How Successful startups deal with Compliance – Episode 1 with BigHaat
There are about 23% of aspiring entrepreneurs who shy off from starting up due to legal complexities. In fact, on Wazzeer Counsel application, we have heard many war stories of startups that had to spend hugely to compensate for ignoring compliance. And with the growing idea of “any legal problems can be solved later”, some entrepreneurs decide to take a risk by not executing compliance works duly. Most entrepreneurs who do not give enough time to fundamental stuff like accounting and bookkeeping in place, have ended up spending thousands to go back and fix the issues. To give another example, any startup would agree that finding the right co-founders for the business is extremely difficult, there are quite a number of startups that do not vest equity for a reasonable duration of time and are forced to file lawsuits against that co-founder who drops out.
Through this series of blog, we at Wazzeer are trying to comfort young and aspiring entrepreneurs with legal, accounting, and compliance ecosystem. On a voyage to help entrepreneurs understand how law is also a tool that can help one to create and capture value. In this episode, we will do our learning from the friend of farmers, happily funded, and successfully growing – BigHaat.
BigHaat (2015), a fast-growing startup that has created an online marketplace that provides a wide choice of quality inputs to farmers at their doorstep.
Raj Kancham, Cofounder of BigHaat is here with us to share his experiences in dealing with one of the tough subjects in startup career. Raj, JNU Alum ever since his graduation has been directly or indirectly contributing to the society, and BigHaat is the dedicated one. He has over 19 years of experience in Operations, Business Development, and Software development.
What inspired you to start BigHaat?
To answer that, I need to go back to my college days, it was late 80s and early 90s, I studied in the rural part of Andhra Pradesh, I can say that the worry for rain persisted then too, but farmers had other serious problems like lack of seeds, pesticides availability, and accessibility. It was in 2012, that dots started to connect. I was working for Nokia Life as a Program Manager, Nokia Life – a platform which gives information on many domains. One of the main domains is agriculture. Farmers can subscribe to this service to get information on market price for the crops or other farm commodities and weather information. If you remember, Newspapers and TV channels used to provide this information across their platforms too, the very same information was a paid service in Nokia life. We think that everybody including Farmers read Newspaper and watches TV, but it doesn’t happen that way, reason is they go to work at 5 am come back by 8-8.30pm and go to sleep, news channels broadcast news after 9 pm in the night or after 6 am in the morning, though these channels provided accurate information that went of no use to farmers. This made me realize that this is a serious problem that nobody really cares about, with that thought I left to Singapore to carry my corporate job. My last corporate job was in Singapore, 2013 Dec to 2015 May, my thought process developed persistently in my mind, In the meantime, one of my classmates, Sateesh Nukala was trying to solve a problem in irrigation aspects of agriculture, we jointly started working on the research.
Sateesh and I were convinced that we had to do an extensive research, so we decided to go to the University of Agriculture and talked to professors. By last qtr. of 2014, we inferred that there are issues in the input space, starting from sowing to harvest. I was still in Singapore and had a team of 2 people. Every 3 months I used to come to India and visit rural Karnataka and did a lot of talking to farmers. With all the experience and learning that we were gaining, we decided to take the next big leap, startup.
Then we made a list of companies to whom we can talk to, we nailed down one. We thought digital platform may not be a complete solution, so we thought we will put up a missed call CRM system. Our missed call system seemed to be a hack for us, we had customers call us and the customer support team would call back to these farmers and arrange the inputs. People can reach us through direct phone, missed call and people can go to any internet center and they can order, they can even install the Android mobile app to place the order.
In May 2015, within 4 months of launch, we did sales of around INR 6L. Profit was approximately in the range of 10%-12%. Our very first partner was Pioneers, they are number one in maize and hybrid rice seeds, likewise, one by one I started cracking. Ankur has invested around half a million and right now we are about to close CDCA funding of 3.5 million. As far as the growth is concerned, we could actually pull out a good growth which was essential for faster business expansion, in the last financial year we made a revenue of around INR 10 Crores.
Can you describe the challenges you faced as the company grew big?
If you see the challenges, challenges are not less, it is more about the growth. Everybody thinks that agri-business is something that anybody can do. At one point of time in 2006 – 2007, everybody wanted to become a software engineer. Everybody thought that they can do software engineering, Similarly, every startup thinks that okay I don’t have any idea so let me do something in agriculture. That culture has started which is again a dangerous thing. But one important thing luckily I can say is, venture capitalist companies are scrutinizing startups, especially when it comes to agritech. There is a good number of entrepreneurs who think that sitting in the boardroom one can see entire India, which is not true. You have to make your hands dirty and you have to go talk to people, work on the ground. Until and unless you work with farmers, nothing really happens. Recently one of my companies got rated as the best value chain agri startup in India and we received the award from Mr. Suresh Prabhu, Minister of Commerce and industry.
One of my advice to entrepreneurs planning to start up in Agriculture sector is, spend time with farmers, stay with them for 4-5 days, and then if you think you can do something, then come back and put your business plan, otherwise, don’t do anything just go back and do your job. If you want to work on issues anything related to the bottom of the pyramid, you have to stretch it out. You have to know what the farmer thinks.
Did you ever think of a plan B or was there already a plan B when you started BigHaat?
Honestly, I don’t believe in plan B. I do my risk assessment when I take up any job. If at all there was one, my plan B would have something to do in Agriculture. Maybe instead of doing it for too many people, I would have done something on a 500 acres farm because I know what is good. I would have produced all organic and then export it.. You can say my plan B is also agriculture, nothing else.
While incorporating your business, what all legal challenges did you face?
