Category Archives: Strategy

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?

Get Big Fast or Get Better Slow?

Get Big Fast, a phrase most commonly attributed to Amazon Phenomenon of acquiring significant market share in your category in very little time but growing extremely fast. The numbers in cases such as these don’t grow linearly but exponentially. The Get Big Fast philosophy requires extreme focus on scaling operations, hiring, aggressive marketing and short product cycles. The targets set for the growth might look unreasonably high to some but that’s the only way this works, Get Big Fast and become the leader in your category before anyone else so that now your Scale also works as a Differentiator.

The other or rather opposite approach that most businesses wittingly or unwittingly end up with is what I call Get Better Slow. This happens in most startups. They have reasonable growth targets and work on a moderate or slow pace to achieve them. Part of the reason is lack of clarity or conviction about the end goal and part is the lack of firepower among other things. Interestingly the Get Better Slow option is the default for most startups and many a times without the founders realizing they approach this with the perspective of doing more groundwork, thinking deep, organic growth and what not.

While I don’t mean to say that a startup growing slowly would stay like that forever but what I really mean is that unless the founders and team consciously choose to set and attain unreasonably high growth targets, their chances of staying in the business as a significant player are quite less. To give you some context, for someone doubling the revenue in six months might be great but for someone doubling revenue in 2 months is the desperate need and unless the need is desperate, ones chances of getting there are a bit less.

Also, in many cases Get Big Fast Vs Get Better Slow turns into Growth Vs Revenue. While one startup might keep focus on revenue/monetization, the other might just do the opposite to make sure that monetization doesn’t distract them from growth. It’s actually one of most crucial decisions for a startup, a HUGE BET which in most cases doesn’t pay off well.

The more I think about it, the more I am inclined to like the Get Big Fast philosophy which involves stretching out to the hilt, tons of small and big experiments and very short learning cycles. On the contrary the Get Better Slow philosophy which appears to be grounded on the thought of making a sustainable, quality/customer centric business actually hurts the startups more because of the comparatively slower iteration cycles which in most cases lead to losing traction or a considerable part of the market to competitors who manage to Get Big Fast, which effectively means that tough you think you are doing a great job for your customers but your customer set is so small that it doesn’t change much in the bigger scheme of things

Get Better Slow:  Get Big Fast:: Passion: Obsession

What do you think?

Amazon’s Junglee.com joins the Indian E-commerce Party

 

A couple days back I read this article on Medianama which shared that Amazon will soon go live  in India as a marketplace with Junglee.com, but a tweet  today morning  announcing that Junglee.com is live caught me by surprise.

Amazon, of course was expected to test waters in India this year but the whole junglee.com gig is away from most people’s anticipation of how it will all unwrap.

Amazon for the records is the the biggest global e-retail/e-tail giant which posted $17.43bn in revenues in last quarter of 2011 (35% more than the revenue for same quarter in 2010). The company net sales were up 37% compared with 2010.

Amazon is India

There was a lot of speculation particularly for the last six months about Amazon’s entry to India. Amazon as countless sources have shared, already have development centers in India and had started looking for talent for their fulfillment capabilities.  As per the current regulations Amazon is not allowed to open an online Multi-brand retail store, and can not make FDI  in India except for a single brand retail business, thus Junglee.

Amazon’s Junglee

Here’s how Amazon describes it

“Junglee is an online shopping service by Amazon which enables customers to find and discover products from online and offline retailers in India and from Amazon.com. Junglee organizes massive selection and multiple buying options from hundreds of sellers, and leverages Amazon’s proven technologies and millions of customer reviews to help customers make smart purchase decisions.”

For the uninitiated Junglee is like a Huge Brochure which lists  millions of products from thousands of vendors. You choose the product that you want to buy and then go the vendor site or call them to order as explained here



Here’s a look at one of the category(Books) page

 

Just one book, also I am not sure why am I being shown featured jeans when I categorically chose books.  Bugs.

Here’s a sample product page(for Paulo Coelho’s Alchemist)


Amazon apparently relies of it’s own site for Metadata (Product Description for ex) which in some cases can be really screwed up like for the book ‘I Too Had A Love Story’

The product description is picked from http://www.amazon.com/I-Too-Had-Love-Story/dp/8188575704 and is as far from the actual book description as it can be http://www.dialabook.in/books/i-too-had-a-love-story_1_12247.html

Scrolling down further is the review section. Most part of this section comes directly from Amazon.com



List of Sellers

 

Junglee.com for now has about 5 sellers for Books which includes names that probably feature towards the middle(and bottom) spots of a list of top 10 online booksellers in India. Almost everything from the list except Flipkart and Infibeam can be expected to list here.

