Manoj Gupta, the founder of Craftsvilla.com talks about their investors...
It isn't far (May 2011) when one day the trigger for entrepreneurship came from nowhere and I decided to become an entrepreneur (beggar) again. The ecommerce was at its peak (of hype), investors everywhere (including me) were confused (clueless) what "not" to invest in and smart ecommerce entrepreneurs were busy getting more follow on funding (to burn more). Those were interesting times (of insanity) and this story captures some essence of that "Brief History of Ecommerce".
Getting first round of funding for us was relatively easy and we immediately started thinking how much to raise for second round of funding. We had a unique story and business model (which is true), we had a good scale up in orders (boosted off course by discounts) and we had a great team. We were very focused on that one golden question everyone was asking: What is your order/day? Somehow everyone understood that very well since it was a simple integer. Off course we did not spend time on unnecessary information like cohort analysis, unit economics, contribution margin, life time value etc. which involved complicated equations. These sounded like boring information. Number of orders sounded very cool on the other hand.
The story of our amazing investors starts from here. I had always resisted a marketplace model in our category although I had been pushed constantly by Sandeep and Suvir from Nexus that there isn't any model more relevant to our category than marketplace business model. It did not take me long to realize how pathetic we are in managing inventory and how ignorant we are in what "not" to buy in this category. That push by our investors towards marketplace model (Sept 2011) which made us very capital efficient today is something I treasure till this date. Today everyone wants to have a marketplace model (though very few understand what exactly that means) while we had already pioneered this last year and have the best marketplace infrastructure today in India.
The second switch in thought process came from Bejul and Anshoo from Lightspeed. They constantly poured on our distorted minds to throw away the "Number" game and focus on building a long term sustainable business which is right for the company. Bringing together all my sensible intelligence, I again resisted for some time but soon realizing the folly of throwing discounts to customers who would only come if you throw more. Our so called customers started hating 15-20% discounts and were only content if you throw 50% or more. These discount customers added more overhead on our customer service as they were the most troublesome. Our signup coupon was being harassed like anything with mulitple signups by the same person.
When we started looking at contribution margin and life time value, they did not exist. The cohort was weak. Something did not seem terribly right now given the ecommerce boom everyone thought had come. It was clear as we talked to lot of people (including few reputable online media agencies) boom was driven by discounts, cheap fake chinese products (shoes, perfumes, mobiles were on top list), same set of customers buying again and again (someone bought 5000 pen drives in a single day from an ecommerce site) and retailers buying in bulk from the ecommerce sites since they are getting more discounts than they would get from their distributors (majority of sale for most of the ecommerce sites now).
Suddenly those words "build company the right way" from Bejul started ringing loudly in our head and we decided to correct ourselves (Dec. 2011). Today we offer zero discounts, we have one of the best contribution margins, we have a very capital efficient business model, we are acquiring lot of our new customers organically and we are building a company for ourselves than for investors. Our customers are coming to us again and again, not because of discounts but since they like our products and service. We had off course dips in our order numbers but we are happy building our company the right way.
Today we are the largest online marketplace for unique Indian lifestyle products across categories with more than 50,000+ products and 500+ Sellers actively selling on Craftsvilla. We have come this far with very little money but with loads of "value" and "path" correction from our investors. We need more of these "Few Good Men" in VC industry. I would pray for this change every day so the "right path" in Ecommerce in India is not forgotten.
About the Author:
Manoj Gupta is founder and CEO of Craftsvilla.com. Before starting Craftsvilla, he was part of Nexus Venture Partners, a $320 million Indo-US venture fund, where he was investing in ecommerce space and was part of the board few of those companies including Yebhi.com. Manoj had earlier started a Tech company in US which he exited in 2006. Manoj has B.Tech from IIT-B, MBA from IIM-A, MS from UIUC and CPhil from UCSD.