Jugaad & Local Knowledge: Changing Hats to Drive SME Success

In India’s ever-evolving SME landscape, the fusion of the jugaad approach and deep local knowledge in growing a business can be the deciding factor in its success. James Varghese recounts his experience with one SME that has mastered the art of using this heady business combination in their operations. 

Mr. Augustine ran a successful IIT business incubator campus in Trichy. Since he was a natural entrepreneur, he built up a wealth of knowledge on how neem could be developed into an effective, organic pesticide. He developed the technology behind its production and set up processes for the same.

The product trials proved to be successful. He then went on to manufacture it on a commercial scale, and it was well received by farmers in the Trichy markets. He then went on to expand his distribution to the neighbouring districts of Aryalur, Perambalur, Namakkal, and Trichy itself. The reviews from these markets were largely positive, too.

In order to make this business viable, he needed to cut down on costs. He took on many of the roles himself, so that he and his co-founder could practically manage the entire process with as little fixed cost and staffing costs as possible. His unit operated from the campus incubation center. His production facility took up less than 3000 square feet of real estate.

His business ran like a well-oiled machine and it was largely due to the founders’ willingness to bootstrap during the nascent stages of their growth. His facility had machines for mixing, drying and processing neem leaves and converting them into insecticides and pesticides. The small business hardly had 5 employees. When I visited his shop floor a couple of times, I discovered that he and his co-founder were extremely involved in production, from quality checks to ensuring the production was seamlessly underway. On many occasions, they both ended up assisting hands-on with the packing orders to get them ready for shipment.

I was really touched by the sight of it because Augustine and his female co-founder came from well-to-do backgrounds. They were not beyond rolling up their sleeves and putting in a little elbow grease to help keep the production flow smooth. Simultaneously, the co-founder single-handedly managed the finances and accounts. Additionally, she also oversaw the logistics of the supply chain. On the other hand, the founder took on all marketing related tasks, as well as raw material sourcing.

I was very impressed by his lean business model.

His production costs were kept very low and his profit margins were extremely good – nearly 60% gross margin!

How did he manage to gain quite a good return on his investment, both in terms of capital and in terms of assets deployed?

His use of local knowledge came in handy. His extensive understanding of the local market, the relationships he formed and maintained with his industry peers, as well as his extensive understand of the norms in the Trichy community fortified his lean approach to business. There was also, in my observation, a clean structure to the business and a clear understanding of each employer and employees’ roles and responsibilities. But this well-defined business did not mean that the founders lacked agility when it came to unexpected variables in product lines or distribution methods. Their resourcefulness led to great business outcomes.

Jugaad Approach to Agile SME Practices

One of the key distinguishing features of SMEs in India from other countries is the Indian Jugaad approach to life and business, using their advantage of local knowledge.

To understand this approach, we can take a closer look at the average middle-class Indian household. For the everyday operations, they pool in resources of time, energy, money, and manpower in the form of timetables, bandwidth, monthly income, and family members. The resources are usually limited, and so stretching them requires much creative agility and resourcefulness. It is not uncommon for members of these households to create workarounds in order to cut costs, like using readily available household materials to patch up a pipe leak instead of hiring a plumber to save costs. Tips on the best recipes and places/seasons to buy vegetables are exchanged over compound walls with neighbours. Over time, this approach to life takes on a social bent that relies on crowdsourcing local knowledge for one’s benefit.

It is a small wonder that this approach to everyday life in India has seeped into the Indian SME’s mindset towards running a business.

How Local Knowledge Pairs with Jugaad

In Mr. Augustine’s case, he was able to use jugaad systems with his co-founder with such ingenuity and the seamless changing of hats between them. I found their business to be singular in the way that they created a lean and very efficient structure using the collective knowledge, experience, contacts, and resources.

Most SMEs in India use this approach to bootstrap and build a new company. It is especially useful in beating the high cost of setup, which generally takes a huge toll on new businesses and is one of the biggest causes of new businesses failing in the initial years. Successful SME leverage unique resources, with little capital, based on local knowledge to keep their company afloat and gain maximum returns. Here are a few that I have observed in those that I have worked with:

Social Capital: Consciously building community relationships over time to develop mutual trust is an invaluable asset to early-stage SMEs, especially when it comes to countering a lack of brand credibility in the early days.

Supplier and Vendor Proximity: Working with suppliers and vendors in the nearby locality can provide early-stage SMEs with access to lower MOQs, flexible credit, easy negotiations, and rapid feedback loops.

Building Teams: Sourcing culturally-aligned manpower through referrals by tapping into local talent pools can easily be achieved in a localised business ecosystem.

Local Bureaucracy: Breaking into MSME networks and gaining access to government schemes is often largely dependent on informal, homegrown knowledge or contacts.

Adopting this strategy of blending the jugaad mindset with local knowledge can open up doors to the new SME in India, which is focusing on survival and growth. It’s just a matter of taking an everyday Indian approach to life and applying it in business.