ShopClues and I
From founding the company in my house in California in Oct 2010 to reading the news about its acquisition on my way to Chandigarh to attend my dad’s birthday on 1st Nov, I have experienced a decade long entrepreneurial journey with ShopClues and Droom, which is probably a ride not experienced by most entrepreneurs. Not everything which happened is what I had decided or hoped or wanted or loved, but I cannot even describe the amount of learning, maturity, and resilience I gained from this decade long experience. And of course, so many things that happened in my entrepreneurial journey are something I always craved for, worked very hard to have them and feel lucky and blessed to experience them.
ShopClues was not my first startup, but the first startup that I ended up pursuing all the way as the founder. For me ShopClues was perhaps the 100th startup idea that I ever conceptualized before I reached to a stage where the regret of not doing ShopClues was going to be bigger than anything I gave up. And I did give up everything to start ShopClues.
It was 10/10/2010 when I thought of doing ShopClues in my house in California. It was not an easy decision for me — I was the single bread earner in my household, I had a beautiful life in California, I had put in one decade and achieved a lot in my career on Wall Street, I used to make close to $1mil a year, and I had not lived in India for majority of my adult life. But my calling was clear. I came to a logical conclusion that the Walmart of India is not going to be Walmart Corporation but an online company and that online company is going to be a marketplace vs an inventory lead model and then I thought why not I create that marketplace. So, for the first time in 13 years, I took one-way flight to India on 25th August 2011 and landed in India.
It was not an easy transition to move to India, where I did not live for 13 years. But I knew that I must build social, emotional, office, and family infrastructure around me to be successful as a first time entrepreneur that too in India.
What India was going thru:
Retail was $650bn industry but only 8% was organized. Internet users were 80mil but only 2 mil were online shoppers. Only 0.3% of retail i.e. $200mil was E-Commerce (excluding travel and jobs) in 2011. So, E-Commerce was 17 years old industry in 2011 but had reached zero to $200mil from 1994 to 2011 in India. Today, India’s retail already touched $1 tril, Internet users stand at around 500mil, online shoppers at 80 million, and E-Commerce is 2.5% of retail or $25bn.
Vision
I had very clear vision that India is all about long tails and small businesses. Long tail with inventory led model is so much harder to harness and small businesses typically do not have deep pockets, knowledge of technology, marketing or English. So why not to create a platform with an ecosystem approach to harness 25 million SMEs of India who sell something for living.
With that vision I created India’s first ever-horizontal marketplace that was a managed marketplace, a marketplace that offered value added services such as fulfillment, payments, common return policies, catalog, and reverse logistics.
I always knew that at some point of time Amazon will come to India so I developed a strategy that gave us very clear and tangible advantage: focus on non-standard category e.g. clothing/shoes/accessories, focus on small and medium sellers, and focus on second and third tier cities. This was quite a defensible positioning.
Initial funding Oops!
When I decided to pursue ShopClues, I was able to get $1.4mil in commitment in a matter of weeks from 8 of my friends. Then I happen to meet one of the most elite VC. He liked the idea and me and convinced me to spend cycles with him vs just taking $1.4mil as I will need some more capital. Anyhow, after two months of efforts, he gave me term sheet for $5mil raise. At the time of the term sheet the VC also told me that getting the term-sheet from us is equal to getting admission letter from Harvard. Congratulations! You have arrived.
I had already on boarded two of my other top team members and expectation was that they would move to India along with me. After the term sheet, everyone’s moving date and confidence became so much more aggressive. However, nothing much moved from the VC after the term sheet. So on 2nd August 2011, I called them and told them I need a clear yes or no, and if you are funding. The answer was no. All of sudden Harvard admission letter was gone. My household and my two other team members household were totally packed in shipping containers. I asked everyone to carry on to India and I stayed back until 25th August to secure some funding. I went back to all the investors who were offering me $1.4mil. I was very lucky, not even single investor said no and I was able to get another $550k in those 3 weeks.
