Looking back at the first 1000 days of Saral Designs
When we started Saral Designs three years ago, my Dad told me an old famous saying from the steel manufacturing industry:
“Don’t think about breakeven or making money for the first 1000 days of starting your business, but you need to survive long enough to see the good times.”
Since we have survived the first 1000 days (Phew!), I took a pause to look back at our journey.
3 years ago, we started with 2 key insights:
- The raw material cost in a sanitary pad is less than 20-25% of the price of the pad. The price of pads is high due to distribution margins given to 4-5 layers of intermediaries/ cost of logistics which was higher for pads/diapers being voluminous)
- Women, irrespective of their income, wanted a good quality and high absorbent sanitary pad because if a pad does not absorb well, no matter how cheap it is, it does not serve its purpose
There were a few social entrepreneurs and NGOs, who had identified the first problem and were making pads using small scale manual machines. These machines required 10-15 women and made less than 1000 pads a day, increasing the cost of production and made product quality inconsistent.
To solve both the problems, being Engineers, we came up with an Engineering solution (of course!). We conceptualized the design of a small scale fully automatic machine to enable local production and distribution of pads at a scale which was economically viable.
A SIMPLE (SARAL) SOLUTION TO PROTOTYPING
While most people are surprised when we say our sanitary pads manufacturing machine is completely designed in-house, we kept the process simple and gradual.
We started making prototypes in my co-founder Kartik Mehta’s father’s office with the help of our first two interns. We looked at developing very few critical components first so that we could manually make our first pad and test the process. To get feedback on the initial prototypes, we gave these pads to our friends. They loved them! Our friends helped us raise our first angel investment round within a few months of the starting our company. We now had capital to work on adding new modules and automation.
We were on the moon, but it was the next phase of growth where the confusion really began.
SOLVING FOR THE RIGHT NEED
The process of developing the machine (R&D and hardware manufacturing) was fairly capital intensive, but we didn’t waste any time. We started selling the pads in the market as soon as possible in order to get live feedback quickly, and use it to inform quick modifications to the machine.
After speaking to a few investors and mentors in our network, we gathered that our first step should be to build a relatable and low-cost brand. We came up with the brand name “Aisha” and started selling our pads in urban slums of Dharavi (the largest urban slum in Asia).
Since our machine was not yet fully optimized, we were not making any profit on the sale of pads. We challenged the production model by making it decentralized, but still retained the conventional distributor-retailer distribution strategy and started working to build brand awareness.
In our first year, we realized that we had not raised enough capital to build an offline brand. Organic sales were tough due to the fact that Dharavi was a competitive market where many brands actively operate.
For this reason, we shifted our focus to rural Maharashtra, where access to pads prevented many women from adopting the product. To combat this obstacle and ensure pads were accessible, we realized they needed to be brought to womens’ doorsteps. Read more about it here.
The response to the Sanitary pads products was great! Sales in rural areas were almost four times that of urban slums. We were able to reach many remote areas where women faced significant access barriers, travelling an average of l four or five kilometers to get a sanitary pad.
Our process became last mile and focused; however, this made it difficult to scale with our limited team size and funds.
BRAND BUILDING NEEDS MONEY!
People often say that you should raise equity investment when you don’t need it. In other words, only raise money when you are not desperate and are able to survive without external capital.
But when you are running out of cash, you try everything.
In our second year of our business, I met at least 100 venture capitalists, social impact investors, or angel investors.
- Some suggested we build an online brand (effectively, changing our target audience from low-income to high income women.
- Some questioned why are we were manufacturing at all – they advised that we would be able to raise funds easily if we focused only on building the brand while procuring sanitary pads from China and building a distribution network in India
From a Venture Capitalist’s perspective, it should be an easy path to acquisition by a larger company. Was our attachment to our own technology bringing us down? Was brand creation the only way to create value in this sector?
CREATING A BUZZ.
Although our internal team size was limited, talent and resources could be unlimited if we found the right partners. We started writing articles and sharing stories about our work in the media We were profiled in Forbes W-Power, Republic TV and CNBC Awaaz Entrepreneur.
We also had some amazing mentors who helped us rebrand to Active Ultra. This update allowed us to have better communication with the customer and highlight the features of the pads that mattered most to a user.
