The Gray Hair Speaketh

Advice that is largely Unsolicited..

A counter viewpoint to Vaithee’s piece, “the dark side of starting up”

It was nice to see my friend and old e-commerce industry compatriot, K. Vaitheeswaran (fondly referred to as Vaithee), in the Times of India today, with this piece around the dark side of starting up, in the e-commerce space.

For those who don’t want to follow the link and read the piece, here’s a snapshot of the article:


It is an interesting conversation here. But I have a viewpoint slightly different from Vaithee’s on some of the questions, and I thought this will be a good time to give my perspective as well.

During these times of social media activism, I need to put this disclaimer! The purpose of my counter viewpoint is absolutely not to create any controversy, nor to discredit Vaithee, for a moment. I have a lot of respect for him, and we have been contemporaries for long, in the early stage of the e-commerce industry in India. I respect him for his persistence in the space, and the tremendous learnings he would have picked up being there for so long.

So the point of this piece is just to share a different viewpoint on some of these questions, from yours truly who had also been in the space for about as long and who has since moved into other facets of the digital space and seen some more of startup world and investments and M&A and the like. Yeah, that’s me.

For those who may not be aware, I co-founded, one of India’s earliest Internet businesses, and e-commerce companies (to slightly correct the editors of Times of India who mention in the above piece, Fabmart as being India’s first e-com venture, in fact, was founded in 1997 and was doing B2C e-commerce on the site, since 1998!), and ran it for 9 years, before divesting our stake in 2007, and then moving on to start a digital media agency in 2009, which has since been acquired by WPP group, and now runs as a full-services digital agency called Mirum, and where I am the Joince CEO. So hopefully, the perspectives I bring will be appreciated to be coming equally from hands-on experience, and not armchair commentary đŸ™‚

So on to the questions posed to Vaithee in this piece, and my perspective on those.

  1. The first question posed was “Were you caught on the wrong foot by trying to build a profitable company at a time when big bucks were coming in?” 

Vaithee speaks about profitability vs GMV (gross merchandise value) and contends that GMV won out.

The way I see this is that in retail, you can opt to be a successful local store / kirana or have a vision to be a pan-India organized retail player. The business models are very different. The kirana can and will easily be profitable. In spite of there being organized retail around, he will spell out his value to his local customers and keep his margins. But he runs that as a boutique business. As soon as a retail player aims to go national, become a brand, there are other factors that come in, and which include a variety of costs. And for which money needs to be pumped in. For supporting infrastructure and for getting marketshare.

The profitability vs GMV debate is somewhat of that nature. Through very focused, differential value creation for your customers, even an e-retailer could remain profitable. But it will be a niche business, and would not compete with the larger players on size. On the other hand, if one wants to play the scale game, there is no choice but to fight for your share of that large and fiercely growing market. And the game is also not just about discounts, but also about bringing in sharp operational efficiencies. But as the market is growing rapidly, and you want to maintain or grow your share of it, and for which there is no choice but to pump in more and more cash.


2. Another question posed to Vaithee was “Do you think the current Indian e-commerce companies will ever be profitable?”

Vaithee’s opinion was that he didn’t think so. Because someone will always pump in more money and then businesses will keep throwing more discounts etc.

That is a fair visualization of where this could go. However, I believe that with Amazon going so aggressive and strong, it is a matter of time before a lot of the viable competition folds down. What will be left is Amazon and some niche players. Whether it happens in 2 years or 5 years, I cannot say. But once the growth of new users to acquire starts slowing down, and the need to desperately acquire customers at any cost reduces, gradually the survivors will find a way to make money. Also e-commerce differs from physical retail, in that it is not just about selling physical goods that you carry inventory of. What a successful e-commerce player is doing is attracting large number of users to its destination with a promise of good service and value. That can translate beyond selling physical products, to conveniently sell insurance or loans or advertising banners or subscriptions etc. And thus, the ARPU can substantially go up, enabling a quicker passage to profitability, at that point.

3. A further question posed was “How would you take on a company like Amazon?”

I am not sure if too many people on the planet know this answer, so I am not going to hazard one! However, I want to comment on a sentence Vaithee uses in response to this question, where he says that “you have to be clear that you are a retail company, not a technology company”.

I wonder about this! Technology is so integral to retail today, even in the physical stores, and most certainly in the online stores, that it is hard to say that you’re only a retail company. Can a e-commerce company for example, outsource it’s technology? I would emphatically say, ‘no’! Technology and core retail are working together to make success happen. And this is true whether you are taking on Amazon, or not.

4. Another question: “Isn’t Flipkart doing that with its focus on smartphones and electronics?”

And I absolutely agree with Vaithee’s response here. That Flipkart plays in the low margin categories, there is little hope of overcoming the large overheads to ever become profitable.

Most retail businesses, especially multi-category types have some low-margin commodities to draw the consumers in. Even kiranas would have those – the grains and the cooking oils, and such. However, the game is to get the consumer to enhance his cart with a mix of few higher margin items too. Like apparels in case of e-commerce, or imported chocolates and cheeses in case of the neighborhood kirana, because that is the ONLY way you come out on top, in terms of profits.

The lament of the online travel portals has also been that their biggest volumes are from domestic air tickets which are wafer thin margin products, and they have just not managed to sell hotels or tour packages at scale, where larger margins are available!

5. Felt sad for the system and for Vaithee in context of this question: “How did you deal with the aftermath?”

All I can react to in this case, is to feel fortunate to have had an amazing set of investors. We too, were clearly ahead of our times with the e-commerce startup that we built from way back in 1998 to 2007 (before divesting out). Thankfully, it was the investors who prodded us to take a few big bets, and then if they didn’t work out, then get out and do something else with our lives. And that we managed to exit with very clean books, taking care of all liabilities of our team as well as vendors.

But it could so easily have been different. Quite like what Vaithee seems to have gone through. Yes, we were fortunate comparatively.

6. This was an interesting question posed to Vaithee: “You compare the startup ecosystem to the caste system”

And I agree with him, that the Indian VC system is a cosy comfort zone of staying with what are perceived to be “safe bets”. Like they say, no one’s going to fire you for buying IBM, likewise, perhaps no investor in a VC fund is going to fire the VC management for backing an IIT / IIM team, or someone from an HBS network or a Goldman Sachs name!

But if they back a smart young team that does not have these badges on them, they may be questioned. Which is where good startups may starve for funds sometime.

However, I don’t believe that is the case with the global investor space. I have heard more than 100 startup stories via podcasts and I can recall several who were completely unlikely entrepreneurs, with none of those so-called badge values. And yet today these are super successful brands and stories, and these happened only because, at some stage, someone took a bet on their ideas and backed them.

7. This was an interesting question: “You say ‘Don’t pivot, don’t fail fast.’ It goes against the current popular narrative of failing fast.”

Well, Vaithee mentions, as an example, a period like 6 weeks. So yes, most certainly, one cannot be knee-jerk to keep pivoting every quarter or something like that.

However, if there is one big learning I retain from our experience, it is simply that we should have attempted to scale much faster, and if that did not happen, we should have exited quicker. While the nine-year stint was great experience, the one wish that I have in hindsight is that it would have been great if I had managed to shrink that entire experience in 5 years, instead of 9. Do almost all that we did, but took lesser time on it. So yes, I believe in “Fail Fast” in that sense!

Overall, it was really good to see that exchange with Vaithee as it took me back to the days of our previous venture. Almost nostalgic in many ways!

And like Vaithee, we have a book on its way too, based on the learnings from those days. So watch this space for news about it!



July 9, 2017 Posted by | Uncategorized | Leave a comment