Demonetization – An all-around objective analysis



Ever since PM Modi announced demonetization, people are debating whether this is a good move or bad. Labeling any move as good or bad is a very difficult job. But one can always look at every aspect of it and do an objective analysis of same. Let us look at various aspect of it.

Stock vs Cycle

This move is apparently to unearth the stock of black money and not to stop cycles of black money generation forever. By banning the notes, the Govt want black money stock holders to deposit their money which will attract the tax and penalty eventually. This move alone will not stop someone from generating black money by running the business on cash and not accounting the income to avoid tax. The black money economy is going to continue without any additional measures to stop it. The introduction of 2000 rupee notes makes logistic of carrying such business even easier. And even if 2000 rupee notes are taken away too, it will still make no difference to the cycle of generation of black money.

So first thing first. This move is targeted to unearth current stock of black money and not to end black economy.

Cash Stock vs Asset 

The large part of existing black money is in form of properties, assets in foreign tax heavens, then gold and ornaments and other high-value assets. According to IT Dept data, of all the black money recovered all through past many years, only 6% were in form of hard cash currency notes. Rest was in form of other types of assets.

So this means this entire exercise is only to target this 6% of the total possible black money.


People have begun to settle their cash stock of 500-1000 notes through various ways.

1. Jewelers and gold

Jewelers are buying gold from black money holders on paper and giving them a cheque (increases their gold stock on paper) at discount (they get more in cash than they pay by cheque). Then they raise invoices for selling that on paper stock and raise cash receipt and deposit money in banks and earn the commission.

  1. Commission mafias

There are commission mafias who are taking old currencies from black money holder at 30-35% commission rate. They deposit in various accounts and pay back later after few months by withdrawing it. They, in turn, pay commissions to various account holders.

  1. Backdated FD in co-operative banks

Since large numbers of such banks are operated on manual records. Black money owners are now getting such backdated FDS in names of villagers and will get the refund in new currency notes.

  1. Temple trusts and religion organization donation

Influential people who have relationships with trustees of temple trust and other religious organization trust are giving huge amounts of donations. Since such organizations are out of the purview of tax, they can show this as legit donations, deposit in the bank account, withdraw it later in new currency notes and give back to donors with some commission.  Surprising right?

  1. Giving interest-free loan

Many people are giving small amounts as loans to multiple low-income rural people. Or sometimes with a negative interest rate. Since they can deposit the amount and exchange with new currency notes, so black money owners get their money back in new currency at no or little loss.

  1. Direct exchange via co-operative banks

Although it now restricted by Govt, lot of people have already directly exchange old currency notes with new notes through co-operative banks with some bribe to officers. Now that Govt has banned the co-operative bank from this exchange and deposit exercise. No new currency notes will be given to co-operative banks.

  1. Pay advanced salaries- Many businessmen are opening salary account of employee and depositing advanced salary of less than, say 2 Lac such that it doesn’t raise suspicion.Small black money owner can easily settle by depositing in accounts of multiple people. Big ones are resorting to methods mentioned above. If someone declares large amount, they have to let go of 90% given the 200% on 30% tax. So instead of that, they will let 30-40% go by various methods to retain at least 60-70% of value. The value they let go in those cases is not the value that goes out of circulation and ends up Govt’s coffers. It’s what chain of post-demonetization commission mafia and channel operators earn. Of all black money holder, very few will declare the money and pay 90% tax plus penalty.If Govt would have kept 30% tax and 50% penalty (total 45%), it would still make sense for black money holder to disclose and deposit, and be done with it. But at 90% of tax plus penalty, very negligible numbers of people will disclose their black money. Either they let go entire money or they convert at 30-40%.

Prior information to few people 

There are many theories and proof that are emerging which are making the possibility more eminent that few people already had prior information.

