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The antifragile founder | Rajat Tuli @ Ustraa
262 Plays1 year ago
Business news often talks about companies that become successful overnight, but if you want to learn how to build a business from scratch, you should hunt for tales that are more of a slow-cooked stew than a microwaved success burrito. Rajat talks about his two-decade journey of building up first Happily Unmarried, and then the leading men’s grooming brand Ustraa.
Read the text version of the episode here.
Read more about Ustraa:-
1.Happily Unmarried to Ustraa 2.0: Life on razor's edge
2.VLCC acquires Ustraa through a strategic merger
3.Technological innovation will shape men’s grooming in the years to come
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Transcript
Introduction and Early Journey
00:00:00
Speaker
Hi, I'm Rajat. I'm a co-founder of ustra.com.
00:00:17
Speaker
Business news headlines are fixated on overnight success stories. But if you seek to learn how to build a business from scratch, then you should search for stories of business success that take decades. And this is exactly that type of a story. The year was 2003. Rajat Thule was in his 20s, a recent graduate from a leading business school when he decided to become an entrepreneur.
00:00:39
Speaker
Over the next two decades, Rajat and his co-founder built up not one but two iconic brands. In this very special episode of the Founda Keyses Podcast, your host Akshay Dutt speaks with Rajat about his two-decade journey of building up firstly, happily unmarried and then the men's grooming band, Ustra. Stay tuned and subscribe to the Founda Keyses Podcast and any audio streaming app to hear real stories of scaling up businesses from scratch using first principles thinking.
00:01:14
Speaker
One day you had a full house and the next day you didn't have anything. So we moved to Dehradun and then to Delhi. And Delhi is very very competitive in the Delhi business. So our idea was to do college, possibly do an MBA and then take up a good job so that you know things at home stabilize. I joined you. I was in Venkatesh Rana college. B.com honors. So three aat, good fun three years.
00:01:40
Speaker
Really enjoyed college. Then like everybody else that time was preparing. So I took cat exams. I was interested in advertising. So I was very sure I wanted to do advertising. And then I read about Micah. And it seemed like the perfect place for advertising. Got into Micah. Was in Micah for like two years. That's when I met Rahul, who's my co-founder and other partner. We both saw it together. Then joined advertising. And then in two years got
Inspiration and Initial Struggles
00:02:08
Speaker
both.
00:02:08
Speaker
I was reading the book by Alec Paramsi long time ago and he said, the biggest industry in India has this follow-up, which is so cool because that's what you're doing all the time. You know, you're only following up with people. So that was the time, you know, when the first sort of dot-com boom was starting, you know, 2000, early 2000, 2001, 2002, there were these e-guru cool and there was lots of stuff was happening.
00:02:33
Speaker
So we said both Daul and me were not zero knowledge about computers, no idea about internet, no idea about technology. So let's work for an IT company and get that understanding, because that's where the future is. So we joined a company in Hyderabad, which is into touchscreen solutions. So touchscreen, that time, I think we had just barely come into ATMs. And here, this guy was trying to set up a touchscreen-based system. And they had this very nice kiosk where you could
00:03:01
Speaker
I could touch him. And it was very interesting because his idea was that, look, in India most of the people are not educated. If you want them to understand, they have to do it through touch. And we like to touch things. While we were in Hyderabad, both Rahul and me, when we were trying to find accommodation or find a place to live, nobody was giving us the preference because one, we were bachelors. Two, we were from the north. So the advice you were getting is, why don't you guys get married? Why don't you settle down? It was very bizarre.
00:03:31
Speaker
But that was the time when we got this idea that look in this country, everything is targeted towards single people. What if we can set up something for unmarried people? That was when we started discussing this idea and then what is complete, it was finally, as it is agreed, we started handling the Delhi operations. But like I said, they blew up all the money, so they suddenly, salaries stopped coming and there was no money coming.
00:03:55
Speaker
By that time Rahul and me were discussing this happening about ideas, back and forth, the company had given us that time again, I think 2000, even laptops were not, they were difficult to access the company and gave us a very fancy Dell laptop. We motor gauged it. We gave it to somebody and said, look, give us some money. We have to clear some, we have to clear some salaries. Because there was a law that time that if a 90 companies importing a laptop, they can't sell it to anybody. You could only use it for software development.
