We identified this problem as a common one across various customers and our own experience. This is what taxi4 addresses.
    Loosely, we could compare our business model to that of make my trip of taxi or red bus of taxi.
    Sachi: In your introduction, you mentioned that Marathon have helps you – could you please explain?
    Raghu: When you jump into entrepreneurship, your income dries out and you begin feeling the pinch of it – it’s not as easy as you thought it would be. It’s when things are not going the way you expected that perseverance come into play. It is here that perseverance and determination helps you see through difficulties phase – This is what is akin to running a marathon.
    You hit a wall after cross around 30-35 km and all your physical energy has drained out. It’s only the mind that get you going – you tell yourself – just a little more and push harder. Similarly when you hit a wall in your entrepreneurship journey – You know that this is yet another race, another week, another month and you will be there.
    Once you hit the finishing line when you are really happy about it. Once you cross that, you feel you can still do another marathon.
    Sachi: Aprameya, How did you begin thinking of entrepreneurship?
    Aprameya: I didn’t have a predetermined intention of getting into entrepreneurship, I always thought of myself as working for some company.
    When at JLL I worked closely with CXOs of the company and department Head – this gave me an exposure to the everyday functioning of the company.  I felt this wasn’t very difficult and thought of trying it out. This was the best time to try it out before, your liability in life increase.
    The confidence that my experience at JLL gave me, and the timing are the two things that gave me the confidence.
    Sachi: Raghu, how did you begin this journey?
    Raghu: Aprameya and I used to discuss quite a few ideas across the table but there were always many “what ifs”. Then I thought let me give the idea 2 years – if  things doesn’t works out – we could get to work elsewhere; but if it works out then we didn’t have to worry.
    In hindsight, that was one of the good decisions we made. Since I have already done my post graduation it is kind of easy for me to compare. If you are looking to do a post graduation, you generally take a loan and spend 2 years working for it, but in entrepreneurship there is generally no loan that you take and the returns invariably would be higher than what you could expect after an MBA or an MS. If it hasn’t work out then too, you would have learnt much more about what works and what doesn’t than in MBA or an MS. From the learning point of view, having started off early in life helps – So it was an easy decision for me to make.
    If it works out, fine. If doesn’t work out I am not learn from it.  Either ways, beneficial – so I decided to try.
    Sachi: OK. Your business is an operations intensive business – what where the challenges the business that you faced and how did you go about fixing these challenges? 
    Raghu: Ours is an extremely customer centric business – our objective is to ensure we give an extremely good experience to the customer when he books taxis online.
    It is an operationally challenging business, and we attempt to ensure that the taxi customers’ book reaches the customer in time – in addition we focus on a very smooth experience during the journey.
    It is very different from booking a flight or a train or a bus – in these modes of transport, the customer rarely interacts with the driver. The role of the driver is extremely critical in ensuring a smooth experience. We are still attempting to reach this, we are positive of achieving this goal. Handling drivers and ensuring they provide a good experience is our biggest challenge.
    Apart from this, it is important to note that the taxi rental industry is extremely seasonal – it has very high peaks and very dry seasons. The technology, supplies and people to handle these is another major challenge in itself.
    We are very cautious in our growth rate, and our operators too resonate this vision. They understand that in our success lies their success. Initially it was difficult to get the operators to align with our vision but, as we have shown the effectiveness of this model, they are now more willing. They don’t regard us as competition but more as facilitators to their business. This was a major hurdle we overcame.
    There are many more challenges to solve, but the most critical thing that we need to focus on next is the drivers.
    Sachi: Your have scaled pretty well over the last 9 months of operation – how did you manage the finances for your venture?
    Aprameya: We began with investing our own money. Right since the beginning we have been extremely critical of the way we spend money – this has helped us look at alternatives we wouldn’t have found otherwise.
    We made sure that our employers are not driven by money alone but believe in the long term vision of the company. We have realized by our experience that whether it was a technology or call centre operations, over a period of time – the people who are stuck with us are those who actually believed in the long term vision.  Getting such people has helped us cut down our expenses. We pretty much have done a good job in terms of keeping our expenses low and keeping maximum benefits out of it – this very important to do that as a start up.
    Even when you go and rise investment later on your VCs or angels respect the fact that we have not spent too much to reach the current position.
    As entrepreneurs you need to be frugal, for at least one or two years, you are not  going to think about like going out on weekends or a trip somewhere etc. Whatever you spend on without thinking much right now has to be cut down. Give yourself a time limit so that you are not really bogged down by it.
    You need to be disciplined at the personal level, and this would translate to the company too. This has to be extremely important.