As per RBI there was abnormal rise in deposit in last quarter.  Let’s consider only September month. As per RBI report, deposit in September rose to 6.2% from 96.10 lac Cr to 102.08 lac Cr. A rise of 6 Lac Cr.  Considering the history of fluctuations in deposits in past month, let’s assume 1% of the increase in deposits is natural. So 5 lac Cr is the amount of unusual and suspicious deposits.

Now people argue that it’s due to voluntary income declaration scheme. The scheme, as per govt claims, generated 65000 Cr in taxes. At 30% of normal tax, the total income declared must be 2.17 lac Cr.  Now let’s assume 50% of this declared income was deposited in banks (which is highly unlikely as it was self-declaration and didn’t require deposits in banks and some of it could be in form of non-cash asset too).   So 1.1 lac out of 5 lac Cr was the deposit due to income declaration scheme. Now you still have 4 Lac Cr of unusual and suspicious of deposits. Yes, 4 lac Cr.

Some rumors were out in April and multiple media house carried the stories including ToI and small regional newspaper in Gujarat named “Akila”.

The access of  2000 rupee notes in large amounts to many people before the release of notes in public too raises questions. Since many people related to BJP have posted photos of big bunches of new notes prior to 8th Nov. Even such photographs that surfaced after 10th Nov are suspicious. As the daily limit of exchange is 4k, how can anyone get big bunches of 2000 rupee notes?

According to open letter by ex-confidante of Modi-Shah duo and ex-BJP MLA from Gujarat Yatin Oza, Amit Shah and his operators were openly exchanging old currencies in crores for anyone at 34% commission. While a BJP MLA in Rajasthan said on record that likes of Adani-Ambani were informed. According to one theory, Reliance used its black money for cash expense in their huge Reliance Jio investment and will now get returns in accounted white money.

Fake currency

Since the currency notes are invalid, this will surely be a blow to all counterfeit current owners who are mostly involved in terror activities. But again this is one time. It doesn’t do anything to stop counterfeit money from being generated. With 2000 it will be even easier. The RBI officials have categorically said that these new 2000 rupee notes have no extra security feature. Recently new 2000 rupee notes were

Also within 3 days fake 2000 rupees notes were in circulation. A person awarded for Make In India program was found to be running a racket of printing fake notes . Recently new 2000 rupee notes were found with terrorists killed on 22nd November in Kashmir.

Govt and their supporters are saying this move will reduce corruption. It would silly to think that this move is going to reduce corruption. The process of corruption has nothing to do with possible invalidation of existing stock of black money. Yes, if corrupt politician and officers have corrupt money in form of cash stock, it will be a bit of trouble for them and if they chose not to convert it into white with above-mentioned methods, it might be seized.  But this does nothing to stop corruption from happening. The way black money cycles will continue, as explained above, corruption will continue to happen too. People will pay bribes as usually as they did in past.

It is needful to note here that, all the while, Govt okayed the changes in Prevention of Corruption Act, such that now any investigation agency including CBI will be required to take permission from Govt before investigating a corruption case against any central or state Govt officer.
Economic Impact

This move is affecting 86% of total currency in circulation. As per Govt figures 90% of workers are in unorganized sectors which rely on cash completely (Ie those involved in agriculture, construction, or home-based micro businesses like tailoring etc.) generating more than 50% of India’s GDP. And with this move, they are the most affected ones.

Small traders, farmers, small shop owners and more who largely run their businesses with cash, aren’t able to make transactions. Even if buyers has 2000 notes to make small transactions, shop owners, and small vendors don’t have lower denomination notes to give back. They don’t have sufficient cash to buy from wholesalers.  Lack of currency has started a chain reaction that is going to be worse in coming days if currency shortage continues to be there.

