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The D2C VC guru Kannan Sitaram reveals tactics for hitting 500 cr ARR
243 Plays1 year ago
Discover the secrets powering India's D2C boom with Kannan Sitaram, the mastermind behind Fireside Ventures. With a track record of backing powerhouse brands like Mamaearth and Boat, Kannan draws from his consumer goods expertise to guide D2C founders towards success. Dive into his playbook for achieving the elusive 500 crores revenue milestone in the D2C landscape.
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Read more about Fireside Ventures:-
1.Fireside Ventures aims to birth Indian mega-brands
2.Fireside’s Kannan Sitaram on gaming bets, fund status, D2C trends and more
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Transcript
Journey to Venture Investing
00:00:06
Speaker
Okay, so let's start with, you know, if you could give us an overview of your journey, what led you up to becoming a partner at Fireside, you know, what in a way, what made you qualified to be a venture investor, you know, based on what you learned in your career and how that defined who you are today.
00:00:27
Speaker
So it's a long journey actually and somewhere when I look back, lots of different things somewhere added up to where I am. Just going back to how my career started.
00:00:41
Speaker
I got very interested in consumer marketing when I was doing my MBA at IAM Antabad. Before that I was an engineer and I ran away from engineering. Somewhere I just didn't get it at all. So I was hoping that IAM would be where I would twig what I really enjoyed doing and consumer marketing was it.
00:01:09
Speaker
And so my career took me to Ponds, which at that time was a separate company. And at Ponds I was in marketing, I was in sales, and Ponds got acquired by Unilever globally. So then I was in Hindustan-Liver.
00:01:25
Speaker
And again, in different parts of the lever business or in personal care and laundry, home care, into the foods business. I did a stint in London in the strategy group.
From FMCG to Private Equity
00:01:41
Speaker
Then I left Unilever.
00:01:45
Speaker
And I came on board at Dabur to run their business in India, Nepal, Bangladesh. So got exposure to a whole new set of categories actually. So got into things like juices and all the health stuff. So over this, some almost 30 years, I saw a lot of FMCG marketing across different categories.
00:02:14
Speaker
addressing different kinds of consumers. So you're talking to women, you're talking to people in the rural markets, you're talking to people in different countries. So it was actually an extremely wide exposure. I'm fond of saying that I have sold some product or the other to some retail outlet in almost every single state in this country.
00:02:42
Speaker
I've been on market visits in Kashmir, literally in Kanyakumari, in that part of the country, in Gujarat. So, you know, in the Northeast I've traveled extensively. So, give me a huge amount of exposure to also what India is about, how all the Indias which are there in India.
00:03:07
Speaker
And then I started thinking about, okay, I've done all of this in corporate life and I was getting a bit tired of corporate life. How do I do something more interesting with this? And that's how I left corporate life.
Joining Fireside Ventures
00:03:20
Speaker
It's like a dozen years back to join a private equity fund. And private equity funds was just starting to happen in India at that time. I joined something called an operating partner.
00:03:32
Speaker
which was to do with helping companies that the fund was investing in to help them build their business. And I was with them for several years. And then Kavilvith Singh, whom I know really well from my Hindustan liver days, he was raising this fund and his thesis was about investing in very early stage consumer companies.
00:04:02
Speaker
And somewhere I felt that all that had been through, all the exposure to all the India's, the different consumer categories, working with a very small company when I was with India equity partners, all of it was just coming together in some holistic way into what Kaval was setting out to do.
00:04:28
Speaker
So I came up to him and said, look, I want to work with you on this. And he said, come on board. And that's how I came on board in 2017 as a partner at, you know, fireside ventures.
The Role of Marketing and Distribution
00:04:42
Speaker
I want to zoom in on the journey before fireside a little bit. I have a
00:04:48
Speaker
thesis or, I mean, a conjecture that the era in which you were leading sales, like, you know, so I'm talking of like pre 2010 kind of an era, it was more about distribution leading to sales rather than marketing leading to sales. I don't think it is as black or white as that. Distribution was vitally important.
00:05:14
Speaker
But equally creating strong brands was very important. Building categories was very important. And just think of, let's just take Hindustan Lever and the kind of categories that they have developed. For example, what used to be called Fair and Lovely was a complete category development job done by the company.
00:05:43
Speaker
launching a detergent bar. I mean it was a powder market or a soap market. And then to come in with a detergent bar and create a category around that was again a complete really great marketing job. And I can go on. There have been many, many other things that
00:06:04
Speaker
I think that company did brilliantly. So category creation and building strong brands which consumers could relate to, fighting off competition. Go back to the days when Nirma was on the warpath. And I think the wonderful way in which Levers responded with Serf fighting back with the Lalitaji campaign
00:06:33
Speaker
and then launching wheel, learning so many lessons from how Nirma was able to get its pricing right and then figuring out how to translate that into an operating model that Hindustan lever. So I think all of that was I think very vital to the success.
00:06:52
Speaker
But on the other side, you're perfectly right to say selling and distribution was no less important.
Strategies in Category Creation
00:07:01
Speaker
And I mean, when I was there, we were reaching out to something like 5,000,000 retail outlets every single week. And that was an awesome reach which Nirma or Procter & Gamble, who was also at that time entering the country, they had no answer for that.
00:07:22
Speaker
So they had to play where the distribution could allow them to play. Interesting. Is there a science behind category creation? You gave examples of HUL creating the Fair and Lovely, the men's fairness cream category, or even the women's fairness cream category, like Imami did for men. Is there a science behind that? I think a lot of it, at that time at least,
00:07:52
Speaker
was about show and tell. And I've been with our sales vans into rural markets. We used to catch hold of one of the kids, typically a boy in the village and find out whether his mother was around and tell his mother, look, we're going to watch this guy's hair now.
00:08:16
Speaker
and open a sachet of Clinique Plus shampoo and wash the guy's hair. And bring a boy's hair, easy to wash very quickly. And then ask his mother and mother's friends to come and feel their hair. And they could immediately see how the hair was soft and nice and the hair was shiny and things of that kind.
00:08:40
Speaker
So we've done that kind of show and tell campaigns in umpteen villages. And I remember reading Prakash Tanden's book, actually several books, and he talks about how Dalda was built. Who is Prakash Tanden? Prakash Tanden was the first Indian chairman of Hindustan Liva. We're talking about the 60s and a great marketeer.
00:09:07
Speaker
And he has written extensively about how Hindustani were developed categories. And one of the things he talks about was developing dalda as a brand. And dalda came in as a fake ghee. That's how people saw it. There was desi ghee and videsi ghee. And then how do you convince people that you can make tasty food with dalda? And dalda in an era where ghee was scarce and expensive.
00:09:37
Speaker
was actually a very good substitute and he talks about how people used to go into villages and small
Digital Marketing Evolution
00:09:43
Speaker
towns and make puris with dalda and people would taste it and again nothing like eating to really say okay this tastes good. So I think at that time certainly a lot of the category creation was that
00:10:00
Speaker
But then we started seeing the power of TV and that whole thing moved to, how can you start talking about the pain points on TV? And therefore, you started getting TV advertising, which is also about category creation, and talking to people about how the pre-post of one product versus another. And that started working powerfully with television.
