Category Archives: start-up

E-commerce Customer Lifecycle Management: Metrics and Goals

This is second part in a series of posts on ecommerce customer lifecycle management. In the first part we discussed an overview of CLM and in this post we’ll discuss how to identify, measure relevant customer lifecycle metrics and define goals to improve them.

Basic E-commerce Customer Lifecycle.

Pic 1: E-commerce Customer Lifecycle (Basic)

To improve progression of users through the lifecycle we will look at the corresponding funnel as funnels are great to measure stage wise conversion

Pic 2: Customer Funnel (Basic)

Quick Definitions

  1. Total Users: Users with email id/phone number/apn or gcm id.
  2. Total Customers: Users that have ordered at least once.
  3. Total Repeat Customers: Customers that have ordered more than once.
  4. Total Loyal Customers: Customers that have ordered more than Z times.

We’ve mapped the lifecycle into these four basic funnel stages because they represent a user action based milestone. This grouping of users is important because users in each stage share a lot of similarities in their experiences(or lack of) with the product and the kind of nudges required to help them move to the next stage.

Spray and Pray is not a Strategy

A mistake most marketers tend to make is to send the same communication to all users. It’s wrong to assume that the same communication will work for both ‘Non Purchasers’ and ‘Repeat Customers’.

Identifying Key Customer Lifecycle Metrics

The key metrics to be used have to be leading (or input) metrics i.e they are influenceable or directly actionable. In this case, the relevant metrics are the conversion rates from one stage to another. Let’s take some sample data

                           Pic 3: Overview of Customer Funnel

At a high level, this table above tells you all there is know about the business and the levers to improve things are the conversion rates that correspond to each stage.

                                        Retention is poorly understood

Key CLM Metrics aka E-commerce Vitals:

                                     Pic 4: Key CLM Metrics
  1. User Activation Rate
    = (Total Customers /Total Users) * 100
  2. Repeat Customer Rate
    = (Total Repeat Customers/Total Customers) * 100
  3. Loyal Customer Rate
    = (Total Loyal Customers/Total Repeat Customers) * 100

Loyal Customers = Users * Activation Rate * Repeat Rate * Loyal Rate

                                   CLM Metrics are Ecommerce Vitals

These Key CLM Metrics are E-commerce equivalent to the human body vitals.

As a growth guy, I lay extreme emphasis on these CLM metrics because they help me understand the current state of things and point towards directions that need the most work.

             Pic 5: Each Metric Tells A Story and Suggests A Direction to Work On

Defining Customer Lifecycle Management (CLM) Goals

With these three metrics identified, the task ahead is clear

Customer acquisition is just half the battle won.

                   Pic 6: Overview of Customer Data and Key Metrics

There can be 3 broad goals for improvement from here

  1. Increase User Activation Rate (Biggest Improvement Area) — An improvement by 5% here will translate into 20% increase across Customers, Repeat Customers and Loyal Customers
          Pic 7: User Activation Rate — The biggest lever of retention

Since User Activation Rate impacts the top of the customer funnel and a small improvement here will have the maximum impact in both customer count and revenue, it is paramount to improve it ASAP.

                  It’s important to fix User Activation Rate at the earliest

2. Increase Repeat Customer Rate (Toughest Improvement Area) — This is the second biggest improvement area. An improvement by 5% here will translate into 20% increase in both Repeat & Loyal Customers

       Pic 8: Repeat Customer Rate — The second lever of retention

If there are a lot of folks who are placing orders but aren’t coming back to buy again this could be a serious problem. This metric needs to be looked from multiple perspectives — Product Quality, Post Purchase Experience, Post Purchase Communication and such.

3. Increase Loyal Customer Rate (Easiest Improvement Area) — An improvement by 5% here will translate into 25% increase in Loyal Customers.

           Pic 9: Loyal Customer Rate — The third lever of retention

In my experience I’ve found this metric easier to influence than the repeat rate. Customers that have made multiple purchases are comparatively easier to retain & re-activate. You also have the most behavioural data about them.