The impact on unorganized sector biz is likely to affect GDP of the country. While some of the slowed and pending transactions will be fulfilled later on, hence, there will quick bounce in transactions, the effect of reduction in purchase power and low consumption for the period of almost two quarters will certainly affect GDP negatively.  According to various economists, this could be somewhere between 0.5 to 2%. Even considering 1% it’s still an erosion of $11.25 billion dollar which is INR 1.53 Lac Cr. According to a study by Center for Monitoring Indian Economy, by conservative estimate and for the time window of just 50 days, the demonetization will cost 1.28 Lac Cr.
Social Impact

There is dreadful suffering for hundreds of millions of country’s low-income and rural people. 68% of Indian population lives in rural area, where access to banking is difficult. There are only 7 banks per 1,00,000 people in rural India. Most have to travel 5-10 km to reach to the bank and stand in long queue for couples of hours, affecting their day to day work. Moreover, people are not educated and have difficulty in following through procedures.

Daily-wagers, low-income labors, farmers including women have to stand in queues to exchange their note for days and losing their wages. They have difficulty in buying day to day items and feed their families. Even if they convert their old currency notes, they can’t buy items as the shop owner doesn’t have enough change to give back. Many migrant laborers and others are sleeping hungry.
Many people who are amidst situations like family weddings or hospitalization and medical emergency are suffering a lot. Many women’s hidden saving is now vulnerable to exploit by oppressive husband and other family members. Single women or lonely elderly couples have a lot of trouble converting their hard earned money.  More than 80 people have died in various circumstances related to demonetization. The actual number could be bigger.

After 3 weeks there is even worse currency notes crunch at banks. Many banks in rural areas aren’t supplied with cash. Banks have been asking for police protection as the situation has turned violent at many places. All of these certainly cannot be categorized into minor inconvenience by any stretch of an imagination.
Other losses

Printing new currency notes of 2000  will cost 12,000 Cr.  Apart from all special arrangement that will be required for the exchange and deposit of old currency notes at such a large scale, will cost RBI significantly too.

Possible untold motive behind move

The declared reason for this move is to target black money and counterfeit currency.  There are other potential reasons which, for one or other reason, the government might not want to disclose. One such speculated reason is stressed out bank capital. In last few months, capital in public sector banks has been drying up due to a huge amount of Non-Performing Assets. Bad performing loans in PSB doubled from 3.2 Lac Cr to 6.2 Lac Cr in last 12 month. Also,  1.15 lac Cr worth of loans were written off by state-owned banks between 2013-15, which is more than half of what was written off between 2005 to 2013.

As per this very detailed story, there were other parameters like risk avoidance due to any future volatility along with much-needed capital infusion, that Govt could have been advised to go for this move.


Modi government’s appeal to urban educated middle class was degrading since past 2 years. Issues like high inflation, farmers suicides, low job creation were haunting Modi government. Modi came to power on the premise of “Achchhe Din” and “Vikas”. But two years of government didn’t reflect that for common Indian. Demonetisation could strengthen people’s belief of Modi as Vikaspurush and bold leader. Since elections are approaching in many states, this could be a game-changer for BJP. The announcement of the demonetisation has added stock of enthusiasm in his urban educated middle-class supporter base. While with this move, BJP will be able to retain its urban middle-class support base, there’s a huge disappointment with rural class and traders, which could cost BJP significantly.

All opposition party has opposed such a bold move affecting millions of Indian with various arguments. The main argument of opposition is why Govt is not acting on Swiss account holder list or those mentioned in Panama paper leak and why Govt gave away inputs to selected people in advance all the while poor and common people are suffering great misery due to poor planning and implementation. AAP Govt seems to be most vocal in opposing the government. Although on other hand AAP seemed to be participating constructively by sending volunteers to help people in queues with water, tea and filling forms etc.

Opposition parties have been demanding Prime minister to speak about demonetization in Parliament and answer the question related to cost-benefit analysis of demonetization, which, Prime Minister seems to have arrogantly ignored. Prime Minister, although, is seen talking about demonetization in couples of speeches in election rallies in Punjab and Uttar Pradesh.

It is also interesting to note that BJP itself opposed heavily the UPA govt’s decision to similar move. The argument presented by BJP then were same as what opposition is doing now.

