Why consumer brands struggle > $10 million?
The depth of market is nuanced.
Welcome to the 187th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more
Indian consumers want everything cheap, right? - no way to build a profitable consumer brand here - said a founder friend at a startup mixer.
We don’t understand the real game 🤯
India is a country of 144 Cr people 🇮🇳
→ 80 Cr Internet users
→ 30 Cr unique UPI users
→ 28 Cr food ordering users
→ 09 Cr learnt online
→ 08 Cr income tax filings
→ 3.5 Cr mutual fund investors
If we understand the income tax report it clearly shows that consumption is driven largely by the middle class as a pure percentage. Only 0.27 Cr Indians make ₹1Cr+ (grew 50% YoY) while 4.65 Cr Indians make ₹5L+ (grew 250% over 2 years).
4 biggest spends middle class does 💰
- Real estate
- Education
- Shopping
- Travel
As a founder what are your options?
If you are someone building a lifestyle business and trying to do the 0→$1 million (8Cr) journey, most categories will allow you to do that. But, if you want to play the first $100 million top-line revenue game, you have only a few options.
A → $10,000 ARPU X 10,000 Indians
B → $10 ARPU X 1,00,00,000 Indians
C → $1 ARPU X 10,00,00,000 Indians
(ARPU → Average Revenue Per User)
Your product can't serve all.
That's where most consumer brands are stuck. They build a low ARPU offering and keep complaining about the 'depth of market'. There is no depth for low APRU, period. Let’s take an example of a $10 ARPU product, it’s extremely costly to find 1 Crore Indians to pay $1 - it's pure math. Now, think of this for your product.
Let’s take Samsung’s example - after spending 14 years into the country with their smartphones, they make ~$900 million in annual revenue. That might seem a lot but it’s not when you go deep down and understand how much they had to spend to scale revenues to a ~$1 Billion.
What’s the framework to think through?
1/ Build 'value' for the right audience.
Pick one, every consumer brand doesn't need to be built for 10Cr Indians.
2/ 'Communicate' the product value.
Position it either on the lower or the extreme higher end. Ensure the target audience deeply understands what the product does, has enough trust, and understands if it's for them or not.
3/ Get them to "experience" the value.
Most products fail to do this before the first purchase. India's trust deficiency requires you to really prove your product to a potential buyer.
4/ Capture the right amount of 'value'.
If all the 3 are sorted - capturing becomes straightforward through pricing.
Overwhelming? It shouldn’t be.
Most operators → founders (including me) struggle to understand the macro. It’s extremely important to understand the market if we want to build a scalable (>$100 million a year) internet-first business in India.
If you think I should write more on the consumer market for founders, reply to this email. Plus, let me know what problems you struggle with at work, and I will try my best to write how you can think about understanding/solving them.
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An overarching assumption that you have made here is that the entire $X ARPU has to come from the end consumer. If you look at large consumer internet companies (think OTTs, horizontal ecommerce companies etc.), a significant portion of their revenues comes from Ads and other partnerships and not directly from end consumers. Good platforms make almost a third of their net take rate from these other revenue streams, which reduces the burden of selling more to the same customer.
Abhishek grammarly saying there are lot of grammatical errors