00:04:25
Speaker
So, we said, you can't sell it, so we'll give it to you as a mortgage. You give us the money and that became our seed capital. And what was the idea? So, the idea of hablin married was to be a one-stop shop for people living on their own. This is the thing we're offering. We're offering them a place on rent. We tied up with brokers to get a place on rent. We're getting their furniture on hire.
00:04:45
Speaker
We were getting them things like curtains, rugs, so far everything.
Finding Success with Happily Unmarried
00:04:49
Speaker
And then we realized that finally you have some money in your life and you want to do up your homes a little interesting. We said, let's do some quirky merchandise that will go with their homes. You have this independence, you want to have nice bar accessories. So let's do that as a small range. So you were going to earn through the rent arbitrage, like you would take a place. Yeah.
00:05:11
Speaker
That was the model and then you would get curtains from Pani Path and give them curtains because realizing when you set up a house, most of the guys don't know what they need. So he had these starter kits which had these two utensils, four curtains, one rug, one stuff like that. But this merchandise was not chargeable. This was just part of the package only. No, you would buy it. You would buy it. And the responses are encouraging. You know, it was quite good.
00:05:34
Speaker
Except that we couldn't deliver at all. Like for instance we were tied up with brokers.
00:05:44
Speaker
When you would go there, there would be no house or the broker would not be there. So there was a lot of demand, but we just couldn't manage the supply. So I realised that it had a lot of demand because everybody was looking for cheap housing. But there was no supply. There was a time when call centers were opening up and there was this entire excitement about BPO and everything. So there were a lot of young people moving to Delhi or moving cities. But we realised that, you know, Japchak, you don't control the entire demand.
00:06:12
Speaker
And we didn't do that because we did not have the broker, the kind of networks that brokers had. So, and now if you look at it now, that becomes a startup of its own. There are companies which are providing a combination of single view. There is a company which is providing furniture and hire. So, my sense is that the ideas were right, but the timing was way too early. Plus you were doing too much. I think these are like three different startups you were doing. Way too much, yeah. And you were two of us. So, it was a big team of two people.
00:06:43
Speaker
So we are trying to do and beside that we were getting merchandise made you know like quirky ashtrays and stuff.
00:06:49
Speaker
And then we are going to different offices in and around Delhi, where our friends work mostly advertising agencies. And casually go and say hello, we come to say hi. And then we shut up this little stall there and try to sell things every day. So this was our routine. That was like much worry, like you had to make money, so you... You had to make money and realize that, let's go and meet a friend. And we would also sometimes go to different offices.
00:07:15
Speaker
and use them to, because you know, so using our friends networks, some of them realized that we were doing that as a backup office, you know, and to sell merchandise. So, within the year of starting out, we realized that the merchandise piece is only one which is getting traction and a lot of, so that became the main business and we realized that we were pretty good at it, you know. So then, so within, so this is like, I think,
00:07:43
Speaker
2003, 2004, we don't have money. Then somebody reached out to us and said that, you know, I'm looking for a, I think 2003, we're looking for an interesting promotion offer for the World Cup. So if you can think of some good ideas for to go with a packet of Britannia biscuits, 50 otherwise, you can make some money. So this might give us some seed capital to expand.
00:08:13
Speaker
Okay, this is like a corporate gifting opportunity visit. Corporate gifting, so this over here. And this is massive, it was actually, it was 4 crore, they wanted 4 crore gifts. So, so we really thought about this and finally came up with this idea that you can't you can't you will get canchas printed with caricatures of cricketers and they will go out with every packet of biscuit. So, that was the idea we cracked and fairly excited, but then we have to find out the entire supply.
00:08:43
Speaker
Where are the kanchas being made? Who's going to make them? How will they get printed? How will they get packed? How will they dispatch? So anyway, it was a very interesting project. And we spent six months, I think, planning. And then four months, just executions of four months, we were only printing marbles. So we printed 40 million marbles, four crore marbles. Made some good money. Not good. We have made decent money.