Here’s a quick summary showing the impact of a 5% improvement in each key metric on One Time Purchasers, Repeat Customers and Loyal Customers.

Pic 10: Impact of a 5% improvement in each metric on Customers, Repeat Customers & Loyal Customers

The table above summarises the impact pretty neatly. In case, this is looking exciting, let me add to the excitement by showing you the improved numbers in a case where you are able to increase each key CLM metric by just 5%.

      Pic 11: Impact of 5% improvement across all three Key CLM metrics

Not only the % of people in each lifecycle stage looks quite better, the increase in loyal customers by 80% is fantastic

With these three broad CLM goals defined and projections explored, we have a task cut out for the marketing/growth team to make plans around.

In this post we’ve focused on identifying the Key CLM Metrics and Defining CLM Goals. In the next post in this series we’ll discuss some strategies to achieve these goals.

If this is the first post you are reading in this series, there’s a prequel to this post on introduction to Ecommerce Customer Lifecycle Management here

Thanks Navneet Singh and Saurabh Tuteja for their feedback

Notes from “Zero To One” or Peter Thiel For Beginners

Two years after purchasing I finally decided to give “Zero to One” a read & totally loved it.

About four years back I came across Blakemaster’s notes from Theil’s Stanford class and was totally blown away. A lot of the content in the book is from these notes.

Sharing some things from the book that stood out for me

Zero To One:
For the uninitiated, loosely speaking creating new technologies/ways of doing things is “0 to 1” and just replicating what works/doing incremental improvements is “1 to N”.

In a world where technology creates an extreme leverage, it is much better to do “0 to 1” than “1 to N”. The “Zero to one” approach helps you in thinking bold and trying to solve bigger/non trivial problems. Successfully solving hard problems in most cases can lead to supersized returns.

Brilliant thinking is rare, but courage is in even shorter supply than genius.

Contrarian Thinking:
You get outsized returns for being right when the consensus is opposite to your thinking. The suggested way to get there is to
a) Think for yourself — Independent thinking over opposing the crowd (just to be contrarian)
b) Question what you know — Especially question what you know about the past and if you are not reacting mistakenly about the past

Secrets and Business:
Being contrarian in business is akin to uncovering a secret. Secrets(difficult to figure out) are different from Mysteries(impossible to figure out).

Great companies can be built on open but unsuspected secrets about how the world works.

Very few people take unorthodox ideas seriously today, and the mainstream sees that as a sign of progress.We have given up our sense of wonder at secrets left to be discovered.

You can’t find secrets without looking for them. Belief in secrets is an effective truth. The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers.

Great companies have secrets: specific reasons for success that other people don’t see.

Competition Is For Losers:

Competition and Capitalism are opposites.
Competition can make people hallucinate opportunities where none exist.

People tend to think competition is good but as per Thiel, competition is a destructive force and not a sign of value. When it comes to competitive environments, people tend to lose sight of what matters & focus on their rivals instead.

While competition might be good for consumers/supplies it definitely isn’t the best for the competing players. Monopoly businesses on the other hand (except when they purely act as rent collectors) by virtue of having higher margins/profits can afford to plan for long term and drive progress by innovation.

Who is likely to innovate more? Amazon/Google or say Lenovo/HP (PC space)

Making A Monopoly:

Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits

Every monopoly is unique, but they usually share some combination of the following characteristics:

a) Proprietary Technology
b) Network Effects
c) Economies of Scale
d) Branding

Brand, scale, network effects, and technology in some combination define a monopoly; but to get them to work, you need to choose your market carefully and expand deliberately. Proprietary Technology can lead to the strongest form of Monopoly while Brands are the weakest form of monopoly and only work well for long in a few cases such as Pepsi & Coke.