00:10:29
Speaker
Now we are, of course, in a very different era, which is about digital marketing. And here, therefore, the power of content is really extremely high. And therefore, when you go into meta or you go into Google and so on, people are looking to see reviews. People
Brand Management Approaches
00:10:48
Speaker
are looking to see what is the content that you have provided. And I think all of that
00:10:55
Speaker
has become the way people are looking at to buy into new categories. So the science has changed over the decades. How does a large company like HUL or Dauber think about its portfolio of brands? Because there would be some attempt at creating new brands versus acquiring brands. And so what is the way in which they think about the portfolio? What are some of the learnings you had?
00:11:23
Speaker
So actually very different, the two companies, and let me try and contrast those for you. Unilever and Hindustan liver, or for that matter like a procter and gamble and so on, they are very focused on category shares.
00:11:43
Speaker
So they take a category, let's call it shampoo, and then look at how to segment the market and how to have a brand in each segment. And most of the brands are specific to just that product category. So if you have a sun silk, for example, at best you might have a sun silk shampoo and a conditioner, right?
00:12:08
Speaker
But you wouldn't have a Sansil soap, you wouldn't have a Sansil face cream or anything of that kind. A notable exception to that in the lever portfolio is Dove. And Dove actually broke many of those rules, everyone going back like 20 years. Dove for a long time was just that bar, right? Which was not a soap, right?
00:12:33
Speaker
And it was one fourth moisturizing cream, etc, etc. But outside some markets, it was a big success. It never did particularly well. Then actually Unilever broke its own self-imposed rules that branch will operate within a category.
00:12:50
Speaker
to say, look, actually there is something bigger sitting inside Dove, which is this whole notion of, it is very gentle and it's very, it doesn't damage and so on. And that was a worry that lots of consumers had. So then Dove broke into shampoo, Dove broke into deodorants, and therefore it actually was, became a multi category brand. But that was quite counter, Unilever gospel of how brands should work.
00:13:21
Speaker
Dabur, on the other hand, actually thought like Dabur did in the 2000s. Dabur said, look, we are about Ayurveda. And it started off as a pharmacy started by Dr. Burman in Kolkata, some 130, 140 years back. And from there, they said, OK, we could launch product. They launched all the very traditional Ayurvedic medicines.
00:13:48
Speaker
And they built this whole consumer trust around Dabbar's knowledge of Ayurveda. And then they started moving that into personal care where first, I think, Lal Dantmanjan. Then they launched Dabbar Amla. And then moved into toothpaste. So moved across categories with the core Dabbar brand. Then there's one of sub-brands like Vatica and things like that.
00:14:16
Speaker
So the DABBA journey was really always a cross category because they were working from a core competence that consumers trusted DABBA for. So the journeys were very, the origins of the journeys were very different and therefore the brands were built very differently.
Unilever's Strategic Focus
00:14:38
Speaker
And therefore, when DABBA looks to acquire, as they have acquired several brands in India,
00:14:46
Speaker
They're looking to acquire brands where that Ayurvedic provenance is not going to play very strongly. For example, they acquired Femme. And Femme was into bleaching. It's a face bleach. And that's not what Ayurveda is ever going to do. But Dabbar wanted to build up its skin portfolio, and so they acquired that.
00:15:17
Speaker
Unilever, on the other hand, has actually been a very acquisitive company. I'm talking Unilever. And there are very few brands which were originally Unilever. You could think of Lightboy as one of those, or Sunlighter as one of those. But apart from that, there are very few organically. I mean, Fair and Lovely was one of them. But almost everything else was acquired.
00:15:44
Speaker
Right. So it's been a very acquisitive company and built its portfolio and it's played its portfolio very interestingly over the years. So I don't know if you're aware, but if you read the history of Unilever, it used to at one time own a vacuum cleaner company.
00:16:08
Speaker
It used to own oil plantations in Nigeria because, you know, palm oil was very important for making soaps. It used to have, own a company in the Middle East, which retailed alcohol, right? So it does a conglomerate like, you know, all the old conglomerates, it was in everything. It was in a country, it had a strong presence in the country, it had a country management. So they did all the business they could do in that country.
00:16:38
Speaker
But then over time, the market started challenging the notion of a conglomerate. So they started divesting many of those businesses and keeping on thinking about what is really core. And then they same said, like, I think somewhere about 25 years back, they sold off their chemical businesses, sold off their perfume business. They sold off their tennis racket business. And they said, we are about FMCG, we are consumer, we are consumer brands.
00:17:08
Speaker
Then again, that had to be tightened further to say, okay, you know, are you an owner of consumer brands? Are you a manager of consumer brands? That was a question coming from the market. Because of that term, you never had
Hindustan Lever: The CEO Factory
00:17:21
Speaker
2000 consumers. What's the difference here, like owner and manager? In the sense that you keep owning brands and let the brands do whatever they want. If you come to India and say, okay, let's buy something in India.
00:17:34
Speaker
Whereas a manager of the brands says, I got Dove. How do I take Dove to India? How do I take Dove to, you know, XYZ country? How do I move Dove into Shampoos? How do I move Dove there? So I'm managing the brand actively on a global basis. Whereas an owner says, okay, you got Fair and Lovely. Okay. You do whatever you want with it.
00:17:55
Speaker
Right?
Roles and Compensation in Private Equity
00:17:56
Speaker
And this question was being asked because you never had at that time something like, if I remember right, 2000 brands. And the market said, you can't manage 2000 brands. So then they introspected and then they said, look, we're going to manage actively 200 brands. It's also a large number. But we're going to have these brands calibrated as
00:18:21
Speaker
global brands and regional brands, and we'll have a way of managing each one of these. We'll have an expertise center, we'll have a product development program, which will either be regional or global, depending on the nature of the brand. And those are the only brands we're going to manage. Every other brand, we're either going to sell, or we're going to divest, or we're just going to allow it to die. So they became, therefore, a global brand manager in that process.
00:18:52
Speaker
Then the next thing was to look at what categories you are playing in. And that's something, again, like your liver is consistently done over the years. So at one time they used to own a lot of frozen products like frozen peas, fish fingers, and all that under the bird's eye name. So they said that, look, frozen food is not where the consumer is going. The consumer is buying more of chilled food.
00:19:15
Speaker
So let's get rid of the frozen food business. So somewhere about 20 years back, they sold the frozen foods business. Then they had a whole business around cooking fats, you know, margarine and oils and stuff like that. A very large business, largely centered around Europe, but they had other bits and pieces like dalda here and so on.
00:19:39
Speaker
So again, they said that that's a business which is flat lining, won't grow very much in the future. Very good margins, but they're going to exit that. So they sold that a few years back. More recently, they sold the tea business in most countries, except I think India and Indonesia. Brands like Brookborn and Lipton, because they felt that consumers were shifting more to coffee. And therefore, this was going to be a slower growing business.
00:20:07
Speaker
So they've been very active portfolio managers, whereas you don't see that with Dabur. Dabur has continued to grow organically, acquired a few things, but they don't think of themselves as portfolio managers. And fairly dispassionate. I mean, to sell off Lipton, which is such an iconic Unilever brand, I mean, it needs to have a real objective look at your portfolio to be able to take such decisions.
