Experience at Scale: 2 Decades of Innovation with India Plaza and Starting up “Again” with a WTF Drink
Vaitheeswaran – widely known as father of India’s e-commerce business has done it all in his life. He worked for a large corporate house before taking a plunge with fellow colleagues to start India Plaza, India’s first and foremost e-commerce startup that wracked up innovation after innovation in its decade plus existence between 1999 and 2013. The India Plaza story reads like the George Lucas innovation factory having spawned India Plaza, Fabmart and Fabmall, India’s first online and offline grocery businesses. The Offline Grocery business eventually became More which came a full circle after being acquired by Amazon. Listen to Vaitheeswaran of India Plaza talk about 2 decades of innovation and starting up “Again” with a WTF drink.
Listen on YouTube
Vaitheeswaran has started up again, with “Again”Drinks with his previous co-founder – Sundeep. He describes “Again” as a WTF Drink – A Wholesome, Tasty and Filling Drink that’s the world’s first drink to have no added sugar and no preservatives as well as a fantastic shelf life.
We have all heard endless discussions on the hyper funding rounds and wondered about the logic behind them. But the way Vaitheeswaran articulates it is pure gold. Listen to Vaitheeswaran of India Plaza on this episode of Maharajas of Scale.
Here’s an excerpt from the Episode:
So there are two three things. One is, a lot of the capital that has gone into the Indian startup system has not necessarily gone to fund growth. My view is, I think there is also a myth that people believe I am fundamentally against the concept of venture capital. I’m not, I’m actually strongly in favor of venture capital, provided it funds growth. I think in India, venture capital has funded operations. And that’s a huge difference.
So if I’m running a retail store, and I’m opening a retail store, I’m selling it in a particular locality, we sell, we build it up and say we start doing two – three lakhs a month for a year. Then at the end of a year or so we actually have some rupees left on the table, which means we’re breaking even on the store, and when we repeat this for the second store, then you go to somebody who’s willing to fund the business. And you know what I’ve done, done it once, I’ve done it twice, about thrice, I think I’ve got a proof of concept.
Vaitheeswaran on Venture Capital
And now I want to open hundred stores. That’s venture capital. Venture capital funds that growth, that’s a great way of building business. The other option is, I will open a store, I lose money. Then one year later, I said, You know what, I’ve lost money in one store, here second store, I lost money. Here, in the third store, I’m losing more money. Now, if you give me a billion dollars, I will open thousands of stores. And I will discount so much that all other people who have all of the stores will shut down and go home and I may be the guy having stores, and then I will increase my price and suddenly I’ll become profitable.
What’s so great about “again” drink?
Let’s hear it from the master himself
Yeah. That’s the reason we’re saying, in fact, when I got an opportunity, can we do FMCG? Sure, yeah, let’s do this. And why am I doing this with because I have never done it before. I mean, that’s the reason. So as far as product is concerned, I think this is the only beverage in the world and I’m serious. The only beverage in the world that has no sugar, no preservative, no color, no flavor. Yet it does not need refrigeration and as 90 day shelf life. There’s no beverage in the world that has ticked all the boxes. Nobody.
If you have not read the book – Failing to Succeed or had the drink – “again” highly recommended. You will be richer both ways.
Here’s what the word cloud looks like for this episode
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people, india, customers, buy, scaling, product, scale, online, offline, build, business, cash, selling, money, upi, started, problem, groceries, changed, innovation
Krishna Jonnakadla, K Vaitheeswaran, Nida Sahar
Krishna Jonnakadla 00:01
This is Maharajas Of Scale, the podcast where we go behind the scenes and talk to founders while demolishing the myths around building and scaling a big business in India. These are the stories that have shattered the assumptions around Indian consumers and are changing the game completely. I am Krishna Jonnakadla, serial entrepreneur, co founder of FLIT, the Fashion Locater in Town and startup mentor, bringing you these stories. Today we have the good fortune of speaking with Mr. K Vaitheeswaran, who is known as father of India's ecommerce sector, he pioneered India Plaza, which has done a whole host of things. And for those of you who have heard his Butterfly Effect talk, a lot of small things that he did at India Plaza have gone on to become big innovations that other companies have espoused and scaled it big. Sir, it's good to have you today.
K Vaitheeswaran 00:56
Thank you for having me here.
Krishna Jonnakadla 00:57
I've always loved the way you articulate things. It is one thing to have the experience but a totally different thing to package that and communicate it in an effective manner that can be understood by a lot of people. And I kudos to you. I've seen you talk to people who are starting up, people who are in the midst of a venture and people who are scaling, people who are exiting, and I don't know how you do it, you know, its a hats off, your ability to communicate is fantastic. For our listeners today. For those of you who are not familiar with the India Plaza story, a lot of this might be a revelation. But for those of you who are, we are skipping the India Plaza story, and it's not in its entire devable, we will go back and refer to bits and pieces of it. But deliberately, we are avoiding going into that story in depth, because he has started a venture now. Maybe it has got something to do with him starting up again. And he has pioneered a venture called Again Drinks. I let him I won't steal his thunder, I'll let him talk about the venture towards the end of the recording. So fantastic. You had a long innings from 1999, all the way to 2012 or 13. What was it, when India Plaza in 13, you've seen a long arc of things, it must have been quite fascinating. From the dial up modem stage to the broadband modem stage to maybe the mobile, the smartphone era. Talk to us about that. How exciting was it? I'm sure it had its ups and downs. So talk to us about it.
K Vaitheeswaran 02:27
So first of all, congratulations on the Maharajas of Scale and I'm very happy to be one of the early people featured on the show.
Krishna Jonnakadla 02:35
K Vaitheeswaran 02:36
I wish you and your team great success.
Krishna Jonnakadla 02:38
Thank you Sir.
K Vaitheeswaran 02:40
So you know our journey 1999-2013. I think the key differences as we move along the journey is the way these surrounding ecosystem changed. I think that was a key thing. In 99, when we started up, startup itself was a very new thing. You know, to and for first generation entrepreneurs like us, were essentially middle class professionals, primarily dependent on the salary that's coming every month, and not having a solid business background, to take business risks. And nobody of the six of us who started came from a family where starting a business was very common. I think that was a very unique thing. And most people around that time who started out, and you're right, in that sense, it was the early days of the Indian ecosystem. The only startup that I would remember before that, in that sense was perhaps Infosys, which came 10 years before that, in the 80s is when they came up, but they were set up by similar professionals. And then in our case, actually, I'm reading a fact that most people don't know on the day, I quit along with two other people from Wipro to start is the same day that six more people in the program started their venture. And everybody thought that we were going there, because nobody expected us to quit and start a venture of our own. And the other people, the Mindtree, they quit exactly the same day, which is Subroto Baksi and Ashok Soota and all of them. So you know, the general assumption was that we were leaving, and joining them, right, what we didn't, right, so that was kind of quite fascinating to be able to leave your jobs and come and start something as first time. So it got a big thing. The changed that has happened is today, it's no longer a big deal. Anybody can now start up writing, that's a big change. The second big change that happens, the first one was more of a mindset, in the second change is the ecosystem, itself might changed. When we set up ecommerce in 99, there were less than 3000 people, 300,000 people, 3 million people on the internet. Today that number is 500 million, right, 3 million becoming 500 million. Obviously, nobody shopped online in India because there was no online shopping site, right. And the only people in India at that time who had some experience of e commerce were primarily people buying music and movies from Amazon, or books, shipping into India. So whenever we would come across somebody who tell us that I've a experience of shopping online, we would actually jump on the person, because the person knew more than we knew. And he knew more than we knew, because he'd already placed two orders on Amazon. We were desperately, looking for people who understood what we are saying. And our estimated there are less than 20,000 people in India at that time who are regularly buying books from Amazon. That's a remarkable change today, everything is online. What has not changed, and in a sense, that's more of a sad thing is that certainly as far as e commerce is concerned is all the things that we managed to do in Fab mart, Fab Mall and India plaza in the early days. And if you look at where ecommerce is in India, certainly today, I haven't seen any dramatically different innovation that people have done, despite putting in significant amounts of money and investment that we hadn't done that day. And to me, it's not the reflection of what all we achieved. It is a reflection that over time, I suspect that money has corrupted innovation. In other words, sometimes I think too much of money restricts innovation, I think that's the sad part. So if you ask me what has changed, the only thing that's different from what we did today is, you today shop on mobile phones, and there were no smartphone there. So it's not that they couldn't that the phones didn't exist. Otherwise, nothing has changed. But otherwise, from a journey point of view, it's been the other big thing that I would expect, I would say as changed is, it's a lot more easier to get things done today with less than it was in those days. Right. So you know, fab mart, fab mall, India plaza, there were six of us who started. And four of them, of course, are now going big basket. The fifth was Sundeep and I are doing Again Drinks.
