Shivam Shahi

Shivam Shahi, Co-Founder and COO, Blue Tokai Coffee Roasters

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Cost-to-revenue Ratio Determines The Longevity Of Business

At Blue Tokai, and in my personal capacity as an angel investor, I strongly believe that nothing but a strong focus on unit economics will keep businesses running successfully in the long run.

India is the heartland of startups and the last two decades have been one of the most exciting times for the startup ecosystem in the country. This revolution in India’s corporate sector has caught global attention with several investors now turning towards Indian startups, given their potential to grow and yield returns. Undeniably, we are one of the strongest markets in terms of addressing the growing consumer appetite, and much ahead of some of the developed countries when it comes to identifying consumer needs with micro-startups.

With some startups identifying untapped avenues to others aiding existing large-scale businesses, there has been a significant boom in the number of companies being incorporated each year. While some withstand the test of times, others grapple purely because of unrealistic growth targets and valuation chase. At Blue Tokai, and in my personal capacity as an angel investor, I strongly believe that nothing but a strong focus on unit economics will keep businesses running successfully in the long run. It is a founding business principle that should not be compromised with, in the rush to become the most-wanted, most-valued and most-popular. 

This cost-to-revenue ratio determines the longevity of a business, and losing sight of this may hamper the commercial side of the business. Today, some of the most successful business stories in India credit their growth to a healthy unit economics, and I firmly believe that this is the key to a sustainable, long-term growth.

A startup should be mindful of the correlation between time and growth and recognise the difference between being optimistic and ambitious. One’s immediate focus should always be on the next 2-3 years, evaluate business growth based on consumer response and then accordingly pivot or continue in the same direction. However, one should not move away from one’s fundamental proposition and chase chaotic growth – a common phenomenon these days. For me, a fine balance of agility and deepening the roots in your core offerings, all while being versatile are some of the most important business attributes.

When Blue Tokai was launched in 2013 as the first specialty coffee roaster in India, our aim was to make Indian specialty coffee accessible to people, no matter where they are, and a decade later, our core remains the same. The specialty coffee market is here to stay and capture a significant share of the overall coffee market, owing to the growing awareness about high-quality coffee. The recent entry of several foreign brands is a testament to the future of the coffee industry and I anticipate a flooding interest from venture capitalists.

Another factor that has supplemented the growth of high-quality goods across categories is the increase in disposable incomes of the younger generation, not restricted to Tier 1 cities anymore. Smaller cities with low per capita income have a higher disposable income, thanks to the low cost of living and hence the upsurge in demand. Tier 2 cities are where India’s next set of consumers reside and if a startup does not make these a part of their consideration set, a large chunk of their prospective customers or users will remain unaddressed. The growing demand from these markets in the online space is soon going to translate to the offline counterparts. We’ve observed this shift first-hand at Blue Tokai, with Tier 2 cities exhibiting a strong demand for specialty coffee, and I am certain this is only going to increase from this point.

Truth being said, it can be difficult for startups to flourish if the regulations and governmental policies are not welcoming. Digitisation of several sectors, especially the payments industry, has revolutionised the economy in India and further accelerated the corporate sector in India. For any business, especially the ones that operate in consumer sectors, the next big ask will be increased ease of business through streamlined single-window access to regulators, and a positive economic environment. With brands operating across the country, especially brick & mortar businesses like ours, a significant number of resources are utilised in combating regional challenges.

As a country, this is the most adept we’ve been at addressing consumer demands, and if startups understand their markets well, define models on sustained growth and the government intervenes to eradicate operational barriers, there’s an enviable economy brewing!

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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