00:20:35
Speaker
Absolutely. And I mean, one of the reasons I do that is Lipton was also acquired. Brookbond was acquired. So what you buy, you can also sell. Right. Okay. Okay. Why is Unilever called the CEO factory? You know, I would describe the title more specifically to Hindustan Diva. Yeah.
00:20:58
Speaker
Because, I mean, again, proof of the pudding is the eating. I think the number of people who have led companies in India and outside India, it's a staggering number. And therefore, there is a method to why that happens. I don't think it's just that they spent time at Hindustan Lever.
00:21:24
Speaker
I think there is a lot of attention paid to whom you recruit. And once you recruit, what goes into developing them? And that's not just about training programs and global exposure and so on, but it's also how you develop them.
Venture Capital vs. Private Equity
00:21:48
Speaker
At least in my times out there, it was a very judgmental company.
00:21:53
Speaker
you're being evaluated all the time, right? I've never known any company to keep thinking about is that person going to cut it, right? That person has this strength, but you know what? This thing is not the best thing he could have done, right? So there is always a constant spotlight is on every manager in that company.
00:22:23
Speaker
They looked at talent the way they looked at brands. They have a portfolio of talent to manage. Very much. And there is a development program. Therefore, people move into different jobs. And each job is a testing ground for you. So I think that you have had a great year. Wonderful. Pat on the back.
00:22:52
Speaker
but the clock is reset and the clock starts all over again. So, you know, you're again on the treadmill having to prove yourself. The company adds a lot of value because of all of this, because there is a lot of talent all around you. So you have to rise up to that talent. And even without being very conscious of it, you are raising your game all the time, right?
00:23:22
Speaker
And therefore this whole environment where it's about evaluation, it's about being surrounded by talented people, just means that your game is, you know, you're pushing yourself. And therefore you're pushing yourself to think ahead, to think outward. And I think that's what good CEOs do. Amazing.
00:23:50
Speaker
What were you managing at India Equity Partners, which company? So there was this company called Innovative Foods, which I helped them acquire. This is a frozen foods company out of Cochin. And so I was spending half my time running that company as the CEO. And I was spending another half of my time looking for new deals.
Learning at Fireside Ventures
00:24:19
Speaker
Okay, okay. And you were a general partner at India equity partners. I was an operating partner at India equity partners. What is the difference between a GP and the GPs are the people who raised the fund. Okay, they are the guys who get together and, you know, form the fund.
00:24:40
Speaker
They are the people who administer the fund. They are the people who finally take the call on where the money is to be invested, also when it's time to divest. So they are the people who are answerable to the limited partners for the investors. The operating partners are the people who work with the GPs to help them once they've done an investment to look at how to scale up the business, how to get the right things happening in that business.
00:25:10
Speaker
So they tend to have much more of a sectoral experience. A GP, then it would be like a co-founder in that sense, like the co-founders. Need not be a co-founder, but a co-founder is always a GP, but a GP need not necessarily be a co-founder. Okay. Understood. Okay.
00:25:36
Speaker
Do operating partners also get a stake? This is essentially the way partners of a private equity get compensated through a profit share plus some salary because they charge a management fees from the LP. So that gives them some salary, but that's not the main compensation. I guess the profit share is the main compensation for partners. Yes, it's called the carry.
00:26:01
Speaker
and carries link to the gains that the limited partners make. So investing, whether it's private equity or venture capital, has got two features which are very different to public markets. One, it's far riskier and it has long time horizons.
00:26:28
Speaker
And so it's not a very liquid asset, right? So the limited partners need to ensure that the GPs are making the right calls and are seeing the companies through over a long time period and therefore they're looking for alignment of interest.
00:26:48
Speaker
And that's why a share of profit is something which is very much what they would like the GPs to factor in as the main element of compensation. And operating partners also get similarly compensated or is there a difference? So there are varying models out here, Akshay.
00:27:13
Speaker
And I think again, depends upon which private equity firm you're talking to. Some will offer a
Engaging with Founders
00:27:23
Speaker
share of the carry to the operating partner because of the same reason that you want to have alignment. And the alignment is not about just taking a fee or a salary. And after a year or two, you get something better and you move on. So they want people to stay the course and therefore a carry is a good way of getting that alignment.
00:27:45
Speaker
But some might be saying that look, we just, you know, getting an expertise on as required basis and not really as a full-time commitment. And there it may be more of a fee kind of a structure. Okay.
00:28:04
Speaker
What was the lens with which you were evaluating acquisitions when you were in PE? And I'm sure it would have changed when you joined Fireside as a VC. So just help me understand the PE lens versus the VC lens for investing slash acquiring. The risk profile of a PE is very different to that of a VC. And that's a fundamental difference in how we look at
00:28:33
Speaker
selecting deals. A VC model is that you do a lot of deals. If you take a fund 1 for example, we did 18 deals. And therefore there is a scatter in terms of outcomes.
00:28:53
Speaker
Some companies will do very well. For example, Honorsa is one of our Fund One companies which has done spectacularly well. Some companies will not succeed and that's part of the risk which is built into the VC model. And some companies will deliver good returns but nothing as spectacular as Honorsa.
00:29:20
Speaker
So you're building a portfolio where there'll be diverse outcomes. On the whole, it'll be a good outcome is the expectation.
Investment Decision-Making
00:29:32
Speaker
And therefore, you're taking relatively smaller bets, but you're taking more bets. The private equity model is saying that, look, I'm investing in a company which I don't expect to completely fail.
00:29:50
Speaker
I expect it to grow in a certain way and then to exit with a certain financial outcome. That growth may or may not happen at the pace at which I expect it to happen. And therefore, the risk is more of how fast the portfolio scales and also at how it is valued when I exit.
00:30:20
Speaker
Rather than having a significant proportion of the companies which just closed down. So it's a very different risk profile. Therefore, when you're at a private equity firm, you're typically saying, okay, here is this firm that I want to invest in. It is doing well or doing badly.
00:30:42
Speaker
If it is doing well, is it going to do as well for the next four, five years? And therefore, can I expect to deliver, you know, a 3x or 4x on that and exit? Or the companies that I'm investing in, it is significant, it has built some credibility with the market, let's say consumer market, and it is not doing well.
00:31:11
Speaker
Can I put in money? Can I make some changes in management or can I get in external help to change certain things that they're doing to actually then change the trajectory of the company? So those are the interventions that you're talking about. With a VC, they're coming in and saying, look, we like the founder or founders. We think that they have what it takes to build a large business.
00:31:40
Speaker
And that's very important in our game that we're not coming in and saying, hey, let's change the CEO. We don't want to do that, right? So we are coming in and saying, here is a founding team that we really like. We think that they can build a large business. We think they have a great idea, which is solving a large business, therefore, large problem. We think, therefore, this can be a business of some scale.
00:32:12
Speaker
And they can be reasonably frugal with capital in the model that they have. And that's our particular, you know, liking for companies that are frugal. Not all VCs are that way. So we think there is a good business opportunity which can be scaled and a founding team which can scale it and capital frugality. So we say, okay, let's do the deal.
00:32:38
Speaker
So we'll do many deals in a year. Our private equity firm will do a lot more research and do fewer deals per year. Why did you acquire infinity foods for India equity partners? Innovative foods. Innovative foods, sorry. Yeah. So what was the lens? I think the lens was evaluated. The lens was saying that look, frozen foods is going to develop in India.