In India, there is a misconception of single window or one day or two days kind of a thing, which is not true. I have exposure to compliance required to start companies in the US, Singapore, and Australia, in Singapore, if you have all the documents, if you apply for incorporation in the morning, by evening you’ll have all your papers. Next day you can even put up the board and start your business. In the US, it takes less than a week to have the company registered. In Australia, within 48 hours you can have the company registered. In India, there is no timeline like that, which really pinches.
Stating my own experience, a Retail wing of BigHaat is called as AgroHaat LLP. We tried to register this company in Rajasthan, the entire process took 65 days. I got fed up and moved to Bangalore, I hired a CA referred by a local friend of mine. The CA got the company registered in 4 days. On the 4th day, I had PAN number in my hand, I had paid only Rs. 4000/- extra when compared to Rajasthan, it was 14000, in fact, I paid him 2000 more because I was very happy with the professionalism he portrayed. These examples show that there is a huge difference in how same work is delivered by different people in different parts of the country. The entire ecosystem is unorganized.
People say the availability of information is abundant online, you can follow this or that and what not, but the fact is there is no reliable guidance at all. Every entrepreneur must reinvent a way. That is the bitter truth. Legality wise there are so many issues, say you can’t start a company in a day, to get a PAN card you have a hundred things to be done. Due to all the uncertainties involved, entrepreneurs are struggling to start their business as and when decided.
Do you think the CA that you hired in both the cases were very different, the approach, the way they handled the project?
Accountability is the biggest thing, which is something I observed to be missing in most cases. To give you an example, I had outsourced a work to a CA firm, the CA was a well-experienced one that had a team of interns working under him, he had given it to them. His objective was that the interns will learn out of the project, but I don’t agree with them doing at the cost of customer’s time, that’s lethargic, very lethargic. I might sound rational, maybe that’s the way things work in Rajasthan and in remote also, many things don’t work the way we thought.
I have noticed the same attitude with some lawyers, when they get a case they will enthusiastically collect take the first round of installment and they will be very happy, they will put 3-4 days effort and then their interest slowly it dilutes. I have seen the pain, every day I had to call and follow-up, most of the times I received something negative. Especially during the days of fundraising, there is a huge dependency on legal and accounting compliance part, because investors invest only if you have a legal entity to sign up with. And if you say that I don’t have a legal entity, they reply to you saying things like ‘why did you initiate the discussion without having your compliance requirement met?’
Not just that, to give you another example, one of my very close friend, she was also my colleague in GE and went to Harvard to carry higher studies, wanted to something for the children in India. She and her husband who also holds an impeccable career – IIT, Harvard, and holds 6 patents, decided to teach people on STEM. In fact, they were the first one to think about it. In 2016, the couple came to India, leaving behind their handsome paying job and luxurious house in the US, they wanted to teach STEM to the people and because of all these legal tangles and local politics, they got fed up and gave up everything in 9 months and went back to US.
My next question is when you had all the funding flowing in did you have an idea of the list of compliances?
Over the years you generally get an idea of how things work, when it must be done and from whom it must be done. During the first round of funding, though we were compliant with statutory compliance, we faced some big compliance hurdles due to these hurdles instead of getting funds in one month we got the money after four months. What really happened was, the way we maintained the books was different from what our investors wanted, So, we took lot of time. The due diligence needed 3 months. Finally, we could complete it the way they wanted, but it was tough.
I would advise young entrepreneurs, no matter what maintain your books, small amount or big amount, anything that’s going out from the firm and anything that’s coming into the firm, make an entry, proper entry of all the bank transactions that you do. When you are raising funding, you can’t tell investors that on 2016 November you paid 100 to somebody for whatever reason. So, you need to have a disciplined accounting entry made on a daily or weekly basis. Make sure that you update it. Don’t give a chance or room for a one-month update or two-month update, it will just not happen.
That was a lesson I learned, now, for my new company as soon as I registered first thing I did was to hire an HR and Finance personnel. So that all the statutory compliance is dealt with a continuity.
What is your message for aspiring entrepreneurs who shy off from starting due to legal hitches?
First thing is, if you believe in your idea, just go for it, it could be hundreds of things that come in the way that might demotivate you, but always remember the very reason why you started, why you are there. If you keep reminding yourself why you are there and why you started, many, many things will go off from your way.
Second thing is, always question yourself and use the theory of negation. Why can’t you? Why some other guy? When you ask these questions, you will find a way, or you’ll find a solution to yourself. Just ask yourself, the answer will be there within you and it’s like either you did a mistake and there is a systematic problem.
If there is a systematic problem, head down, try to solve it and go. If it’s your problem, you fix it fast. But find it out if it is controllable or not controllable. Say today central government comes with a rule that startups should have Aadhar card. This situation is uncontrollable, it is a compliance issue. You may think that why I need Aadhar card for my company, I am giving my directors’ card. You might crib, cry for it, because you know how much effort you had put to get your own card, waiting in a long queue, but there is no point thinking over it that’s what I want to tell. The takeaway from this example is very simple, things that you can control and what matters is only 4%. You work only on that. That 4% will account for you to be successful. And when you are working on it, keep your focus and persistence up. That’s it.
Thanks for your valuable time, Raj. Starting from the story, though the experiences you shared, and the advice you offered. I am sure the objective behind these interviews is justified.
Absolutely, I am with you. Let me know if you need any other details also I don’t mind contributing to this cause. I like this. I know this. As I told you, many guys who are capable are shying away for this main reason. Let me know if you need any further help or something. Sure, may the best happen to you and your startup.