LISTENING TO THE CUSTOMER
With the media buzz about our work, we were getting a lot more interest from people curious about buying our sanitary pads machine technology. Entrepreneurs from Tier-2/3 towns and NGOs from India and other developing countries were reaching out inquiring about setting-up our machine to sell in their own brands (also called white labelling the product). We ignored these requests for a long time because we were focused on building our own brand.
A friend once told me, “listen to those who give you money”.
There were customers willing to give advances for buying our Swachh machines, even when we had not sold a single machine. We experimented in Bangladesh first to explore the machine sales model (read more). After a successful 6-month pilot in Bangladesh, we realized that, with appropriate training to the entrepreneur, selling sanitary pad machines to entrepreneurs made a lot of sense. Though we did not hold on to a common brand with this approach, as a company, we did not have to invest heavily into expanding our own assets (the machines) in order to increase our reach.
With open ears and a willingness to listen to the customer, we pivoted from a “single brand decentralized production model” to a “multi-brand business in a box model”.
To our surprise, this pivot had multiple advantages:
- LOCALIZATION OF BRANDS: Each machine location has a local brand name with localized packaging. It creates a higher sense of belonging for the customer where they see that, for example, “this pad is made in Bangladesh, or “made in Nepal”. The local entrepreneur running the machine also brings in a wealth of local insights and networks, which allows it to more quickly engage and penetrate the market.
- CUSTOMIZED PRICING: The purchasing capacity of customers in different geographies varies significantly, and so do the costs (like rents, labor salaries, etc). Having different brands in different regions provides flexibility to sell the sanitary pads at different prices, enabling healthy unit economics for each manufacturer and better pricing for the customer.
- PRODUCT CUSTOMIZATION: Different manufacturers can choose the shape, size, and type of sanitary pad that works best for their geography and order a customized machine to deliver the most suitable product to their customers.
- ACCESS OF FUNDS: A significant amount of funding is required for one entrepreneur to set-up 600 machines across all districts of India.. But, financing is much more accessible for one entrepreneur to set-up only one machine. This is possible via several government loan schemes like Mudra loan, Stand-up India, PMEGP, etc. NGOs also have the capacity to raise smaller grants to set-up one machine in their target geography.
Finally, here we are. We grew from one machine and 20,000 happy women, to 20+ machines and 300,000 happy women, all without raising any external venture funding.
Even though we arrived at this model after several iterations of brainstorming sessions within the team, design thinking workshops, and meetings with industry experts, I later found that there are many books on “Customer funded business” written by experts.
Before I go back to my daily work, I will leave you with this very important message about running a startup:
Do not die!
Necessity, perseverance, and desperation are the mothers of invention, jugaad, and frugal innovation.
As a hardware company focusing on R&D and last mile delivery, despite some successes, our costs were still quite high. Nearly every month it felt like we would run out of funds.
Here are some not-so-obvious money management strategies that helped us find a way to survive through the lean times.
ASSETS TO REVENUE:
We had a fixed asset machine that was being used for in-house production. One of our early supporters (and a keen believer in the Company) purchased the machine from us in a “Franchise owned, owner run” model. In this case, he owned our machine and we continued to run the production, and we split the profit from each pad sold. This arrangement allowed us to convert a fixed asset into revenue, thus helping with cash flow.
CREDIT, CASH AND FIXED DEPOSITS:
In our good times, we made fixed deposits to procure credit cards for key employees’ office expenses. Since many payments cannot be made through credit cards, we cut the credit limit to half, and withdrew the half in cash previously held in fixed deposits. Adding to our cash inflowthis way was just one of the various techniques of managing cash flows better. Another way we significantly reduced our dependency on external capital was to extensively invest in both supplier and buyer relationships to get better credit terms.
Though it is extremely heartbreaking, there were a few months where we had to delay salary payments to manage cash flows. In times like these, the team at Saral showed amazing solidarity and stuck together. After, team members told me that having visibility of the cash flow situation, and also immense hope about our future prospects, eased worries and helped team members hold faith in the Company despite the ups and downs. Even our interns were well-versed in our unit economics and knew how many sales we needed to survive. This transparency helped everyone work harder to achieve targets as a team.
START-UP GRANTS AWARDS:
The start-up movement in India has brought many opportunities for entrepreneurs to apply for small grants and awards, even while in the idea phase. As a commitment to the Open Sourcing movement, here is a list of some grants that we found helpful for hardware and social startups.