Krishna Jonnakadla 07:06
Your own mafia.
K Vaitheeswaran 07:07
Yes. I don't know if mafia is the word.
Krishna Jonnakadla 07:11
The India Plaza mafia.
K Vaitheeswaran 07:12
And, you know, I think the two of us today in a shorter period of time, are able to achieve a lot more than than six of us achieved in those days by putting in more efforts, not because the effort themselves was less or simply because technology has made it so easy for people to put less and get more out of it. Right, which I think is great for a start up later when you don't, you are now, able to compete with people with more resources without having those resources.Its a great thing.
Krishna Jonnakadla 07:46
The funding corrupting innovation to certain extent. And I agree with you. And when people talk about it, or when people in startup ecosystem talk about it, they gave the example of Amazon not making any profits, while Amazon has been making profits off lead. And there is a mischaracterization in terms of Amazon's journey as well. Amazon, when you just compare their own books journey, they did not offer discounts, they offered convenience. And for the longest period, the lack of sales tax on internet transactions, just gave a decisive advantage to Amazon, until states started seeing how big the internet economy had become and how Amazon and that was a head start. That was enough for Amazon to build over a decade and more. I remember buying my Mac way back in 2011. On Amazon, I had an apple store close by. And this whole webrooming concept where you go to the showroom, and then you buy it on the web. And I went to the Apple Store, I decided which one I wanted. And I bought it on Amazon purely because of the sales tax advantage which would reduce my overall outflow by $125, which is a big deal. That is not venture capital money. That is not a discount that is not an offer that somebody else is offering. And Amazon while it's growing has done innovations, you know, whether it was profitable or not. But we are not seeing a similar innovation happen. So you're right about the part that funding possibly corrupts, because then it just makes you mad, and you just start throwing money at things. Why do you think that didn't happen? And is it because of the Indian clone effect, because you start a business and then you see so many other clones pop out of the wood work in a very quick time. Has that got anything to do with it?
K Vaitheeswaran 09:45
So there are two three things. One is a lot of the capital that has gone into the Indian startup system has not necessarily gone to fund growth. My view is, I think there is also a myth in the people believe I am fundamentally against the concept of venture capital. I'm not, I'm actually strongly in favor of entering venture capital, provided it funds growth, I think in India, venture capitalist has funded operations. And that's a huge difference. So if I'm running a retail store, and I'm opening a retail store, I'm selling it in a particular locality, we sell, we build it up and say we start doing two - three lakhs a month, without it for a year. And then at the end of a year or so we actually have some rupees left on the table, which means we're breaking even on the store, and then be repeated for the second store, then you go to somebody who's willing to fund the business. And you know what I've done it done it once I've done it twice about it thrice, I think I've got a proof of concept. And now I want to open hundred stores. That's venture capital. Venture capital funds that growth, that's a great way of building business. The other option is, I will open a store, I lose money. Then one year later, I said, You know what, I've lost money in one store, here second store, I lost money. Here, in the third store, I'm losing more money. Now, if you give me a billion dollars, I will open thousands of stores. And I will discount so much that all other people who have all of the stores will shut down and go home and I may be the guy having stores, and then I will increase my price and suddenly I'll become profitable.
Krishna Jonnakadla 11:21
It is always the simple perspectives that have tremendous results, what looks like a sleight of hand, or perhaps a terminology difference, growth versus operations hides a big kernel of truth in it. When you're funding growth, you're actually funding a unit of profitability. What it means is that at some point in time in the near future, the profitability that is generated from the venture will actually start providing all the necessary investments for scaling the venture. On the other hand, funding operations, essentially is funding the cost unit, and scaling the cost unit on the basis of investments. In itself, it's not a bad thing. Several industries, telecommunications, airports, a lot of infrastructure driven industries, tend to require investment in operations before the first dollar or rupee of revenue is generated. But that cannot be a universal prescription for sectors outside of the ones that require these sorts of investments, mind you, operations may still be funded with some sort of line of sight, into growth. What it essentially means is that growth is not visible yet. But there's an expectation that it will come.
K Vaitheeswaran 12:47
It will happen. And all venture capital in India has essentially funded that kind of businesses.
Krishna Jonnakadla 12:54
And you've said this, in the last man standing contest, if you're the one that can afford to be the last man standing when everybody is shot down, then it's a fight. That is what starting.
K Vaitheeswaran 13:04
Its a great model. Its just that there's always the last member, I mean when you're not close to it. That's right, the movie doesn't end into here.
Krishna Jonnakadla 13:12
So, when you scaled fab Mart from a few hundred customers, to a few million customers, you did a lot of things along the way. The lot of pin based payment gateways, the cash on delivery, innovation, create your own PC, build your own watch, you did a bunch of things. And I always see that is very, very fascinating, that is a decade long, decade plus long innings of innovation, at every turn. Talk to us about that scaling journey.
K Vaitheeswaran 13:52
So you know, I think when we started because we were doing something that was unique, a lot of it essentially became unique simply because nobody has done it. So you know, in that sense, we were well placed. I think the credit must go to us for having decided to do something that was outlandish selling stuff on the net. But the innovations happened because I remember in those days, every time we would meet, six of us, we will say, Okay, let's go and do. So for example, I'll give you the example of the music store. We have launced a the music store. And the fact that we were launching a music store on the internet in one itself was innovation. We said no, we must launch it with something innovative. So going and locating Dr. Bal Murali Krishna, he was obviously no global on internet. But convincing him to sing a song for the internet, and we explained to him all of that. He's saying I will sing a song only for the internet. And I will allow it to get downloaded was something that happened. Similarly, launching the bookstore with R K Narayana's short story download, then going to Remo Fernandes, asking him to, re create a single, just for us for a free download. But the reason I think all of that happened is we started off everything by saying, what can we do to create a unique hook that gets people onto the sites at that time. Unlike today, you can launch a business by saying I'm offering convenience, which you are. And then you're trying to create all these hooks, but unfortunately, enough hooks are not being created. But in those days, there weren't enough people on the internet. So you know, if they're only 20,000 people shopping on the internet, what convenience can you build for them? Right. I mean, this too small to build convenience. So we said what can we do to get the next 200,000 interested in what is going on? So when we said Remo Fernandez has created a single, called Cyber Viber. And it's available on the internet for free download, you will go and download. People came and downloaded. Then we said, you know our campaign, his song, the story you have read, but you can now download it to your computer and upgrade it for free. All you can do is go to the website and download. I think we were looking hooks to drive people and get them excited.