Government’s intention

As many skeptics apart from loyal supporters are now praising the PM Modi on going after black money and corruption, many questions remain unanswered on Government intentions.

Questions like, if Govt’s intention was to curb black money menace, why some long-term steps like curbing cash payment are not being taken and instead of jeopardizing socioeconomic fabric of large part of the country?

It is very well established that black money and assets are stashed in Swiss banks and foreign tax heavens. The names of such account holder are with Govt, including the recently revealed list of tax-evaders mentioned in of huge international Panama papers leak. Why is the Govt not acting on those big fishes?

While people are depositing their money SBI has written off 7000 Cr worth of loans including that of Vijay Malya’s 1200 Cr loans and . While PM Modi made comments like “Those involved in 2G scams are standing in line” and “Poors are sleeping peacefully and Rich has to take sleeping pills”, it becomes difficult to come to term with the fact that Govt has cleared the suggestion by the parliamentary committee regarding amendments to Prevention of Corruption Act that requires any investigation agency including CBI to take permission from government before probing any central or state government officers. If it is widely perceived that political parties accept unaccounted money in large amounts, why Modi Govt is reluctant to bring political parties under ambit of RTI ?

Alternate solutions

Instead of going for such an extreme step, the Govt could’ve implemented many long-terms measures to reduce black money economy as a process instead of focusing on targeting black money stock which is easily being settled by various means now.

Imposing cash payment threshold for large ticket consumer purchase like appliances, vehicles etc. is one such measure. Which not only enforces banking, cashless transactions, and deposits but also help choke black money generation process over the time. If people have lesser means of utilizing cash stock of black money, there will be lesser motivation to generate black money.

Govt should act on the list of swiss account holders and Panama companies holders. There is and there was a huge amount of money stashed there. Govt should make political funding transparent by requiring all payments to be received in white. Afterall, if the government can urge citizen to adopt cashless economy, why shouldn’t it be begun from political parties?

Empower and run honest tax administration. We already have lower rates of income taxes. We need more traceability and big data analytics technology should strengthen IT dept. to detect suspicious activities along with public awareness about taxation. In this digital age, rural banking and co-operative banks are still far more traditional. Regulation can be formed requiring banks to acquire technology to align with RBI’s traceability goals. Jan Dhan Yojna was already good initiative. Businesses should be incentivized to accept card or digital payment by various banking policies. Accepting cards is still very costly for merchants.

To a certain extent, it won’t be wrong to say IT dept. itself helps in tax evasion. Corruption is kind of part of the process for smaller tax evasion investigation process. Most IT officers take the bribe and clear the cases for businesses. This is considerable leakage in tax collection. So anti-corruption measure in IT dept alone can make big change.


By now it can be concluded that government failed to plan adequately. The reason of ‘Secrecy’ that is being brought forward is futile in most kind of preparations. For example, preparing ATM for 2000 notes has nothing to do with Secrecy of demonetization. Already the information of introduction of 2000 was leaked while in process of printing etc.

Until an entire wee, 500 rupee notes didn’t reach the banks. There’s a huge shortage of new 2000 and 500 rupee notes. Notes could have been printed in adequate number. By an estimate with all presses running at full capacity, it will take 6 months to print new currency note of equivalent amount that was invalidated. There has been news like half-printed and faded notes are being dispensed by ATM.

Govt is coming up with new circulars almost every day since the initial announcement. This only shows that government didn’t plan for possible outcomes and were responding to salvage the situation.

Who says what?

A lot of people are influenced by who has said what about the Govt’s decision. There has been a lot of speculation.

Demonetization move wasn’t widely praised by international media likes  New York Times , BBC , The Guardian , Huffington Post , Washington Post , The Independent , International Business Times . While some international financial institutes have to politically correctly acknowledge the movement by world’s largest democracy and fastest growing economy, Indian economists belonging to different school of thought weren’t much in favor of demonetization.