If your company can be summed up by its opposition to already existing firms, it can’t be completely new and it’s probably not going to become a monopoly (Think of a 10X better product/technology)

Running Startup as a Cult: While the popular answers to the question “What would the ideal company culture look like?” could include perks such as Foosball/TT tables, mac for everyone, open work hours etc Thiel calls them out for NOT being substance. What matters is

The opportunity to do irreplaceable work on a unique problem alongside great people.

Some commandments from Thiel in this regard include
a) Hire people who are talented, but even more than that they should be excited about working specifically with you.
b) You’ll attract the employees you need if you can explain why your mission is compelling.
c) Everyone should have a shared understanding of the world and your company’s intended position in it.
d) Defining roles reduces conflict. Everyone is responsible about one thing and everyone else knows about that one thing.

A Framework For The Future: Thiel offers an interesting lens to look at the future.

An indefinite pessimist looks out onto a bleak future, but she has no idea what to do about it.
A definite pessimist believes the future can be known, but since it will be bleak, she must prepare for it.
To a definite optimist, the future will be better than the present if she plans and works to make it better.
To an indefinite optimist, the future will be better, but she doesn’t know how exactly, so she won’t make any specific plans. She expects to profit from the future but sees no reason to design it correctly.

We cannot take for granted that the future will be better, and that means we need to work to create it today.

Thanks to Saloni, Navneet for reading the drafts

Chamath Palihapitiya’s Resignation Email (from Facebook)

From Quora

i leave with incredible hope for how you will continue to make this place awesome. every tuesday, i talk to the n00bs. and i generally tell them the following, which i leave for you as a reminder:
its easy to get distracted. everyone thinks we are much better than we actually are. be humble and honest about the fact that more is left to do than has already been done. keep moving quickly and don’t get bogged down in the things that don’t matter.

we risk becoming like everyone else. the only chance we have is the discipline and resolve of the silent majority who needs to and MUST become more vocal as the company gets bigger. fight for the culture the way it should be…not the way it was or the way its becoming.

be afraid of the company you don’t know. there is someone out there lurking with a small idea that will grow into a giant. don’t ignore that which you don’t immediately understand and keep pushing to evolve faster than what people expect. it can create unease at times but its our only path to long term relevance.

speak the truth. its too easy to “manage” – upwards, sideways, downwards and be rewarded for it. this is death. speak candidly especially when it means it won’t be well received. respect the person but don’t let bad ideas go unchallenged.

their is more valor in failure than success. success is hard to define and hard to isolate root causes when it happens. its rare to learn much of anything from success except to conflate luck and skill, but you learn tons in failure. take enough risks that you continue to fail…and celebrate those so that it becomes the battle scars you talk about when you do eventually succeed.

don’t be a douchebag. this is pretty self-explanatory but its not about the right to ripstik or the quality of the candy bars in the office. its about winning. everything else comes second….a distant second. and the perceived correlation between winning and the rest is only in your mind. interestingly so is the resolve and focus to win.

i’ve really enjoyed my time here. thanks again for the chance to always say what’s on my mind. its a rare place that allows everyone to do that and our results speak to the values of risk taking, openness and transparency. don’t betray them as we move along.

good luck. make it rain.
chamath

 

My experience with Pebble: The smart watch

I’ve been longing to buy a watch for quite some time now but wasn’t sure which one to buy. But, when I got to know about Pebble, I kinda knew that this would be it. A smart watch which does more than telling time and looks good/different was enough for me to make the purchase, plus I also wanted to experience the wearable tech market first hand and this was the cheapest way in.

Pebble and Skinomi
Thanks to the lovely friend who got it for me from the Amazon US.

Otherwise priced at 150$, along with the Skinomi cover it costed me Rs 11063/-. I got the watch some 10 days back and here’s my experience with it so far

1) Look & Feel – As someone wise said people buy watches not because they tell time but because of their fashion/design appeal (Apparently the watch market is worth $ 80 bn). The watch looks great and is comfortable to wear. It’s shape and finishing makes it stand apart

2) Integration – Pebble connects with your phone (Nexus 4 in my case) using Bluetooth. All one needs to do is to install the Pebble app in your phone and detect/connect it with the watch. Do this and you are done.

