Business
Snapping a Deal
In less than two years, Snapdeal, a group discounting site in India, has grown to become one of the leading e-commerce sites in the country. According to co-founder Kunal Bahl, deals are only an entry point into the customer’s life. The vision, he says, is to build a brand that participates in consumers’ lives every day, across product and service categories.
Let’s start by talking about Groupon. What’s the difference between Groupon and Snapdeal?
There has been a mixed reaction to Groupon as a company over the past few months, but I think that’s a transient phase. If you zoom out and see a company that [went from making] zero in revenue to a company that’s making a few billion dollars in revenue in less than three years, I don’t know of many examples when that has happened before.
In India, we’ve taken a slightly different approach. Our origins as a business were in things like coupon books, discount cards, mobile coupons. And when the Internet space started taking off in India about 18 months ago, we migrated the entire business online. So we were in the couponing business even before Groupon-type companies started coming into existence. And we actually changed the model on multiple parameters. For instance, we didn’t have the concept of group buying to begin with. We didn’t require a minimum number of people to purchase on the site before our deal went live. Our proposition was that for a consumer, the best experience is that if you are the only one who wants to purchase, you should be allowed to purchase. So we structured deals and merchants in a way where they would even entertain one customer.
What’s the reason for group buying not really taking off in India?
On the contrary, it has actually taken off really fast, and probably our business is testament to that. When we started 18 months ago, we were a very small company, maybe 15 people. We are about 700 now, and the operation is in 50 cities. And we will soon, probably, go international, also. We are the highest traffic e-commerce site in India and amongst the top 50 sites in terms of traffic in India. We have 10 million subscribers, and we’re adding about 1.5 million subscribers a month. So that just demonstrates to you the velocity of growth of the business. And that wouldn’t have happened if consumers didn’t see significant value in what we were offering them.
Based on what you just described, I think you have a pretty unique perspective on consumer buying trends in the Indian market. What are some of the most interesting trends you see, and what are the most active sectors?
It has actually surprised me a lot — the appetite for Indian consumers to purchase online now, and purchase a wide variety of things. A lot of consumers don’t see us as a deal site. They see us as a discovery platform. They see us as a way to find things to do, or, basically, things to spend money on during the weekend — where they, earlier, were only going to that one restaurant or one salon, etc. So we’ve enabled that discovery in a city.
In addition to that, the way we look at our business is that deals are an entry point for us into the consumer’s life. Our view has always been that we want to build a brand that participates in consumers’ lives every day. And that participation doesn’t begin or end with only restaurants, bars, salons, etc. It’s also physical products. So a few months ago, we started selling physical products to the same customers — which are iPhones, Blackberrys, iPads, watches, sunglasses, apparel, wallets — you name it. And we’ve seen tremendous traction.
Right. So then, let’s talk a little bit about your own entrepreneurial journey starting Snapdeal. After you finished studying business management in the U.S., you went back to India, and you noticed that India’s retail environment was changing. Tell us about those changes and how that inspired you to start Snapdeal.
I was actually involved in an entrepreneurial project when I was at Wharton. It was a consumer product company that I had joined as one of the early employees. And I realized that couponing and sampling were very powerful marketing tools that were being used in the U.S. for decades now. In 2007, 400 billion coupons were issued in the U.S. In India, that number was zero. Now, there are two ways to look at that as an entrepreneur. You can say no one has done it before, so there is no opportunity here because it’s probably too risky. Other people have tried and failed. [Or] you can say no one has done it yet, and, hence, there is a great green-field opportunity, and we’ll be the pioneers.
We were 24 years old then, and I think you need to be 24 and naive to believe the latter. And, fortunately, we did that. So we just said it was a great opportunity. Indians are deal hungry. I often say Indian consumers are about A, B, C, D — Astrology, Bollywood, Cricket, and Discounts. So as long as you’re doing one of those four, I think you, as a business, are in pretty good shape. So we picked the “D.”