Kaushik Basu, a former economist at world bank said, “collateral damage is likely to outstrip its benefits”. Prabhat Patnaik  and Arun Kumar had similar views and so some  other. While economist like Arvind pangariya thinks this move will help reduce inflation and bring black money back to some extent. Ex-RBI governor like Raghuram Rajan  was wary about the move stopping black money menace.  Internationally reputed economists like Nobel Prize winner Amartya Sen, US ex-secretary of Treasury Larry Summers, Jean Dreze, Paul Krugman also criticized the demonetisation move. All the while Supreme Court pulled the government for the situation at banks and difficulties of citizens.


Out of 14.5 Lac Cr of invalidated currency, 8.5 lac Cr is already deposited by 26th November. By an estimate about 5 Lac Cr was already with Banks, Treasuries, ATM machines, Govt and public sector enterprises. So, a very small amount of currency will be destroyed. The recovery done through demonetization will mostly be in the form of tax plus penalty collection. Given the cost of demonetization and losses in GDP, if the government doesn’t generate more than 2 lac Cr, demonetization is futile.


So how do we evaluate the success of the demonetization move? As a result of a recovery of black money, there should be unusual rise in income tax collection in this fiscal as well as next fiscal. Also, the black money that goes undeclared, If RBI reprints then the debt and budget deficit should go down significantly. If it doesn’t, inflation should reduce dramatically and rupee should become much stronger against the dollar. The indirect effect should be lower taxes and increase in budge spending for various schemes.


The move will bring back very little black money and it will certainly not stop the black money economy and flow itself. Unless the recovery goes beyond 2 Lac Cr, this whole exercise will remain futile considering the losses due to a direct cost of demonetization and losses in GDP. The cost is out-weighing the recovery or income to the government.

The government and RBI need to come up with right measures for black money cycles or flow to stop, this step will do nothing. It may trigger mindset change but such change is mostly evolving in nature and could’ve been done better with gradual introductions of correct measures and improvements like traceability and better tax administration, expanded and tech-enabled bank network etc.

The move will certainly fuel the banks with capital but it is yet to be seen how sternly the government acts on the bad loans and defaulters.

Why Reliance Jio won’t succeed in selling cars just because it sells fuel


(Note : This article was originally written for and published on YourStory )

Reliance Jio pricing plans announcement after the company’s annual general meeting (AGM) a few weeks back made headlines and shocked competitors. WhatsApp and Facebook were abuzz about Reliance Jio’s offering. Within hours of the announcement, stocks of Idea Cellular and Bharti Airtel dipped 10.5 percent and 6.4 percent, respectively. At the same time, Reliance’s shares also dipped 2.73 percent over concerns of investors in regard to the profitability of the company.

The strategy behind such insanely low pricing is most likely to leverage huge consumer base and monetise media, communication, and cloud-based apps and services that are powered by internet. Data (as telecom service) are to apps what fuel is to cars. On that notion, Reliance Jio basically wants to sell cars just because it sells fuel. And there are many reasons why it might not work.

Reliance Jio has already published many apps targeting different digital services markets. The obvious reason would be to be able to monetise them. The company could be targeting the next million consumer base who are waiting to be connected by internet and using internet-based services. Also those existing internet consumers who will switch to Jio. Jio wants to do this by building tightly coupled ecosystem of apps and services over their data service. And it seems understandable, given Mukesh Ambani happens to have said that “Data is the new Oil”.

Let’s take a look at the apps and services Reliance Jio has launched and its competitors in India.