3) Frills: Watch faces and Shake to lighten up – Using some apps you can create/install new watchfaces. My current favorite is the “Breaking Bad” watchface. Another cool thing is that you just need to shake the wrist a bit and the watch lightens up

Breaking Bad - Pebble

4)  Features – Pebble comes with a few default features

a) Music – You can play/pause music on your phone using pebble (Though a cool thing, I am yet to find a real/proper use case). Though I did a fun thing once by playing music on phone which is connected to the car’s audio system using pebble (Bluetooth ahoy !!)

b) Alarms – You can set alarm on the watch (I am not much of an alarm person anyways)

c) Watchfaces – You can choose from various existing watchfaces and upload new ones

d) Notifications – The core offering of Pebble and few other watches is the Notifications part. The underling thought behind all this being, that the smart watch in it’s current avatar is not a replacement of phone but an extension of it. Some of the use cases being in situations where you can look into your watch before deciding whether you need to take that call or reply to the sms etc.

Some of the notifications that work with Pebble are

1) Gmail
2) Whatsapp
3) SMS

Read SMS on Pebble
4) Calls

5) Integration with other apps – This one is very interesting. Pebble for one integrates seamlessly with Runkepper. Unlike earlier, now I don’t need to keep checking my phone to see how much I have run or calories I burned. The phone can stay in pocket while Pebble can tell me all the needed details.

6) Installing third party apps – The most exciting bit is you can install apps developed by others on your pebbles to further exploit the device and it’s functionality. Here are some of the features you get access to using these apps

a) Reading and replying to SMS – Limited to a few template replies at the moment
b) Weather information
c) Calender
d) Utilities like “Find my phone”

I have few more apps which I plan to explore and also I am eagerly awaiting the launch of Pebble’s App Store for Android (They recently launched one for iOS).

If you own a Pebble, what has your experience been like?

 

 

 

App Review – Thrill

Despite all the jig bang the Indian cyber space has kinda been hostile to the incumbents of online dating ecosystem. Dating as a concept is yet to catch up here but some of the newly launched mobile apps seemed determined to change that.

Thrill, is one such new dating app on the block ( H/T @pacificleo). Android based and targeted for Indian users.

Thrill App

 

Founded in Nov 2012 in Singapore by Josh Israel and Devin Serago. The USP of the app is that on Thrill, women have the absolute power to decide which guys to accept and reject.”He applies. She decides” goes the tagline

Apparently women in a man’s network have to approve for him to be able to join. Not sure, how it is actually implemented though

Let’s check out the app

1) Welcome Screen

Welcome Screen

 

2) Choose Location
Choose Location

The metros figure up on top of the list followed by other cities arranged alphabetically. Good thing

3) Apply & Wait

Apply & Wait

 

Thrill isn’t an open platform (at least it wasn’t when I used it for the first time last month). You apparently are placed in a queue to verify your profile and make it look exclusive. A social share in hopes of moving up the queue is a bonus.  I didn’t share socially but got an approval in a day or so

Thrill Approval Email

 

We will only connect you both if the feeling is mutual

 

4) Gender Selection, Sign up and Social profile Access

a) Gender

 

b) Sign up

 

c)

Access

 

Three screens to select gender, choose sign up via social profile and then grant access is an overkill.

Possible Alternatives:

Show screen 4b) first and add profile access disclaimer there itself. Ask for gender only if the user hasn’t filled in their gender in their profile.

Also, WHO/WHY would anybody sign in with their Linkedin Profile on a dating app? I’d be really interested in knowing what % of signups happen through linkedin. (Use Twitter or Google instead)

5) Dashboard

Dashboard

Comments: As a first time user, I have no clue what a “Match Batch” is and what’s the deal with “Points”. Anyways, I’d click “Start Your Thrill” as the call to action is quite powerful.