What were some of the biggest hurdles you had to face, and how did you overcome them?
Me and my co-founder, Rohit, went to high school together. We had no capital when we started. We had no family contacts. We had good academic backgrounds, but we had a grand total of 18 months of work experience between the two of us when we started. So we had very few things going for us other than the fact that we were just blindly optimistic about the opportunity. And a degree of irrationality that really worked for us. Every day, when we were coming into office, even though the needle was not moving as much in the business, we were still very optimistic that the next day would be better. And just having that core belief that, of course, we are doing better than yesterday, kept us going and kept us thinking about how we could make the business bigger, better, faster.
You referred to the fact of raising capital. That’s a typical challenge for any entrepreneur. How do you get the seed capital to get going? How did you manage?
We had [some] savings of our own. We put that into the company. Also, interestingly — and this is where Wharton has really helped us — I was part of this program called the Management and Technology (M&T) Program here. And it’s interesting that our first angel investor was an M&T alum, who was a 1982 graduate, and really supported us. He’s an American gentleman who is based in Seattle, has never been to India, and wrote us our first check without even having been to India, without having seen a business plan. That shows to me how powerful a network Wharton can be….
But financing after the seed round, the series A, is the big hurdle for any company because that’s kind of validation of whether you’re working on something that’s potentially of value or not.
And we had to go to 15 VCs before the 16th one said yes. And 2009 was the hardest market to raise money. There were three early-stage deals done in India, and ours was one of them. It took six-and-a-half months to close that deal just because investors were asking a lot of questions. But after we got that initial sum of money, we were full steam ahead because that’s what we were waiting for — that infusion of capital — because we had a lot of ideas at that point.
What were some of the issues that came up when you were trying to raise that funding? And what could other start-ups learn from the experience that you went through?
We approached fundraising like we approached sales. It’s very simple. We are a very sales-oriented culture. So we mapped them as accounts — like, here’s what this investor thinks about us; here’s what this investor thinks about us. And we just kept on going back to them — always keeping them posted about what we’re working on, knowing who’s actually serious and who’s just wasting our time. And knowing that early on and knowing who’s going to back you — even if your business is not perfect but because they believe that you can create something — those are the investors you want to go after in the beginning.
Our philosophy was very simple for our series A, series B. We wanted to pick investors who had been entrepreneurs themselves because we knew that the empathy that a former entrepreneur would have towards our business, a career investor may or may not have. It’s not like they won’t have. But my sense was I was better off betting on getting a former entrepreneur investor on board. And that has really, really helped, because in India, a lot of these businesses are evolving. The models have to be adapted. And you want someone who, at a board meeting, will say, “You guys are doing a great job. Keep trying new things. Keep experimenting. Keep making mistakes.”
That’s a great point. Now, in addition to fundraising, the other very critical piece of starting a new company is choosing the right team. Tell us about that experience.
It was very tough because when we started the company, we were about 24-and-a-half. Now we’re 28. And it was very hard because no one wanted to work for 24-year-olds. And other 24-year-olds in India didn’t want to work for 24-year-olds either. And before that, everyone is in college in India because people generally do their undergrad and MBA back-to-back. So by the time they get out, they’re 24, 25. It was a huge challenge.
So our initial inclination was let’s hire a senior guy to enhance the senior team. That didn’t work out too well because we realized there was a gap in mindset between a guy you hire at a senior level vs. an entrepreneur. So then the approach we took was we hired junior guys and kind of brought them up in the company, gave them an increased amount of responsibility. And that worked out really well — so hiring very, very junior guys and giving them more responsibility.
So what do you look for in people you hire?
Just an insane amount of animalistic passion. We just seek that because so much in Internet business in India is to be figured out. Unless you’re hiring an engineer who’s good at data warehousing — which is a specific skill — if you’re looking for a guy who can do sales or marketing or those kind of things, I don’t have a job description. We kind of make the job description every day, and it’s different on different days of the week. So then you need a person who can adapt, who’s like clay, and who can really take a lot of initiative and doesn’t really need a ton of coaching day-to-day.
