How to build a lean startup in a Tier 2 or 3 city in India ? – Part 1

If you are exploring an option to start an IT / Digital startup in a Tier 2 or 3 city in India and are searching for some advice on how to do that in a lean, cost controlled way – here is some help:

1. Register your company preferably in one of the three modes: Limited Liability Partnership, One Person Company OR Private Limited. There is a 4th option of proprietorship as well which is the easiest with less compliance requirements but with some other disadvantages. Select the one which suits your revenue, risks, appetite, customers and few other factors like in which line of business you are. You will need help of a CA and lawyer. Should include GST registration, Udyog Aadhaar, etc. Typical cost – Up to Rs. 20,000 plus invested amount for paid up capital – one time cost.
2. You will need a business plan to chart out your path for at-least 1 to 2 years in the future. What will you offer: Products / Services / Or a mix of both? Where will you get the revenue from? Where will the funding come from? Who all will be your customers? What is the geography you will serve? Who will be your partners in management team? What partnerships in software / hardware with various companies do you need to have? How will you market & sell? What are the things you will outsource vs. do in-house? Where will the growth come from? Where are the future opportunities in the business space you want to serve? These are some basic questions that need to be answered in the business plan.
3. Build your website preferably by investing time and taking help of another IT startup or SME. If you have the skills you can build it on your own. Typical cost for hosting & website, emails, some tools, cloud applications like project / requirement / salary management, storage, collaboration, CRM, etc. – up to Rs. 50,000 to 70,000 per year depending on what options, products, etc. you select.
4. Register your Trade Mark. Typical cost – Rs. 10,000 to Rs. 50,000 depending on what all classes you file in and what are the further steps / objections. Once in 10 years.
5. You will incur expense on office like properly lease, electricity & salaries along with maintenance of current account, debit cards, internet banking, etc. – Depends on the city and location along with employee strength – Typically Rs. 75,000 to 200,000 per month for 3 to 5 employee company in Tier 2 & 3 cities.
6. You will need to meet legal & compliance requirements for filing taxes, annual meetings, audit, lawyer, etc. via a Chartered Accountant – Rs. 40,000 per year.
7. Digital marketing & sales activities will be required to be done regularly. Here are some major ones: Advertisements on Google AdWords, Promotions on Facebook, Twitter, LinkedIn, etc. – Typically Rs. 50,000 to 75,000 per year.
8. You will need to maintain Internet, computers and other associated administrative activities. Expenses – Rs. 20,000 per month.
9. Setup and regular filing / maintenance for EPF / EPS, Employee medical / life / accident / professional liability insurance will need to be done. Related expenses – Depends on the size of your firm and revenue. But a reasonable amount for a small company of 10 employees is about Rs. 15,000 to 25,000 per month. Some of these are optional depending on the size of your company.

My suggestion is to go with a Tier 2 or 3 city as your base and use digital medium to offer your services along with usage of online products on taxation, legal, compliance, audit, salaries, collaboration, sales, marketing, etc. to manage your company as much as possible with as small a footprint as possible in physical world to start your venture.

You can save a lot on office lease, physical sales & meetings, fuel, meeting customers, collaboration and managing data if you go digital.

Reach out to me for any discussions, help, suggestions on building a lean and low cost startup. Good luck ! !