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Power2SME is a buying club that pools demand for raw materials from hundreds of SMEs. Its founder and CEO R Narayan tells Rajiv Shirali how he aims to help Indian SMEs by allowing them to access a large pool of quality suppliers. Edited excerpts:
How does Power2SME's business model work in practice?
Power2SME functions as a 'buying club' and helps SMEs benefit from economies of scale through collective buying from a large network of manufacturers. We pool the demand of several SMEs, which enables us to obtain the best possible prices for raw materials from a large pool of suppliers, leading to cost savings. We provide door-step delivery, online tracking of orders and flexible payment options. We cater to products across multiple categories - chemicals and additives, inks, paints, polymer engineering and steel.
How did you think of this business idea?
The idea of starting Power2SME came about during my experience with the SME community in the field. I have seen price quotations that have been sent to an SME as well as a large enterprise, for the same product, where the variance was as much as 20 to 45 per cent. This was mainly owing to the size of the orders and SMEs' weak negotiation power. In 2009, I conducted research with the help of IIM-Lucknow students which validated this notion of unfair advantage enjoyed by corporates. At that point in time, I decided to build a portal where SMEs could submit their requirements and I would buy on their behalf.
To what degree are you succeeding in your mission of increasing SMEs' profitability?
Today, we are able to increase their profit margin by three to five per cent per month. But, this margin is currently limited to the categories of products we cater to. The true benefit will be visible when we will be able to provide SMEs with 50 per cent of their raw material requirements, and are able to deliver savings on the entire order.
SMEs operate on low margins and don't have enough capital to spend on R&D. The extra money they generate after working with Power2SME can be utilised to drive sales and marketing initiatives. Hence, we are well on track to empower SMEs in India by helping them reduce their purchase costs. In the near future, we plan to set up 'SME Transformation Camps', which will help SMEs transform their businesses through R&D and better leveraging of technology.
Your business has increased from Rs 15 lakh in June 2012 to Rs 5 crore in December 2012. To what do you attribute this rapid growth?
First, our disruptive and innovative concept captured the attention of Inventus Capital Partners, Kalaari Capital and Accel Partners, giving us funding and a strong position in the marketplace. Second, we were aware, on the basis of our research, that plastics, steel and polymer are the largest chunks of material that SMEs are looking for today. So we focussed on these product categories right from our early days. Third, SMEs today are accessing the internet for their business requirements and we have a registered base of more than 10,000 SMEs on our portal. Finally, no single organisation was dedicated to making life simple for SMEs. Power2SME is the first organisation that is bridging this gap. Today, our monthly revenues are over $1 million and we are aiming to become a $1 billion company in terms of gross merchandise volume in the next five years.
What kind of problems did you encounter in setting up the business?
One challenge we faced was that SMEs today are credit-starved, even though they are growing well on a year-on-year basis. Financially, they are not growing enough and support from banks and the government is not able to reach them and make a difference to their businesses. Another huge challenge that we faced was winning the trust of suppliers and getting their buy-in and belief in our innovative business model and its value proposition.