Using Junglee as a Seller: Win Some, Lose Some

 

Junglee let’s online and offline retailers to list themselves and their catalogues for free and without any ongoing commission.

 

What it means for suppliers (especially small time indies) is that they get a chance to  drive traffic and sales from Junglee’s visitors and will convert some customers to direct. Over a period of time as in an online marketplace set up their ratings and reviews will determine how they fare in the long run.

The picture however isn’t all rosy. For established players like Indiaplaza (unless there is some non-compete or alliance agreement) registering on Junglee will give them a temporary boost in terms of both traffic and eventually sales but once Junglee starts running it will break its shackles and given them a run for their money by listing Amazon.in as the default/first choice as a buyer. Once that happens the customers will make the switch to Amazon (in place of a retailer they found a few months back) with the blink of an eye.

(http://services.amazon.in has more details on how to set up ads on Junglee.com)

Using Junglee as a Customer: All Profit No Loss

Junglee.com is another (but branded) shiny object for the scores of people who spend hours daily on the interwebs tweeting or facebooking. They know have one more place to spend time and compare prices. It will be helpful in finding alternative vendors for particular categories and helpful in finding product categories that have been literally out of the online sphere, stuff like Pet Supplies.

Within a span of months you’ll find dozens of people selling Pet Supplies and the likes on Junglee. What this means is that consumers won’t have to wait for their favorite e-commerce site to add some category or a stand alone/vertical service around the category to launch.

What’s up with Amazon?: Junglee is the shortest(and smartest) possible path

To begin their tryst with India  Amazon is trying to be the front end(influencer) of the purchase funnel in stead of starting being a back end service provider. It wants Indians to log on to Junglee.com to begin their shopping journey (they can or cannot decide to buy from Amazon) but eventually they’ll make it their in house offers compelling enough to get a huge chunk of the pie.

Here’s how it could unfold for Amazon. Junglee is essentially the market place of Amazon.com abstracted and launched a special business for legal and other reasons.  In Amazon.com’s marketplace lot of vendors put their goods on sale and do most of the fulfillment too. Amazon however displays their products and collects the payment from customers (Think Ebay).

What Works Good For Amazon

  1. Junglee will create an incoming line for new retailers to tie-up. Retailers will flock and list products instead of the company finding them using direct/in-direct modes of advertising or marketing.
  2. User Data: Millions of people could potentially sign up and start using Junglee to discover new products and vendors. All the user and their shopping history details are now available for scrutiny
  3. All Junglee’s set up  can eventually be replicated for Amazon.in’s market place feature
  4. A sense of how business works. Deeper/Closer look at how the things work
  5. Later they’ll start people for accepting payments and maybe coordinating deliveries (Customers buy a third party product from Junglee and Junglee home delivers a product which the third party retailer had in their office and sent to Amazon’s fulfillment center once they get an order). They stand to earn 2-10% commission depending on the product category and services they offer
  6. Use all the Seller info to tie-up directly for Amazon.in
  7. Based on user preferences start offering competitive prices and eventually *produce* them domestically

Having said all of that, Junglee is an interesting piece in the Indian e-commerce puzzle and it will definitely have an impact on the existing market leaders. Most Indians from what I understand would give an arm(or probably) a leg to switch to another cheaper vendor especially if it has Made in America tag on it.

What do you think?

The Best of Web: 1/1/2012

Here are some of the links that I found worth sharing

  1. Mark Suster on should startups focus on profitability or not
  2. Joel Spolksy’s Strategy Letter I: Ben and Jerry’s vs. Amazon
  3. Jason Zimba on understanding exponential growth
  4. Jason Freedman on Obliterating Startup Depression (H/T @dipankarsarkar)
  5. via TheGuardian UK Humans have the need to read

The Perseverance Myth !!

I try to read a business/management book every month and happened to pick The Lean Startup‘ by Eric Ries as an impulse buy based on a recommendation on Twitter. Its an interesting book and quite different from the books that I’ve read on this subject. For one it doesn’t talk about grand ideas and other sexy start up stuff (Funding. Marketing Blitzkrieg etc) instead it focus on the most practical aspects of running a startup(esp a product startup) and building a scalable business out of it.

One of the things that struck a chord with me was this thing called ‘The Myth of Perseverance’, which essentially means falling into the trap of believing that the hardwork one is doing for their startup will eventually pay off and result in success. A typical example of this could be a team of engineers & designers working a web product, adding features and making changes regularly and thinking that they are creating value and after a period of time their product will become popular/profitable and their efforts will reap good returns.