6) Starting Thrill

a) Select Category

Starting Thrill

 

Comments: This screen isn’t that intuitive, some overlays would help a newbie figure out how to go ahead.

b) Rate Category

Rating a category bit didn’t seem needed and also added an unnecessary extra step in the flow

Category
c) Rate Item

Rate item
After rating a few items you get an option to view matches.

7) See Matches

shake to unock

 

See matches

 

Based on how you rated various items you are presented an unlock batch of matches, you can unlock some of them initially by shaking your phone or eventually by buying credits (Freemium mode #goodone)

Buy Points
Deals

This page where the user is supposed to choose how many points do they want to purchase isn’t quite clear. I am not sure if Deal 3 is for 500 points or 500 Rs. Also, some help on how much is 1 point for, and a few basic FAQs  in form of a link etc would be of appreciated.

Payment

 

Phew !!

Overall the app seems to be very neatly designed(UI and UX), is fairly fast and has an interesting  take on dating. The concept of rating various categories and items in them to be able to find a matching profile is fairly intuitive.

Initially it had some bugs (app freezing or crashing during certain events) which were fixed in subsequent updates.

I haven’t used dating apps so don’t really know what the ideal/expected scenario is. Do users keep using the app actively or they find a match or two and leave?

Apart from the extended workflows required for certain actions I am apprehensive on how would they solve the

  1. Should the part of rating be one time during on-boarding or a regular affair? For example if have I rated all food items, is it done or after some time there will be new items which I’d be required to rate to be able to find new set of matches? Perhaps the core experience could be made simpler and an easy win given to the user
  2. Chicken and Egg problem : Despite giving the app a spin for a few weeks, the overall user base didn’t seem to be increasing much. There is no way to know if more and more women are joining the app. I think unless this is the case or you find a match early one, I am not too sure why would someone keep coming back to the app.


Customer On boarding- 3/5
Engagement -2/5
Look and Feel – 4/5

Overall Rating:  3.5/5

 

 

The Conversion Funnel – Part One

The concept of conversion funnel is quite old and surprisingly still not as widely used/referred to.  Be it an e-commerce website or a social network, there are two, rather three aspects of workflow and analytics

  1. Getting customers – Acquisition
  2. Getting them to do “something”  –  Conversion
  3. Getting them do “something” again and again – Retention

For e-commerce sites aka pipes the conversion is applicable for customers only, while for social networks and other sites aka platforms where value is created and consumed by two parties we have to keep in mind conversion for both of them to be able to achieve the end goal.

Let’s consider a job portal and see what the conversion funnel for it will look like.

  1. Visit to home page
  2. Visit to job category page
  3. Visit to job listing page
  4. Apply to job

Note: All these steps don’t necessarily need to be followed in the same order. For ex:  A visitor can land directly at a job listing page via Google search

The above mentioned four points are the simplest way to accomplish task of applying for a job but there could be a lot of other variants which though complex/indirect but would still reach to same goal.  For instance instead of clicking on a job category page link the user does a search and goes to search listing page. One way to look at such alternate paths is to create a funnel for each one of them

conversion_funnel_jobssite1

These are some of the possible routes (for ex: some visitors would neither search or browse and just exist from home page itself). In best case scenario you should know precisely the split of people who searched, browsed and  existed. Further, you should create separate funnels or each search and browse loops.

Let’s say the home page had 100 visitors. Searched = 30, Browsed = 55, Exits = 15

The conversion funnel for search would look like

Visits (100) -> Search (30) ->  View job listings(10) -> Apply(2)

The conversion funnel for browse would look like

Visits (100) -> Browse(55)
1) ->  View job category page (15) -> View job listings(10) -> Apply(3)
2) ->  View job listings(40) -> Apply(5)

 

By considering  the drop off at each stage you would be able to pin point the problem. For instance if  only 1/3rd people are clicking to view job listings after search, maybe the search isn’t that efficient and needs to be worked upon. You could further zoom into this by dividing all searches into two categories.