Reliance Jio Competition Category leader
JioChat WhatsApp, FB Messenger, Hike (Airtel), Telegram, Viber, WeChat WhatsApp
JioDrive Google Drive, Dropbox, Onedrive (Microsoft), Box Google Drive
JioMoney Paytm, Freecharge, Mobikwik, CitrusPay, Pockets (ICICI), Airtel Money, PayZapp (HDFC) Paytm
JioMusic Gaana (Times), Saavn, Hungama, , Wynk (Airtel) Gaana
JioTV / JioCinema Netflix, BigFlix (Reliance ADAG group) , WynkMovies, Eros Now, Muvizz, Sony LIV, BoxTV, Ditto (Zee) , Voot (Viacom18) , Hooq BigFlix
JioMag Magzter, Zinio Magzter
JioNewsPaper Opeddiction, India Newspapers



While this strategy by Jio seems good, everything doesn’t seem great. Let’s look at why Jio most likely won’t be able to build huge fortune by discounting mobile data services and hoping to make huge profit from digital services and apps.

Winner takes it all

It is established since long that for consumer web and mobile industry, top 2-3 leading products or services captures 60-70 percent of market share combined. Dozens other products or services fight for remaining chunk of market share. For various reason discussed further, it doesn’t seem likely that Reliance Jio can be the category leader in any of digital services markets. Hence, Jio will end up capturing a very small chunk of the market share in each category.

Doing it all doesn’t work

Building web and mobile product and scaling it to be a market leader is a huge feat. It takes long-standing struggle and learning by smart founders and CEO in order to achieve it. It takes single-minded focus in order to build superior product and services. Many large decades old conglomerates in telecom and media industry, around the world and India, has tried to enter into such new digital/tech markets but haven’t succeeded (in achieving market leadership position).  In India, Times group, Airtel has tried to enter into various such digital services markets but, barring few smaller ones, haven’t succeeded in large markets.

Ecosystems are built over platforms

In software tech world, ecosystems are built based on platforms ‑ a platform of operating system (Windows, Android), web services (Google), etc.  Reliance Jio is a telecom operator, it is not software/web platform. It won’t be a cakewalk to leverage telecom services consumer base to convert them to users of their apps and digital services.


Average Indian consumers are famous for not having brand loyalty. They tend to use the service and product which gives them the best value for money. E-commerce companies have paid a heavy price in consumer promotion and have always struggled in building loyal customer base. So it cannot be established that since people will be using Jio’s data service, most will also default to Jio’s apps, etc.

Nevertheless, all digital services launched by Jio probably can’t fail miserably. It will contribute a significant chunk to Reliance’s revenues, like how many similar apps and digital services do for Airtel or many other primarily non-tech corporations. But Reliance Jio cannot certainly hope to capture huge market share in all these digital services markets and make big fortunes by monetising that.


How To Sustain Growth By Remaining A Startup You Were


(NOTE : Article was originally written for and published on Inc42  )

The disruptive nature of startups is widely discussed and acknowledged. There are certain characteristics that make a small team of startup disrupt markets and even build one.

Every startup obviously wants to grow quickly. They raise a huge amount of funding, they hire growth hackers, marketers and spends huge amount of money pumping up sales and marketing. When all of this happens, a few fundamental startup characteristics take a back seat.

If a startup wants to have sustainable growth, it shouldn’t rely on huge marketing spends and high customer acquisition cost, but  has to focus on remaining “startup”, all the while they grow.

Build Product That Speaks For Itself

Take any category leading startups with huge market share, there will be two attributes common in those startups – a consistent growth for a couple of years and an “awesome” product. When you have that “awesome” product, marketing and growth become easier. When the user experience of your product delights customers, they will, of course, spread the word about it. It could be slow but it will bring sustainable growth.

When was the last time you were so delighted by using an app or service, that you happily talked about it with a friend or colleague? A week or month back? These would be apps or services that are the category leader. As the startup grows, things like product scalability, customer support, backend and operational integration become a priority for the product team. Focus on making the product “super awesome” is reduced. The founder, who had a certain vision for the product, remains less involved. There is a complex hierarchy of CTO, product managers and developer team. So, core values and vision for the product gets diluted.

