The young couple had just got back from their honeymoon. Excited as ever, they were sitting in their living room, steaming cups of tea in their hands and opening the vast array of wedding gifts around them.
‘One more crockery set,’ she said. ‘That makes four.’
‘Here’s a fifth one,’ he chipped in. ‘And by the way, this large package looks like another one.’
The two looked at each other. ‘What will we do with six crockery sets? Anyway Mom has given us two. And what about the five Borosil carafes and four pressure cookers? What are we going to do with all of this?’
Sounds familiar? Of course it does. Because that’s invariably what happens with wedding gifts. Every guest wants to gift something that the young couple starting their life together will find useful. And what could be more useful than a crockery set?
But six crockery sets? What could be more useless?
And that, dear reader, is precisely the problem Cyrus Shaadikaranewala planned to solve. Cyrus had just been to the US to attend the wedding of his cousin, and had been extremely impressed with the concept of wedding-gift registries. You see, in several Western countries, when a young couple decides to get married, they sit down and make a list of all the things they would like to get as gifts. The next step is to put up this list on a wedding-gift registry. These are websites that are designed specially for this purpose—they permit couples to put up their wish lists on the site.
How do guests access this list? Simple. The wedding card contains the URL of the registry. In fact, if it’s an e-card, things are even simpler, because a link to the registry is then inserted into the card. The rest is obvious. Guests who receive the card follow the link to reach the registry, and thereby get access to the wish list of the young couple. Each guest can then pick and choose what he or she would like to gift the couple, and pay for it. This gift is then attractively wrapped by the registry and delivered to the couple, say, a week after the wedding.
That, ladies and gentlemen, is precisely the kind of wedding-gift registry that Cyrus wanted to set up in India. And to fund this exciting project, he approached an angel investor network, and pitched the project to them. Now here’s the interesting bit. The angels in the room had read an interesting book, “Funding Your Start-up: And Other Nightmares”, written by Dhruv Nath and Sushanto Mitra. In this book, the authors spoke about a PERSISTENT framework, which you could use to analyse start-ups for potential investment. Very simply, PERSISTENT stood for: PROBLEM, EARNINGS MODEL, RISKS, SIZE OF THE MARKET, INNOVATION, SCALABILITY, TEAM, ENTRY BARRIER, NICHE, and finally TRACTION. The angels liked this framework – in fact, they had been following it informally all along – and they decided to use it for evaluating future start-ups, including Wedgift.
The angels were definitely interested in Wedgift. This was definitely solving the PROBLEM of unwanted wedding gifts. And clearly the business had an EARNINGS MODEL, because guests would pay them for the gifts they bought. The SIZE OF THE MARKET was obviously huge, given India’s burgeoning middle class. Like any eCommerce business, this one was highly SCALABLE. And the founders had rightly identified a large enough NICHE in the otherwise crowded eCommerce space, with an INNOVATIVE SOLUTION – one that had been successful in most western countries. And of course the TEAM was great – Cyrus himself was experienced and understood the business like the back of his hand.
However, the positives ended there. The angels could see significant RISKS to the business. First of all, there was the cultural issue. In India, while it was perfectly all right to expect a wedding gift, you could not demand one. One of the angels mimicked a typical response from a mother to her daughter who was about to get married, ‘Hai hai, tu gift mangegi? Ki ho gaya hai tenu? Naak katwayegi saaddi [You mean, you’ll actually ask people for gifts? How embarassing]?’ (Incidentally, this snippet is in Punjabi, one of the most colourful and expressive languages known to mankind.) Indians are known for their deep-rooted cultural values. Would they be willing to change? Even if the gift registry were only circulated to friends, would the parents of the young couple allow them to do so, with the possibility of ridicule staring them in the face?
And then one of the angels had a bright idea. ‘How do your prices compare with those on Amazon?’
‘They are obviously higher, since we do not have their volumes, and therefore cannot get huge discounts.’
‘So what’s to prevent a guest checking the couple’s wish list on the Webgift site, and then buying the gift on Amazon?’
For the first time Cyrus sounded a bit uncertain. And the angels looked at each other. Perhaps the business was not as great as they had earlier thought. And then, of course, there was the possibility of Amazon or Flipkart identifying it as a niche and getting into it themselves. Hmmm . . . .
And so the meeting ended on a somewhat sombre note. What had initially appeared to be a great idea was perhaps not so great, after all. Too many RISKS, and no real ENTRY BARRIER. As a natural consequence, the TRACTION – or current revenue – was also low. And so the angels quietly put away their cheque books and trooped out of the room to pick up their cups of coffee. Investments could wait.
And that’s a lesson to all founders and potential founders out there. Evaluate your business using the PERSISTENT framework. And make sure you create a successful, fundable start-up.
Note: Extracted from the book, Funding Your Start-up: And Other Nightmares, co-authored by Dhruv Nath and Sushanto Mitra, and published by Penguin Randomhouse.
Dhruv Nath and Sushanto Mitra
Dr Dhruv Nath is a professor at MDI, Gurgaon, a director with Lead Angels, and an angel investor. Sushanto Mitra is CEO, Lead Angels.