  1. Searches for which some results were shown (20)
  2. Searches for which no results were shown (10)

In the above example only 20 searches had results against them, which means the click through rate for search is 50% and not 33% as perceived earlier. Now could consider improving this rate and on the side figure out how to reduce the cases in which no search results were shown.

Similarly from View listing to Apply. You can break this task into the below mentioned to be able to see the exact stage of drop off

View job listing -> Click Apply Button -> Login/Signup -> Apply

I’d end this post by stating that, you should try to use the workflows/flowcharts to identify various stages of a user goal and then analyze data across them to be able to identify the issues and fix them

To be continued…

Thoughts on Start-up Hiring

Hiring is undoubtedly one of the hardest part of doing a start-up.  Getting the right set of people to work for you is easier said than done and almost every start-up  founder is  in ‘always hiring’ mode.

Despite the fact that there are a lot of cool(and many funded/profitable) startups  run by some really smart folks with a vision, they are unable to attract/find the right kind of talent and end up with mediocre to bad hires.

leoniadas

Given the dynamic nature of a start-up the last thing founders want is to hire somebody who isn’t sharing the same vision, thinking on the same frequency(macro level) and walking the same path. Not only are bad hires bad for the roles they are hired for, they are terrible for the company culture in general and set the barrier low for other/potential hires and might just end up setting the company back instead of moving it forward.

Traits of BAD Start-up Hires

  1. Slow/Non learners  They are hardly interested in spending time and effort in learning how to do their jobs better
  2. Reactive –   They will only do (a % of) what their bosses tell them to do. They will never be proactive and do things on their own
  3. Micro – They will never be able to think beyond their immediate task list and think about the bigger picture, or even how what they are doing/can do can impact the company in general
  4. Laid Back – Nothing for them is an urgency. They will crawl while they are expected to fly. Most things that will annoy the hell out of founder/core team will not cause them an itch.

As an entrepreneur you must always be thinking about iterating the hiring process and make sure that even if you move to other bigger things, the people who take hiring calls must be on the exact wavelength as you and should not hire people just to fill roles. You MUST make sure that the person who is in charge of hiring should be A class her/himself and is always thinking on how to get incredible people on board and also how to make the workplace best suitable for brilliant people.

I’m particularly rigid about hiring great people and feel very strongly about it as I believe a bad hire can actually undermine the speed and efficiency of one(or more) good hires. Not only will they take up time, they will leave you with bad aftertaste which will last for a while, so it is best to hire people who will not just be at par with your expectations and company culture but are likely to take things to the next level.

vcs-pivot-too-some-thoughts-on-startup-hiring

Formula for a Great Hire

Great Start-up Hire =  Smart + Passionate + Committed to your cause

So you should evaluate your hires for these 3 parameters, the ways you choose could be different but it is critical to evaluate them on all these parameters. A fancy yet apt term for some such hires is “Entrepreneurial Lieutenants”. These guys are what I call “Mini-CEOs” who take complete ownership of their respective divisions and run the show mostly on their own. A major thing that I look for is “compliance”, it is very important to make sure that people start following what you tell them almost immediately. Anybody who doesn’t take this seriously won’t last for me.

Some of the ways which I use while hiring are

    1. Smart – Asking them a puzzle or two/Testing their problem solving skills by giving them a situation and asking for a solution/Asking them to do a mental calculation or something which involves logic and requires them to think on their feet.
    2. Passionate – Asking about what they do in their spare time, stuff which they are really into (Anything in which I can ask them anything or stuff about which they feel they’d know more than me) or stuff on which they have strong perspectives (design, visual, usability, scalability or just about anything in the relevant context). Passionate people are inherently curious to figure out how stuff works and how to improve thing around. Asking them to share if they have ever built something is another key question
    3. Committed – I’m particularly keen to learn why would anyone like to join your start-up. What do they really like so much about the small limited resource set up which not many people have heard about or has a certain amount of uncertainty or air of oblivion attached to it. Basically you’d like to find out if the person is really excited about what you are doing or they want to join you because your office is quite close to their home and they expect a job here won’t be as demanding as that in a corporate which is located at the other end of the town or something equally lame.I try to learn what is the real motivation. Some of the best reasons could be