00:33:05
Speaker
And it's still a very nascent category. And therefore, there is a growth opportunity. There aren't many companies operating out here. So if you can invest in this company and grow it to some scale, then there could be an acquisitive interest.
00:33:30
Speaker
not necessarily from Indian companies, but potentially from overseas companies as well, who would want to have an asset in India which has distribution, manufacturing capabilities, et cetera.
00:33:48
Speaker
And is Innovative Foods acquired or is it still an independent PE owned business? To the best of my knowledge, it is still a PE owned business. Okay. Understood. Okay. So tell me about the fireside journey when you joined. You must have had to do some amount of unlearning and relearning
00:34:12
Speaker
Tell me about those initial deals that you signed up on. You might have made some mistakes also in some of the deals. What were some of your learnings there? I mean, several things. I think the first thing is the speed at which you make deals. There are many unanswered questions, but you have to trust your experience and your intuition.
00:34:42
Speaker
and then take a call. Take a call to do the deal or not do the deal, right? So the amount of data you might have seen when you were a dauber or a Hindustan lever, and even in a private equity firm, you're not going to find that kind of information. Because you're investing in companies which are doing maybe 30 lakhs a month, 40 lakhs a month. Now you're sitting out there and then you're saying, is this going to be a fine decor company?
00:35:13
Speaker
And to take that call, data is not going to give you much of an answer. So you're trusting to your experience of how this can work out. And you're trusting to your experience of human beings to say this founded team can work out. So that, relying a lot more on intuition,
00:35:38
Speaker
is a big change when you move into a firm like ours, which is working at very early stages. The second thing is you realize quickly that putting in money is just not enough. There is a lot of support that a young company requires.
00:36:01
Speaker
with the best of founders because, you know, you're getting in great founders, would have worked in great companies before or actually led or started other startups earlier, but they still have big gaps in how they can approach this whole thing. With the best of founders, they still have large gaps in their understanding of how to scale a business.
00:36:30
Speaker
And so we had to very actively build an ecosystem. In many ways, this was sort of a missionary thing. For example, we talked to, I remember, Meta. And we told them that, look, you guys don't have a human being that young companies like us can talk to if they have a problem.
00:36:55
Speaker
And when we had to talk to them about what the business opportunity is, if they were to have a team dedicated to young companies. And they saw the business sense. And I think actually within a year, they put up a separate SME vertical. And that really helped a lot of companies, both at fireside and outside fireside.
00:37:17
Speaker
So in that way, we worked with Amazon. We worked with Flipkart. We worked with BigBasket with
Identifying Consumer Trends
00:37:24
Speaker
Google to really help them understand how to shape their engagement with young companies. Now you can ask, why would a Google want to work with young companies or with Fireside? And the reason is simple, because we were consumer-focused.
00:37:43
Speaker
We were going to them with issues facing our opportunities in 10 different companies. And when you're talking about 10 companies, they know that this could be something which could impact 100 companies. So we're talking now about something which had an impact at scale. And so they were very happy to talk to us and try to figure out solutions which could be more appropriate for young companies.
00:38:08
Speaker
Similarly, we worked on governance because again, when you come in, you got a set of accounts which has been audited by an accountant whom the market doesn't know. Maybe a very good auditor, but at the same time, it lacks credibility.
00:38:31
Speaker
So we actually approached the big four guys and said, look, can you start auditing some of these companies? And this is not typically what the big four guys do. But today, pretty much all the companies are audited by one of the big four firms. And therefore, when the next level auditor comes in, next level investor comes in and they see a set of accounts which has been audited by EY or KPMG.
00:38:59
Speaker
that immediately builds credibility and takes one of the issues out of the equation. So I think there is a whole lot of things that we had to do to give support to the founders of our companies. So that was a big change from working for, let's say, our private equity firm. The third thing is really, how do you work with founders?
00:39:28
Speaker
I come from a background of having led large teams, large businesses, and from very hierarchical firms. And then you suddenly have to change your style completely, because you are now in a situation where you are backing the founders.
00:39:52
Speaker
Right? And therefore, if the founder wants to do something and you think it's a bad idea, how do you get that founder to see your point of view? Because you don't want to lay down the law. Though technically you can, because you have all kinds of rights that the lawyers have got for you. But that's no way to build a constructive engagement. Right?
00:40:20
Speaker
So you have to think about ways of convincing founders. And sometimes it works, sometimes it doesn't work. When it doesn't work, you've got to think about how this could have consequences. And how do you limit the consequences? So it's a whole new ways of actually engaging
00:40:44
Speaker
which has been very interesting for me personally as well, because it's my own development in this way. Yeah, it's like how, as parents, we have to learn to change our parenting style once the kids grow up. Something similar would be happening here, I guess. In many ways, yeah. So what were some of the early deals you did? And, you know, do you have
00:41:10
Speaker
Like these where you made a judgment, which turned out to be wrong and what you learned from them. Like, you know, how much of your decision is based on your understanding of market versus your understanding of founders? To me, both matter.
00:41:34
Speaker
For example, one of the earliest deals that I did was to invest in Kapiva.
Sustainability and Ethics in Investments
00:41:42
Speaker
Now, Kapiva is into Ayurvedic products. And I've known Amit for a long time. Amit comes from the Baidyanath family. And from my Dabha days, I've known him and so on. Tractor's journey, he went to India, joined McKinsey, et cetera, et cetera.
00:42:05
Speaker
So I felt that he had what it takes to build a large business. But equally, I was pretty convinced that there was a very high level of relevance for Ayurveda in with today's consumers. But he just got to communicate everything very differently. And I knew that that's what we were setting out to do, right?
00:42:34
Speaker
So that was one of the earlier deals that I did. One of the deals I was involved with was with Yogabar. This was a deal actually that Kaval had done as a personal deal even before we set up the fund.
00:42:58
Speaker
Then when we set up the fund and we were thinking of investing, Yogabar came up investment, we decided to invest, and I came on the board. And there again, working with Swasti and Alindita to build what is actually a very, very interesting brand, the food space. That was again interesting. Again, a high level of conviction around the founders and on the thesis, right?
00:43:25
Speaker
So for me, both I think are actually extremely important. Has there been an evolution in how you evaluate deals from when you joined and to where it is today? Like you said that you have to learn to rely on your intuition more. Is it still as much intuition or are there more scientific interventions as well which help decide your judgment today?
00:43:55
Speaker
So the intuition goes at an earlier level today. One of the things we've done at Fireside is consciously we've built now a large team, which is Sector Focus. And one of the things we want the Sector Focus team to do is to actually research different parts of each sector. So if you, for example, take the whole food area, there are so many different types of foods out there.
00:44:25
Speaker
So we want the team to be researching each area. And then we get them to look at building a thesis for each of the sectors. And the thesis involves trying to understand what is changing in that sector.
Achieving Product Market Fit
00:44:44
Speaker
So what are the forces which are reshaping that sector? And for us, those forces
00:44:52
Speaker
should not be very strong forces at a point in time, should be relatively weak forces because we are early stage. If it is such a strong force that McKinsey is calling it out, then we know that's not our deal, right? So now, how do you identify the weak forces? So that's where I think a lot of the intuition starts coming in.
