Huned Contractor interviews Mr R Narayan, the Founder of Power2SME, a business operation that helps small and medium enterprises source raw materials at lesser costs

Power2SME is the first 'buying club' for SMEs in India and started its operations in April 2012. The company focuses on the small and medium business enterprise segment and its mission is to increase profits for the Indian SMEs. It therefore focuses on reducing their purchase prices and increasing productivity, thereby striving to 'empower' businesses. It ensures that customers can focus on their core business of driving growth and expansion, while it takes on the role of sourcing input raw materials for the SMEs at the most competitive price points across multiple products. In this interview, Mr R Narayan, CEO, Power2SME, talks about the various facets of this unique business:

What led to the start of Power2SME?

Essentially, it took off as an idea to make India's small and medium enterprises competitive and, therefore, more relevant. The focus was on the costs that small businesses find a serious handicap - the cost of raw materials and other inputs. For instance, if a large-scale industry wants to buy steel in big quantities it goes directly to the steel maker who works out a handsomely discounted rate for it. If, however, a small fabrication workshop wants to buy 50 tonnes of steel he is forced to approach the wholesaler who does not offer any great discount or rebate. Or if a public sector bank wants to order five laptops it will get a quote of Rs 35,000 per unit but a small scale business will have to cough up Rs 42,000 a piece even if the order is for a dozen machines.

How does this work as a business model?

Power2SME has an innovative business model, which enables the small and medium enterprises to obtain the most optimal pricing for their procurement needs. The company pools the demand of hundreds of SMEs for multiple products for their business needs, thus allowing it to not only obtain the most optimal pricing but also a larger pool of quality suppliers. It buys directly from the manufacturer and sells to the SME directly, cutting out the middle link of distributors and wholesalers. The services on offer go beyond being a match-making platform. Power2SME takes complete ownership of the entire order process, including taking title of the goods, which ensure quality of the raw material at the best price with flexible payment options made available to SMEs.

It also provides an online platform that enables the SMEs to cut costs and build efficiencies in their business processes, thus allowing them to compete on an equal footing with large enterprises. This platform is available free of charge to their customers. This platform is available 24x7 to all the customers and can be accessed without any charges. The team comprises experienced and specialised professionals that negotiate the prices directly with manufacturers and can obtain prices that are significantly lower than the standard market prices. The SME gets a price benefit of about 20 per cent.

Did you have any prior experience of such a business?

I had noticed this treatment of small businesses during my stint as the country head of distribution for software giant Microsoft and later as the promoter of Denave, a company that manages distribution channel development as well as operations for national and multinational corporations. I began my journey into entrepreneurship with close friends Debabrat Mazumdar, whose father was a deputy managing director with the State Bank of India, and Snehashish Bhattacharjee, son of a Planning Commission official who later moved to the private sector. We established Denave and both of them continue to manage that venture while I have set up Power2SME.

How does this help the overall economy?

SMEs are often called the backbone of the economy, and offer employment to millions. It's obvious that if SMEs become more competitive the economy too will become so.

What were the initial challenges?

Convincing either side of the supply chain was difficult. Vendors were averse to even considering the small customers' needs. But we made them an offer they couldn't refuse. We offered to pick up our order from the manufacturing location and also agreed to a milestone-based discount system, which meant that the discount we got went up with the quantities ordered. Power2SME has tied up with third-party logistics providers who collect material in bulk from the manufacturer's location, reload it into smaller lots according to the orders received and deliver at the SME's doorstep. The SME customers, too, were skeptical about the concept but developed confidence once they saw the benefit. In the first six months of going operational, Power2SME clocked a turnover of over Rs 100 crore.

What was your source of funding?

The company raised foreign direct investment (FDI) from Inventus Capital and Kalaari Capital. They have together invested USD 2 million in its Series A funding in 2012.

What does your supplier base consist of?

Our supplier base currently comprises steel, metals, cement, chemicals, paper, plastics and paints, and the list is getting longer as more SMEs register their demand.

How about the team and the locations?

The team comprises nearly 100 professionals with domain expertise in sales, supply chain, marketing, finance, human resources and IT. We are headquartered in Gurgaon with offices in Mumbai, Pune, Baroda, Kanpur, Jaipur and Ahmedabad. We have more than 10,000 registered SME customers and this is currently at a run rate of USD 1 million per month in sales.

What's your future plan?

We are now looking at procuring even from overseas suppliers. And we don't want to stop at helping SMEs save on raw material input costs. The next phase is to help them find customers - both in India and abroad.

(Power2SME, Tel: 0124-4412668. For marketing and communications, contact Akanksha Jain. Email: akankshaj@power2sme.com)