Simplified Laws Guide to Taxation and Legal Concern A Kirana store in the corner of the locality is a part of every middle-class Indian’s environment. Balaji Enterprises at Girinagar is operating in the same place, same dimensions with the same people for the last 30 years. A street vendor in front of our house said that he is selling tender coconut for the last 43 years, and another vendor on K R Road is selling Jackfruit for the last 26 years. All of them have a business and make a living out of tiny businesses. Why didn’t they close the venture? Simple. They work on a business model of Cost + Profit = Sales. (For example: Cost of Rs.80 + Profit of Rs.20 = Sell at Rs.100)
Contrarily, Goli, Chamcha, Bucket, Stick, Lazzi, Lazy, Lizzard, Badmash, such fancy, absurd, meaningless names are given to the new type of shops. Have you ever seen them lasting more than 2 or 3 years? In my vicinity, I can say, all of them have vanished. This is because of their cost overruns. They pay franchise fees, the company who has given the franchise would have closed, work on low margins, more of a showoff, and less of stuff.
Tech Companies – Then came in 1990, Tech companies. All of them continue to do well. Why so? Because they work on a business model Cost + 100% or 200% Profits = Sales. (For example, Cost of Rs.100 + Profit of Rs.200 = Bill at Rs.300). If you analyze the Balance Sheet of Tech companies, you will realize the margins they generate. It’s huge. They bring Forex, employment and develop the ecosystem. In fact, tech companies are game-changers in the Indian industry.
Startups – Now are the era of startups and digital companies. Most of them won’t survive. Why? Because they follow a business model of Cost – Discount = Sales. (For example, Cost of Rs.80 – Discount of Rs.20 = Sell at Rs.60). Seriously. A few years back, I handled a VAT case of a leading online seller; wherein the online seller was buying TV Sets for Rs.52,000 and selling at Rs.46,000; making a Gross loss of Rs.6,000 per unit. Is this called a business?
They work on a different model; make a loss initially by selling the products at a price below the purchase cost, paying 2X salary to the employees, and focusing on increasing the footprint in the market. Thus, they make losses; if things go as per their projections, they will survive else windup. The best example is WhatsApp; assuming that they have around 30 Crore users in India, if they decide to charge Rs.10 per month per user, they can get Rs.300 Crore every month! They can recover all their past losses.
In the last 30 years, I have seen the business transformation from small shops and MSMEs to only information-oriented startups and cryptos. Kirana stores or coconut vendors survived pandemics, many wars, depressions, recessions, inflation, cyclone, and drought! Likewise, door delivery companies co-exist. I am amazed to witness, how beautifully, society finds a place for everyone!
Now that the hype about startups is slowly fading away, I am curious to see ‘What’s next’.