There should be a clear definition of the vision and proposition which should be effectively communicated from time to time to key product managers and tech people. Processes should be set for feedback collection, study, and evaluation of competition analysis, UX analysis, etc. Most importantly the tech founder—who envisioned the product—should still remain closely involved in product design decisions.

Listen To Your Customers

From the time of ideation to MVP and even further, founders collect a lot of feedback from the team, mentors, industry experts, prospect customers, users, etc. This remains at the core of strategic decision about the product. When startup focuses on growth, the founders gets busy with a lot of things, and feedback collection and learning from users becomes a low priority. The startup has a product, people are buying it, it has money to spend on customer acquisition, so they go on and keep doing that.

How many times have you felt so frustrated while using your favorite app or service, and felt like why those guys wouldn’t make that silly fix for it? Often, right? We discuss often that big companies don’t fix things quickly and their product don’t move quickly. That’s precisely what could be happening with your product. If it is not done, many strategic product decisions (and even other) could be affected, which in turn, could affect your growth over the long-term.

As startups grow, they need to transform feedback collection effort. Startups need to be using tools and processes to effectively gather and classify various types of feedback from various sources – from average users to influencers to industry expert to peers. While listening to customers is the most important thing for your product decisions, there are many areas for which you need to collect feedback from difference sources.

Cut Costs

For startups, an early stage is all about survival and sustenance. Hence, the founders always try to reduce the cost for everything from product development to operation to marketing. As soon as the startup raise bigger funding rounds, it appears as if they have been rewarded for all their struggles. An obscene amount of money is spent in marketing, plush offices, avoidable operational costs, unrealistic pay scales, avoidable hiring, etc. All in the name of seeking growth.

There would be hundreds of startups which failed because they couldn’t maintain their unit economics of customer acquisition costs and customer lifetime value, and not because their idea was wrong or market wasn’t there. Even if we disregard failed startup, the expenditure could play big role in how financials pan out in the longer run. There’s that popular image of startups who raise huge funding and spend lavishly, and hence founders tend to believe that huge spending now doesn’t matter because you are creating value for tomorrow and that’s how it works. But it certainly doesn’t have to be that way. It might be true for few startups (yes, unicorns as they call it). But for most, it is obviously not true. You might not be creating that huge value for future by spending that high today. Founders realize when they have difficulty in raising next round or the startup faces sustenance crisis.

Metrics and budget should be defined to track and limit the expenditure. Every major expenditure decision from hiring a senior executive to infrastructure cost should be evaluated rigorously for most optimum RoI. Founders need to remain conservative about finance and expenditure.

Be Lean

Startups in the early stage are agile and lean in terms of changing anything from product to business model to team and lot more. They are always on the lookout for trends in their target market and technology domain. As startups grow big, they abstract away from all of these.

Think of a leading local listing growing startup who could be challenged by a new startup who embarked social features and network effect of same when social media and social web had begun to become a trend. There could be a paradigm shift in industry or a social trend in targeted userbase that could suddenly make a huge impact to the growth prospects of a startup. Founders need to keep themselves well informed about developing trends in their industry as well as technology domain they are in. There should be an organized competitor analysis from time to time and have opinions and feedback of team on same. Most of the time founders remain adamant to stick to their vision of the product, and with a due arrogance that is expected out of tech founder to turns a blind eye to developing trend only to realize later that they missed the bus.

Sustain Spirit Of Startup In Team

In the early stage of startups, founders prefer to hire people who are fit for startups, which includes those who are fascinated by startups, are entrepreneurial and are well informed about the startup world, current trends, etc. This is obvious for various reasons. But when they grow quickly, they have to hire a lot of people in a short span of time and some of the checks are compromised.

When people are added to the team who doesn’t fit the culture, it can prove costly in multiple ways. For startups, the thought process of every team member affects the product or service of startup. When it is not in sync with the company’s vision or philosophy for product, innovation, and excellence gets affected.