This phenomenon is quite commonplace at the individual level as well. There are plenty people who continue to slog in the jobs routinely spending hours at stretch and hoping their designation/pay etc will improve just because they are putting in a lot of hard work.

While there is nothing wrong with doing hard work in startups or jobs it also has its fallout. The biggest fallout  here is focusing too much on the hard work in hope that it will somehow work out and in doing this they delay/don’t realize if things aren’t working out the way they were supposed to and thus preventing them from making any effort in this direction. This gets particularly tricky when the business/product seems to be running but not running well enough, this illusion of progress can be really dangerous

In short, be it a job or a startup it doesn’t have to necessarily take years of hard work  for finding the stairway to success.

This myth is applicable to anything from Business to Relationships. When things don’t seem to work even after doing everything you can think of, maybe its time to ‘Pivot

 

Bookselling in the Time of VC $$

I’ve been wanting to write this post for quite a while now, glad this long weekend gave me enough time to finally sit on it.

A lot has changed since I started working on Dial-a-Book some 2 years or so back(then part time though). Back in Q4 – 2009 e-commerce was quite nascent and VC funding for it was not even half as common as it is today. There were just 2-3 online bookstore or e-commerce sites that looked like they could go anywhere and every week a new online bookstore was being launched. Indiaplaza was probably the most popular one.

All these existing and upcoming online bookstores were pretty much doing the same things, building a half decent website, listing a lakh odd books and giving heavy discounts in hopes of wooing the online audience. Two years into it, a couple of the popular sites at that time have grown enormously, another couple new sites have emerged and attained very good scale  and almost all the remaining ones have either shut down or are doing just well enough to sustain the owners.

I’ve always been a price conscious book buyer with likings but hardly any loyalty to a bookstore.  I remember when i first discovered Midlands who offered me 20% discount on all books how I moved almost all(leaving a few impulse buys here and there) my book purchases to  them. Kinda same thing happened when I discovered the desi online stores, the fact that they offered even more discounts and could home deliver(for free) almost any book in a few days time was a good enough reason for me to move all my book shopping( a few books/month on average) to them.

Back then I was one of the only few people in my circle to buy books online and almost none of my friends/colleagues had much clue about the online book buying scene. The booksellers on the whole turned out to be surprisingly unaware of the developments in the e-commerce(mostly book selling) space.  They hardly had any idea about online bookstores and those who did were quite dismissive of them by saying ‘Such things work in the US not in India, here people want to touch and feel before buying’, ‘These online sites give too much discounts, they can’t last long’.

Circa 2011,  the same bookseller is now offering a recently released book by Amish Tripathi at 1/3rd discount, which is just 3 Rs more than the price (Rs 192) at which it is being sold at most online bookstores.

So what changed? More importantly, what led this change?

Q 1. What Changed?
A 1. The Market Dynamics  

1) More for Less 



Giving a 33.33 % discount on a newly released book would have been unthinkable for any bookstore, especially the ones which sells 200+ copies of each new release every month with a standard discount.  But now the whole game has changed, today’s reader is exposed(and addicted) to heavy discounts, highly efficient and user friendly customer experience and the only way to survive is to offer competitive pricing coupled with widest possible range and great overall experience. Gone are the days when the booksellers used to decide which books to import/stock, how to price them and to procure locally available books on customer request (if at all) and take a week for it.

Every search on twitter(for a big online store) would reveal at least a couple tweets mentioning how people now browse books at landmark/crossword and buy them online. You can see the shift happening right there.

2) Let’s Get Online

Seeing the stellar growth of some of the famous online stores a few bookstore chains also woke up from slumber and started developing and promoting their online stores. Landmark, Crossword, Odyssey et all now have online stores where they claim to offer hugh discounts  (interestingly on some books the discounts are even even more than anywhere else)

Not just this, even the smaller chains(like Sapna, oxford) and individual bookstores are online and spending money on google ads and social media to promote themselves.

Apart from these there are some publishers (like Pearson) and some distributors(like Prakash) who couldn’t resist the temptation of taking a shot and online bookselling and thus too have jumped the bandwagon and are doing their best to well, give more discounts.

Going further all the e-commerce stores which were focusing on other categories (mobiles etc) also have started adding books to their product list. In news recently was Homeshop18′s acquisition of Coinjoos

That’s not it, the grapewine has it that still more companies from different sectors dazzled by the million and billion dollar valuations of popular Indian e-commerce stores are planning to take the plunge and well start another online bookstore

3) Better Support

Thanks to the success of round 2 of e-commerce especially for books a lot has improved on the backend i.e at the end of publishers and distributors. Lots of processes have been initiated and followed regularly at the vendors end. Most distributors now stock their data and share stock reports bi weekly/weekly, publishers regularly share information about new and upcoming releases. Most of these guys are no better than sloppy govt officials who take enormous time and effort to do things but in order to survive some of them have learned to be better organized and efficient.

