Last fortnight, bootstrapped electronics startup Noise announced its maiden ever $10M fundraise from iconic electronics maker Bose at a $450M valuation.

Startup Whispers

Gaurav Khatri and Amit Khatri are cousins, born ten years apart in the land of bhujia, Bikaner.

Gaurav’s father was a doctor, and his mother was the Principal at a local government school. Amit’s father worked at State Bank of Bikaner in Jaipur.

The typical middle-class Khatri family, however, consisted mainly of doctors. No wonder the parents wanted both the cousins to become doctors.

Amit, the eldest kid in the family, started preparing diligently for medical exams. Amit was a smart kid at school, but not exactly a topper. He passed Class X board exams with 1st Division, but was also keen to bunk school to watch “Rangeela” in the theatres. 

Amit did not enjoy medical entrance exam prep all. After his class XIIth, Amit was sent to Kota to prepare more diligently. Success, however, kept evading him.

In the meantime, Amit’s father got transferred to Kanpur. After two attempts, Amit moved to Kanpur along with his father. He realised that medicine was not the only career option in his life. 

Amit started preparing for MBA admissions exams.

His target schools weren’t exactly the Tier I IIMs. He would have been pleased if he had gotten to Symbiosis in Pune or Narsee Monjee in Mumbai. At the urge of his friends, he filled up the application form for NIFT too. 

Unfortunately, he couldn’t attend any B-school except NIFT’s Hyderabad campus. He packed his bags, and moved to Hyderabad in 2002. 

At B-school, Amit’s pocket money from his father was INR 3000/- per month. To supplement his earnings, Amit picked up side projects while in college. He would design and source merchandise for colleges and large companies like Satyam and Microsoft, in HiTec City.

He soon discovered that he enjoyed such gigs, and was good at it. In line with his gigs, he secured a summer internship at one of Gurgaon's leading manufacturing export houses. He landed a PPO a week into his internship, offering him a princely INR 10K/month salary. He took that offer up, thinking that was the best he could get.

He worked hard at the job, often staying late into the night. He was insecure about his career, and reality quickly caught up. His peers, even the ones from Tier 2 colleges, would make between INR 30K-50K / month. 

The comparison was getting on him, and he wanted to prove himself.

Amit was working for brands such as Zara, H&M etc - typically large brands sitting overseas who would send him garment design sketches with specifications, and he would manufacture them and send back actuals. Even though Amit loved his job, he got bored soon.

Recognising the hard work that Amit had put in, his employer wanted him to build out the company’s supply chain out of south-east Asia. He was sent to Hong Kong in 2006. 

At the time, he was given $75/day for his accommodation in Hong Kong. Amit would stay in the nondescript Chongqing mansion at $15/day, saving the difference. 

Amit brought back home a Blackberry after one such Hong Kong trip. Blackberries were a status symbol back then. Everyone around him was in awe and couldn’t believe that the phone price was a fifth of that in India. 

Amit was flooded with requests to bring Blackberrys from HK. He happily obliged, pocketing a hefty margin for every phone sold. 

His self-belief was soaring. He got a lot of appreciation for his work and finally discovered what he enjoyed doing. 

With this self-belief, Amit started his first company, Transcend, in 2007.

Sound of Money 

Amit ploughed in his INR 60K savings and rented a small basement in Gurgaon. 

Transcend merchandised garment accessories, such as buttons and cuff-links, for large multinational brands such as Zara across Hong Kong, China and India. 

At Transcend, Amit got a flavour of what startup life was like. 

There would be days when he would not have the time to have a proper meal nor change clothes. As part of getting order consignments shipped out, he’d spend nights at the factory, dealing with constant fires. Sometimes, he wouldn’t have enough working capital to accept an order, sometimes, the colour of the accessories would start coming off, and sometimes consignments would be stuck. 

The risk of losing an order always loomed large. 

This experience would prove useful when he built Noise— blending his experience dealing with lifestyle-oriented products and good design with the hustle necessary to build a company from scratch.

In India, the buzz for phones was brewing. Consumers were eager and giants like Nokia reign. Amit, with no marketing muscle, sought a niche. People flaunted phones, and craved stylish covers. With no organised Indian brand, cousin Gaurav begged for a Hong Kong import. 