      a) Love for product/service – It’s best to find someone who’s a happy customer and wants to spread your message
      b) Love for domain – Next best is to find someone who is passionate about the domain in which your start-up works. Someone who believes in better healthcare deep inside will come out with a lot of creativity and empathy for your customers
      c) Love for founding/core team – Someone who is in awe of the founders or core team and wants to work with them is another reason.

Another great thing about committed people is that they think “Long Term” which is a huge differentiator. The sheer fact that someone is thinking of spending the next 3-5 years (yes, it’s as long term as it gets in most startups) or more implies that they’ll be motivated enough not only to do their job well but also go out of the way to do things that’ll help the startup become better in various other aspects for which they might not be directly responsible/accountable just like we all do things for our family or friends where we are emotionally invested.

It is painful to see start-up’s not thinking about hiring hard enough and making sure the right hires are given all the freedom and autonomy to weave their own stories. I like how @tarunmatta puts it, if someone would to write a story on your start-up who do you think would be the key characters (except you) ?

If the answer is none or 1-2, you have a huge task at hand. You need people to build upon the vision and spread it along with you. These people are the ones who would be almost as sensitive or paranoid about the big and small things alike and would spend endless hours obsessing about problems your startup is trying to solve and how to come up with beautiful solutions.

I know enough founders who are brilliant but someone haven’t been able to manage to build a great middle level management (for the lack of a better/startupy word). You need driven people who will manage various aspects of the business and relieve you of your routine tasks so that you can solve higher order problems. They will also help in making sure your vision/company culture is embedded in the team at large. Do all you can to hire these folks

If you can get someone who is smart, passionate and committed to your cause, give them enough salary to keep money out of the table for now and next few years to come. Also, whenever possible offer them ESOPs. Incidentally I haven’t heard many start-up founders talk about ESOPs but I am a big believer is offering ESOPs to folks who you think would be instrumental in charting the course of your company. ESOPs in many cases will get you more loyalty than $$ which any other company could offer and with ESOPs (however small) the employee has another reason to push the envelope harder and make sure that the company makes it big for them to benefit.

Recommended Read – The Mechanics of Mafia (Peter Theiel’s Startup Class Notes by Blake Masters)

So, what do you think about ‘Start-up’ Hiring?

 

The Rise of the Indian Online Marketplace

If you are part of/related to the Indian e-commerce scene in any manner or read desi start-up blogs, chances are you might be familiar with the concept of Marketplace.

A “Marketplace” connects buyers and sellers who otherwise have trouble finding each other.

Marketplace(think eBay), is simply a model which has multiple sellers providing various goods/services through a platform. In the context of this discussion, an e-commerce website instead of sourcing and fulfilling the orders just manages the listing of products and passes on the order details to the sellers who then handles them.

Recently, India’s biggest online retailer (Flipkart) made their first move as a part of shift towards the marketplace set up.

To start with, Flipkart has on-board 50 sellers that will sell books, media, and consumer electronics.

Other Indian online retailers on scaled up marketplace model are Snapdeal(which recently raised $ 50 mn from ebay and others), Tradus, Infibeam and Shopclues. Let’s understand how the marketplace model and inventory led model compare in execution

The key components of an e-commerce set up are

  1. Customer Acquisition
  2. Catalog
  3. Technology (Customer facing/related and backend)
  4. Inventory
  5. Fulfillment (Sourcing, Packaging and Delivery)
  6. Payment Processing
  7. Customer Service/Support

Setting everything up for a rookie is quite demanding (capital and effort wise) and will take months to get off the ground, however to signup as a seller on a marketplace and/or opening a shop using SaaS based ecommerce store building platforms like Zepo, Buildabazaar or Martjack is a quickie. So for a newbie it makes perfect sense to open up their own shop (SaaS) and list on various marketplaces as a seller

Based on one’s expertise and priorities there are various ways of building the e-commerce store set up. For eg: while someone will prefer to control the last mile delivery experience, someone would rather let logistics companies take care of that.