Q 2. What Led To The Change?
A 2. Lofty Ambitions Backed By VC $’s

A quick look at the new release section of most online book stores will put many a booksellers into depression. A new release on an average is on a 30% discount and depending on the hype surrounding it, publisher and competition it could go up to 50 % (Yes, that’s the cost which even the publishers might not give to their distributors but if you are luck that’s what a new release could cost you with free home delivery).

The logic championed first by Amazon (and thus replicated ad infinitum) is, give heavy discounts on new books to get more eyeballs/buzz and bigger volumes thus better topline and better pricing from suppliers.  Repeat.

You don’t expect a regular customer to understand(or bother with) all this but seeing massive discounts on the online portals make them feel that there’s a huge margin in books and as if all this while their neighborhood/favourite bookstore chain was ripping them of by not giving as much discounts.

For a customer who has bought a book at 30-40% discount will hardly ever buy a book at 10% or no discount at all

Though as a customer this would have been a dream come true for me but being on the other side of the business I too am surprised at how its working for some sites. You can now order a 95 Rs chetan bhagat book for Rs 57-60, make it two books and its free home delivery and the book is home delivered in 1-2 working days via class A courier (Bluedart if you are lucky).  It doesn’t leave much to imagination that no one, even the publisher can possibly make any money in these transactions.

A lot of small booksellers ask me “How can online sites give this much discounts when the big distributors themselves don’t get as much discount from the publishers?”

The answer more often that not lies in the fact that most sites are not focusing on making money on these transactions here but on just getting more customers. With  millions of $’s in VC funding the formula is simple

  1. Position yourself as the cheapest place to buy stuff online.
  2. Buy a lot of online ad inventory from Google/Yahoo et all
  3. Point these ads to a web page on your site which list books at ridiculously low prices

However in all this merry making of deep discounted prices there’s a catch.

For every 5 or 10 super cheap transactions there’s 1 transaction on most popular online bookstore in which the customer ends up paying price more than the its price on a bookstore of at times even worse paying more than the MRP/MRP for Indian Market.

‘The Goddess In India: The Five Faces Of The Eternal Feminine’ by Devdutt Pattnaik (ISBN: 9780892818075) is one such title. I personally bought a few copies with Rs 395/- sticker on them and on checking online the same book (picked from the same source because I can compare the delivery time on the site) being sold for almost 4 times the price.
A possible trick here could be: Stock a few copies as per the local market MRP of book which is scarcely  available, once the copies at suppliers run out, sell them at international market MRP and deliver them in 2-5 days (because its in your stock).

Such cases are more common in categories other than general books/novels, especially where chances of price comparison are less. This is clearly a minority case

This is kinda similar to what a popular bookstore in Delhi does with their super discounted sales. Buy books as per local market MRP(which is easily half or less than the international market MRP) and then sell it on the MRP pretending it to be on heavy discounts . Ex: A book with local MRP of Rs 350 is being tauted as being for Rs 1200 and after 70 % discount it comes to be for Rs 350/-. So the customer ends up paying the local market MRP (no discount at all) but might think he saved 70 % and got a great deal

Going online one can leverage efficiencies like just in time inventory, virtually unlimited list of products, pre-orders etc which in itself offers a significant advantage over traditional bookstores but selling books with -ve margins, plastering the internet(or TV) with your ads is something that cannot be competed against.

I’ve heard of some booksellers and publishers taking up this issue of excessive discounting with online bookstores and they apparently have made some progress like this popular publisher of general books has told one big online store to not offer more than 35% discount on their new releases. For every big publisher that is able to get their concern heard and acted upon there are five smaller publishers that are given a choice to shut up completely or face de-listing from the site all together.

Having said all this I feel the time has arrived for every bookseller to re-think their way of doing business and figure out how are they going to sustain themselves in these times where their much bigger and deep pocketed competitors are willing to do anything that it takes to own more customers.

And if you are beginning to start an online bookstore(e-commerce store if you will), you better have a really well thought out execution and funding plan.

Will the real Indian e-commerce start-up please stand up?

First off let me acknowledge that the title of this post is a bit exaggerated and not really apt but I wanted to use it anyways. Onto the topic now.