00:45:17
Speaker
And we say, okay, this kind of force could be reshaping this sector. So it isn't has reshaped, but could be reshaping. I mean, let me give you an example, the whole area of supplements, right? I mean, now we have done, including capiva, three deals in the supplement space, okay? So we got capiva, we got well-being nutrition, we got the good bug.
00:45:44
Speaker
And our intuition has been that the supplements business in India is totally underdeveloped. And that's because people of a certain generation relied entirely on
Scaling Companies
00:46:00
Speaker
doctors' prescription. At a certain stage in life, the doctor says, you've got to take all these pills and half the pills are vitamins. But with Google and all of that,
00:46:14
Speaker
That has changed. People are reading a lot more, getting a lot more informed about nutrition. And therefore, they want to avoid going to a doctor. They are looking at what they should supplement. And that was our intuition. And that intuition only got strengthened with COVID.
00:46:36
Speaker
So basis that intuition, we started looking at what could be happening in the supplements area, what kind of interesting strategies are there. And that's how we invested out here. We found these three perhaps the most innovative supplements businesses.
00:46:53
Speaker
Can you also share some wrong decisions you took? You may not want to publicly add them too much, but maybe your anti-portfolio or something, like stuff which you learned later on that, okay, that was a wrong call. Yeah, I mean, I cannot name names, but there have been businesses which have scaled. For example, there was a whole business in the appliance area.
00:47:24
Speaker
And when they came to Pishwas, they were talking about a certain technology, a basis which, you know, they thought the business would scale.
Leveraging Technology and Data
00:47:36
Speaker
Like a DLDC technology or something like that. There are many technologies out there. And you're going to take a guess on what technology is going to be there.
00:47:54
Speaker
We felt that that technology by itself was not really new and could be replicated. And I think that business is scary. So clearly that is something which certainly is in our IT portfolio. Yeah, and there are other businesses that perhaps we started talking to them a bit too late.
00:48:20
Speaker
And that's why we're really pushing hard on saying create thesis. The prepared mind is important. And with a prepared mind, then you go and search for deals rather than let the deals come through the door. We really want to have more and more of a big deals where we have done the outreach rather than somebody coming in and say, hey, Faisal, do you want to invest?
00:48:48
Speaker
Okay. Interesting. Interesting. What advice do you have for founders who want to raise from fireside? What's the way in which you evaluate the founders, you know, things which they can be prepared for?
Offline Expansion Strategies
00:49:02
Speaker
So I think the first thing we want to tell founders is don't wait till all the eyes are dotted and the T's are crossed. We are happy to talk to you at a very early stage. Okay.
00:49:17
Speaker
I mean, we have talked to companies for several months and tried to really help them understand how to make themselves investor ready, right? We are very, very interested in doing that. And then we felt that, okay, they're ready to take an investment, then we have invested. So I think the first thing is, if you think that you're doing something in the consumer area that can scale,
00:49:47
Speaker
Don't wait for a long time to make a lot of mistakes or be worried about getting rejected by fireside, et cetera. Just come, talk to us. We're happy to talk to you. If we think this is half interesting, we're happy to engage with you. The second piece is really to think about what is your motivation.
00:50:17
Speaker
We are very convinced that in the consumer area, you can't build great businesses by just throwing money at problems. This is not an eyeballs, footfalls, whatever kind of a game. If your product isn't good, you can create lots of people who buy it once and then don't buy it again.
00:50:42
Speaker
But therefore you've got to fix the product and whatever it takes, you've got to fix it. If your propositioning to the consumer is incorrect, you've got to fix that. You can't just say I will spend 3x amount of money. So in the consumer game, we believe for most of the companies we invested in that these can make money fairly quickly.
00:51:11
Speaker
And money is made by repeat purchase. Money is made by customer love. So founders are thinking consumer first, who really put the consumer somewhere at the heart of what they're doing. Keep thinking about how to make the consumers happier. Keep trying to understand the consumers, get new insights, and develop product based on those insights. We love those founders.
00:51:42
Speaker
The other thing that is very important to us is fireside, is the whole planet first philosophy. I mean, inherently consumption is polluting.
Portfolio Highlights
00:52:00
Speaker
And to some degree or the other, because you're going to use some plastic, you're going to use some chemicals, something.
00:52:10
Speaker
Consumption has effects. Our view is that there are certain industries that we won't invest in. We don't invest in alcohol. If somebody wants to sell a better gun, don't come to us. So there are certain things that we won't do. But having said that, what we want to do is work with founders to think about how, from wherever they are,
00:52:38
Speaker
How they can reduce the impact of the planet, right? Can they reduce the amount of plastic? Can they reduce their carbon footprints? So even at a very young stage, we believe that it's something that if founders start thinking through, it should be possible for them to have a better impact on the planet.
00:53:00
Speaker
And I think we find that in the companies that we invest in, in general, the founders are very, very happy to do that because I think they come from a generation which wants to live the planet a better place. And similarly, I think in terms of how they're building the workplace, we do believe that in today's environment,
00:53:30
Speaker
A successful workplace is more inclusive, is more diverse, has got good healthy policies, wants to have motivated employees. And therefore there is a whole bunch of workplace practices which we think need to be there in order to create very strong workplaces which will help the founders succeed.
00:54:01
Speaker
So we're looking for founders who have a similar belief system out there. And obviously to the whole ESG piece, the governance piece, again, it's super, super important. If you even get a whiff of a founder thinking about, you know, sneaking away revenues from the tax guys and so on, we just take care.
00:54:26
Speaker
For us, that integrity is, we play by the rules. We want founders to play by the rules. And within the rules, we believe we can succeed. And we don't need to do anything which is not compliant and then want success. I think that's not what we have all signed up for. And we want companies which are very, very clear about, the founders which are very, very clear about
00:54:52
Speaker
How do you evaluate the founders? Is it through one-on-one interactions? Or is it by looking at the data about their, for example, repeat purchase would show customer love and so on? What are the different ways in which you evaluate a team which comes to you? So in fact, this is something that we keep talking about. How can we improve?
00:55:19
Speaker
this whole thing because this is so important, right? We were at one point in time said, should we talk to a professional firm to actually do an assessment and we thought many founders would feel insulted, right? And also the fact is that when we look at successful founders in a portfolio, they come in all sizes and shapes, right?
00:55:48
Speaker
So I can't do one identity kid and say, this is what it is. Right? I mean, I take a Varunalag and I take an Amiv Sharma and I take an Amangukta and I take a Swahasanee Sampath. I mean, they are all each successful people, but very, very different personalities and very, very different ways of having generated that success. Right?
00:56:19
Speaker
So I can't just reduce it to a formula, right? So we do two, three things actually. First is that we talk to people who know the founders. Typically these might be people they have worked with in their earlier professional career or in their earlier startup career and so on. And that's one good source of understanding.
00:56:47
Speaker
And we're not trying to evaluate the founder. We are really trying to understand the founder. We want to understand whether this is going to be a successful relationship. If it is not a successful relationship of fireside, it may be a successful relationship elsewhere because every venture capitalist is also different. So we're not trying to evaluate. We're trying to judge fit.
