A little-known startup turned profitable by staying away from India’s Silicon Valley

A seven-year-old Indian startup has achieved profitability by taking the rather unconventional route of operating from an unusual location and staying away from venture capital funding.

Founded in 2011 by Partha Neog and his classmate from high school, Anjan Pathak, both 43, Vantage Circle operates an employee rewards and benefits platform. The company’s customers include heavyweights such as Infosys, Wipro, Deloitte and JP Morgan. And it serves all of them from its office in Guwahati, the capital of the northeastern state of Assam.

Before quitting their jobs to return to their native town of Guwahati to set up Vantage Circle, Neog was a product manager at Info Edge India while Pathak was a consultant in the United Kingdom.

“When we moved to Assam, a reason was that the founders were from there, but more importantly it was that when we hired people there, the costs were about 20% less than other metros. We did not cut costs, we planned for lower costs,” Neog told Quartz.

In the financial year ending March 2017, Vantage Circle made a profit of around Rs 30 lakhs ($40,000) on revenues of Rs 4.3 crores, as per regulatory filings sourced for Quartz by business research platform Tofler.

Neog estimates that his company will have a revenue of Rs 6 crores in the year ending March 2018, with a profit of Rs 50 lakhs.

The business

There were several companies providing employee benefit services at the time Neog and his partner first thought about starting Vantage Circle. However, there was no organised, single point of contact for multiple employee engagement services such as a rewards programmes for high performers, employee-wellness plans, or a corporate merchandise platform.

Vantage Circle connects brands like Samsung or HP to companies who want to offer their services – it could be in the form of a discount voucher or a gadget, for instance – to employees. Vantage earns its revenues after the two parties strike a deal.

The company gets a major chunk of its revenues from brands and also charges a nominal fee from the corporate clients.

The secret sauce

Neog credits the location of his company among the key reasons for its success. Of its 36 employees, 30 work out of Guwahati, while six sales and marketing professionals are based in Bengaluru and New Delhi.

Not operating out of startup hubs like Bengaluru, Mumbai, or Delhi has helped Vantage Circle keep costs low and retain talent. Besides the low salaries, overheads such as rent are almost 70% lower in the Assamese capital than in a city like Bengaluru.

Neog believes working away from where clients are present helps build efficiencies. While working out of the same location, multiple teams tend to communicate orally rather than writing things down; operating from different cities requires all communication to be tracked, ensuring that employees stick to processes and rules.

The company has seen just about two employees quitting per year. Most locals stay on largely because of the lack of other opportunities. “When someone leaves, he or she takes [away] a lot of your knowledge. It takes around three months to hire each person, and three to six months to train them. That is a huge cost,” Neog said.

Vantage Circle may be operating from a small town, but its ambition was never small. Right from the beginning, it set its eyes on multinational clients despite realising how tough winning such contracts could be. “Because we did the bigger companies, we survived. If we had gone with the smaller ones, we would have died down by now,” Neog said. “[Chasing large companies] has helped gain credibility. It is paying dividends now.”

While Vantage Circle’s balance sheet and client list look healthy, experts believe there are pitfalls to depending entirely on a low-cost model and focusing too much on profits.

“These are all still early-stage companies and their profitability ideally should come from growth rather than cost-efficiencies,” Yugal Joshi, startups analyst at Texas-based Everest Group, said. “Typically, costs start playing a role once you’ve achieved some kind of scale. So saving costs shouldn’t be the strategy of the startup,” he added.

Vantage Circle, though, plans to spend on expansion and marketing soon, and is looking to launch in the United States and United Kingdom, too. It is currently testing the waters by working with Indian companies operating in those geographies.

The firm will continue to operate from its remote working model to crack the global markets. “Now that we are serious about remote, and we can manage anything from anywhere, it won’t be a challenge,” Neog said.

Bootstrapping all the way

Vantage Circle does not want to tap venture capital funding for its expansion plans. At one point, it did go looking for funds, but did not find backers. So far, the startup has been funded by the founders’ families and friends, with about Rs 80 lakhs coming from a few individual investors.

“In a way, I think, VCs not funding us has been a boon. We would not have had the liberty to experiment,” Neog said. “If I had VC funding, I couldn’t have moved on to all the different areas [like rewards, health and wellness, and selling merchandise]. They would say just make one product perfect, increase revenues on that.”

This article first appeared on Quartz.