Critical Review of the article When “Asset Light” is Right in Post Covid-19

scenario

Asset light is a kind of business model where relatively fewer capital assets are owned by
the business compared to the value of its operations. A number of startups have this kind of
model because it helps them to generate quicker returns which helps in repaying the loans
much easily as compared to traditional business models.

Currently the impairment due to Covid-19 is not restricted to only a few businesses but
many. Although the magnitude of the impact may vary from sector to sector, there are a few
sectors that have been hit the most and their suffering might continue. Aviation, Real Estate,
Retail, Automobiles, Hospitality and Entertainment (PVR, Inox) are a few sectors which have
suffered the maximum and what is common among all of them is that they are all asset
heavy businesses. Even post Covid, these sectors will take a longer time to recover from
their losses and there is no guarantee if again these businesses with the same business
model will flourish like before. For such industries, their assets are lying idle due to Covid
and therefore they must outsource their assets or lease them to generate income. Post
Covid-19, asset light models with strong supply chain systems are going to be more
successful in the long run, driven with the help of technology and innovation.

In the article mentioned above we saw the example of various companies like Nike, Apple,
McDonald’s, etc. and how they have benefited from being an asset light business model
company. According to the article, being asset light can deliver a greater flexibility, lower
profit fluctuations, better return on operating assets and higher cost savings than asset
heavy models. The key is to operate in such a way that ensures a high proportion of variable
costs rather than fixed costs to adjust with the fast-changing environment. Below are the
examples of 2 successful asset light companies and the reasons behind their success: -

 Unacademy
1. Replacing the parallel education system and augmenting the teaching
process without replacing the school or college and providing the benefit of
learning from home at much lesser fees which makes a very attractive
proposition for the students. Virtual learning and Teaching is not only the
need of hour but also the future.
2. Concentrating heavily on courses which have a lot of demand and which
need relearning and here they use pay per use.
3. Spreading out the burden of creating new content by outsourcing and
collaborating with more educators and franchising a few of them. The
educators acted as the influencers and marketers of the company.
 4. The ability to monetize at the right time and shifting from a free service to a
subscription-based model and launched their app and website by using their
followers on their YouTube channel.
5. Deleveraging the risk associated with launching a premium product by the
help of low cost of content creation with no infrastructure or studio costs.

Even in post covid situation such a business model will generate higher profits as compared
to an Educational Institution with heavy assets.

 Indiamart Intermesh Ltd

1. It is a B2B company which generates revenue by listing charge and
subscription charges for supplier to get verified & confirm lead of the
respective product and transaction fees from the buyers. It provides an online
platform where buyer and seller meet for their business demand.
2. High investment in data science and automation tools, focus on industrial
goods supplies, pay-per-lead method and shifting towards e-commerce
platform mainly for SMEs.
3. It integrated virtual helpdesk and auto-suggest features and has introduced
phonetic algorithms and product-specific attributes in their app and website to
provide high degree of personalization and recommendations to users.

Indiamart posted better profits Y-O-Y even during Covid for being an asset light company
with only about 90cr INR into Fixed Assets whereas during the same period there was hardly
any profit for a company like Future Retail investing about 8000cr INR into Fixed Assets.

Such companies are a favourite among the VC firms and Angel Investors as their business
model has a lot of scope in the future with constant returns and strong balance sheets and
therefore high valuations.

So, I would recommend an Asset light model as by doing so the companies not only improve
their returns and become more agile, but also redeploy their operations more quickly which
is quintessential in today’s fast-changing global economy.