Krishna Jonnakadla 16:14
And you were unconsciously doing growth hacks.
K Vaitheeswaran 16:17
Exactly. I mean, we did not do the growth hacks. But essentially, that's what we were doing. We just trying to create hooks for people to get fascinated by this concept. Nowhere did we tell people come and buy music from us rather than buy books from us. Because when we do that, nobody was interested. They will say, O my credit card is at risk! because somebody will steal my money. So it just become too complex. We say come down and sit down on the sofa.
Krishna Jonnakadla 16:38
Interesting. So there's an interesting story, you've heard of IMAX theaters, right? A lot of people are unaware that IMAX has been in existence for quite a long time. In fact, around 2011 IMAX was almost in bankruptcy, and it was on the verge of shutting down. I might have my ears wrong, but sometime late 2000s, the defining moment in IMAX is history came when Christopher Nolan, took the IMAX camera and shot The Dark Knight. Look at these IMAX cameras are huge. They're not small, they're extremely tough to handle. And they are five times the size of a normal camera, which means just one person maneuvering it is not hard. In an age where people are getting smaller and smaller in cameras, the IMAX camera was going in the opposite direction. So there was this sequence in Hong Kong that they wanted to shoot. And they did some Daredevil stunts for that. So for IMAX as a format, it was a defining moment. The Dark Knight and the Batman franchise and Christopher Nolan single handedly changed the history of IMAX. This is a story that's not very widely known. In India plaza's defining moments, were there any changes, let's say on the macro level, or on other fronts that sort of became defining moment in its evolution.
K Vaitheeswaran 18:01
For us or for the industry ?
Krishna Jonnakadla 18:03
K Vaitheeswaran 18:03
But I think the launch of the grocery business perhaps was a game changer.
Krishna Jonnakadla 18:07
The offline grocery business ?
K Vaitheeswaran 18:08
No, the online. So most people don't know the offline was actually a consequence of the online which is why I specifically said the online grocery business. So in 2001,
Krishna Jonnakadla 18:18
in some sense, predecessor to big basket,
K Vaitheeswaran 18:21
In every sense. I mean, when they did big baskets, we had already done it, right. Ten years back, so they knew most of the things. So then while October 2001 sounds very strange that we will do online groceries, but we did online groceries. And the logic for that is that, we felt most customers we were selling what is called impulsive products- music, books, DVDs. You order books, I ship, it's fine. I don't ship that's should not be the end of the world. So we said the reason people were not buying enough from us because we're not impacting the lives enough. To say let's do something that impacts people's lives.More every day, something that becomes an essential part of their life. And books and music are important part, but they're not essential. I mean, certainly not in India, right? For Indians, a hobby and entertainment are never essential parts of life.
Krishna Jonnakadla 19:13
K Vaitheeswaran 19:14
So yeah, it is. I mean, it's something that you are okay with. Even if it's not luxury, it's not. It's not the end of the world if you don't have it. So we picked on food, because everybody shop for groceries. So we said let's do groceries, right. And when we did groceries, a few things that we learned is the business itself was far more difficult and complex than a normal business. We needed local warehouses. Customers, suddenly were buying one book and one more music, who have started to buy 20 30 items in the cart, because nobody buys one kg rice, they buy dal, sugar, oil, detergent, soap, and suddenly we realized that the basket size were jumping. And then people wanted essential delivery same day. And then for the first dramatic shift for the first time we realized that the customer profile have dramatically changed, essentially housewives and the housewives were used to buying groceries by touching and feeling the rice.
Krishna Jonnakadla 20:05
That's how you buy promotions right?
K Vaitheeswaran 20:07
Not today perhaps but in those days mostly converted like that.
Krishna Jonnakadla 20:11
And if you haven't gone shopping with the parents so they don't know how.
K Vaitheeswaran 20:15
They are all packaged items. So when we realized people were very interested but they're not buying. So I remember meeting hundreds of customers essentially women in their homes going and asking saying what is stopping you and the told us the same, we are used to one touching and feeling. So we said okay, but this is the more important thing that you're feeling. We said don't worry about it, you don't like it, return it, we will take it back. So they said fine. The more important thing is, they say we don't have a credit card, how are we supposed to buy and we're not going to get somebody else's credit card and it at home and we're ordering it, this is just too complex. So we go to the shop, we pay cash, we buy. We said okay, we will allow you to pay cash. We came back and it took us one month to think it to saying how I am going to collect cash from customers. We said Okay, let's do it. Right. That's the first cash on delivery. To me that was a game changing innovation, which today is par for the course for everybody to the first cash on delivery. As for the industry concern, that's the game changer. For us, the same thing is when we started selling groceries online, the business was building like hell, losing money hand over first, and we had five warehouses. Now the lesson that we learned in India, is essentially in India, because retail margins are low retailers can make money only by buying better not by selling better, you can't sell better.
Krishna Jonnakadla 21:32
Use a supply chain, hack.
K Vaitheeswaran 21:34
Yeah, because selling price is fixed by competition and by the market right you find sell increase more price to get more money, the customer will not pay. So the only way is to buy more and get more scale and get discounted the purchase and make the gross margin up.
Krishna Jonnakadla 21:47
You have to understand the times at which this grocery business was being run at that point in time, packaged atta, package rice, package spices, packaged pickles, there were very few branded and packaged items back in those days. Today, a lot of us are used to processed and packaged food. And as a result of all of the packaged food and the branded food that exists around us, all the online grocery chains, and even the offline grocery chains have started introducing something called less private label products. Private Label products, essentially are the ones that have been sourced by the chains, and packaged with their own branding, which carry a different sort of margin. That was not a luxury that they had back in those days. Because practically, almost all of grocery that was sold back then was of either the lose or the unbranded kind, virtually affording no possibility of either branding, or a higher margin. So the only option that they had left with, was to actually source cheaper.
K Vaitheeswaran 22:59
So for us to make some sense of the grocery business, we had to go and buy more. We were not selling enough, how can we buy more. But we had no choice but to keep buying more. So for this, we were buying few kgs of rice and buying in many bags of rice. So the only way we could get rid of the inventory was to sell it offline. So we said okay, let's buy a lot, to keep the price attractive online, and get rid of the stock by selling it offline. Okay. So we went and opened the first Fab Mart store, which went on to become the Fab Mall chain, which subsequently became more which strangely, 18 years later Amazon acquired it.
Krishna Jonnakadla 23:42
Comes back to an e commerce business. So where it originated.
K Vaitheeswaran 23:45
So that is a game changer for us. Because it allows us to create something significant and not short period, we are decent exit that somebody acquired it. So you know, all of that wouldn't happen. If we were not doing online groceries and online groceries lead to cash on delivery, which otherwise we wouldn't have done I mean, if we were not dealing with these housewives, clear saying she will buy groceries only if she can pay by cash. We may not have done it that, we may have done it later. So to me, those were two things strangely, both on the same business.
Krishna Jonnakadla 24:14
So, on the cash on delivery question, I know you pioneered it yet you have certain reservations about it.
K Vaitheeswaran 24:23
Certain, is not the word.
Krishna Jonnakadla 24:25
But, did the COD had a parallel in the Indian Postal Service, you know, the value payable parcel VPP system has existed for decades long. But yet, this was a innovation and a hack. It was being implemented in a totally different scenario, different context. Did the value, VPP ever play a role here?
