A popular management saying goes: ‘If you cannot measure it, you cannot manage it’. And there is a contra to that which goes: ‘Not everything in business is measurable. And not everything that can be measured is valuable’. But that aside, as someone brought up in the old school of P&L management the terms I am used to from my MBA days are sales revenue [value / volume], profit after tax, cash flow, market share, debt-equity ratio, PE ratio, etc. The newer terms that one has been using of late include discounted cash flow (DCF), EBITDA, ROCE, ROE and a few more.
All these terms fail me when I try to decode the way venture capitalists pour money into start-ups. Many start-ups make losses that are huge and continue to make losses for many years. Obviously, VCs are accountable for the money they invest, or at least we hope so. They are answerable to their investors and work on some commitment to return the investment back with ‘better than market’ return. What metrics do they use? And is there a method in the madness?
K Ganesh is eminently qualified to tell us how VCs evaluate start-ups and how they continue to pour money into a loss-making enterprises [or when they pull the plug]. Ganesh is a serial entrepreneur who has been in the game for over two decades. His GrowthStory.in is a leading venture builder platform that has incubated and built successful start-ups across diverse sectors. Some them are today household names now: BigBasket, Portea Medical, Bluestone, HomeLane to name a few.
Listing of models
In his new book ‘Mastering Disruption – A practical guide to understanding new-age business models’, Ganesh presents the way business models have evolved and how they get evaluated. The book starts with a simple listing of multiple types of business models. Ganesh has used Swiss business theorist Alexander Osterwalder’s business model canvas to tell us how new business models can be developed by examining the various elements of a business: key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structure and revenue streams.
Readers are gently taken into the new-age business arena starting with a comparison between traditional businesses [called pipeline business model] and new-age businesses [called platform business model]. Drivers of growth of a traditional business would be economies of scale, cost advantages, supply chain efficiency. In contrast drivers of growth for platform businesses are network effects, data driven insights, platform openness. The metrics to track for a platform businesses range from interaction failure rate, engagement rate, match quality, churn rate, etc.
Our journey gets more exciting as in the next chapter Ganesh takes us into the domain of key metrics used for measuring and tracking new-age businesses. I was fascinated to learn about Contribution Margin 1 & 2 [there is also the CM2+ which is pivotal for monitoring a start-up], PMF
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Business definitions
The book takes us through all the various new-age business definitions. The chapter on Platforms and Marketplaces tells us how these are but modern digital avataars of what we have seen as the Bazaars of yesteryear. But unlike the traditional Bazaar, these modern platforms and marketplaces are powered by data and analytics. And there are various ways of scaling and monetisation of their networks. The chapter of SAAS tells us how these have become the essential breath and lifeline of modern enterprises.
Over ten chapters Ganesh takes us through several emerging domains including Fintech, Direct to Consumer Brands, Creator Economy, Digital Public Goods / Digital Public Infrastructure, etc. I suppose there is a book that can be written by Ganesh on each of these sectors.
What was of great interest is that every chapter is full of real-life examples. While we do see several examples from the global arena, we will also read about numerous Indian start-ups and how they are being measured and grown.
The book is written in a very easy to read style and one can read it in a couple of hours. But if you are really interested in understanding the start-up ecosystem then you may want to read it slowly and may be not just once. This book is an essential read for anyone who is trying to understand the start-up economy. And as I discovered there is a whole world of metrics beyond what we were taught in B-schools a few decades ago. There is no one better to take us on this journey than Ganesh who has been a successful serial entrepreneur who has transitioned into a very successful venture capitalist. A must read.
Ambi Parameswaran is a branding-advertising veteran and a best-selling author of 11 books
Title: Mastering Disruption: A Practical Guide To Understanding New-age Business Models
Author: Ganesh Krishnan
Publisher: Penguin Business
Price: ₹399