Were retailers receptive to the idea of discounting?
Not really.
Tell us about that. How did you make the case, and how did you actually build your business?
Initially, it was a lot of cold calling — cold calling and cold emailing. We would literally just sit outside merchants and retailers — waiting for them to get into office so that we could catch them then, or waiting for them to leave office so that we could catch them then — because nobody wanted to talk to two young guys with a laptop. They’re used to dealing with larger companies in India. In India, unfortunately, we are in a culture where — it’s changing very fast — but still, a lot of people feel wisdom comes with age. And that’s why we always have a 70-year-old prime minister. But I think that’s changing very fast.
So one was just brute force approach. When you have nothing to show — no product, no customers, nothing — you have to do something. You have to sell your dream. But over a period of time, life got simpler. As we drove results for a retailer, he told his neighbor or some friend who is running some retail shops that why don’t you do a deal with these guys — they’ll send more customers to you, etc.
What are some of the most popular things that people are buying through Snapdeal?
Mobile phones — very, very popular. People love mobiles in India. They change their mobile phones, every six months, it seems. We sell a lot of apparel, a lot of jewelry. Restaurants, bars, are very, very popular. As both family members have started working in India now — compared to one of them being a housewife early on — I think people are eating out a lot more. People have a lot more discretionary income, so they’re going for spas, where three years ago, no one went to spas in India. People are traveling a lot now in terms of weekend getaways. So consumers are buying almost everything from us. And we have some great, very interesting consumer-buying trends. For instance, we know that people who eat Chinese food a lot have a higher propensity to buy a Blackberry phone. So we have some really interesting data around purchase patterns of consumers.
A lot of companies are now trying to jump onto the group-buying bandwagon. How do you expect to sustain Snapdeal’s competitive advantage?
When we entered — about one year ago — there were about 50 players in this space in India. There’s almost no one left now. We have over 70% market share in that space. Even in the product e-commerce space, the rate at which we are growing, we’ll be number one in no time just because of the reach we have.
I came back from China two weeks ago. And what I realized was that the companies that won the e-commerce race in China were the guys who had the most amount of consumer traffic — people coming to their site. And given that Snapdeal is, by far, number one there, there is absolutely no doubt in our mind that that will serve as a great differentiator.
So to that earlier point I made about us wanting to always build a brand that participates in people’s lives every day, it’s interesting that hundreds of consumers have written to us — written to me personally — saying when they come to office, before they check Facebook, they check Snapdeal.
Let’s continue on the risk theme. When you think about Snapdeal’s operations, what do you think are some of the business risks that could potentially put Snapdeal out of business? And what are you doing to prepare for those risks?
I think I’ve been more sleepless and paranoid now than I have ever been. And people question me: why? Now, the business is doing really well. You don’t even need to be here for it to grow, and you have capital and brand and everything….
But I think that in a very people-driven business, there are, basically, in our case, two big risks. Making sure that we retain our best people, and we keep bringing on board better people — I think that’s a big risk and something I spend a lot of time on. In the last couple of years, I have done 3,500 interviews just myself. Our selection rates in our company are one out of 30 people we interview. We have six rounds of interviews. For an engineering role, it’s one out of 57. So we are very, very stringent in terms of quality control as to who comes in and who doesn’t come in. And we’ve seen, because of that, our attrition rates are lowest in the IT and internet sector in India. Average would be about 30%. Last year, we had an attrition rate of 3.2%, which is very good for India, a fast-growing market where people get better salaries all the time.
I think the second one is a brand risk. We’ve invested a lot of capital, a lot of energy, into building a brand that’s top of mind for consumers, and a brand that consumers trust. That’s why they’re willing to come and buy from us — because they know if we mess up one day, we are also there to fix it for them and make it okay.