An opportunity beckoned.

Young Gaurav, barely 17, soared from Bikaner to pilot school in Philippines, an aviation ace by 19. But 2009's industry turbulence grounded him. Undeterred, he took to business school, tech-savvy and confident in India's gadget boom. He knew the skies would wait.

That’s when he connected with his brother Amit.

Amit had already identified a gap in the smartphone covers market. The duo decided to take the plunge. Noise v1.0 was born in 2014, selling mobile phone cases and covers.

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To their surprise, the first 50 covers sold out within 2 minutes on e-commerce marketplaces. 

The duo was onto something. They were on top of the latest consumer tastes. Their products were loved by their customers. Noise v1.0 had found a way to get into people’s household, through an avenue no one was looking at.

They had set up a factory in India to manufacture the cases and covers locally. By the end of their first year of business, they had clocked ~INR 7-8 Cr of sales. 

By 2015, they were the undisputed market leaders, clocking in a turnover of INR 24 Cr. But that market was stagnating. The Noise had no differentiation. 

Cases and covers had very low barriers to entry. With the rise of e-commerce platforms such as Flipkart and Snapdeal, no real moats existed in the business. Even though it was a cash cow for Noise, the duo wanted to move away from their sole dependence on this product.

Amit and Gaurav were inclined towards smart devices, but none were formally trained.

They decided to enter the smartwatches category in 2016. At the time, smartwatches were tough. One had to figure out an operating system, put algorithms and sensors into it, manufacture the hardware and sell it to consumers who hadn’t used such wearables before.

They enlisted much help from their technology partners in Taiwan and China, who sourced the sensors and design. With time, the duo picked up the ropes. 

Noise invested heavily in R&D to eventually develop the design and technology in-house. The product assembly, UI, and UX development were already happening in India. The idea was to shift the entire supply chain to India eventually.

By 2017, Noise had fully jumped into smartwatches

Creating A Commotion

Noise’s audacious pivot from utilitarian accessories to comparatively high-tech smartwatches had paid off. 

ColorFit and NoiseFit, among other product lines, had picked up. The brand had found its early adopters.

Noise’s positioning of offering aspirational, high-engagement utilities at competitive prices could be simplistic. Failure to strike a delicate balance had been the undoing of many brands, in electronics and otherwise.

Gaurav and Amit were clear that for Noise to take off, they had to remain loyal to their intention of shipping wonderful products at reasonable prices and not just reasonable prices at wonderful prices. New-age Indian buyers were discerning and no longer craved price as much as they respected value.

In September 2016, Apple announced the 1st-gen Airpods, giving its stamp of approval to a nascent category. Indians had begun transitioning from wired headphones to neckbands and craved wireless stereo (TWS).

Noise had consciously avoided wired earphones due to the commoditised and highly competitive market, dominated by global players such as Sony, JBL and Philips. But TWS fit its positioning. It was yet another opportunity for Noise to create and shape a new user behaviour.

The first Noise TWS buds were launched in 2018. It borrowed from its proven playbook and introduced a limited range of buds with specific use cases.

There were earbuds designed for the immersive experience that gamers looked for. Similarly, heavy callers could have more intuitive controls based on smart gestures.

The market was changing quickly, and prices were correcting even quicker. Within a year, the average price had dropped steeply from around INR 5,000 to just a third of that.

By 2019, Noise stayed ahead of the competition by maintaining high trend responsiveness and agility. About 30% of Noise’s sales happened through its website, a direct source of valuable insights.

The company acted upon them to fix teething issues in a newly introduced product range and to predict the next bestseller. The journey was not without hiccups.

A smartwatch range named Ignite had serious flaws and experienced very high returns. Based on customer feedback, the team stopped shipments and corrected the underlying issue before resuming sales.

The close control was instrumental in the brand's gradual decline in average returns to below 5% - an appreciable level by industry standards.

Despite ebbs and flows, by early 2020, Noise seemed to be riding the wave and appeared destined to cruise into the future. Unbeknownst to anyone, the tide was about to change abruptly.

