It seems that past 6-9 months have played out a full boom and bust cycle as far as ecommerce in India is concerned. Where as in july-august timeframe, 10 million dollar fundraises were being inflated to 40, and investors seemed to be willing to pay 5-8 times the gross merchandize value as premoney valuations, suddenly the world seemed to turn cold over past three months. What does this mean for entrepreneurs?
- Customers continue to buy: Not unlike 1999/2000 experience, customers seem unaffected by all the kolaveri around. Keep the focus on customers and deliver great consumer experience – that is the essence of building a great business
- Build a business, not transactions: The only currency of a good ecommerce business till now has been transaction volume. Now is the opportunity to answer more fundamental questions – why would customers buy from you (apart from getting products below your cost price), what really differentiates your business from the guy next door (no, really!), what will drive profitability in your business, which customers do you want to target and who do you want not to, etc. “Internet is cheaper than retail stores” is not enough anymore.
- Time for innovation: Premium will shift back on great teams with propensity to innovate, rather than the best search engine marketer. If you do have a customer proposition that goes beyond discounting, can you run the business at 25%+ gross margins (including logistics costs)? How can you build a business without investing $100M in inventory, and still ensure great consumer experience? Whats uniquely Indian about ecommerce?
- Investment is still available: Ecommerce in India is not a space that investors can ignore (even Mahesh is investing in ecommerce now :)) – they just seem to be correcting themselves to look at the right things.
Lets get back on the roller coster. The party has just begun!
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Alok:
Insightful post!
It warms the cockles of my heart to hear a VC (a big name one, no less!) talk about capital efficient models and 25+% profitability, low inventory costs…..
Basically what any sane rational business person would do if money did not flow freely….
We have built our business around these principles for the last 4 years.
Alok, my pet peeve is that no one has done anything about building customer loyalty, despite knowing that cheap prices only give you one-off sale.
That makes me feel that most of them are here thinking that high volume will get them a buyer, rather than looking at it as a long term business.
Good post, but perhaps better suited for an internal board meeting; would have served as a great ‘pep talk’. Some insightful analysis from a marquee VC would have served everyone a world of good! As an example, http://bit.ly/zcitic
Vamsi – partly due to the constrained availability of capital, we are seeing some entrepreneurs now come up with more capital efficient models. Still too early to say if they will work, but definitely a direction to think about.
Alok, completely agree with this. The fundamentals for e-commerce remain very strong. However, this is still a very capital intensive business. Building a viable business is crucial – but you need deep pockets to reach that stage. I hope entrepreneurs and investors continue to bet and experiment.