Team, culture office
I got my ex-wife and two other team members and it became a team of four. In the early years, we were very close to each other and provided strong support system for each other and our families. I was very fortunate that I had worked with many Fortune 500 companies in their headquarters, so I had lots of high quality experiences. I worked very hard not only to build solid top heavy team but also a culture which would create common thread among all, independent of their age, gender, education, training and experiences etc.
I must say that from 2011 to 2013, ShopClues was almost like a cult with its own strong culture and value system. Besides, I am a very frugal entrepreneur and vehemently believe that if you cannot measure, you cannot control. These two things always gave us cost advantage vs. our peer group. For eg. when it came to ShopClues office, I decided to go for a completely offbeat office location in Gurgaon. When others paid Rs. 70-Rs.120 per sq. ft., I got an office, which was Rs. 12 per sq. ft. While from outside it looked very ordinary but from inside it was good and had startup energies second to none.
Working in India
Working in India has its own challenges. Especially after I had worked amongst the most demanding corporate jobs men has ever created. I noticed that India has serious work ethics issues. People did not work hard, they were too casual, not too professional, did not believe in sincerity and loyalty. I know it is a big generalization but I could do compare and contrasting because of my 13 years in USA. I started getting philosophical on one hand where I started seeing clearly why India went down from 35% of global GDP in 1650 to 3% by 2000 and a layer of self-defense which included assuming all is Murphy laws. With these two string approach, India did not scare me as much as it did in first 3–6 months.
Funding surprises
I not only got the funding surprise from the large elite VC in the beginning, the funding surprise came many a times. For example, in Series A, a VC gave us a term sheet and all documents etc started building and at 11th hour, he said valuation is too high. Luckily, I had another investors ready, so I renegotiated the terms with lower valuation but with lower stake for that VC, a claw back that gave my first 5 team members material ESOP, instead of getting allocated to this investors. Then in Aug 2012, I got term sheet in an email from a large VC and within 6 weeks, it was clear that the real term sheet or the deal closing documents were never going to come. So, by now, it was very clear to me that funding will never be easy and never be a straight line. These lessons in first 2 years helped me in my later years.
Scale, cost advantage, CAC and unit economics
We launched ShopClues on 21st Nov 2011. From Nov until March we did only 12–30 orders per day. Indian market was very tough, we were strong in social media and digital but we did not do aggressive discounting or promoted Cash on Delivery or sold items that will make us die sooner. But then I came up with some clever marketing strategies and launched Jaw Dropping Deals and it changed our fortunes. We went from 30 orders per day to 400 orders per day and with the launch of many more such clever marketing campaigns, in no time we went to 9000 orders per day by Oct 2012. We spent less than Rs. 200 to acquire a new customer vs. national average of around Rs. 2000 at that time, we spent very little on indirect expenses and we had no direct costs. So, net-net, we created India’s first ever marketplace with unit economics, scale and CAC that nobody could copy or deliver.
We have arrived
Until March 2014 I never got a feeling as if I had arrived as an entrepreneur with ShopClues. However, by March 2013, it was very clear that we made it and it is just a matter of time before the company could go for an IPO. Tthen in July 2014, I went to USA where I visited every six months to maintain my USA Green Card, family holidays and finish periodic errands due to my 15 years life there. On 29th July 2013, I ran into a personal legal crisis that changed not only my life but so many more lives and fates in a BIG way.
The crisis
In late 2013, I ran into personal legal crisis in USA. This personal crsis of mine is much talked about and discussed publicly, so I will spare everyone with details. But for context, It had nothing to do with my role at ShopClues but my prior career as a Wall Street analyst in San Francisco dating back to 2009. It was the catastrophic for family, my ShopClues and me. All of sudden very dark clouds surrounded me and everything around me. I lived in trauma and pain for almost 13 months in USA. There was a time, when I had no money, no transportation, no income source and absolutely zero visibility into future. The life appeared to be very dark, gloomy and depressing. I survived this phase of prolonged trauma because I got immense support from my friends and family and best wishes from hundreds of people at ShopClues.
I would run ShopClues during night in San Francisco and in daytime, I would focus on my legal crisis. I lived in trauma for nearly 13 months, under immense amount of stress but had to do so many things to make sure ShopClues does not go down, management team is intact, my kids have continuity and my wife, parents and siblings are not deeply perturbed about me.