The agent of change was an unusual import from one of Noise’s preferred procurement sources – China. 

Make Some Noise For The Desi Boys

COVID-19 upended lives, made people reevaluate their choices, and induced new habits - some irreversible, most others transient.

Health became a priority, and self-care was no longer an afterthought. Measuring heart rates and blood oxygen, regulating stress levels and monitoring sleep quality became all the rage.

Noise’s assiduous groundwork over the previous three years to master design, software, performance, accuracy and application had found its match in the craze to track vitals.

Smartwatch sales saw a sudden uptick. 

The lockdown led to enhanced word of mouth as youngsters took charge of their elders’ health, resulting in multiple Noise users in the same household.

Moreover, as remote work and classes became the default, the lines between home and elsewhere blurred. The creeping fatigue saw people consciously cut down screen time without necessarily reducing tech dependence.

Electronic engagement gradually shifted from the palm to the wrist - more intimate, less intrusive.

Students and professionals also earnestly invested in audio products, driven by the heightened usage, often supported by allowances from their institutes and employers. Noise and its local peers – boAt, UBON and pTron, among others, grew exponentially.

Political developments were yet another benefactor. 

A prolonged skirmish between Indian and Chinese forces at the national borders led to strong anti-China sentiments. What followed was a backlash against Chinese brands such as Realme and Huami, clearing the deck for Indian upstarts.

Noise leveraged the favourable externalities with astute marketing and promotion practices. Brand association with influencers such as Tech Burner, a popular YouTuber with a young, tech-savvy following, built further credibility and accelerated adoption.

By the end of 2020, Noise had amassed an active customer base of 1 million.

Amit’s experience with global fast fashion brands could be seen in how Noise managed its inventory. SKU count was deliberately maintained at around 30, relatively lower than the industry norm.

The emphasis was on achieving quick stock turnarounds, clearing an existing product line before it went out of trend, and having a new line waiting to take over from the old one.

The well-oiled machinery operating behind the scenes was crucial in Noise being able to service 4 orders per minute, and clocking a topline of INR 350 Cr. for FY21. 

What was an annus horribilis for much of the world turned out to be an annus mirabilis for Noise. The company was ready for this. 

Some serendipity, much rigour.

March Of Rebellion

As much as Noise made its mark by all it did in 2020, it stood out by what it chose not to do in 2021 and 2022 – raise venture capital.

The near-zero interest rates maintained by central banks around the globe to help the world cope with the pandemic led to a funding spree. Noise, however, was a notable absence in the party. Put it on Gaurav and Amit not fitting the typical tech founder profile, Noise’s relatively short track record, or just plain business nous of the Khatri brothers.

Staying bootstrapped allowed Noise to avoid the expectations of exponential growth, maintain focus, and operate within its circle of competence. 

Despite the encouraging success, the company did not display any taste for theatrics – no foolhardy urge to sell high-end electronics, no overzealous urge to unduly premium-ize the current offerings, and so on.

Critically, it created a culture of frugality and enterprise within Noise, with every major business decision being painstakingly thought out and executed instead of a spray-and-pray approach. 

More of a sniper than a machine gun

For a brand that built its distribution on Amazon, its customer obsession could make the corner office holders at the Everything Store nod in approval. It was common for Gaurav to switch on the Bluetooth on his phone while travelling by air and get a count of Noise products against peers.

It enabled him to understand Noise’s market standing in real time. He would then get talking to fellow fliers and gain valuable insights to pass on to his teams.

Similarly, Noise had an unconventional approach to business partnerships. It joined hands with Bragi to launch an intelligent range of audio devices powered by the latter’s proprietary OS in India.

Noise also introduced a range of fitness trackers in association with HRX. It then partnered with SBI Card to launch SBI Card PULSE. Cardholders won a Noise ColorFit Pulse Smartwatch as a welcome gift on paying the enrollment fee. Small budget, big impact!

The commitment to low price points, an emphasis on community building, and product design backed and validated by a strong customer database and new alliances and partnerships helped Noise become the leading smartwatch brand in 2021.

Noise led India's smartwatch market with a 27% share, ahead of boAt, Fire-Boltt, Realme and Amazfit.