00:09:07
Speaker
And that became our real estate capital. So we had some money to go in. And then, so this was the Britannia Kao World Cup Jow campaign. And they had these marvels. Learned a lot about how corporate works. And we started doing a lot of corporate gigs after that. Because it got you capital. So we did a lot of work for National Geographic Channel. We've done for HBO, Bacardi. And then one day we decided here, dealing with the Honira.
00:09:34
Speaker
Let's open something. And again, you have to understand this is the time when there is no Facebook, there is no internet as such. There is no networks for people to communicate. So we said, okay, which is the coolest place in India? The coolest place in India is Goa. Everybody in the school goes to Goa, so let's open the store in Goa. So then both Rahul and me packed our bags and just headed to Goa. And which year is this, when you landed in Goa? I think it is 2003 or 2004.
00:09:58
Speaker
Because we were seeing the match that time, that's what we were doing. So it was like peak summers and we were in Goa and we hired a bike and they were going all around, up and down, asking people, do you have a shop to give, a higher shop to give? Random. In the entire calendar, we built. When we went to return the bike to the guy, he said, who are you guys? Why are you here?
00:10:20
Speaker
All I saw you doing for three days was this way up and down the roads. You didn't go to any place. So we told him, you know, we were looking for a shop to start and we didn't, we couldn't find anything. So he was going by. He said, I have a shop. So this guy had a shop. Very nice location. So and the best part was that right on top of the shop was the apartment. So we took both the places.
00:10:43
Speaker
And we started the happy environment store in Goa. And it was absolutely crazy. We had so much fun. Rahul relocated to Goa entirely. He said, he was based in Goa and I will go back and forth. We had a second hand Maruti 800, which you drove to Goa. I was crazy, crazy, crazy trip. So anyway, Goa shop actually helped us incredibly in the sense that everybody, a lot of people came to Goa. We understood that that 2-4 concept
00:11:12
Speaker
is working, the products are doing very well and there's a good feedback on everything. So we're very happy and Goa was actually very good days. And how much were you making monthly, like were you able to pay yourselves? Yeah, one of the basic salaries, nothing extravagant, but I think, yeah, we ran the Goa for 4-5 years.
00:11:36
Speaker
But beyond the point, Goa has a limitation, you know, once. Obviously, it's a lifestyle business. It's not like... It's a lifestyle business. So you can't make money out of it. Then we moved to, came back, I mean, relocated back to Goa and said, you know, let's, we have a product range and let's not start affording shops. And that corporate business was still going on while you were in Goa. Corporate is going to the side, yeah. It is going to the side.
00:12:02
Speaker
And then by the time happily I don't become very cool entity, BBC featured us, we were on the cover of Outlook magazine. So it had got a fairly cult following without us having spent any money. And you know we would get, so for example 2007, 8, 9, 10, it had become a well established band.
00:12:22
Speaker
We had stores in Khan Market, Selectity Walk, small kiosks. We were in Bangalore. Your own store, like company operated.
Pivot to Men's Grooming
00:12:31
Speaker
Yeah, one of them. They were like kiosks, not stores, but I would say kiosks. And fairly good visibility, people knew us.
00:12:39
Speaker
and that is in 2007-8 is when Facebook entered our lives and suddenly one day I opened up I set up a page called happily is married and forgot about it and then I then I then after some couple of months I checked it it had about 1 lakh followers that's quite amazing
00:12:56
Speaker
Then we realized oh my god, there is there's a there's a following till then you didn't like I see it in mint a kid invite I am on a go India ended a kill Indian did it Dave huh, then it is supposed to come and make our presentation This is 2012 or 2011. Okay, and by 2011 you were essentially multi location retail company like
00:13:17
Speaker
Yeah, multiplication, middle companies supplying to all cool stores had a decent product line. I think you were also, okay, you also had a channel. Yeah, distribution. I believe you used to be there in Archie's. I remember buying your products from Archie's a lot. A lot of Archie's type stores kept our things. So even Archie's, some of the Archie's guys bought our stuff and sold it, not through the company. But you know, every city had this really cool store, like Poona is either or Bombay are testing. So we were in all of the stores.