00:57:11
Speaker
We talk to people who know the founders. We talk to angel investors who therefore have spent time with them. We as partners spend FaceTime. There will be at least two to three partners out of the four who would have had long conversations with the founders. And we're really trying to understand how they think
00:57:37
Speaker
what is motivating them, how they would behave in different situations, and sort of somewhere, how they relate to our experience of leadership. And it helps that all four of us have come from strong operating experiences in large enterprises. So we've seen a bunch of leaders in action.
00:58:02
Speaker
And of course, before every investment, the founders do come to five sides of the office and meet our entire team. So yeah, I think we really try to work hard to assess fit. Got it. Okay. So would it be fair to say that a company would have already done the zero to one journey when they come to you and you have them in the one to 10 and the 10 to 100 journey?
00:58:33
Speaker
I think that's a fair assessment. Having said which, we have done some investments where there was no revenue. But we knew that the products were there. There was some kind of a beta thing going on, like Guinowita, for example. When we invested, there was no revenue. But we had such a strong view on the founders and on the thesis.
00:58:59
Speaker
We said, look, let's sign up for this and write it from here. But more typically, it's been like when they are at that 1 to 10 kind of a journey. That's when we find that they have learned some lessons along the way. There is, therefore, some greater clarity of thought. And that's typically, I think, where we have seen that happening.
00:59:27
Speaker
Then we really work with them on the 10 to 100. And now we are working on the 100 to 500 piece. OK, interesting. Do you have some playbooks that you share with founders for the 10 to 100 and the 100 to 500 journey? We do, and we are working on more of them. So on the 10 to 100 piece, we have written playbooks on how to engage with Amazon, how to engage with Big Basket.
00:59:59
Speaker
We have active conversations with Meta and with Google, so that we can help our companies understand what is the right engagement model with them. We also have active relationships with other channel players like a Swiggy or a Blinkit.
01:00:22
Speaker
So there is anchoring of all those relationships within fireside. So within fireside, we try to be as seamless as possible. So that, let's say, x is on the deal team, but y anchors the relationship with blanket. And we know that x requires that connection. So x talks to y and makes the connection all happen.
01:00:46
Speaker
So there are playbooks and there are relationships which work to the advantage of the companies. We're now looking to see how to strengthen that engagement philosophy and method to really a stronger playbook so that we look at a wider set of advisors, a wider set of playbooks. For example, we have written a D2C playbook.
01:01:16
Speaker
Which is saying, look, if you've got a D2C business, how can you really scale better and use less money in scaling up? So how can we refine that? So there is active discussion going on at first sight.
01:01:33
Speaker
saying how can we completely relook at all the playbooks and then think about how to strengthen it. So would it be fair to say the 10 to 100 journey is about two things from what I understand. One is distribution. So like all the marketplaces making sure that those listings are optimized and there is
01:01:54
Speaker
like customers ordering happening through all the marketplaces. And second is about customer acquisition, tweaking that strategy to make it more cost efficient, like through your relationship with Meta and Google, so you're able to influence the customer acquisition strategy. That is a substantial part of that journey, which is essentially leveraging the channels, leveraging the media options,
01:02:23
Speaker
to get acquired customers and hopefully have happy customers. And then to find product market fit, right? So that's an interesting and important outcome of that. Once we think that the PMF is sort of there. So the 10 to 100 journey itself is sort of that piece, which is about a lot of experimentation.
01:02:50
Speaker
You're putting in a lot of products, you're looking at different options on D2C, etc. And you're trying to see where the traction is greater. Once you have that kind of sorted out, then you start thinking about how to focus. And the focus involves two things.
01:03:12
Speaker
which is one about what categories do you really want to spend more money on? Where do you want to populate more new products, right? So it's still about experimentation, but that's getting a lot more focus. And the other thing is about starting to think about what is your brand, right? Because so far, if you like, it's all been product, I got supplements, I would launch supplements, et cetera.
01:03:38
Speaker
And then you're experimenting with advertising. You're doing some influencer stuff. You're doing log form video. You're doing short form video. You're doing a bunch of things. But then once you start thinking brand, then you start thinking about how everything you do falls within what the brand stands for. And you start forming your notions around what the brand is about. I would say therefore it has got both those angles out there.
01:04:08
Speaker
And there is some thought starting to happen around the organization, around how to build the right culture. I find founders who are at that 50 to 100, getting very clear about what kind of culture is it that they are building and what's going to make it work for them, how to recruit people who are a good fit for that culture. So a lot of that thinking is also starting to happen.
01:04:39
Speaker
There is increasing use of data and data about what is the retention, what kind of cohorts, how to do better retention marketing. So there are the use of data starts getting more organized. So this 10 to 100 is actually quite a set of changes happening even within that.
01:05:03
Speaker
Okay. A lot of it is about strengthening your processes like so that you're able to capture data, analyze data, and able to fix your hiring process and so on. Okay. Understood. How do you define product market fit? You know, you said in the 10 to 100 journeys also where companies find product market fit. What is the symptom that tells you that this company has found product market fit?
01:05:28
Speaker
I mean, I think we're looking for a couple of things. One is really about repeat purchase, right? It's a bit of a dodgy one at times because you're on multiple channels and people are not just operating on buying on one channel. The person who buys on a website may go into Amazon and buy, et cetera. So having within the constraints of that, we still look to see, is there a reasonable amount of repeat purchase in a reasonable amount of time?
01:05:58
Speaker
The second piece is clearly the kind of reviews that you're seeing on independent platforms. And that tells you a lot. What are people thinking about your brand and so on? The third piece is that at some stage in this journey, we want people to do a brand track. We think it's important. What's a brand track? So a brand track works at different levels. At one level, it just tells you
01:06:30
Speaker
Let's say your target audience is defined in a particular way. Let's say you're talking to young women living in metros in India. You want to know whether that target consumer is aware of your brand, okay? And their awareness can be at, again, different levels. You ask, which brands of shampoo do you know? And the consumer says, Bama Earth. So that's top of mind.
01:06:57
Speaker
Then she says, I know Sun Silk, I know Mama Earth, I know, it's not top of mind, but it's spontaneous. And then it doesn't come there, then you ask the next level, have you heard of Mama Earth? And she says, yes. So it is, then it starts at different levels of awareness. So that's one set of things about where the brand stands. But the other piece is about what do they think of your brand?
01:07:25
Speaker
And what do you think of your brand in comparison with brands that you think you're competing with? Right. And what is it that you want your brand to be known for? If you want your brand to be young, if you want your brand to be seen to be innovative, if you want your brand to be seen to be effective, if your brand, if your brand is for, um, modern people. So you write out what you think are the key elements of your brand.
01:07:56
Speaker
And then you figure out, you know, you ask 20 statements to consumers. You name your brand, you name three other brands. And you figure out what they say, yes, this brand stands for these six things. That brand stands for that. And if you are only the same as the other brand, obviously not achieve what you wanted to achieve, right? So you're not getting some sense of innovation, et cetera, coming through.
01:08:23
Speaker
So there is that whole sense of, are you getting customer love at the product level? And is there some distinctiveness as a brand that is beginning to emerge? Got it. So these three things determine product market fit. They are symptoms of product market fit. And of course, the end of the day, finally, you are also thinking about unit economics.
01:08:50
Speaker
because if you have achieved product market fit, then are you able to make your advertising pay? Okay. What does that mean? Make your advertising pay? In the sense that, you know, as I said, a lot of consumer products is about repeat purchase. And therefore you're spending money to acquire a customer in the hope that they buy, come back and buy you again.