    Sachi: How did you develop the necessary networks and how did you leverage it to grow up?
    Aprameya: The initial networks that is always something that you grown up with. Our first set of advisers and investors came and our college from NITK. The first person who put us in touch with all the big VCs in the country is from our college IIM Ahmadabad.
    These networks have helped us initially, but then when you make new connections – you should not look at it as transactional. People need to buy into your story, and feel a part of what you are trying to establish. Once you do this, the network naturally builds around you.
    These are the softer aspects of network building that the entrepreneurs have to take care. Without people putting in confidence in you, you would find it hard to deal with various different unknown territories in business. You need to be out there interacting with the people, letting them know what you are doing. Media shouldn’t be the first point of approach, it is important to know the right people who matter for your business – media shall come if what you are doing is really worthwhile, i.e. if people are using your product or service, which investors seem to buy into etc.
    Raghu: When we began networking – we believed our idea is our IP – if we reveal it to someone, they would leave all their work and get to working on this idea. This I believe was one of the most common mistakes entrepreneurs do at the start up stage. This in hindsight we believed prevented us from using the doors that were open for us! Idea is only 10% of the business, execution forms the remaining 90%; so just because you have shared your idea, people will not get to doing it.
    The second important lesson is to be at the right place at the right time, you will find the right place and time only if you visit a lot of places – and many of these wouldn’t be the right ones. You need to keep trying.
    Do not restrict your choice of meeting people based on their background; show them you are passionate about what you are doing. Even if the people you meet aren’t the right people to help you, they might know other who could help you. The passion you show, really rubs off on the people you meet. We have witnessed this in our interactions with both NITK and IIMA alumni.
    The more open you are with your idea and sharing it, the more you gain from this sort of networking. Networking doesn’t just help you in finding the right finance sources, but also getting the right people to work with and for you.
    Sachi: Maintaining a good relationship with investors is very important, how have you done this?
    Aprameya: Ours is an e-commerce portal that has a potential to scale up at an unpredictable pace. When you are speaking to people, don’t limit it to only those who can be a potential source of fund to you; discuss your idea, its feasibility, anyone  who has tried similar things earlier – this way you will get to know a lot of things other than just raising money. This way you create an existence in their mind space – it might not give you an immediate return, but you need to be determined.
    If you find someone who could be very influential, don’t waste time – just go meet him; without the expectation of any financial gains, or connections. Unless you tell everyone whom you meet, nobody would come forward to help you. This is something that we have constantly being doing since the very beginning.
    We never really looked at what stage of growth we are in – we never said we have these many transactions happening a day and so it is good to visit an Angel, or a higher number of transactions we go and meet a VC. We were never able to predict our growth. We never believe we have that extent of control of our business – in fact, being out of control in many ways is one sign of success in the initial period.
    When you have been connecting with so many people, you realize that someone has shown interest in you. If we would have spoken with an angel today, the transaction growths over the period of a couple of weeks or a month would have got a VC interested in us… It is extremely had to predict such things in our business.
    You should never restrict yourself to the number of people you talk to, or the kind of people you talk to. Talk to everyone you get across – you never know what kind of value each one will give you.
    Sachi: What is the message for aspiring entrepreneurs?
    Raghu: Message is simple – if you have always been thinking of starting off and haven’t done it this far, just take a two years break and start off. If it works out good for you, otherwise you would have learnt a lot. If you have an idea just go ahead! If you do not have an idea – don’t wait for a right one, work with multiple people that would help.
    Starting something all alone, and taking yourself through entire journey would be extremely difficult – If you have someone whom you really trust and respect, that goes a long way.
    Just for statistics, 75% of the entrepreneurs who have started with their first idea were not successful, but they were successful in later their ideas. Don’t wait for idea, get a good team and get start.
    Aprameya: Stop thinking about the pressures and liabilities you have in life – it doesn’t really help. In some form they are bound to exist.
    If you have thought of starting something, just go ahead and do it – give yourself a timeframe and move head. It would be foolish if you do it for five years and still not done anything substantial. Give yourself a decent amount of time to explore an idea, and don’t keep shifting ideas.
    Don’t keep shifting focus, and working on an idea and making it into a business is not as easy as one might think from the outside. It is important to give an idea the time it asks for! A simple benchmark could be – unless you are ready to spend one and half year on an idea, don’t start it. If you think it is worthwhile to spend that many numbers of years then you start and don’t shift focus.
    Sachi: Thank you Raghu and Aprameya, for taking time out. Thanks

