Case 096Market sizing and thesesWarm up
Why do you like the startup and its industry? Khetvik Spares sells tractor spare parts online to rural mechanics. Compare its industry with urban car accessories on market size, growth, top-five share, gross margin and digital ordering, and say which is more attractive for a startup.
1The situation
Khetvik Spares runs an app through which rural tractor mechanics order spare parts, from filters and bearings to clutch plates, for delivery to their workshop in a day or two. Today most mechanics buy from the nearest town dealer, who often does not have the part and has to order it.
Your partner asks you to compare Khetvik's industry with one many investors find more exciting, urban car accessories sold to car owners. Use these working figures: market size Rs 12,000 crore against Rs 18,000 crore, annual growth 9% against 14%, share held by the top five sellers 12% against 35%, typical gross margin 32% against 22%, and share of purchases ordered digitally 4% against 20%.
2Your task
Score the two industries on the five factors and decide which is more attractive for a startup, with the reasoning you would give in an interview.
Quick check
Which factor most favours tractor spares for a startup?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Tractor spares are more attractive for a startup, even though the market is smaller and slower. The top five hold only 12%, so about Rs 288 crore of sales would match an average top-five seller, against Rs 1,260 crore in car accessories. Gross margin is 32% against 22%, and only 4% of orders are digital, so the shift online is still ahead. The risk is that rural mechanics stay with the town dealer.
Step 1What makes an industry good for a startup rather than for an incumbent?
A new shop does better on a street of many small, disorganised stalls than on one dominated by two big stores, even if the second street has more shoppers. For a startup, the useful features of an industry are fragmentation, margin and an unfinished shift in how people buy; size and growth matter, but they also attract incumbents. So the comparison should not stop at which market is bigger; it should ask which one a new company can win a meaningful piece of.
Step 2How do the two industries score?
Car accessories win on size, Rs 18,000 crore against Rs 12,000 crore, and on growth, 14% against 9%. Tractor spares win on the other three: the top five hold 12% against 35%, gross margin is 32% against 22%, and only 4% of orders are digital against 20%. That is three to two, but the count matters less than which factors a startup can actually use.
Step 3Why does fragmentation outweigh size here?
Divide the top-five share by five to see how big an average leader is. In tractor spares that is 2.4% of Rs 12,000 crore, about Rs 288 crore of sales; in car accessories it is 7% of Rs 18,000 crore, about Rs 1,260 crore. Khetvik becomes a leading player at less than a quarter of the size, and it keeps 32 paise of gross profit per rupee against 22, so it earns Rs 92 crore of gross profit at that size, a third of the car leader's Rs 277 crore on less than a quarter of the revenue. The car accessories startup has to take share from established brands; the tractor spares startup takes it from thousands of small dealers, who cannot match its range or delivery.
| 12%/5, 35%/5 | the average share of one top-five seller |
| 12,000 and 18,000 | market size, Rs crore |
Step 4What does the low digital share tell you?
Today only Rs 480 crore of tractor spares are ordered digitally, against Rs 3,600 crore of car accessories. That gap is the opportunity and the risk in one number. As an illustration, if tractor spares reached 15% digital in five years at 9% growth, digital orders would be about Rs 2,770 crore, nearly six times today; car accessories at 30% digital would reach about Rs 10,397 crore, about three times. Those shares are assumptions, not forecasts; the point is that a market early in moving online grows faster for the online seller than the market itself grows.
Step 5What would make you wrong?
The whole case rests on mechanics changing how they buy. If rural mechanics value credit, trust and same-day pickup from the town dealer more than range and price, digital ordering could stay near 4% for years and Khetvik would be fighting habit, not competitors. So the thing to check is behaviour, not market data: how often Khetvik's existing mechanics reorder, and whether they move their whole spend or just the hard-to-find parts. A strong answer in the interview names that risk before the interviewer does.
Where candidates lose it
Candidates pick car accessories because the market is bigger and growing faster. Those two numbers describe the market, not the startup's chances; fragmentation and margin describe whether a new company can win a meaningful share.
The second miss is reading 4% digital ordering as a weakness only. It is the headroom the thesis needs, and the right answer frames it as both the opportunity and the risk.
What the interviewer asks next
- How would you size the tractor spares market from the number of tractors in use?
- Khetvik's mechanics reorder 1.5 times a month. What does that tell you?
- What would a town dealer do to fight back, and how would Khetvik respond?
- Which single number would you track to see if the digital shift is happening?
Asked at Insight Partners, Leveraged Buyouts, New York, 2023 (Wall Street Oasis): I was asked to pitch an early-stage startup I was interested in and why I like the startup and the industry.
Company names and figures are illustrative.