Noise had developed a habit of grooming and betting on the winning horse. Four out of the top 10 selling smartwatch models in India in 2021 came from its stable.

Incredible for a company that had no technical background. 

Amplifier 

Having secured pole position in India, Noise set sight on the world stage in 2022.

Smartwatch volumes in India have grown from 2.5 million units in 2020 to around 12 million units in 2022, making it the fastest-growing market in the world.

Noise’s share in the global smartwatch market had grown from under 3% to about 10% during this time, riding exclusively on its Indian business.

It broke into the top 5 smartwatch-selling brands in the world, entering a rarefied set alongside Apple, Samsung, Huawei and Garmin. In the APAC region, it stood third behind Apple and Samsung.

Alongside smartwatches, which accounted for ~70% of the top line, the wireless segment grew at 100% annually, albeit on a smaller base.

It closed FY22 with a revenue of INR 850 Cr, having multiplied 17x over the previous 30 months, dating back to pre-Covid times. Profits stood at INR 36 Cr after absorbing a fall in average selling price across the product range.

As the pandemic receded, Noise mirrored other new-age D2C brands in building an offline presence to buttress online distribution.

In June, it debuted its i1 smart eyewear, boldly stating that it was ready to channel cash flows from smartwatch sales to build for the future. 

The glasses were loaded with motion estimation, motion compensation, a microphone for calls, magnetic charging and hands-free voice control. They were launched at INR 5,999, a significant premium to Noises’s average ticket size.

The new approach could be seen in marketing as well. After years of offbeat methods and frugal brand integrations, Noise roped actress Taapsee Pannu and cricketer Rishabh Pant as ambassadors for a catchy ad campaign.

Something even bigger was on the way.

Towards the end of 2022, the company onboarded Virat Kohli as its face, yet another signal that Noise was now keen to be heard beyond Indian borders. It was a coup, with Noise poaching Kohli from Fire-Boltt in a surprising move.

To put the bowtie on a remarkable year, the company was awarded the Bootstrap Champ award at the Economic Times Startup Awards 2022.

Noise was playing to win. More importantly, it was playing a winning game.

Loud And Clear

In 2023, India emerged as a wearable powerhouse. 

India accounted for 26% of the total units sold worldwide,  surpassing the likes of even the U.S. and China as the largest wearables market in the world by volume.

While the classic forces of rising disposable incomes and exploding internet and smartphone penetration rates played their part in this monumental rise, simple affordability is one of the key drivers behind the industry’s growth.

There were 80+ brands of smartwatches, accounting for ~35% of the market and propelling a remarkable  ~40 percent YoY growth in units sold. A fiercely competitive landscape with brands vying for market share has seen prices drop by half within a year, with average selling prices dropping below INR 2,000.

Likewise, earwear, commanding a significant ~65 per cent of the market, has not remained untouched by competitive pressure, albeit having seen a lower price decline of around ~20 percent.   

Despite the large number of players in the arena, just five companies have captured ~65 percent of the market, with BoAt enjoying considerable dominance over its competitors and Noise as a contender, albeit a distant one, at the second place.

However, a deeper look at the numbers shows that BoAt’s dominance primarily stems from its relatively strong position in the earwear segment.

On the other hand, within the much faster-growing smartwatches segment, Noise and Fire-Boltt are neck-in-neck for the top spot, with both having a 20%+ market share.

Even more noteworthy is that these startups are making their mark even on the global level. With a global market share of around 10 per cent each, they are competing with industry giants like Samsung to become the second largest seller of smartwatches, right below Apple.  

That can play in Noise’s favor. 

Low penetration rates, coupled with the ever-increasing number of features that are being packed in smart watches, is expected to continue fueling the wearables market globally.

Continuous technical developments in this space, especially for health, wellness, and fitness and disease management, will likely open up new growth frontiers for smartwatches.

Apple’s fall detection feature has been widely hailed as a game changer for the aged. Startups worldwide are working on a slew of features that could further enhance the health benefits smartwatches could bring, from fertility and menstruation tracking to diabetic disease management.

Smartwatches are evolving from mere fads for the technically oriented consumer to essential utilities that could improve the lives of the masses.