K Vaitheeswaran 24:48
Actually you know, now that you raised the issue, I must tell you that when we did groceries, cash on delivery, we said now that we're doing it for grocery, let's do it for non grocery. So we started offering for music, books, everything. And one of the things that we evaluated is can we do VPP? So we actually said look, there is a system that exists, it was reasonably well, it rovers, why am I going and creating everything. And we actually went and met the Postmaster General in Bangalore GPO. They are saying, look, we've got all these products, we're going to pull it up, we'll give it to on VPP. You go bring cash. But I think the reason it didn't move is one, there wasn't much enthusiasm from their side. Second, we suspected that time that will take to deliver will be significantly longer than what customers expected. So we said, may not be for us.
Krishna Jonnakadla 25:36
You just borrowed the method.
K Vaitheeswaran 25:37
Yeah, but we just borrowed the method. Absolutely.
Krishna Jonnakadla 25:39
That was great. So the cod question will come to your reservation, but I have a couple of questions around it. I bought some medicines a month ago. And I did COD, purely because I was not aware of the company. And also, as a consumer, I have long felt that Indian merchant practices have not been consumer friendly. So if I ordered something, and it turned out to be something that I didn't want. Now I'm doing a purchase that I didn't want in the first place. And I have no recourse to it. So, but in evolved markets, where returns are acceptable, the supply chain definitely pays a price for it. But that price is actually built into the product. So in some sense, going back to your earlier point about not really working on real innovation, instead, taking the convenient route. And doing cod means innovation hasn't percolated up the supply chain, where people haven't been forced to reconsider how to do this. And as a result of it, somebody else somewhere down the supply chain is actually paying the price for it. Would you agree with that?
K Vaitheeswaran 26:45
Krishna Jonnakadla 26:46
So how do you? How do you see, given that it's still pervasive? I can't take the name of the company, there is a very large round, it's a pharmacy company, but I hadn't heard of them. Possibly, you know, some people, have heard of them. And that's the reason I took cod out. How do you build that trust? And how do you affect those changes in the supply chain? Because that into my mind, if that can be changed, then it can be a totally different dimension game changer, and start creating wealth in totally different sets of the supply chain.
K Vaitheeswaran 27:20
I think my problem with cash on delivery. And in a sense, the reservation I have will address this question is undoubtedly, it's a great tool. It's a great tool for customers who are still early first few times online, they're not comfortable. Yes it gives more people on. Second, customer is shopping on a website that she has no idea about cash on delivery is a reassurance saying I have nothing to lose, if the guy delivers, I'll pay money, otherwise, it's okay with me. So in that sense, it's easy. My reservations with it is that somewhere it became this tool for moving millions of customers online, which I think was a PR story. It wasn't true at all. The reality is that I don't have the numbers, but I've got the numbers in the book, when I did the research for it, is that if you look at all the people who had credit cards and debit cards in India, and I suspect the numbers are not very different now, less than 10,15, 20% have shopped online, which means more than 90% of the people having access to an online payment. And we're not even talking about the UPI's of the world this time. We are just talking of the credit cards and debit cards. 90% of them have not shopped online. So the fact that you are now saying cash on delivery has driven all these customers online is actually not correct. Because that logic works, if you are saying 80% of the people who have cards have shopped online, I have to now expand the market, I have no choice but to offer credit card cash and the reality is that 90% of people having access to cards never shopped online, cash on delivery, essentially more people who had access to cards, took a big cash to pay on delivery. To me that was a problem.
Krishna Jonnakadla 29:06
So their trust factor never really got solved ?
K Vaitheeswaran 29:08
Never really got solved. And I think because of cash on delivery, the trust factor actually got delayed by at least 10-15 years in India. I mean, the only way to accelerate trust factor is to actually not offer it.
Krishna Jonnakadla 29:26
Still lying on the the experience of the consumer where there is a positive surprise discovered, then build on it, which is equal into the slow cooking method.
K Vaitheeswaran 29:35
But it's a much better bookie method. And I think it wouldn't be as slow as we think it is. The cash on, it completely destroyed. The third problem that happened with the cash on delivery at the time is that the cost of executing cash on delivery is so high or at least was in those days. I'm not sure what it how it works today. Was that, as it is the vendors with the merchants were selling products at a loss and then cash on delivery on top of it. Which means forget trying to build a profitable business, you're not even planning for it. So on all those counts, I had a big problem, because essentially, it went again, and forward. Strangely, while we said it is convenient to customers, I think it's the most inconvenient way of shopping. I mean, the essence of online commerce is the convenience. selection is given, right? I mean, if the products are not right, I won't buy. The price are given if the price is not good, I won't buy. But the reason I'm coming to you and buying is, because you will deliver it at home, you will deliver it I mean you won't pay me right I order, you deliver, I'm moving on with my life. Here, you suddenly started doing saying, ok I 'll do the cash on delivery, then I have to order a book then I have to sit at home with the guy will come and then I'll order a book which is just 328 rupees. And then he'll is saying, "change nai hai, change lekar aao" and then you have to go searching for change. And suddenly the convenience of online commerce was good knocked out of the window. And that was my biggest problem, I said Boss, ecommerce is about selection, pricing, availability and convenience. You're knocking convenience out? How can you say that it's the most convenient form of shopping when cash on delivery knocks it, that was my big problem with it. And I think I continue to hold that even today cash on delivery continues to be the most inconvenient form of payment, certainly for the customer. I don't think while it is expensive for the merchant, so expensive for the customer as well. So you know, what did it solve? If somebody had told me, unfortunately, all people who have cards have shopped online, I have no choice. And with that logic, that wasn't true either. Less than 10% that shop. So clearly it was a great PR story.
Krishna Jonnakadla 31:45
So how do you think that trust problem came,because UPI to a certain extent is alleviating that because a lot of people who do not have cards, if the whole logic was that people who have cards and who don't have cards can now shop because of cash on delivery. A lot of people still don't have cards, but they have UPI based whatever wallets to a certain extent some of these problems go away. And I feel the problem is again, getting postponed because UPI's suddenly gives you the feeling that say, okay, whoever was paying cash is now paying UPI. And you still haven't addressed the trust issues, you haven't fixed your operational issues, you haven't fixed your merchant return issues, you haven't fixed any of those things that would otherwise tell people Hey, you know what, there is a model here, I'm paying you in advance, just like the whole hack about what Michael Dell did was about collecting money in advance, and then eventually sourcing later, which created value for the entire ecosystem. Here, that is the idea that pyramid is completely inverted. You put in vast swags of cash, and then you're just waiting for that cash to be collected at the end of the spectrum. So where does the journey begin to fix that trust issue? And how do you think you can?