I’ve been kinda following(not very regularly though) the Indian startup scene ever since my Slideshare days and things have definitely changed in the last year or two. There are a lot more startups(of all sorts) now ranging from deal a day sites like snapdeal to comics companies like Vimanika. It’s absolutely amazing to see people from non tech background also coming forward and creating products/services in their respective fields. However being from a tech(web) background I am particularly interested in web startups.

The majority of current crop of Indian web startups is (not surprisingly) focused on e-commerce and as with the previous wave of Indian social web startups are religiously following the same path. Somebody whom I met last month mentioned that some 20 e-commerce sites or so are registered with payment gateways every month and a vast majority of them are into selling books. Yes, that’s the “thing” I am talking about. Suddenly everyone wants to do e-commerce and guess what they want to sell? Yes, BOOKS.

While it is not at all difficult to understand why selling books online is one of easiest (especially if you are an ex-amazon) and probably lucrative thing to do what defies me is WHY everyone who sets up an e-commerce store can’t seem to think beyond books? Unless I am missing something obvious here (point me if I am) selling books(particularly to begin with) might not be the best thing these days.

Here are a few reasons why I feel selling books isn’t the best way to start e-commerce

  1. Differentiation: I have told this to at least a couple aspiring entrepreneurs the biggest reason why I feel an e-commerce startup should not start by selling books is differentiation. How on world will you differentiate yourself from half a dozen almost established and established online bookstores out there in the market?
    It becomes particularly difficult when you are late in the book market by at least 2 years and will take at least another 8-12 months to figure out(if at all) how the Indian book market works.
  2. Red Ocean: Loosely related to the first point is the second point of competition. Online book market in India is easily one of the most sought after pie. From independent online retail companies to established bookchains everybody is trying to own as much as they can of this market and unless you have a significant edge in terms of vision/talent, money/resources and distribution/publishing it doesn’t make a lot of sense to join the chaos.
  3. Logistics: Based on my experience of selling books I’ve realized that this is highly logistics oriented business. Since the whole model is based on economics of scale one needs to sell as many books as possible(very low average cost per item). Handling lots of books means lots of procurement, stocking, handling, shipping etc. This can be a huge pain during the initial days of a startup. This problem of high logistics can be avoided by dealing in other items of higher values where despite having lesser % margins one can make good amount of money.

Having said that I think people who want to start an e-commerce business should actively consider other options which have a demand but no one else is focusing on. Though I must say I haven’t deeply thought about the business/feasibility aspect I would actually love to see some Indian e-commerce company sell the following(in a proper way with due diligence)

  • Clothes
  • Watches
  • Grocery
  • Automobile Accessories/Spare parts
  • Furniture
  • Gift Items
  • Food Items/Snacks
  • Fashion Items

Customer Development Design

I’ve been a regular follower of Seth Godin’s blog and like almost all his posts. However there are some posts of Seth that I like way more than others. A couple posts that really caught my attention a few weeks back were on choosing the customer and training your customers respectively.

Posted at an interval of two days these two blog posts taken together offer a nice(different?) perspective of looking at things when it comes to Customer Development. Against the common notion that you should try to attract all kinds of customers Seth suggests that you choose your customers. Yes, you choose your customers for your business by your brand value proposition, pricing, customer experience and other things. All aspects of the way you run your business attracts or repels certain kinds of customers. You might wonder, why is it important to choose your customers?

It is especially important to choose your customers if you have a perspective/vision and you want things to happen according to that and not according to the terms defined by the market. For example sake, consider two product companies, one of which is very choosy when it comes to picking their customers and would rather prefer a smaller set of customers of the kind that they’d like while the other company is not really that choosy and is open to catering to all sorts of customers, the more the merrier. Assuming they both start from the same point, it won’t be difficult to imagine how differently would shape up after an year into the business. Company A which focuses of select customers will emerge out to be almost on the lines of the founder(s)’s vision while Company B which wants to get as much customers as it wants will have significant difficulty living up to the varied expectations and might just give in to the (un)reasonable demands of the majority.

Not only this, Seth suggests that businesses should also train their customers. Yes, training the customers by encouraging certain type of behaviour by rewards etc and discouraging certain type of behaviour. For ex: If you’ve priced your product slightly above the market standard then there’ll be lots of customers complaining about your price and trying to negotiate their way down(in terms of prices). Now there are two ways to go about it, one that you let customers negotiate and other is to don’t bother. Over a period of time if you follow the don’t bother policy you’ll observe how some price sensitive customers will move out and the remaining customers will get used to the higher than market price and stop complaining (This assumes that their is something that the business  offers to offset the high price).

Another interesting effect that this has is that it helps in building a culture among your customers that’s decided to a large extent by your terms and not the markets.