Chennai: For a pair of entrepreneurs preparing to launch a business, Sridhar Lakshmanan and Arul Sekar are in what appears to be a curious situation. Even as they are pitching their plans to investors, they find themselves trying not to pitch too hard, unsure even about how exactly to value the model they’re proposing.
“In these uncertain times, we don’t know how much to ask for, or how much stake to shed,” Lakshmanan says. “We’re half-hoping to just launch this March with our own funds. By the end of the year, if things get better, we’ll at least have some revenue numbers to evaluate ourselves.”
The business, a Chennai-based travel service named ecoLogin, was conceived during more nurturing economic times. Last April, Lakshmanan and Sekar, buddies who had taken many treks together, began talking about offering their know-how as a service, guiding small groups on treks as well as into villages on rural tourism jaunts. “We’d done it informally before,” Lakshmanan says, “and we wanted to take it (up) full time.”
Lakshmanan, 33, is ecoLogin’s chief executive officer, if such titles still hold sway in a firm with a staff of three. A graduate of the Indian Institute of Management, Ahmedabad, he has worked for long on social outreach projects—on a rural Internet enterprise for EID Parry (India) Ltd and then in tribal areas for Dr Reddy’s Foundation. Sekar, the 25-year-old chief operating officer and a product of the Himalayan Mountaineering Institute, is a student at the Indian Institute of Technology, Madras (IIT-M), enrolled in a master’s programme in entrepreneurship at its department of management studies.
EcoLogin, in fact, is Sekar’s thesis of sorts—a fulfilment of his programme’s second-year mandate to start a business. Its office, at present, is on the fourth floor of an IIT-M building, a spartan incubation lab furnished only with tables, Internet connections and inspirational posters of previous start-ups that were born in that small room.
Obstacle course: Sridhar Lakshmanan (left) and Arul Sekar at IIT-M. Sharp Image
“Initially, things were really good—lots of interest from venture capitalists and angel investors,” Lakshmanan says. When he hobbled, on crutches, into an interview for a position at a social venture fund, and when he explained that it was a result of his second trekking accident, conversation shifted to his idea for ecoLogin. “I was told: ‘We get plenty of applications for jobs, but not many for a good business idea. Maybe that’s what you should do.’” Lakshmanan remembers. “But just as we began to seriously work the numbers, the initial phase of the downturn began to hit India.”
EcoLogin’s website has been up for months now—“with a black background, to save power”, Lakshmanan says—but the downturn nipped in the bud their patriotic plans for a 15 August launch last year. “We started seeing what was happening in the United States, and we became conservative,” he says. “So, we focused on our background work, which we had to do anyway—making contacts with forest officials and local communities, confirming routes, identifying guides, and so on.”
An ecoLogin pitch presentation, shared with Mint, outlines the foreseen road ahead. For the first two years, ecoLogin will offer 36 weekend getaways in Tamil Nadu, before expanding to the other three south Indian states and Maharashtra. Lakshmanan had intended to charge an all-inclusive Rs3,500 per person per weekend for a driven tour and Rs2,500 for a trek. The rates sound reasonable, but “recently we’ve been getting requests to renegotiate even these rates, which wasn’t happening before”, he says.
The downturn has also undermined ecoLogin’s potential target demographic. “We were looking at young software professionals with disposable income and a desire to travel,” Lakshmanan says.
But with layoffs and corporate spending cuts in areas like offsite team-building exercises, that demographic appears to be in some jeopardy. Last July, when ecoLogin was featured in a newspaper article on start-ups, they received “more calls than we could handle”; recently, when they were written about again, there were no calls at all.
But while there has also been a decline in the tourism industry as a whole, rural tourism still has takers, says Mayura Balasubramanian, part of the United Nations Development Programme’s endogenous tourism project in India. “This market may prove more resilient than, say, a Goa,” she says. “The younger urban professionals are more adventurous, open to trying different things.”
Over the next two months, Lakshmanan and Sekar will pitch again to the six or seven investors who expressed a significant level of interest. Some may still have money they need to invest before the fiscal year closes, but Lakshmanan estimates their chances of success at around 65%.
“Earlier, we were looking at a first-year seed fund of Rs50 lakh, and a total funding of Rs3 crore. We thought we could show a first-year turnover of Rs80 lakh,” he says. In comparison, the Tamil Nadu Tourism Development Corporation’s turnover in 2007-08 was Rs58.4 crore.
“But now, in this economic climate, we’re just going to ask for an initial amount of Rs20 lakh, and we’ve halved that turnover projection.”
Operationally, then, ecoLogin will find itself with a tighter, reformulated budget. Its original plan had included hiring local guides on a full-time basis and providing them with an intensive training course. Now, Lakshmanan figures, they will retain them as temporary staff, to be paid only when clients use their services. “It isn’t what we’d planned, but there’s nothing else to be done,” he says.
Did Lakshmanan ever consider rethinking the March launch itself? “No, there is an immense pressure on us now to go ahead, come what may,” he says. “We have to take the plunge. People say there may be a turnaround by the end of the year, so we need six months to show cash flows in that time, and then go to investors with that. We’re sure now that enough is enough, that we want to do this.”
This is the first in a series about entrepreneurs starting businesses during the economic slowdown. Next: A start-up grapples with the ground realities of the construction industry.