Staying relevant and growing stronger among new startups: the Sulekha story

2nd May 2018
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Sulekha, a leader in local service need fulfilment, today has more than 50,000 SMEs on board, along with more than 30 lakh businesses listed for free.

Satya Prabhakar, founder and CEO, Sulekha.

Let’s rewind to a few years ago. A time when HouseJoy, Commonfloor, Delhivery, or Quikr were not even ideas and there was only one online go-to platform for house hunting or pre-owned goods: Sulekha.

It may seem surprising, but Sulekha started around the time that Flipkart did, in 2007. As a unique platform that catered to the demands of urban youngsters, Sulekha’s popularity grew faster than Flipkart’s. Before consumer internet became a part of the average Indian’s vocabulary, Sulekha had established itself as a consumer-facing startup across the country.

But what is Sulekha’s relevance today? After all, this is the age of new generation startups making advanced tech innovations and scaling up with millions (and sometimes billions) in their kitty.

In an interaction with YourStory, Satya Prabhakar, Founder and CEO of Sulekha, spoke at length about Sulekha’s past, present, and future.

From America to India

Chennai-based Satya, now 53 years old, went to the US in 1985, got his MS in computer science and MBA from University of Florida, and worked for Honeywell and AT&T, before starting Smart Information Worldwide with his wife Sangeeta Kshettry and a few others. This company owned the Sulekha.com URL.

Launched in 1998 with investment from family and friends, Sulekha.com began as a social blogging site in the US. By 2004, with the emergence of social media platforms like Facebook and LinkedIn, social blogging lost its relevance.

“Blog readers have no purchase intent; they come to the platform only for entertainment. So advertisers were unwilling to advertise on a site, which was purely for content. Even the content was not of high quality as it was not professionals who were writing,” Satya recollects.

Since users were not responding well to advertisements, there was no way to monetise, which led the company to shut down by 2006. However, Satya acquired the domain name Sulekha (which used to get a lot of traffic) to build an online classifieds and local listings. As full-time CEO of the Indian company, Satya moved to India in 2007.

Mind over money

The first institutional investment from US-based investor Norwest Venture Partners in India was in Sulekha. So far, the company has barely raised $50 million, with the last round three years ago, and is in no haste for the next round.

Satya believes that too much money is also bad for growth. “It takes time to build a sustainable business. We would rather expand slowly,” he says. This frugality is evident in his business too.

Sulekha focuses on lifestyle, education etc, and not value-high frequency commodities like ticketing, hotel booking, food delivery, cab hailing etc, which require huge capital. “Also, this is a high-risk game as there is little pricing power in cab hailing below market price,” Satya adds.

According to him, a customer who orders food online will not pay more than Rs 40 extra. He believes that with competition, nobody can make margins, and hence decided not to do it. (He has a point too: none of the food delivery startups, be it Swiggy, Zomato, UberEats, or FoodPanda, have reached profitability.)

“We do not want categories which are low-frequency, high-value ones like employment, matrimony, cars, B2B, property etc in which user transactions are low, like once in a lifetime,” he adds.

Rise in business for local services

Sulekha’s path was clear – fulfil all services locally, completely free of cost for the end customer. They started with P2P classifieds for used products and rentals listings (2007-2010). From 2011, they started focusing on local service business listings.

Sulekha went on to become a technology-driven matchmaking platform for local services in 2015. Today, Sulekha has more than 50,000 SMEs on board, along with more than 30 lakh businesses listed for free.

Sulekha does not enable transactions on its platform, but Satya claims that they create phenomenal value for SMEs. “About 70 percent of the service sector is MSMEs. They have no unlimited capital, so they are more targeted and grow business easily. Hence Sulekha is their choice,” he says.

In the last two years, Sulekha has built a tech platform and has extended its presence to over 40 cities, 225 categories, and 1000 sub-categories. They match service providers with customers using AI.

Pick one from three

For Satya, there were three business models to pick from: an information search website like JustDial (which competes with Google), a full-stack model like food delivery and cab hailing (responsible for delivery of the service but with poor unit economics), and the third – a tech platform to help user’s service requirements.

Satya explains why he chose the third one. “This model is all about matchmaking for customers with qualified, verified professionals. For instance, if you want a lawyer for land-related assistance in South Mumbai, we will send you about eight results out of which at least three will match your needs. Once you show interest, they will reach out to you with their price and service. We give these service providers a score based on user ratings.”

Sulekha gets five million data points every day, which showcase what needs are fulfilled, and how to distribute services. With higher internet penetration, consumer internet companies are finding more opportunities today in Tier II cities than they did five years ago. Since Sulekha is not a direct service provider, scaling up outside Tier I cities is not too hard.

However, it is a challenge to match the liquidity of users and service providers across cities and categories. Also, it is essential that Sulekha’s service providers use only their apps exclusively, and not a competitor’s app.

Sustainable model

At Sulekha, every advertiser pays a nominal price based on their city and category into a (prepaid) wallet, out of which Rs 200-Rs 300 is reduced/charged by Sulekha every month. (This is unlike the commission most online platforms charge from their partners for each transaction.) The service is entirely free for the customer.

Sulekha’s last round of funding has been used to build tech and geographic expansion. Today, Tier II and III cities, including Dindugal, Vizag, Bhubaneshwar, Trichy, and Madurai, contribute 14 percent revenue for Sulekha. Of the total 1,200 employees across 20 cities, Sulekha’s tech team is now 150 strong.

While Tier I cities contribute 60 percent revenue to Sulekha, international contribution (mostly from the US and Canada) is 24 percent. Outside India, Sulekha does not have employees but lists services like Indian food, astrologer etc. Also, NRIs use Sulekha’s platform to help their families or old parents in India with renting, house services etc.

Core leaders at Sulekha.

Although Sulekha claims to have turned profitable in FY2017-18, Satya declined to elaborate on the company’s impending IPO. “We are evaluating options to deliver value to shareholders. All I can say now is that it is not imminent,” he tells YourStory.

Sulekha’s aim is to grow the ecosystem itself. For instance, Sulekha partners with banks for unsecured lines of credit for partner SMEs. They also offer their services to these banks’ customers at a discount.

A word to the younger ones

The world has changed a lot since Satya started up. The words “startup”, “disruption”, and “innovation” have never been more popular. Is it easier for the new generation entrepreneurs to make it big?

Satya says, “In 2007, the issues we faced were mostly the low penetration of internet, limited number of internet and mobile users, and hence the lack of a critical mass. But in 2018, all players have these same advantages. To win, you have to leverage tech better and be more cost efficient than your competitors.”

According to him, whether it is the US or India, it is difficult to make startups work today due to fewer opportunities. He elaborates, “Capital is certainly more easily available today. China allows no foreign presence. In India, we have more competition from foreign players too."

"Many categories, especially in the consumer internet space, have been closed for further innovation: we already have (and hence there is no more space for innovations like) YouTube, WhatsApp, Amazon, Uber, Facebook, and LinkedIn,” he adds.

But this does not mean that the future is dead. Following up on his words, Satya has ensured in the last one year that Artificial Intelligence (AI) algorithms are implemented effectively for better matchmaking at Sulekha. Their next plan is to continue expanding their categories as well as geographic presence, in addition to improving value.

Satya believes that a one-person offering is a huge category. Sulekha will onboard single entrepreneur businesses like cake baking by home makers, work-from-home jobs like writing and editing, chess tutoring etc.

No business has survived the wave of new peers and ideas without own innovation and scalable vision. Sulekha, which stand for good (Su) writing (Lekha), is surely writing a winning story with its innovation stemming from solid experience.

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