K Vaitheeswaran 32:51
So I think one is the way to fix the trust issue would have been to keep pushing harder in that direction. And cash on delivery was the wrong thing to do that. Second, I'll tell you one very interesting thing that we did in summer in 2000 or 2001. We had this lady who was a huge reader of books. And she was in Tinsukia in Assam. Hardly anybody in India has an internet. Here is this lady intends to care reading, somehow someone connected with us. And she said you start ordering books. We said fine. She would start ordering books and we'll ship and then she was such a big reader she started with two books, three books, ten books, we'll pack, will ship. She will order by credit card. Then she wrote to us saying I'm having problem I don't like ordering by credit card, can I pay by cash. We said, you can't pay by cash. One day that customer. And that's how trust got built. I mean, just anecdotal evidence in that sense, but it was possible. Six months after she started shopping with us. She sent us a demand draft 50,000 rupees, saying here is a check for 50,000 rupees in your company's name, please keep it. I will keep placing orders, you keep shipping. When 50,000 is over, you tell me I will send the balance. And because you may not trust me, I'm sending you the money in advance, bank it and then start shopping. You know, it led to what was we called the Fab Mart wallet. The E wallet, is the first wallet that we ever built, which subsequently became large businesses of their own. The first e wallet was created by us in 2000, actually by Sundeep. He just said, we can't take money from a customer and just keep it. And who the hell is going to keep the track, right, on the Excel sheet saying how much we shipped and all that. So we need to. So we create a new Wallet account. We didn't tell the customer, we didn't bank the check. One month later, we told her say you send this money you're the first customers who did this. We are not going to bank your money. Here is an account for you to log in with your user ID password, your account is ready. It's the E wallet. And it starts with the credit of 50,000 rupees. Every time you order instead of paying by credit card, just say pay by wallet, it will debit your wallet. And it will keep coming down. When it becomes low, just upload the money from your side. In those days they were no upload. We said, just send us the money we will upload it for you. Essentially, that's what wallets are today. Right? That wallet was the first wallet that we ever built. That was another great way of building trust. But I think UPI is doing that. So in this case, the choronology got a little bit confused. UPI is approached, its simply because they wanted to move away from the usage of cash itself. It wasn't for digital transactions. They wanted to replace cash with digital. And it worked perfectly for ecommerce because it was an existing use case. If all of those chronologies, I think had got mixed, I think we would have build trust much faster. But I guess everything has to happen at a time of its to choice.
Krishna Jonnakadla 35:49
Well, hopefully somebody will start that journey, then show that profitability and change the course of the industry. You know, you've seen that. But some it has to start.
K Vaitheeswaran 36:01
It's very hard.
Krishna Jonnakadla 36:03
We shift gears a little bit. And we'll go into some areas like bootstrapping, you've long talked about bootstrapping, funding and scaling in a very different way. And it should be that way. Because one of the responsibilities of a founder and a CEO that creates a multi year business is capital allocation. It's a very under understood term, because when the tap is flowing free, it is hardly a matter that you will worry about and the young nature of the entrepreneurs, and the maturity in the ecosystem, even from an investor's perspective is so nascent that guiding them towards capital allocation is not a goal really anywhere on the horizon. But if you were to look at the context around you, the hyper fund raise, the hyper valuations. How do you build? How do you keep a level head? And how do you build, because I did that I follow the same conservative style. And we got burned out. And it forced us to shut down. And today I see founders who don't even bootstrap, just jump right into sea. And then with the whole purpose of going into series, to buy that because the environment is such that if you're doing something and then there are four or five others doing similar stuff, and you have raised that the resources that they're able to suck from the market, the things that they're able to do, the shouting that they're able to do is different. How do you compete in that? Or what sort of strategy do you want for that kind of a market?
K Vaitheeswaran 37:46
So it's also a function of time. And to be fair, I must confess that, you know, all the things that I'm saying here are not necessarily correct, because over time, your own thoughts get changed. The reality is, when we started, fundraising wasn't so, there weren't too many people to raise funds from. It wasn't that the capital was available, we had a challenge there. Because we came from a background all of us, mid 30s, or about came from a background of being very conservative. That approach goes into it. I think today, much younger people coming fresh out of college, far more aggressive. So their approach to fundraising is different. Second, the sources of capital itself is very different. There are a lot more people. Today there is more money looking for ideas than in those days your ideas were desperately looking for money. So that itself got changed. So I think one big change is today, people realize that between a choice of under capitalizing and over capitalizing, over capitalizing perhaps a safer way to go. So I think you can see that happening. Second, where it helps is, also I think capital is a function of the fact that you're not doing anything different. If you're doing something which is unique, different have a great USP's, I think you can get away with lesser capital, although logically it needs more capital because you want to propagate a new story, as opposed to somebody doing exactly as if I'm doing the same business, you're doing the same business and she's doing the same business, then obviously the person with more money is going to win, not because you're better product, but because you simply out shouted at everybody else. Because if I'm doing something different, I probably need less capital. So the third thing to me is that one, is the availability of capital. Second, is the confidence of the younger entrepreneurs. Third is the fact that despite all of that there aren't too many unique things being done. And if you aren't doing something, which is very unique, you need the support of capital, I think that's what is really happening. I wish the third weren't true, I hope people are doing in an ideal environment, do you want people to come up with unique products and services and raise capital to grow the business. But if you do the same thing, essentially you will raise money to fund losses. That's a problem.
Krishna Jonnakadla 39:48
Unfortunately, that model is still persisting, although in spades, it seems to be changing. So on that account, given your how widely you are connected in the startup world. I want to talk about some things that you're seeing people are doing differently. And I'm an ardent believer that many times we tend to judge a model with the parameters of a completely different model. And therein lies the fallacy. A lot of people look at the Indian consumer base and say, they're not homogeneous. They don't speak the same language, they have so many cultural differences. So you can't do something meaningful here. And for example, if you see what the red bus guys did, even today, there are myths that operating with private bus operators is virtually like dealing with antisocial elements of the mafia. And it's been more than a decade since Red Bus actually cracked that model. So I am an ardent believer that you have to understand the context, and innovate around that context for something meaningful to happen. And eventually scale will find its way if you're sort of doggedly behind it. So let's talk about some of the things that you're seeing. In your mind. You've already spoken about the things that you did differently in your industry, India Plaza journey, what are you seeing other entrepreneurs do some interesting things that they're doing contextualizing innovation, and working on scale problems?
K Vaitheeswaran 41:12
I think there's a lot of work that is being done in a lot of deep tech areas. Currently many of them, I think, are potentials, opportunity to scale, some of them will become great b2b opportunist to help other businesses. So it's not that they are building business to scale, some of them will become great tools to help existing businesses scale, which I think is one good thing. SaaS is an area that I'm seeing people doing a whole lot of interesting work. We've seen great examples of scale coming out of India, proving the fact that it's possible to be in India, and yet build scale. I think SaaS is a great example. I see a lot of new deep tech companies.
Krishna Jonnakadla 41:52
Anything in particular, that is fascinating or interesting ?
K Vaitheeswaran 41:56
Not specific names. And I think it's still too early to pick the specific names, because, you know, people are still at the position of building products, raising money, proof of concept. But I am very lucky that I keep getting invited to all of these events where these people keep making pitches. And I can tell you some of the work that many of them are doing very, very fascinating. And no doubt some of them will go on to help businesses scale. But the only thing that we haven't cracked is to build a product company scaling out of India, I think that's a challenge that's still far away. So when you say, is it was easy to scale services it a SaaS has proved it. IT Services has proved it. Now, one of the reasons why I think we haven't built a large scale company yet out of India is many of the examples. Whenever people think saying I'm going to build something for scale, the first thing that people is, can I go global, but they don't realize the biggest offers to go global for an Indian companies is India itself. In such a large market, you don't need to go global. I mean you go all, you capture the whole of Europe, it's still less than a small part of India, right? And so why would you do that? Except for the fact to say that I'm selling in Europe, the reality the market here are much bigger. And I think as people start creating products and services that are acceptable to Indian customers, that's when real product companies will scale. So the SAS companies have done well, but most of the customers still outside India, and I have nothing at the model, I think they've done a great job. IT services, again, great job with customers outside India. I think the next wave of scale will happen when somebody in India creates products that are acceptable to large millions and millions of Indian customers, like China does very well. And then you ssy, Okay, now I've got a 200 million Indian using it. This is bigger than scale that you will get in most parts of the world. Now, can I go to Europe? I mean, Europe is a smaller place. But you already got 200 million, I think people need to build scale opportunities here. We have to get out of the fact and think that if I have to scale I have to sell outside India, that's not true at all. You can build scale by building here. I mean, we have the benefit of two and we have to build for India. I think that's not happening enough yet.
