A KPO’s Growth Strategy

A KPO’s Growth Strategy

Nishant Verman, Associate at Canaan Partners, A Global Venture Capital Firm

The Case:

Fiction Marketing KPO (Fiction), incorporated in early 2010, is an Indian integrated marketing outsourcing firm. Founded by an entrepreneur, who has over seven years experience as a senior manager, marketing at Procter & Gamble (P&G) in Chicago, the company believes that several aspects of the marketing function can be carried out of India with top-notch quality and better cost efficiency. In FY 2011, the company clocked annual revenue of about Rs. 1 crore, with a team of 12 marketing professionals. It currently has three clients in the consumer/electronic goods and automobile space in the U.S. Its services include conducting marketing research, pricing strategy formulation using data analysis, e-mail/direct marketing and marketing analytics among others.

Going forward, the company has an ambitious plan of touching Rs. 30 crore in revenues by FY 2015 and is seeking advice on its scaling up strategy. What should the entrepreneur’s growth strategy be?

Let us assume the fictional company can clock annual revenue of Rs. 60 lakh from each client. To meet the revenue target, Fiction needs to get 50 active clients. They need to ask themselves, is this even a realistic number?

The Expert:

To analyse this case, we spoke to Nishant Verman, associate at Canaan Partners, a global venture capital firm. Verman has over eight years of operations experience across Asia and the U.S. Prior to joining Canaan Partners, Verman co-founded Groovebug, a personalised music platform startup. He has also worked at Microsoft in corporate development and in Morgan Stanley’s investment banking group. Verman has an MBA from Kellogg School of Management.

For this story, Verman draws ideas from his and Canaan Partners’ experience of working with companies like UnitedLex, a full-service legal process outsourcing firm and iYogi, a computer support company, serving home and small business users globally.

The Expert Says:

Let us first discuss the firm’s fund raising strategy before we move on to other aspects of building the business. With the information we have right now, I’d like to suggest that the entrepreneur must go out and raise money that’ll last him at least 12 to 15 months. Fund raising is time consuming and he shouldn’t be wasting time raising money again eight months from now. After raising money, within a short span, he needs to answer the following questions:

– What kind of business am I trying to build? What is my end goal?

– What are the key risks and how do I mitigate each of these?

– What kind of experiments do I conduct to figure out my game plan? Specifically, what kind of clients do I target? What kind of services do I offer?

According to the case, the company has about three clients today. The entrepreneur also needs to be ready with the head count, the process for service delivery and the infrastructure needed as the company scales up. Let me discuss some important aspects of building this business.

Client Acquisition

From a client acquisition perspective, it is important to build the business around the team’s expertise. As the case mentions, if the entrepreneur has the expertise to serve the consumer goods space (thanks to his experience at P & G), he needs to build service areas catering to this segment.

There are two aspects to be considered here. One is the entry point – the entrepreneur has the ability to meet relevant people in the consumer goods space. But the second and more important aspect is the demand from this audience. Maybe, most of these consumer goods companies already have a very strong marketing function and may be open to outsourcing only lower level tasks – say, creation and design of marketing collateral. They might not be open to outsource work on gathering product insights.

Additionally, it is important to build service areas and client relationships where there is repeat demand. If you’re building expertise around delivering marketing collateral, more business in this area is crucial.

Of course, the most important element in acquiring clients is building the sales and account management team in the U.S. (or whichever markets you plan to serve). Marketing functions typically involve a lot of face-to-face engagements, so the onsite team might be crucial. It is also important to serve a market (country), where the need for such a service is high.

Scaling up and revenue growth

Let us assume that the company currently generates Rs. 33 lakh in revenue from each client (Rs. 1 crore is the revenue in FY 2011 from 3 clients). To figure out if it’d be possible to reach Rs. 30 crore in revenue by FY 2015, we need to think about the business in terms of revenue per client and number of clients to achieve this target. Remember that no one is expecting the entrepreneur to correctly predict revenue in 4 years – however operationalising the metrics can often provide a clearer sense of the company’s ability to execute and achieve them.

Let us assume the company doubles its revenue per client from Rs. 30 lakh currently to Rs. 60 lakh from each client by FY 2015. This implies that, Fiction would need to get 50 active clients. They need to ask themselves, is this even a realistic number? What services do they offer to ensure so much revenue from each client? How many leads do they need to make this happen? And how many sales staff do they need on the ground? If they currently service 3 clients with 12 marketing heads, would they need 200 heads to service 50 clients? Or are there synergies in the business that can be leveraged to ensure that costs don’t rise linearly with revenues?

At this point, all these estimates are just that. It will provide us with a game plan, but it needs to be fine tuned as new ideas come up and market demands change.

The Team

Obviously, like in any other business, the team is crucial. It is extremely important that there are people at the senior level who bring with themselves deep experience in the global services industry. If you’re targeting the U.S. market, it is important to build a team with a lot of insights and exposure in that market.

All the other teams – delivery, infrastructure and process teams – also need to be in place. But deep expertise in the market you’re trying to serve is almost mandatory. And it goes without saying that your first few hires can be the most critical – try to think about the different stages that the company will go through over the next few years – and ask yourself if your early team will be able to manage through the ups and downs inherent at this stage of the business.

Operational and Financial metrics

Like in any other outsourcing business, the process and efficiency of the process are crucial. At the end of the day, it is about the cost savings you can offer a client, while still maintaining the same quality.

The senior team should track the key operational metrics and take efforts to improve efficiency and quality based on this data.

Financially, return on investment per employee, revenue growth, operating margins and client acquisition costs, all need to be measured.