01:09:17
Speaker
100% of people who buy your brand are not going to buy again. But let's say within three months, 30% come back and buy. So your LTV is roughly 1.3 times and the amount of money you make from your consumers in that 1.3 times
01:09:37
Speaker
Does it cover your cost of customer acquisition? Okay. Right. So are you making money in the lifetime of your customer with you? Okay. Okay. I understood. Okay. Now again, that's very important because if you can't, then obviously you've got to think again about product market fit. You need them to buy more often. You need to improve your product, something you need to do because then your unit economics is not working out.
01:10:05
Speaker
Right, okay, interesting. You are personally working on a 100 to 500 playbook, right, for the fireside portfolio. What are some of the insights that you are sharing with the fireside founders on how to take a, so 100 to 500 essentially means like a company which is at a 100 crore ARR, taking that to a 500 crore ARR, right? So what are some of the insights that you are sharing with your portfolio founders?
01:10:36
Speaker
So actually, from our experience with several of our companies now, we have ourselves learned many lessons. And that's what is actually playing into this whole 100 to 500 kind of set of practices. And we put that across some four, five different work streams. Now, we're not saying that every company needs to
01:11:06
Speaker
do all of that because some companies are already on the journey and doing it very well. So we're looking at each company and then try to figure out when we think about what will drive success, which of these things matter more to a particular company. And let me give you a flavor of the different work streams. I think the first one is just organization, right? And in that piece, I bring in many things.
01:11:36
Speaker
because obviously building the organization is on the founder's mind. Right from the time they actually launch a business because you've got to find people to do things. But there is an inflection point where the founder himself or herself or as a team are no longer able to manage the entire team. And that's when they need to think about themselves
01:12:02
Speaker
as no longer just founders, but also as CEOs. They are not just doing the business, but they're managing the business. And that mindset has to change. And along with that, they have to develop new skill sets. Because if you think about it, the skill set which makes for great founders
01:12:31
Speaker
is actually diametrically opposite of what makes for a great CEO. Just one example, as a great founder, you're in the middle of all the problems, you're solving all the problems. Every problem comes to you and you know how to solve it the best. As a CEO with a team of 300, 400 people, you need to get in other people who perhaps are more skilled than you in solving a problem and you need to allow them to solve the problem.
01:13:01
Speaker
Right? And I can go on, but the whole thing is how do you build as a CEO, a scalable organization? How do you stop working on BAU? How do you apply your entrepreneurial energy to levers, which you got in your mind, but which are not created? Right? How do you think about the future? And how do you work to creating that future? Right?
01:13:30
Speaker
the future organization, the future business, how do you work towards all of that? How do you step outside the organization? How do you bring in knowledge, practices, wisdom, experiences from outside the organization into the organization? Now great CEOs do all of that. So you have to re-runner yourself in so many ways.
01:13:56
Speaker
in order to create a successful organization. So one of the things we encourage founders to do, and many of them have signed up for it, is say, guys, you need to get on a leadership journey, a development journey. Start with great coaching. So get into a coaching engagement to get really ready for the future. It's a zone of discomfort because you suddenly think, am I getting into a psychiatric session kind of thing, right?
01:14:24
Speaker
But the good founders understand what this is about, that this is about being future ready, and therefore I need to know what myself a lot better. And that's great because we know that's the founders that are going to make a big success of their business.
01:14:41
Speaker
And then it's about then how to build the org structure, the L1 team, how to think compensation, how to think about the right processes, how to drive culture. Culture doesn't just happen, right? So a whole lot of other things, but it starts with the founders becoming great CEOs. The second piece is the whole brand piece. We talked about it a little earlier.
01:15:08
Speaker
And I think this becomes even more important because finally, in consumer companies, the value is in great brands. So that's what customers love. And that's what they come back to buy. And therefore, how do you transcend from product to brand? And how do you create an organization which drives that, not just you?
01:15:36
Speaker
And this is what a Unilever or a Proctor or a L'Oreal or, you know, all the great consumer companies. This is what they excel at. Across the globe, they're able to create one view of a brand, right? A dove in India, a dove in the US, a dove in Russia is all the same, right? And it's a great brand everywhere, right? Though you might think the consumers are so different.
01:16:05
Speaker
So how do you put that toolkit in place, which enables you to continuously manage a brand, compete with the external world and build market share, keep doing innovations. How do you put the toolkit out there? It's not about just saying, oh, I know what's in my, in my mind, what's a great brand. It's about having a method to it. Right.
01:16:30
Speaker
A third thing that we think that some of the companies will need to do is have more complex channel operations, right? From being digital first or online first, they will need to get into the offline world. How do you help them navigate that? Because it's a very different set of skills which are required to be successful out there, right?
01:16:58
Speaker
And there are lots and lots of things which are required for you to be successful. And there are very few things which are required for you to fail. So how do you help them navigate all of that? Governance. As you scale, your governance has to strengthen. And it's not because I as an investor wants that.
01:17:26
Speaker
is because you as a CEO don't want a fraud in your company, right? Or don't want half your team leaving you tomorrow because they're unhappy with you and your business plans collapse, right? So how do you strengthen your governance mechanisms, right? To build a stronger strategy, stronger ways of responding to situations,
01:17:56
Speaker
And so that the external world sees you for what you are, a very strong organization. And the whole planet first sustainability piece, how does it continue to grow as the organization grows? Because your impact of the planet is going to get more and more. And I think the last area we want to work on is technology. This again is something I think very interesting. And this is not just about saying put in place ERP, et cetera.
01:18:25
Speaker
It's about saying there is so much of data in the world, on the web and so on. Is there a way you can use the data to get more competitive? So a bit more of tech for sensing. So lots of things, and we're trying to see how to drive this in a programmatic way.
01:18:53
Speaker
with companies but customized to each company's specific context. How are how are these insights shared? Is it like you share a like a like a piece of text with them like some writing about it or is it through like a mentorship call or what is the way in which these insights are shared with the portfolio companies? How do you help them to actually invite
01:19:23
Speaker
So the way we have done it is two ways. I have gone and met each one of these founders, though it may not be a company on which I am on the board of. So I spent time and I'm not talking about what are the numbers of the last month, etc. I'm talking about
01:19:45
Speaker
the organization, I'm talking about their thinking, I'm talking about why they're taking the business to, what is working, what's not working, et cetera. So it's a very, very different kind of conversation. And I'm trying to understand really, therefore, when I think of all the things that I think make for a successful org, what is already out there versus what is not out there.
01:20:13
Speaker
Okay, so it's my, if you like, my audit, right? And then I come to the partner who is on the deal and the deal team. And I say, look, this is what I've observed, this is what I've understood, is it right? Okay, so I get a validation from some people who are more deeply involved, okay? And then we come to what we think are the right interventions, right?
01:20:43
Speaker
So then we sit down, there is a 100 to 500 team, there is a deal team, and we sit down and say, okay, this is I think the set of interventions that perhaps company A requires. Then the deal team goes back to a company and says, okay, this is I think what we think, what do you think? Okay, and we want obviously a buy-in.