Krishna Jonnakadla 44:15
So to go back, do you think there is some truth to the consumer is complex that argument or it is purely because that is being used more as a crutch, to not innovate here and just go build somewhere else?
K Vaitheeswaran 44:28
I think the second, it's not the first. You know customers are customers, right? Consumers are consumers. Someone may be homogeneous. They're heterogeneous. They are here, they're there. They speak different languages, they're different colors, they're different race, they are consumers, right? At the end of the day, if you remove all of them, they're all consumers, right? And despite any difference, I am a strong believer of the fact that customers are not very different worldwide. For example, if you look at price, product, promotion, the reality is, wherever you are in the world, the product has to be good. The price is a great trigger, and the promotion drives a customer to buy the product. Wherever you are in the world, if this logic hold, how does it matter whether homogeneous or heterogeneous, did you to solve for that? I mean, if people in Gujarat and Andhra are different, then you have to figure out what are the small local things, if any, that you need to work to. But that can't be the basis of your product management approach. Right? Very rarely can you use that? I mean, for example, we're making this drink, right? We make this drink, waiting it will appeal to be launched in Bangalore, we think it will appeal to people in Chennai, it will appeal to the people in Pune. And it's not that we're going to dramatically change everything just because we are selling in Pune or Hyderabad than Bangalore. We will make some minor changes, maybe if customers if we realized that there's some very specific unique thing that will do. But we won't say, look, we want to build a beverage that is totally different for Gujarat, because people there are very different and they're not homogeneous, different from home. Of course not.
Krishna Jonnakadla 46:03
There's only so much personalization you should do.
K Vaitheeswaran 46:06
Especially if we are wanting scales. See, that's the beauty, right? I mean, you can personalize or you can scale, no scaling you can't personalize, you are right, you can't do it so personalized, that you can't scale.
Krishna Jonnakadla 46:17
So the newer likes, Swiggy, the ones that have scaled, you still think they're not product companies.
K Vaitheeswaran 46:27
Well, Swiggy. If you give me Swiggy as an example, I don't think they're a product company,
Krishna Jonnakadla 46:31
or service innovation, you know.
K Vaitheeswaran 46:32
It is a service. That is not a product. A product company essentially means they create a product that competes with other products. And there is a brand that you create other product, Swiggy is a service brand. Right. I mean, it's not a product that you hold.
Krishna Jonnakadla 46:46
So you're talking physical product
K Vaitheeswaran 46:47
A physical product in that sense, or a unique product, it can't be a service, because essentially, what does a food delivery company do. Whether it is Swiggy or Zomato or Uber Eats, well, it doesn't matter. I mean, essentially what doing, there is somebody who's cooking, there is somebody who's eating, I will take the food from here and give it to her, it's just service innovation. Yeah. But if I was running a restaurant, and creating a product, and creating an experience, that's a product. If I was making a package food, that customers are buying thats a product company. But if I'm delivering the food, that I'm a service company, it's not that I have a problem with it, but they're not product companies.
Krishna Jonnakadla 47:26
So if we were to take the analogy of the film industry, there was one support. I come from a Telugu background. So in a telugu film industry, you will talk to producer and the producer who would say it's a family entertainer. And the unsaid part of it behind that was that and he would say, he would go on to say, all the way from a four year old kid to a 70 year old or anybody can watch that film. Correct. So the idea here is he's putting so much money into that. And only if all these segments of people watch that film, would he really be able to recognize money, right. But that was an era some time ago. But today, it was unthinkable to look at niche films genre, particular genre, genre films. And I think we are on the cusp of those sub segments of populations. And that will possibly engender some interesting product companies, and we possibly have some green shoots there. And I think maybe they are some interesting times there. Would you agree with that?
K Vaitheeswaran 48:27
Yes. Because I think the way people are not consuming content has changed so much that the old rules will no longer apply. I mean, the reality is that you can no longer make a family entertainer. And I mean, the problem if you go and make a family entertainer, like you said somebody from four to 70 will watch, I think the reality is nobody will watch.
Krishna Jonnakadla 48:46
So it's all things to all be.
K Vaitheeswaran 48:47
Yeah, it because it means everything to everybody, it actually means nothing to anybody, unlike in those days. And the reason is, because there were very few alternatives available. Today, the alternatives are so much available, it's very hard to build something which is a one size fits all, once in a waysomething comes along that is unique, and it's a miracle and everybody loves it, but very rarely that has happened. So you will have no choice. But to get into this specific areas and innovate. How early we are and whether we are seeing the truth, I personally don't know. But I'm assuming it should happen.
Krishna Jonnakadla 49:21
So in our connected world, the methods of scaling is, if when I see, when I travel, and then talk to founders, the traditional model is you create something, and you invest a lot of money, go through traditional channels of media advertising, marketing, distribution, to make that successful. And that worked when there was no way for you to reach vast swathes of people. So in some sense, these were rent seekers or middlemen that you had no choice but to work with it. But that world has drastically changed. And we are connected, were able to reach vast swathes of people with digital tools. And it's created a connected ecosystem. And therefore, and I feel the younger entrepreneurs understand that world better. And where I'm going with this is, I happened to meet the CEO of origami paper, which is a very large wallet in Japan. And he was answering a question about why are you still using incentives to acquire a customer? So for instance, if somebody buys a dollars worth of coffee, you offer 20 cents off on that. Why are you offering. How long will you discount and he had a different, completely different argument about that. He said, If I followed the traditional route, I would go advertise, I would market, by the time I communicated my offer, I would have spent 80% of the money. So therefore, in this whole bucket of money that's available, the consumer only gets 20%. Here, I'm doing the reverse, I'm actually front ending. And in that I don't have measurability, I don't even have a conversion, it may just hit the consumer. But think of the other way, if I give him the 20 cents. He's not only a consumer, I spent a little bit of money reaching him. But he's a convert, he starts becoming a user. And that whole journey, which would take me much longer has been front ended. So in some sense, while using VC money to fund all of that, perhaps is a wrong method of doing it. But the scale, the methods and of scaling is fundamentally changing. And what is, what do you think about it? Is that true? And what other interesting ways are there?
K Vaitheeswaran 51:37
So one is obviously like you said, it's far more easy to reach millions of people today than it was earlier. Easy in terms of cost, easy in terms of time. I think time is actually the more important metric here, very quickly accomplished millions of people. But there is a risk here, which I think I'm not sure we're all well aware of. The advantage of reaching millions of people quickly at low cost is the fact that you can propagate yourself very quickly. The disadvantage is if you propagate something that's not sustainable, very hard to get the message back, but the message is out. Millions of people have already read it. So in a sense, you have to be very careful. In today's world earlier, you could launch something in one small pockets, find customer feedback, where you can't I mean, there's no way. I mean, I know those days, FMCG companies would launch. So for some reason in Kerela first and then try out another part. You can't launch anythign in Kerela or Karnataka. If you launch something on the web, and then everybody's reading it, right. So you can't do that. So it's a big problem. So you got to be careful how you communicate. That's one thing that has happened. Or the second thing is using discounting as a method to reach out to these customers, I personally don't have a problem with it, the fact that you're using an even if it's a venture capital, you're discounting to reach customers. I don't have a problem with it, but I think where I'm worried about is why are we discounting, we're discounting because here is a product that I have created, I believe, which was x, I'll offer it to an x minus y. So that it gives you a chance to try it, hopefully you like it, and you will come back and buy again. The two things that happened is, one is if I continue to sell at x minus y, will I be a sustainable business or not, that's one thing. Therefore the value of y and x is very critical. Second, have I priced x correctly enough for me to get value out of it and I think that's where people have gone wrong. So for example, even in the, if I'm selling this beverage, we are sometimes initially wherein a promotion we had an offer. But the reality is even despite all of those offer, these are sustainable promotions. Whereas if you're offering a service that costs hundred rupees, and you're selling it, 120 rupees saying I'm giving you this 20 rupees value, No I'm selling it at 80 rupees and then hoping to recover, you'll never be able to recover it because the value of the service got frozen at hundred. There are alternatives available at similar prices. So when you go back to the original price, I'll do something else. So if you don't offer something unique, and you're trying to use pricing as a method to get people to try, people will try as long as the price is available. But if not, they'll go back because you're not impacting them enough to say, I'm willing to continue to try this product, even without the discount.