The most common model is mix of Inventory led and Marketplace both (think Amazon). Here’s how it works

  1. Inventory Led – Short Tail (Fast moving, Commodity products, Easy to warehouse for ex: best selling books/movies/pendrives etc)
  2. Marketplace – Long Tail (Slow moving, Niche products, Difficult to warehouse for ex: medical books published in hindi/very old foreign language films/Furniture etc)

While it might not very clear from the examples but Inventory led model makes sense for products which aren’t perishable(both utility and demand/vogue), are easily available offline too and move fast enough while the Marketplace model makes sense for products which one doesn’t know exist or even if one knows they don’t have any clue on how to stock them, how to source them etc.

Customer Acquisition,Technology,Payment Processing and Customer Support are done by the e-commerce company.

Here’s how various models are implemented in some of the biggest Indian e-commerce companies.

break_up

A couple questions come to the the curious mind.

  1. Why sudden rush towards Marketplace all across?
  2. Is Marketplace the future of e-commerce in India?

1. Why sudden rush towards Marketplace all across?

The answer to that question (from what I’ve heard) lies in the deep VC pockets. With the Govt of India dillydallying around the FDI regulations for e-commerce, apparently Marketplace is the only way to get external funding needed to sustain the business.

Also, it could be because the bigger e-commerce companies have figured out that

a) they can’t possibly go that strong on increasing the  quality/quantity of the catalog on their own
b) they ran sick and tired of doing everything on their own.

To get a sense, compare how Flipkart was managing these functions in it’s previous avatar and compare it to say Snapdeal

 

break_up1

2. Is that the future of e-commerce in India?

On doing some rough calculations based on the information available Flipkart, Infibeam, Snapdeal, Jabong, Bookadda and Homeshop together would be doing around 1,15,000 orders a day (Flipkart and Snapdeal contributing about 60-70 %).

There are a lot more sites (ending with kart and otherwise) who just might be doing another (20-30,000 transactions or more a day)

As per my guesstimate all independent smaller e-commerce websites and platform powered online shops selling long tail products would be doing not more than 5-10,000 orders a day.These numbers could be significantly different from the mark for all we know but based on these numbers before marketplace became the buzzword, top 5-6 established players were doing about 90,000-95,000 orders a day in total while the others in long tail were about 5-10% of their size.

The balance has started to shift towards the marketplace model transactions. For now their share could be 10-15% of the overall e-commerce transactions.  Going forward we’ll a lot more smaller businesses and niche startups coming online and by 2013 end their share could be upwards of 20-25%(going by the fact that between Flipkart and Snapdeal they are the biggest online retailers).

A couple of factors to speed this up would be

  1. More platforms like Buildabazaar and Zepo
  2. Better payment gateway/cash collection mechanisms (Ghar pay etc)
  3. Better logistics (for end to end fulfillment)
  4. Third party SaaS services for other components like (Catalog, Warehousing, Customer Support)
  5. Some VC investment in 1-2 marketplace companies

The sooner we get to see the above mentioned things rolling the faster we’ll get to the long tail moving online. At some time in the  mid term future(5-7 years) the demand for long tail items (Niche/scarcely available/custom made) products could become comparable if not more than the demand for short tail products.

So the marketplace model and independent shops powered by various sites are here to stay and the current biggies like Flipkart, or maybe Snapdeal will evolve into a mix of (Short tail – Inventory led – Self Fulfilled and Long tail – marketplace – Logistics company) models.

Your thoughts?