The Snapdeal Pivot
In January 2013, Snapdeal had a mere US $100,000 in the bank, a small chunk left after it had burned through almost all of the US $57 million it had raised since September 2009. The company was also gearing up to scale up its new marketplace-driven e-commerce business and had signed up 1,000 merchants. In this story, we articulate how Rohit Bansal and Kunal Bahl, the founders, orchestrated a turnaround of sorts, raised over US $865 million and signed up 50,000 merchants
Believe it or not, Snapdeal (then known as Jasper Infotech) wasn’t an e-commerce company in 2008. For that matter, it wasn’t even an Internet venture at the time. Kunal Bahl and Rohit Bansal founded the company with the vision of revolutionising discount couponing (to get rid of excess inventory) for retailers in India. Their first product was a printed book of coupons called ‘MoneySavers’ which the company sold in stores for Rs. 400. The nimble entrepreneurs that Bahl and Bansal are, they switched business models, one after another, as and when things didn’t pan out. They decided to sell discount coupons on mobile phones and then even launched a credit card-like product called ‘MoneySaver Prime’ that consumers could swipe at retail outlets to avail a discount.
Eventually, in January 2010, it acquired the domain name Snapedeal.in (.com wasn’t available then) and launched the portal to sell discount coupons in India. The company wanted to setup operations in 100 cities in India and raised over US $52 million from venture capital investors. Unfortunately (well, fortunately, in hindsight) for the young entrepreneurs, the discount couponing model didn’t pan out as expected.
Circa 2014 and Snapdeal is among the top three players in the e-commerce race in India. The company was the first to switch to the marketplace model (unlike the inventory-led model of Flipkart at the time) and build a portal for connecting buyers and third-party sellers. It competes head-on with Flipkart and Amazon India. On Flipkart’s Big Billion Day (on Oct 6th, 2014), when the company claimed it sold Rs. 600 crore of goods within 10 hours of starting the sale, Snapdeal was not far behind. According to a company’s spokesperson, Snapdeal too clocked Rs. 1 crore a minute in sales, indicating that its numbers were not that far behind. Snapdeal’s user growth, advertising campaigns, large fund-raising rounds and, most importantly, its ability to attract marquee investors puts it right at the top of India’s e-commerce battle.
In fitting style, it raised an undisclosed amount from Ratan Tata and followed that up with a US $627 million round from Masayoshi Son-led SoftBank in October 2014.
For this story, we spoke to Rohit Bansal, founder and COO, Snapdeal, to get a first account of the company’s journey since January 2013. The ‘before-after’ story of the company is worth chronicling, if not for anything else, for the ability of a young, entrepreneurial duo to play the big game that India’s e-commerce industry has now become, with the agility and nimbleness they have displayed since 2008.
A big development we’re going to witness over the years is that selling online will become a sizable category within the SME sector in the country.
The point of return
About six months into 2012, Bansal and Bahl very well knew where they were headed. On one hand, the key metrics – number of users who shopped on Snapdeal, brands that signed up and customer experience – were all headed in the right direction. On the other, the company knew it would face a tough situation a couple of quarters ahead. The founders anticipated a cash crunch by January 2013 and knew they had to take immediate action. Step one was to go after raising money and the second was to figure out how to cut down on costs.
Bansal says, “To cut costs we had two options – bring down the marketing budget to zero or downsize the team by half. While it may seem obvious in hindsight, we took the call of operating on a zero marketing budget.” Bansal, a graduate from IIT-Delhi, is now convinced that this was one of the biggest decisions he and Bahl have taken at the company. “We had handpicked each of our team members and the fact that we decided to retain them and workaround the situation is key to the harmonious way in which we function today,” he shares.
To cut costs we had two options – bring down the marketing budget to zero or downsize the team by half. While it may seem obvious in hindsight, we took the call of operating on a zero marketing budget.
Staying the course
While the marketplace model of e-commerce was popular world over, thanks to Alibaba and Amazon.com, there were many critics who questioned Snapdeal’s decision. A company that wasn’t capitalised enough, had to compete against heavily funded players like Flipkart and Amazon India. However, what was going in Snapdeal’s favour was the fact that it had worked with over 10,000 merchants in the couponing business. It understood the art of attracting consumers; merchant connections, building trust and managing large-scale operations – all critical components of the e-commerce game.
Of course, it had to raise the big bucks too. In April 2013, Snapdeal clinched an undisclosed round of funding from eBay (and other investors), which also brought to the table its expertise in operating marketplaces around the world. In Feb 2014, it raised US $133.77 million in a round led by eBay. This was followed by three more major rounds of financing – a US $105 million round by Temasek, Blackrock Inc., Myriad, Tybourne and Premji Invest in May 2014, an undisclosed amount from Ratan Tata (not to mention the trust factor that accompanies the investment) in August 2014 and US $627 million from Softbank in October 2014.
By the looks of it, the year 2014 will certainly be the year of inflection for Indian e-commerce, complete with large investors willing to bet on Snapdeal and Flipkart and Amazon’s US $2 billion investment announcement into India. “In all this, it was crucial for us to not waver and stick to our new game plan of building a marketplace. Even when the environment was questioning our beliefs, our employees and investors deeply believed in our new plan and that made all the difference,” explains Bansal.
Over-investing in technology
Globally, in the world of online retail, technology has turned out to be the key differentiator. There is a reason why companies like Amazon and Alibaba are placed in the bracket of technology companies and not retailers. The Snapdeal founders understood this better than anyone else. They were not building a technology-enabled Walmart; they were in the business of building a technology platform on top of which buyers and sellers transacted. Bansal says, “Our idea of deeply focusing on technology on both ends of the marketplace – buyers and sellers – was central to us.”