Krishna Jonnakadla 54:21
There's a piece of insight, or an observation that's actually hiding, right here. And that piece of insight is that differentiating services takes far more effort than differentiating products, by nature, two separate drinks, let's say Coke and Pepsi, while they might look similar, they taste different. They might be priced similar, but they may taste different. So there are going to be people that are going to love Pepsi, they're going to be people that are going to love Coke. On the other hand, can we say the same thing for services? Maybe not. So you need an extreme form of differentiation, because the tangible outcomes that can be delivered through services are vastly different from the tangible outcomes that can be delivered to products.
K Vaitheeswaran 55:08
I think that's where a product and the service needs to be careful because services very rarely are unique. And the risk in offering a discount to try a service is the fact that only the service in itself is uniquely different, which is not very easy. The price promotion will normally fake.
Krishna Jonnakadla 55:26
Very interesting. So a product for those sorts of scenarios. It's great. And again, if it's done in limited fashion to consistently do it, they're sort of used to the bribe, so to speak that without that.
K Vaitheeswaran 55:41
Then I think the pricing is wrong. Pricing is wrong. Totally. I mean, your price in the first place itself was totally wrong.
Krishna Jonnakadla 55:47
Right. You've long talked about the next tipping point in retail coming about when off offline successfully goes online. We have not yet seen that happen In India. We are, if anything, the opposite of that is happening with a lot of online portals suddenly discovering that they have no touch and feel or real understanding of the market, because they've already taken all the low hanging fruit so to speak. And they're trying out. And I can see from their own forays that they still don't have a clue about offline. And I mean it PR and investor speak all of that sounds great. It is by the founders, for the founders, of the founder, so to speak, it is just limited release. Do you think that tipping point is happening? Anybody is trying that or in what fashion would that look like?
K Vaitheeswaran 56:38
So there are two parts one is online, people going offline. I think online people going offline, you're right is more of a PR exercise. And the reality is online retail is hard, offline retail is tougher. So you can't say okay, I'm doing online let me do offline. It just makes life difficult. The offline to online journey works much better. Because I've got this assets in place. I've got the distributed assets in place, I can now integrate them digitally and deliver a great new experience so you know what happens I have one online site or app or whatever no opening thousand outlets, it's a whole new ballgame. Look at the other I have thousand outlets. I'm not putting one digital frame to connect all of them and just a great story. So online to offline and offline and online are not the same story that totally different. I mean, I think people are just not getting it, which is why when some online sites as I'm opening offline I know that money is only can get wasted because they never practice. They just mix it life. But the large offline change, when this use a single digital frame to connect all of them, you will know that they're going to make a likely impact on the customers lives. That's why I felt that that will be a tipping point. Is it happening? I think it's happening. I think everybody's trying it certainly all the big daddy's and the Reliance's me so much of talk Reliance going online ecommerce. We know the TATA groups are trying the large, smaller retailers are all trying. I think they're happening. Has it happened? No. And I think we are far away from it. The reason we are far away from it is simply because that also is not easier. I think, in India, especially because of the urban infrastructure that is under tremendous stress, the digital integration of offline assets, doesn't give great value. So let me give you an example. If I was running an offline chain in Europe, and I said, I'm going to integrate digitally, customers can come online or go on the app and let say its a ladies fashion store and I sell order the red dress and pick it up at the store. You can do that because you can order online check and get the benefit of the price. And while you're passing by in the store, just go five minute for park, go pick it up and go. In India, you can't do that. Because all the things you can do. But when you go to the store, there's no parking available. Right? So the entire experience is collapsed because you ordered online, you told the guy, I'll pick it up at the store and then the store is in the 80 feet road of Korbangla,and you are going there at 7pm. Where are you going to pick it up, you will pick up nothing. So in India, because the integration is harder, people are not realizing that the offline online integration works when the urban infrastructure supports it. In India, that will going to be a challenge. Hence, people are struggling. But eventually they'll figure out ways of doing this, perhaps we'll have a guy waiting on the road saying when she's passing by saying you flag me I'll give you a dress. Maybe I don't know, clearly there is, but I suspect that integration will be important for a tipping point. There is no other way. Ecommerce is not going to be run by two large players selling online. It won't happen,
Krishna Jonnakadla 59:43
He's actually onto something here. I remember an image, I think from the early 2000s, which indicated all the tools on an office table. For instance, a Rolodex and a high school college book. A rolodex became LinkedIn and a high school college book actually became Facebook, a pin board actually became Pinterest, and so on. What it essentially conveyed was that a world that was largely offline had gone digital. We are yet to see that happen in retail. And why Vaitheeswaran, is absolutely right, when he's saying that e commerce, as we are yet to see will happen when large offline players actually sell online. India, in fact, is a vastly different and a very interesting market. If you just take the world of artifacts, or art or fashion, there are so many genres, and there are so much variety, that it is virtually impossible to do justice to all of them through online. But if you were to take meaningful connections from the offline world, and take them online, now you have a whole host of magic unleashed. We don't know what that looks like yet. But we can definitely say that whenever that happens, it's going to look a lot more interesting than the what we see today.
K Vaitheeswaran 1:01:13
Ecommerce will happen when large offline players sell online.
Krishna Jonnakadla 1:01:16
Well, even the most mature market US, its ecommerce penetration of everybody put together is still 9% of the economy.
K Vaitheeswaran 1:01:24
It will be, I mean, there's a reason why Amazon is buying Whole Foods and all right. They are too good at this game to make such big mistake. There's a reason why they are buying. They know it.
Krishna Jonnakadla 1:01:35
So I have a couple more questions. Before we wrap up. I love what you say about starting up in terms of basics, the things that you should keep in mind, I will let you say it, I don't want to steal your thunder, for people that are starting up. What are some essentials to have? And I'm asking this question, being conscious of the fact that a lot of things are changing, a lot of things have changed. What should they have in mind? And what sort of things should they consider the essentials?
K Vaitheeswaran 1:02:04
Well, there are many, many essentials. And we've discussed this several times. So you know, we're not going to discuss all of that. But a few key things is always look to solve a genuine customer problem. A problem for which the customer is willing to pay for the solution. I think a lot of startups about people finding us first getting the solution and then figuring out what's the problem? I think that's it. They have more because in a lot of people saying I have this great idea. Very few people come to me and say you know what, I'm solving this great problem. Nobody has told me this yet. And the day somebody comes and says I'm solving this problem, I would seriously listen to that person, irrespective what the problem is being solved. So that's one thing, I think it's non negotiable. If you're not solving existing genuine problems for which customers are willing to pay for the solution. It's all very exciting, but it's not going anywhere. Second, put in enourmous amounts of effort getting the first few customers happy. I think it's critical. The first few customers determine the success of your product and service. Whatever it takes, make sure that you take their feedback and keep improving till you've solved that, totally. Then I think you're ready to scale today. I think people try to scale too early, saying I've got this product, what can I do get a million people to buy. So for example, we've been in Bangalore now working on this product for two years. Already there for six months. Many people have been when are we coming to Chennai, we are coming to hyderabad, I mean guys we are coming, there's no hurry. Chennai is going to be there right and not going anywhere. I think it's important to get that steps right, near to get this right. As opposed to getting this fast. That's the second thing. So don't be in a hurry. I think scaling is important. But you can't scale badly. If you have something that's imperfect and you scale, then you only trade in chaos, right? You can't scale, that second thing.
