“Indian e-commerce industry is for the bravehearted,” Vani Kola on the sector outlook for 2013

As MD of Kalaari Capital, a venture fund which has investments like Myntra, Zivame, Snapdeal and Urban Ladder it its portfolio, Vani Kola reveals a not so rosy picture about the state of funding of e-commerce companies in India today. As the market for e-commerce grows, many Venture Capital firms are wary about committing to work with newcomers in this space. As the industry matures and with lessons from the past, Vani believes e-commerce in India needs to be redefined. Along with strong fundamental competencies, such as supply chain and logistics, Vani and Kalaari Capital are now on the lookout for newer kinds of commerce companies leveraging the internet, with a keen eye for providing customer delight.

We spoke to Vani on the current state of e-commerce in India and its future.

Excerpts:

Too much money has gone in, not much has come back

Vani minces no words when she talks about the startup industry - It is for the bravehearted. She believes it will take a lot of effort for a startup to win in the e-commerce industry in India.

When asked about the reason for this belief, Vani says, “Well firstly, a lot of money has been put into e-commerce ventures in the past and not all of it has been returned. While there have been some acquisitions, it has usually been a large company doing consolidation. So a lot of money is locked up in these e-commerce companies and until these businesses start exiting and begin to provide investor returns, there will continue to be a struggle in this space.”

Vani also says that e-commerce verticals will be better defined, not just on the basis of the kind of goods that the portal provides, but also on the customer experience. “I think the next set of e-commerce companies will have to think about various new verticals and models. Whether it is subscription-based models, or celebrity goods commerce or anything else, we really don't know what will be the next thing that will work in this space in the coming years.”

So does that mean higher entry barriers for startups to enter e-commerce? Vani disagrees, “I got myself an iPad the other day and it’s a beautiful device. But does that mean that no one else can start a tablet business, just because Apple is in the space? Certainly not!” However she does believe that trying to replicate what Myntra or Snapdeal does is going to be next to impossible. At the same time, she believes that if you are trying to do something different, the entry barriers will be much lower.

Vani goes on to say that a winning niche e-commerce company will either have a product or a customer experience that cannot be easily replicated. She also believes that for winners to emerge from the e-commerce space will take at least another few years.

Three mantras of e-commerce success

Vani believes that there are three defining characteristics of a successful ecommerce company. “First and foremost, an e-commerce venture must be aware of the market scenario at all times and must be willing to change very rapidly. The second mantra is to set very high targets for operational efficiency. E-commerce is not a very profitable business yet, and you have look at every possible way of cutting costs, whether it is in supply chain, logistics or customer acquisition. And the third most important aspect is to be extremely marketing savvy. In this space, creative marketing, which is cost effective, is needed.”

All these three characteristics are prevalent in most Kalaari Capital e-commerce portfolio companies. Vani quotes Myntra and Snapdeal when asked to exemplify her mantras. These two companies in particular have showed all the three characteristics of a successful e-commerce company – they have both pivoted and adapted rapidly. They have very high operational targets (Myntra aims to dispatch a shipment as early as two and a half hours from order and Snapdeal has a very low customer acquisition cost, says Vani). And lastly, they are both known for creative marketing campaigns.

Three e-commerce mistakes

According to Vani, there are, again, three major mistakes an e-commerce company can make. “I think there are too many “me too” companies out there, without any compelling reason to come back to the site. The other extreme, is over niching – something like a handicrafts e-commerce portal is just too niche. The second problem is that there is too much money spent on marketing. Everyone rides the “look I'm on TV” syndrome. They don't ask themselves some fundamental questions, like, how many of my target audience will be watching TV at the time of running the ad. And thirdly, the biggest mistake an e-commerce company can make is not bringing together a team that really understands the complexities of e-commerce. Without a good team, nothing is possible,” explains Vani.

Vani stresses on the need to provide a good customer experience. “Just because there are 20 million babies born every year, starting a baby products e-commerce company isn't the best idea. The need to understand what brand value you can provide for mothers and why they would come back month after month is the key. E-commerce companies must think a lot like a physical retailer,” says Vani. And according to her the best mix for a founding team is – a technologist, an operations lead and a marketer.

Tackling operational challenges

Of the many operational challenges that an e-commerce company will face, Vani believes the payments should be least of their worries. “There is CCAvenue, Citrus and other well established platforms and can get a company up and running in no time.” For other problems, getting the right resource to deal with the problem is the only way believes Vani. So if there is a logistics and supply chain issue, get someone with retail experience who can set up sound processes that can help carry out operations in the most effective manner is the way, suggests Vani. Similarly, she thinks a good internet marketer can solve most problems in the customer acquisition areas. “I think we need to look at some of the e-commerce case studies from other countries – they lead us in creativity, especially in marketing; be it the way they handle social media or just plain marketing campaigns,” says Vani.

Last Words

At the end of the day, people make businesses work and this is true especially in e-commerce, thinks Vani. “The founding team should be efficient enough and the entrepreneurial energy should get most of things done in the early days. But as you scale, these founding members must create a cult around themselves and their beliefs, so that other, like minded people aspire to work with them.”