01:21:09
Speaker
And to the extent that is buying, we are ready to come in and start talking about each one of those things. We connect them to external partners or any other kind of things. So that's how we work. So there is a process of understanding, confirmation and buying. Fairly rigorous process. I mean, your portfolio management process by itself is fairly rigorous in terms of helping the portfolio companies to scale up.
01:21:39
Speaker
It is, and I think that's our DNA project. I want to zoom in a little on the sixth workstream you spoke about of technology. What is a technology stack for D2C? Most outsiders would know, OK, Shopify is one tool you use to create your online D2C site. What else is out there that founders should check out?
01:22:07
Speaker
I mean, this is not something I have really tried to understand deeply actually. Yes, Shopify. And then I find different people are approaching the whole database differently. And right now, some people are actually using data to really, really create a very deep understanding
01:22:34
Speaker
of what is working, what is not working, to an extent that they can actually, during the course of a day, change the way the sales graph is looking. Okay? Whereas others are more looking at it sort of at the end of the month or the end of the week to say, okay, here is my,
01:23:01
Speaker
analytics on my media data. This is how my devices are moved. How do I change by the way they put my media? And I'm fascinated by how much data can be used to really suss out where the consumer is heading.
01:23:28
Speaker
to know not just what ads are working, but to see which cohort and therefore what you can do better. The other piece which is clearly coming to a fore in many, many conversation companies is the relevance of apps. Now again, it's an interesting question. When do you launch your app?
01:23:58
Speaker
I mean, the consumer is not going to download each and every app. But at some stage in the life of the brand, it feels like an app is becoming something very important. It's important for acquisition and retention. I always thought an app would be good for retention. But many companies are now saying, look, acquisition is happening on that.
01:24:27
Speaker
which I find quite interesting in terms of how consumer behavior on digital media is changing. The third piece is the whole area of retention. And again, lots of work going on with different companies around retention. People are seeing apps are certainly important for retention.
01:24:53
Speaker
but also things like WhatsApp, WhatsApp messaging, WhatsApp communities, communities on meta, communities within the app, all of these seem to be very good for retention. So I think again, it's very specific to the business, but it's acquisition is,
01:25:22
Speaker
just one part of the equation. How you figure out retention is very important and I think lots of different things going on in companies to figure that out as well. All right, got it. In the going offline piece that you spoke about,
01:25:43
Speaker
How does one decide whether to do general trade or modern trade between these two? Or should both be done at the same time? Or what's the way to think about going offline? So here is my view. So I actually put it out as three clusters. One is a national modern trade. The second is the local modern trade.
01:26:12
Speaker
which is a large supermarket markets, some of which are local chains, other which are just standalone. And then you have the, what I would call general trade, which is the Kirana stores, the fancy stores, the chemist outlets and so on. So the national chains, it's a complex org structure.
01:26:40
Speaker
And navigating that is not easy. Because you need to get the brand listed. Listing is going to be expensive. For that you need to negotiate again with the category team, which is at the center, right? Then you need to work with the regional teams.
01:27:03
Speaker
and the regional team is not just, let's say, South India, but there is a team for South India, then there is a team for Chennai, et cetera, et cetera, to get orders released, right? And then you need to have a support system to make sure the orders get executed. Then you need to have a way of reconciling accounts with the modern trade to collect your money, et cetera.
01:27:29
Speaker
So there is a complexity involved out here which many firms are not equipped to deal with. The general trade is again a different kettle of fish because their discovery becomes very difficult. So if your brand is already well known and the consumer is going to go ask for it,
01:27:50
Speaker
Then okay, you could go into a Kerala and put some stuff out there. And the guy will probably get some credit. He will keep it. And when it sells, he'll pay you for it. But you're not going to find brand discovery happening out there, unless again, you put a lot of POP and stuff like that.
01:28:10
Speaker
The other piece, of course, are general traders that the amount of business you can generate per outlet is going to be quite small. You need to have, therefore, a lot more feet on the street. And therefore, the cost of order acquisition is going to be large. So I think if what works better is the local modern trade.
01:28:38
Speaker
And again, within that, there are some chains where there are more complex structures, the listing fees are high, etc. But by and large, this is the place where you're going to find that, you know, the discovery of your brand can be easier. You still need to activate the brand.
01:28:56
Speaker
You can't just put it on the shelf and just say the consumer will find it. You have to spend some money on activating it. But hopefully you'll find that the store owner is more receptive to keeping a new brand. Yes, he is also going to say, sell the product that I will pay. But at least there's much better chances of success. Plus the consumer who comes to such a store would be relatively more affluent.
01:29:25
Speaker
would relatively, would be more affluent, would perhaps be more digitally exposed. So might have seen your brand on digital media, have some familiarity with it, would read back copy, right? And if there is a promoter out there talking a bit about what is the narrative of the brand, more willing to listen and understand. All right. So my last question to you,
01:29:51
Speaker
Which is your favorite company in your portfolio? That's like asking a father who's your favorite child. It's so difficult to know where to start and where to, you know, stop in all of this. I already talked to you about so many of my favorite brands about
01:30:15
Speaker
mammoth and yoga bar and kupiva, well-being. You know, Traya is such an interesting business, which is into hair loss. They're doing some amazing work. Smitten is actually a very different kind of business, where they're doing online sampling. And they are actually, therefore, not a product business, but they're a service business.
01:30:39
Speaker
They are actually looking at how to completely disrupt the way FMCG companies do marketing.
01:30:47
Speaker
because FMCG companies spent a lot of money on sampling. And these guys have just made it easy for them to do targeted sampling online and to understand how successful the sampling is by having an e-commerce platform where consumers who get a sample can choose to buy the full product on the e-commerce platform.
01:31:09
Speaker
Now they're offering basis all the data they have, actually a consumer research platform to FMCG companies and an advertising platform to consumer companies. So that's a very, very interesting business. And I want to do one more company, which I really love. Again, it's something that I've recently come on the board of. This is an IP based business. It's called, the brand is called Inito.
01:31:40
Speaker
And this is the first really solidly IP-based business that we invested in. IP developed in India, and they market diagnostic kits and sell largely in the US. So this is created in India for the globe kind of thing.
01:32:04
Speaker
And this kit that they have right now in the market is for women who are trying to conceive, right? And therefore they can track their hormone levels, know when is the right time for them to be able to conceive, or they actually can map out several hormones on that one strip on which their reading is checked.
01:32:29
Speaker
And they can figure out if any of the hormones are not as they should be. They can then decide to go to a Gynac, right? All of which becomes very, very important in a market like the US, where medical care is expensive. And something like this is not covered by insurance.
01:32:49
Speaker
So they've got a whole lot of other DIY kits coming in, all based on Indian IP. Amazing. Amazing. I interviewed Swagat, the founder of Smitten. I felt that this was not a frugal capital business. I mean, if you're building e-commerce, in a way, you're competing with Amazon and Flipkart. So I was a little surprised that you love it so much.
01:33:19
Speaker
No, you're right that to acquire that whole base of app users is expensive, right? But they're coming to a stage now where they are now leveraging that to create insights for FMCG companies. And that is very frugal on capital.
01:33:44
Speaker
Because the database has been created. Obviously you need to keep expanding it, you need to keep refreshing it. But that doesn't need to happen at the same pace as it has happened all along. And then the inside piece is actually a very different kind of business.