Krishna Jonnakadla 1:03:53
Bang on, he's absolutely bang on about scaling the right thing. One of the worst things that could happen to you as an entrepreneur, Eastern, not knowing what exactly it is that you're scaling, mind you. Repeat purchase. And ongoing loud, of customers is a big deal. And it doesn't have to be a million people. At the beginning. All great stories began with just a few crazy fans, ask all the mentors and advisors world over. And they know this for a fact. And that's exactly what he's saying that you choose a very small subset of people or customers in the very beginning, and make them your raving fans.
K Vaitheeswaran 1:04:40
The third thing is always raise money for growth, never raise money to fund losses. If you need money to fund operations, you have a problem. But if you fund raising money to fund the growth than I think you're onto goog thing. Fourth, the business must make money, don't build anything, that we are not going to make profits for the next 10 years. But we'll see after that may be you can't see that thing after that. You must be able to see profitability in shorter periods of time. And the fifth and the most important thing, never ever compromise on integrity. And nothing is worth it. If you compromise on integrity, if you compromise on having inferior moral compass, then I think any success is not worth it, those would be my five things out of is the last one is probably the most important.
Krishna Jonnakadla 1:05:29
I know you're pretty fussy about it. And I think rightly so. Because once the Rubicon has crossed interest, you know, there's nothing left. I want to go back to the scale question and just dig a little deeper. And you said, you attempt scale, when you know some of the right things are in place. So for somebody who's building products or services, while the SaaS product has its own playbook with what you're doing right now, you know. What are some of the things that you sort of just checking off saying, hey, I think we are now ready for scales, so when are you truly ready for scale?
K Vaitheeswaran 1:06:02
I think when we have a very reasonably significant percentage of our customers buying the product again and again, that is repeat purchase, because it's a 50 rupee product, right? And it's an impulsive product, right? This is not a life changing product. We're not solving cancer here, right? We are saying okay, buy this. So it's a very simple, tasty, delicious drink. It's 50 rupees, right? First time, anybody will buy. It doesn't cost much, let me try. But the second and third time you come back only you like the drink. So for example, the one I'm learning at FMCG, as we go along, what I now learn is that people buy a product the first time because of what's outside the bottle. After that they buy, because of what's inside the bottle, right? Because second time nobody is going to look at my packaging, is a great packaging, because you already tasted it. The second time onwards is bigger, what is inside, right? When we get a reasonable number of customers coming back and buying because of what's inside? I think we ready to scale. What the reasonable number is, we're still trying to figure out is it 20% 30% 40%, we don't know. But I'm not sure what the right numbers are yet. But to me, that would be the scale point there now ready to roll.
Krishna Jonnakadla 1:07:26
Steven Blank, in fact, in four steps to epiphany talks about the 40% number. When you hit 40%, and 40% of the users love you, and can't do without you. He says that's the time, you should say yes, this is the inflection point.
K Vaitheeswaran 1:07:41
Krishna Jonnakadla 1:07:44
I've not, I've not seen whether that is really validated by vast words of research, but at least
K Vaitheeswaran 1:07:48
And perhaps it also varies depending on industry. And FMCG may be different from durables, right from products, tech products. I don't know how that works, right?
Krishna Jonnakadla 1:07:57
So let's talk about Again, we haven't had a chance to talk about Again, it's a slightly different venture from what you've done before.
K Vaitheeswaran 1:08:04
It's totally different.
Krishna Jonnakadla 1:08:06
It's a product. It's physical, you can hold it and I've tasted it personally, and I've loved it. Tell us about this outing. And what experiences scaling India Plaza and the e commerce story is relevant or not relevant and tell us about this journey.
K Vaitheeswaran 1:08:22
So one is certainly a lot of things that we learned are relevant here. Things that we learned from we will use, things that we learned from we will not use. There are many things that we did there, we will not do here. It's also a learning and learning is not what you always use a learning is also thing that you say, I never made this mistake again. So in that sense, it's very relevant. But the business in itself is very different. That to service this product, the actual product brand, FMCG, we're totally clueless about this. And that's what makes it more exciting. I mean, I'm actually a firm believer, I must add this point. A lot of people say that entrepreneurs must go and do build domain expertise and do it while it is got value. I don't believe in that, because entrepreneurs are problem solvers. Right? If everybody did domain expertise, then we wouldn't have done the first ecommerce company in there. But there's no domain expertise. Somebody has to go and do it the first time. Right. So I think domain expertise is, well it's too much. I think it's over value. There is some value to it. But any problem can be solved. And that's the reason I'm doing it
Krishna Jonnakadla 1:09:22
Totally agree with you on the domain expertise thing, no question about it.
K Vaitheeswaran 1:09:25
Yeah. That's the reason we're saying, in fact, when I got an opportunity, can we do FMCG? Sure, yeah, let's do this. And why am I doing this with because I have never done it before. I mean, that's the reason. So as far as product is concerned, I think this is the only beverage in the world and I'm serious. The only beverage in the world that has no sugar, no preservative, no color, no flavor. Yet it does not need refrigeration and as 90 day shelf life. There's no beverage in the world that has ticked all the boxes. Nobody.
Krishna Jonnakadla 1:09:56
and delicious too.
K Vaitheeswaran 1:09:56
Yes delicious is the first filter. See the beverage and the food is
Krishna Jonnakadla 1:10:01
No, the usual notion is that if it doesn't have sugar, if it doesn't have this, then it shouldn't taste that great?
K Vaitheeswaran 1:10:07
Krishna Jonnakadla 1:10:07
So in this case it defies those myths? And that it actually does taste great?
K Vaitheeswaran 1:10:12
Yes, it does. You're absolutely right. It does taste well. In fact, the marketing line for the product is actually we call it a WTF Drink, Wholesome,Tasty Filling drink
Krishna Jonnakadla 1:10:25
You have a way with words, I definitely have to give it to you for that. Sir it's been a pleasure chatting with you this time around. For our listeners, if you haven't read, failing to succeed, which Mr. Vaitheeswaran has written, it's a highly enjoyable read. There are sections about cross marketing there. If you haven't read that book, you should go check it out, you will see a link to that in the notes in the transcript for this episode. And if you haven't checked out his drink again, I personally tasted it. It is not an endorsement. We don't get any referral money from this. But it is purely because we love the drink. I think you should try it out. So we wish you the very best. And again, we wish to see you write a different sort of book this time succeeding to succeed.
K Vaitheeswaran 1:11:09
Thank you so much
Krishna Jonnakadla 1:11:10
and then to a big contribution to that.
K Vaitheeswaran 1:11:11
Absolutely. Thank you so much.
Krishna Jonnakadla 1:11:12
Its been a pleasure having you here.
K Vaitheeswaran 1:11:13
Oh, pleasure has been mine. I'm very happy that you're doing this. And you choose to talk to me as one of the earliest first episodes. I wish you and your team great success and I'm sure this will become very popular. Maharajas of Scale become very popular.
Krishna Jonnakadla 1:11:27
Thank you, sir. Thank you so much.
Nida Sahar 1:11:30
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