Rather than going into details here are some events: 29th July 2013 my indictment came, 8th Nov 2013 I pled guilty, 12th Nov 2013, I formally resigned from my role as the CEO of ShopClues, from 13th Nov, I proposed the board to nominate one of my team member as the CEO and gave my second board seat to my wife as my nominee. I owned 36% of the company at the time of my resignation.
Transition as the CEO
As I had to make decision in my legal crisis, time had come where I had to make decision to step out as the CEO. My main VC investor told me that do not worry, the company is all about you and it is just a matter of time before you are back at the helm of the operations. This transition is temporary and is done only for legal, optical and practical purpose. I had very firm and strong view that if ShopClues does not have my vision and short to mid-term strategy, the company could go belly up. So, I suggested the board that one of my team members be made the CEO and my ex-wife to take on my second board seat as my nominee. No board member was convinced about my recommendation for the CEO. They even sent a long form to fill, which included skills and hallmarks of a successful CEO. However, my view were that if there is team which I could trust with my vision and which can continue to implement my short to mid-term strategies the company will survive.
Informal but super critical role
While by end of Oct 2013, I knew beyond doubt that the company will go belly up if I am not involved for 24 months at least. So, I did not care whether I was welcomed or not by the board or whether I got paid or not or whether I had formal title or not or whether the current management would get all the credit for my work, I was deeply but informally involved from Nov 2013 until Dec 2015 and on weekly/monthly basis for one more year before I knew it was time to move on.
Until I was involved, I made sure my vision is followed, the investor pitch and documents are world-class, we maintain our differentiations and we have strong competitive moats. However, as the company started to appear stable and more Importantly due to the mounting differences with my ex-wife, I decided to focus 110% on Droom and not at all on ShopClues.
January 2016 onwards free-fall
As 2016 was approaching, I had a New Year resolution for me for 2016. Things had come to stage where I had to think about my self-esteem vs. passion, sense of ownership or wealth. So, I decided not to be involved in ShopClues and it did not matter that my holding at that time account for $150mil of wealth for me. While it has been very painful to see this $1.1bn assets going under $100mil, it was amongst the best decisions of my life to move on. I literally saw the company going down as pronounced by its conversion rates going down to half, none of the new TV commercials making any impact, unit economics not improving, and most Importantly lack of any new innovations or disruptions. I wrote three times to board about my concerns between 2015 and 2016 but I was stone walled and even served legal notices. It was clear that independent of anything, I must move on.
Top 10 learning
As an entrepreneur, your learning are always immense. But the kind of learning I had since my crisis in USA in July 2013 were immense, while it was stressful, full of anxiety and painful, I learnt a lot from the volatility and uncertainties. Here is some of the learning:
- Entrepreneurship is the real test of one’s conviction
- Vision, obsession and eccentricities are not transferable
- It is only the innovation, disruption and technology that could make a company relevant for longer period of time
- Strong technology, laser focused execution and strong grip on numbers are paramount to create scalable business
- Startup is never straight line and anything which can go wrong will go wrong
- Funding is amongst the most difficult and precarious things in the entrepreneurial journey
- Human resilience, tenacity and perseverance are the strongest thing that exist on this planet
- Do not trust anyone 100% and never relinquish your full control
- Always convey your conviction does not matter other can see it or not or ignore it or not
- Professional investor are also managing someone else’s wealth and not all those professional investors have the passion, commitment and dedication like an entrepreneur
I was sad seeing the fate of ShopClues. I do not want to sound smarter than I am but I saw this coming by Dec 2015. In my view, if you do not innovate or disrupt, you become complacent, take for granted what you have built, you are not open to financial engineering, investors have conflicting interests, and you do not know how to change strategy based on market and competition, you will one day can be completely irrelevant. That precisely happened to the company for which, I gave my heart, blood and sweat for half decade.
I still feel very lucky and blessed that I got a second chance and started Droom in 2014. Long way to go for us at Droom with its own share of challenges. But it has been an awesome ride to build $1.5bn business, 600 strong team, operations in four countries and plans to take Droom to an IPO in 2021.