The company has launched a Big Data Platform to help merchants sell more efficiently. SafeShip was launched to help sellers manage the logistics and delivery of goods and TrustPay, a payments platform, to ensure the trust between buyers and sellers was launched as well. For example, from helping sellers identify the right courier partners to expanding their own product portfolio, Snapdeal’s technology platform will help sellers on various facets of their operations.
Bansal adds that the technology platform’s features are central to the company’s heart and soul; of serving its users, both buyers and sellers. He says, “If I were to track only one metric at the company that would be the Net Promoter Score (NPS).” NPS is a metric that is used to view a company through its customers’ eyes. The company’s customers answer one simple question – would you recommend working with this company to others? In the NPS System, ‘promoters’ are typically loyal enthusiasts who would recommend others sellers and buyers to checkout Snapdeal. The ‘detractors’ are unhappy customers who can damage the brand and the ‘passives’ are unenthusiastic customers who would not shy away from working with competition. Bansal lays so much emphasis on NPS, simply because it will help scale kick in, through the network effect or word-of-mouth.
Doing the new
One of the aspects that companies like Snapdeal, Flipkart and every other player in the Indian e-commerce category has to grapple with is getting first-time merchants and new customers acclimatised to new systems and processes. For example, if a seller operates in a certain way in the brick-and-mortar world, it takes some communication to change the way he or she works while selling on Snapdeal. To deal with this, the company is focused on building a marketing mix, filled with seller education strategies.
It wasn’t only about seller education. It required the launch of new offerings, like SafeShip and TrustPay, to give sellers basic hygiene features that would make it seamless for them to sell online. It required working with a large network of blue-collar workforce, something that is not easy to do, even for established companies. Bansal simply says, “We knew there were a lot of processes which were sort of never-done-before but we took it upon ourselves to build these new systems and processes with the help of technology.”
Snapdeal also worked on setting up a decentralised organisational structure; one where managers were empowered to make key decisions. “High ownership is the key to managing scale,” says Bansal. Like several of his contemporaries, human resources and recruitment work is an integral part of Bansal’s day at work. He’s also very focused on making sure he doesn’t end up being the bottle neck in any process and almost everyday, reflects on strategies, tactics and decisions made in the previous few weeks and if any changes are needed.
Still at an early stage
Bansal is convinced that e-commerce, as a percentage of the overall retail sector, will become 15-20 times its current size. He is also convinced that we will witness a revolution of sorts on what products are sold online. Today, Snapdeal even sells a home online (you can book an apartment by paying an advance), thanks to its partnership with Tata Value Homes, a proposition that we would not have heard even a couple years back.
Bansal says, “The other big development we’re going to witness over the years is that selling online will become a sizable category within the SME sector in the country.” If the top e-commerce companies make the right moves, consumer-buying patterns are sure to change and many more people will start buying from the comfort of their homes.
Bansal adds: “Additionally, a key trend we witness is people are buying more from their mobiles.” After all, it might just turn out to be an m-commerce revolution we will see a few years from now.
One thing is for sure; Bahl and Bansal will be out there fighting, be it e-commerce or m-commerce. As is often repeated, change is the only thing that is permanent. But Bahl and Bansal have shown that nimbleness and agility are what they have made permanent.
EDITOR’S TAKE: THE KEY TO COMPETING IN THE INDIAN E-COMMERCE SPACE
Agility of the founders
Be it Flipkart or Snapdeal or even Amazon globally, e-commerce is a sector filled with constant experimentation, change, pivots and tweaks. It requires a founding team that is nimble as ever.
Rake in the big bucks
Several investors stay away from the e-commerce space, because it has become a game where you can compete only after raising a billion dollars. The team needs to be geared up to do this.
Pushing the boundary of what can be sold online
Snapdeal sells everything from tyres and automotive components to apartments and cars online. Can you push the boundary on what can be sold online? Can you deliver value to the customer even as you do that?
Ability to make the tough decisions
In mid-2012, the Snapdeal founders decided to reduce marketing budget to zero, anticipating the cash crunch they expected to find themselves in. Now, this was a really tough call considering that you’re in a market where scale brings scale and marketing was crucial. Yet, it is these tough calls that can make the difference.
Like any other sector, top-notch technology is crucial
In our interview, Rohit Bansal spoke at length about why the company over-invests in tech. They do so from a customer-centric viewpoint to help their sellers jump into their platform seamlessly. SafeShip and TrustPay are both geared up to solve specific problems for sellers.
Net Promoter Score, a key metric
Measuring how many sellers and buyers will recommend Snapdeal to others is the No. 1 metric tracked by the founders.
Birth of a new category of Indian SMEs
The founders of Snapdeal are convinced that a few years from now businesses selling online will be recognized as a specific MSME category. It is this thinking that is letting them invest in technology and infrastructure for the future.
SNAPDEAL – QUICK FACTS
Founders: Rohit Bansal and Kunal Bahl
No of sellers: 50,000
Indo US Venture Partners: $2 million in September 2009
Nexus Venture Partners: $10 million in January 2011
Bessemer Venture Partners: $45 million in July 2011
Round led by eBay: Amount undisclosed in April 2013
Round led by eBay: $133.77 million in Feb 2014
Round by Temasek, Blackrock Inc., Myriad, Tybourne and Premji Invest: $105 million in May 2014
Ratan Tata: Amount undisclosed in August 2014
Softbank: $627-million in October 2014
Current user traffic: Over 3 million daily visits
Key future target: Hit 1 million sellers in 3 years
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