Trading houses are centuries old but R. Narayan has found a way of packing old wine in a new bottle. Talk to him and he throws in a new moniker - "buying club". What's that?
Narayan's two-year-old start-up, Business Essentials for Better Businesses (BEBB), buys and sells raw materials - steel to polymers to paints - for small and medium enterprises (SMEs) under a brand smartly named Power2SME. Everything apart from the supply is transacted online, including payments, all through a portal heavy on back-end technology. The company buys raw materials from suppliers such as Indian Oil Corporation, Haldia Petrochemicals, GAIL and SAIL in bulk. The discount they manage to generate because of bulk buying is then passed on to its customers, India's large pool of SMEs.
"The savings for customers depend on the materials. In things like metals, we are able to make 7-8 per cent cheaper. In paints, it 10-12 per cent and in polymers, it is 2-3 per cent. SMEs also get the professionalism of supply - you can track delivery," says Narayan.
|Name: BEBB India|
AREA OF BUSINESS: Online trading house
YEAR OF INCORPORATION: 2012
COOL QUOTIENT: Makes raw material purchase cheaper for SMEs
Watch video: What is the coolest factor of Power2SME
"It is a huge juggernaut moving," says Narayan, 47, who is Power2SME's CEO besides being the company's only founder. "I am clocking monthly revenue of Rs 10 crore a month. I am get 300-350 orders a month."
Narayan, a Tamilian, was born and raised in Kolkata. He worked in the IT sector with companies such as Microsoft and Oracle before turning an entrepreneur. In 1999, he started his first company along with two others. Called Denave, the company sets up sales engines for IT and telecom companies. He moved on to start Power2SME recently but is still on Denave's board.
Considering his background, switching to selling raw materials such as steel was a bold move. Explains Narayan: "A Rs 100-crore SME spends Rs 80-85 crore on raw materials. If I am on the technology side, I would address less than two per cent of the spend. If I move to raw materials, I would address 85 per cent."
This is how it works. SMEs order raw material requirements online. The demand is pooled. Narayan uses the bell-curve - he picks the centre piece of the curve or where there is maximum demand. Then bulk orders are then placed with suppliers. Using this model, Narayan cannot meet the demands raised by all customers. Kunal Matta, Managing Director of Shiv Shakti Cranes, a crane manufacturer, is using Power2SME for four months to buy plates and other structural materials. "I get good quality material that is original," he says. "The market has a lot of duplicate material."
Matta also benefits because Narayan's company gives him a credit period - if he buys directly from the open market, he would need to transact in cash then and there. The credit cycle is about 60 days and Narayan has tied up with banks to finance his customers. There hasn't been a default yet, he says.
The start-up's model works for large suppliers such as GAIL and SAIL as well. Narayan says being large corporations, their sales engine is not necessarily geared towards smaller customers. Power2SME fits in well here. The company has raised $8.5 million from Inventus Capital Partners, Kalaari and Accel in two rounds. It is using the capital to expand - it started with the NCR region and the company is now in Maharashtra and Gujarat. West Bengal and Tamil Nadu are the next frontiers.
While Narayan's simple model appears easy to replicate, access to SMEs can be tough for any competition. "My investors and others have gone out and checked for this model. It is not there anywhere," Narayan vouches. There is another start-up, SmeSauda, which helps customers get discounted deals - but they cater to finished products and not raw materials.