Startups should employ means of communication through which they can keep the spirit of “startup-man-ship” alive. In a startup’s larger team, there would be people who don’t relate to the world of startup at all. Startups can make “startup training” part of induction and onboarding of people, where they can learn what are startups, how they are different, what is this startup and the vision, philosophy, values of this startup are communicated clearly. Open houses could be used to keep the spirit of startup floating. It is about ensuring that the whole team shares the same spirit and the vision.

Of course, in order to grow, startups need to really be “grown-up” in some areas as well and not to remain “startup” (like managing formalities, compliance, information organization, administration, etc.). And, of course, doing all of the aforementioned things isn’t the perfect recipe for growth. But these are the key ingredients of sustainable growth.

Various aspects of pricing SAAS product


Deciding pricing can be very difficult at early stage of your product/starup. There are various things to care about.

Profitability aspect:

This is very subjective. As a good SAAS business you are supposed to be making at least 30% profit. But you cannot decide pricing by how much profit you want. Because that way you may possibly price the product which is not affordable by your target customer base. So in my opinion pricing cannot be determined by taking percentage of profit into calculation.

Look at Competitor pricing:

This is one nice way to price your product. You can find out similar product as yours. And then compare with feature and advantage or disadvantage and the price accordingly. You can create your subscription plan considering you disadvantages and turn it into advantage. Ie. If you are missing core feature, you can define low-end subscription which is cheaper than competitors subscription plan which doesn’t include that feature.
If your product in unique and you don’t have competitor having very similar looking product, you can look for product providing similar lines of benefits to the same target customer base. I.e. If your product helps in digital marketing to online businesses, and you don’t have direct competitor, you can look for products that helps with online businesses in any other sales/marketing areas. In that way you will be able to get insight about actual value of your product for your target customer base.

Be lean on pricing changes

In my opinion it’s no big deal if you have to change pricing too many times in your early days. This happens and it should happen. You should keep getting feedback from different customer segments and keep tweaking the price. But at the same time you should also try to find out the right price as soon as possible. When you have to increase price, you can keep customer who you have already sold at lesser price to same price as long as they maintain account with your product. Or if you have sold them at higher price, you can apply new lower price to them.

Increase perceived value

Sometime despite the fact that product is worth x amount rationally ( because for example it saves x amount in operations or human resource for customer) , customer might not be able to really see that. Because not everyone will be able to calculate and judge that. There are two things you can do, increase the actual worth of product by adding more features or functionality that adds more value for customer or you increase perceived value.

Perceived value is something customer perceives when they listen, see or read about your product from your marketing material, your website, you demo vide or call. Here, it helps to create that brand image and improve your marketing material. You can polish marketing material to give it be top class brand image, highlight high level unique advantages, show customer testimonials etc.

Keep one very premium looking subscription which has very high pricing. This is not to earn premium profit but it is to increase perceived value of product to customer.

Show customers future potential

When your SAAS product is targeting SMEs and is long term need for them, chances are customer will feel your price to be high. This true especially in India where people are accustomed to one off payment rather than ongoing services payment. In early stage, you might have priced the product considering long term prospect of features and usefulness of product. Because you know there will be lots of things that will be added in product in couple years down the line. But customer can’t see that value at the time of purchase.

So what might help is to create subscription plans with futuristic features. And that way you have subscription with currently available feature and subscription with futuristic features. And that way you won’t lose customer who want product which you have but don’t want to pay for the product which you will have in future.

Long term value assessment

There are few product for which the scale is more valuable than short term (2-4 years) revenues. Especially for startups whose product can transform into platform which can form its own ecosystems around various solutions. In such scenario I think it’s not wrong to price the product lower if it is visible that you can get more customers on your product/platform. For example for startups which is aggregating some sort of data can consider the data collection by means of sale as a value in addition to monetary value they gained by sales transaction. In such case you will need to put in more capital but then you are creating more value for long term.

While there’s no standard formula to price the SAAS product, I tried to discuss about various aspects of pricing at early stage of SAAS startup.