However, breakneck growth always comes at a cost. Pushing feature-rich, low-price products into the heavily competitive market has severely eaten sellers' margins. 

Noise was no exception.  

Sound Advice 

Despite a healthy gross margin of ~30 percent (Apple watches have a gross margin of ~35-40 percent), Noise had profit margins of just ~0.07% in 2023.

But it takes less than 10 percent of revenues to run the company. 

With a lean workforce 400, employee costs account for just 4 per cent of revenues. 80 per cent of sales are online, which helps limit operational costs further. 

The bulk of the Noise’s gross margins are going towards advertisement and marketing, which has doubled in the last three years, a testament to the ongoing competitive frenzy in the smart watches pace.

EBITDA margins have also suffered due to the rising cost of procurement, which can also be explained by a competitive frenzy caused by inflation

With 80 per cent of their revenues dependent on smartwatches, it makes sense to go all out to win the war for this market. But this may not be the only play up Noise’s sleeve.

Noise’s ‘champ’ range opens up the underserved market of children’s wearables, allowing parents to monitor various health metrics.

Noise has also launched a smart ring, offering a myriad of health and fitness-related features minus the distracting screen and cellular connectivity of a smartwatch.  

The biggest ace up Noise’s sleeve would be its newest partnership in a space where it trailed market leaders. 

Noise has sold a 2.4 % stake to the global audio giant Bose in a deal that valued it at USD 420 million or 4,000 Cr. With expectations that the two companies will work together on the audio space, Noise’s play in the earwear category may be up for a drastic upheaval - hitherto an under-focused area, given that it accounts for only 20% of its revenue distribution.  

On the cost side, Noise increased its reliance on local manufacturing, with 25% of its products being manufactured in India, and is expected to continue expanding the same. 

Shifting to local manufacturing and increasing economies of scale could improve Noise’s gross margins. 

Swadeshi Beats

Noise announced a JV with ILJIN Electronics, to bolster domestic manufacturing capabilities, 

Noise currently manufactures over 95 per cent of its products in India. Traditionally, this involved the final assembling being done locally and relying on the primary product components of manufacturers from Taiwan and China. 

With this JV, they wants to leverage the expertise of its partner to localise the component manufacturing it currently have to import, fuel category expansion, and stimulate ecosystem-wide growth.

With the ability to internalise manufacturing and lessen reliance on OEMs, Noise has successfully reduced the prices of its products. 

This strategic move has been particularly advantageous amidst the intense price competition in the lower market segment, where many brands are vying for consumer attention with diverse product offerings. 

Lower production costs have enabled Noise to cement its position as the third-largest player in the wearable sector. However, this strategy led to slimmer margins in a business dominated by high volumes, especially in a wearable market home to over 80 smartwatch brands.

It's little wonder that 98% of Noise's products were sold at a price point below the 4000 rupee mark.

The recent launch of their highly awaited Smart Luna Ring marks a shift from Noise's traditional focus on affordability, indicating a fresh strategic path for the brand. 

They have dedicated over a year to the Smart Ring project, tapping into a trend that has already seen rising popularity in Western markets. They also launched their first 4 G-powered smartwatch, Noise Voyage.

With new product launches to expand revenue and cost optimization, Noise’s topline exploded. 

Noise ended FY23 at staggering 1,426 Cr, 10x that of FY20. It was estimated to end FY24 at 2,400 Cr. An incredible journey from just selling mobile covers. 

Profitability is still to be discovered, as competitiveness is eating away at margins. As the market scales and consolidates, winners will see outsized returns. 

India’s consumer market is expected to be one of the largest in the world by 2030, reaching $4Tn. A tech savvy, young population has a hunger for electronics, which itself will be worth $150Bn.

Whereas phones and laptops have had global leaders due to their early advantages, wearables is a segment for Indian players to shine. A massive, world-beating wearables market is spurring fierce competition and innovation. 

Noise could be in pole position to capitalize on this secular macro trend. A unique company that had bootstrapped its way to 4,000 Cr, it looks set to build multiples on top of it.

Writing: Bhoomika, Nikhil, Raj, Shreyas, Tanish, and Aviral Design: Omkar and Chandra