Let me explain with an example. Khatabook, an Indian startup has raised a total of Rs. 1221 crores till date. The company provides a mobile-based digital ledger system to retailers to help them manage their customers payments. Imagine a kirana shop: Khatabook is helping them digitize their scruffy notebook where they record which customer has taken how much credit from them. With Khatabook, the customer gets a notification when they take credit and also a reminder to pay the shopkeeper with a payment link in the message.
The wondrous thing here is that as a business, Khatabook has not even made a single rupee of sales!
The high finance gurus who have pumped in so much money into the company had no profit and loss statement, balance sheet, or cash flow statement to judge the operational and financial potential of the company. Instead, the investment decision was made largely on the basis of how rapidly the company was able to reach users (potential customers) and engage with them.
Instead of looking for growth in revenues, the investors looked at the growth in the number of downloads of the app, monthly, weekly and daily active users among other app metrics.
Instead of looking at financial ratios like net profit margins and operating efficiency ratio, the investors looked at the DAU by MAU ratio to evaluate how often users were actually coming back to use the app.
Of course, the ultimate goal of any business is to make money and Khatabook could potentially leverage their large merchant base to offer other financial services like credit. But ultimately, the operations team is essentially going to be the tech team.
Today, the Khatabook app is used by over 12 lakh small retailers every day. The company managed to achieve this scale with a grand total of …15 software engineers! Think of the alternative: how many thousands of people would be needed to be employed if Khatabook were a physical widget that was being sold (or even given away for free) to retailers in the country? Even more striking is the speed at which this was done. The app was conceptualized in 2016. So, all this in less than 4 years.
The digitization wave is here, led by smartphone penetration and cheap internet.
This means that distribution of products and services, and hence, operations of companies will fundamentally change. The traditional business models of buying raw material, making things and selling them above cost of manufacturing are going to be disrupted.
The top five most valuable companies in the world (Apple, Alphabet, Microsoft, Amazon, Facebook) are all tech or tech-enabled companies. Similarly, going forward, technology or digital companies are going to capture a significant share of market cap in India. They are going to be massive businesses which will serve many millions of people digitally.
I can’t wait for the day when class 12 commerce students will be yawning when their Business Studies teacher will be lecturing them about the theories of DAU by MAU ratios and why retaining an existing user is a better growth strategy than acquiring new users.
The future is exciting and technology is magic!