  • Uncertainty as a determinant of the transaction governance mechanism

    In the last blog, we discussed what could be the underlying logic for comapnies to choose between hierarchy and market to deal with transactions.In today’s blog we look at how bounded rationality influences this choice, and what are the problems that could come by. When organizations try to deal with transactions, it is the uncertainty and the transaction specific investments that have been seen to create a large variety of problems.
    It is pretty clear that bounded rationality has grown on the uncertainty organizations face – if not for the uncertainty, the bounded rationality would have no meaning. All parties involved in the transaction could ancticipate precisely how the transaction would evolve over time, and so managing it over time is very simple.A contract that specifies all the possible current and future states of the exchange and a clear statement of rights and responsibilities of the parties involved would have made the trick. 
    It could thus be said that greater the level of uncertainty in a transaction, the usage of contracts as a means of governance would be difficult if not impossible; hence a more likely form of governance in that case is the hierarchy one.
    In hierarchical governance, there is a dedicated third party, who decides how the unaniticipated issues that occur during the course of the transaction could be resolved. The parties donot need to anticipate the problems that might emerge eventually – they are taken up on and mediated as and when they arise.

  • When to choose Markets/Hierarchy as a governance mechanism

    In the last blog, we looked at the 2 underlying assumptions of the TCT. In today’s blog we shall discuss about how a choice of governance could be made between the market based approach and the hierarchy based approach.
    Organizations will invariably choose that form of governance that reduces any potential exchange problems created by bounded rationality compared to the threat of opportunism. There is not second thought that governance of economic transactions is a costly venture. Given this premise, we could state the following regarding the choice
    If organizations had to worry about minimizing the costs of governing their economic exchanges, then they would always choose market forms of governance. Alternatively, if the worry was about minimizing the effects of bounded rationality and opportunism on their exchanges, organizations would always choose hierarchical forms of governance.
    The organizations necessarily would have to take a call on which approach to take considering the priority and looking at the potential outcomes of the choice of governance they make.

  • Assumptions of the transaction cost theory


    In the last blog, we looked at Williamson’s TCT formulation. In the current blog we look at the 2 essential assumptions about economic actors engaged in a transaction.
    1. Bounded Rationality
    2. Opportunism

    Bounded Rationality is a term that we have used multiple terms thus far and essentially means – those who are engaged in a transaction are rational but have a limit to this rationality. What does this mean? I helps us realize that we would in the absence of such an assumption be writing contracts that would have unlimited complexity. Economic actors involved in the transaction simply cannot envision all the possible outcomes in an exchange relationship and there for formulate contracts for all eventualities.

    Opportunism refers to incomplete or distorted information disclosure towards misleading or confusing partners in the exchange. It would be highly complex to assume that all actors are always opportunistic, however it would be easier if we begin with the assumption that actors may behave opportunistically and it is extremely costly to make the distinction who is opportunistic and who is not – this is what TCT assumes. It is this threat that in the world we deal with much more than merely the promises.

    These two are important considerations – firms and people should always safeguard to avoid being victimized by the others.

  • Formulation of the Transaction Cost Theory – Williamson

    In the last blog, we looked at how hierarchies could enable effective and efficeint handling of the transactions within the organization. In today’s blog, we look at how Williamson formulates the Transaction Cost Theory – and discuss this further over the next few blogs.
    Williamson approahes TCT stating that markets and hierarchies are alternative instruments for completing a set of transactions. These are called “Governance Mechanisms”.
    While market form of governance relies on prices, competition and contracts to keep all parties to exchange informed rights and responsibiltiies; the hierarchical form of governance get these exchanges doen under an autoritative third part (the boss) who attempts to keep all parties in the exchange informed of their rights and responsibiltiites.
    The following picture summarizes these alternatives as suggested by Williamson’s TCT

  • Hierarchy as a reason for existence of firms – Efficiency derived there in

    In the last blog, we
    discussed why an organization would be necessary when we already have the
    markets that are efficient. In today’s blog we look at interesting reason why
    organizations have a hierarchy – stated differently this approach by
    Alchian-Demsetz approaches the reason for firm’s existence to be measurement
    and metering the problems.
    The measuring problem
    emerges when we talk about ‘team production’; where the underlying motivation
    is the production gains that occurs through cooperation amongst the people when
    executing a complex task. There exists an incentive to cooperate. It is always
    a possibility that there could some Shirking amongst team members and when this
    happens the incentive to cooperate reduces. Shirking could range from cheating
    to merely giving less than one’s efforts.
    The team production
    in such a scenario makes it difficult to assess the contribution of individual
    member – the means to monitor or measure do not enable rewarding based on
    individual productivity. This imperfect connectivity to the reward system could
    potentially get the members to work less diligently. Measures like, splitting
    the income generated equally amongst the members doesn’t eliminate the
    incentive to shirk. (This view might not strictly hold in the J-Form
    organization we discussed earlier; this again would have to be understood in
    the context of the society)
    Such a shirking
    behavior would potentially prevent a high-output individual to join the team;
    or if s/he joins the team, they may become shirkers too!
    In such a scenario it
    would become essential to monitor the team. Monitoring each individual would
    reduce the likelihood of shirking. This introduces a hierarchy of sorts for the
    first time. This doesn’t completely eliminate the hierarchy and there might be
    a need to monitor this monitor and so on. A strong case for this monitoring
    hierarchy with reduced chances of shirking emerges when the monitor is given
    the right to negotiate contracts with all the team members,  monitor their productive efforts and
    (crucially) claim any residual value created by the team has received their
    expected compensation. The final level of this monitoring would rest at the
    stockholders of the company – who could gain from the firm’s residual profit.