00:13:47
Speaker
But we could get so many intern applications because everybody wanted to intern with us. So I got intern application from one student from some fancy Stanford kind of place doing computers. At least she'll be able to fix her website. We had no idea what to take. So then we went to India on a day and we were asked to make a presentation.
00:14:18
Speaker
And then we made a very cool, we are this cool company, and this, this, this, this. And that time, we had this parent who came to us and said, hello, happily married. My daughter's going to intern with you. I said, hey, get the look. They're not here. Then, oh, welcome. We're happy. And then he gave me his card. So then I saw the card, and he said, sanjeebichandaniinokkari.com. His name is, this name is very familiar. So that girl was,
00:14:48
Speaker
who wanted to intern was his daughter. And so then he really helped us when we were there because he was a complete lost story. He's a great guy. So he helped us set up and connecting us to the people and everything. And then I thanked him.
00:15:02
Speaker
thank you so much for everything. So he said, you know, you guys have a great business, but you made a very lousy presentation. Why was it lousy? Because it was, we didn't realize it was, that time it was all like a business pitch to investors. And we had no numbers on our website. It was all like story elements, but very less numbers, basically.
00:15:20
Speaker
No, no more than it was in the pitch. So, so then he had done some back checks on us and realised that, okay, you know, the company is decent. So this is about 2012, we have started investing in companies and you know, you look like a good bet, but you're a great business, take it online. So, we said, okay, we'll take it online. 2012 is when we raised the
00:15:42
Speaker
first round with in 2012 to the end of 2012. How much were you like revenue wise what were you doing by then 2012 like monthly or annual? We were doing about five crores annually. Wow amazing okay. So it wasn't a big business but it was a small business and it was enough to sustain us.
00:16:07
Speaker
5 crores is like, for that era, without any funding, 5 crores is extremely good. So Sanjeev said, look, this is a good business. But now if you want to raise funding, you have to think beyond yourself and think of it like a, like a business, not like a lifestyle. So that was the call you took.
00:16:29
Speaker
Now let's build a business the conventional way. So we raised around with Sanjeev. How much did you raise? We raised five crores. Sanjeev, we had to pitch to the entire board, met everybody and got approvals. We started expanding happily in marriage. We got a full house, enabled tech team in house. We started building our own website, started website operations. We opened a sort of terminal three airport.
00:16:58
Speaker
which is a big thing because in terms of visibility and in terms of just being allowed into the airport is so that you've arrived in some state because not everybody gets so much out of the airport. So we did that all that. But as the business was expanding, we realized that we were blocking too much of our cash and inventory. If we had 70 t-shirts, for example, designed 70 t-shirts into four colors, that's 280.
00:17:27
Speaker
into four sizes. So almost a thousand into the number. So like that, it is becoming a business which had very, very lot of cash trapped in inventory.
00:17:43
Speaker
Because you had a large number of SKUs, but the numbers per SKU were small because you were all about uniqueness. Yes. So the constant pressure to create more SKUs and as you are scaling, some of them is the MOQ. But then we realized that they are a business, SHLE sector, because it is too much of your working capital to invest in inventory. And you were selling online also by this time?
00:18:10
Speaker
How are you selling online? Small numbers there, but we had hired... That five crore funding, you spent it on building an e-commerce thing. Building an e-commerce engine, got some good people. I think within a year or two, we did one more round of another six crores with Sanjeev, with the info age. So money came in, but then we realized that this is a solid problem because beyond a point, you can't grow. If you keep opening stores, that's a lot of capital expense. How much is it?
00:18:38
Speaker
The unit economics are not making sense. When we had a store at Delhi airport, we had almost a crore block only as security deposit. That's crazy, right? You're blocking good capital, which you could invent. So we realized, now happily a minute, essentially had a lot of male customers, you know, while it had a lot of these bar access. So while lots of customers were men,
00:19:02
Speaker
What was your average selling price across all SKUs? About between 300 to 500, I guess. And doing again, doing well. That time we know the business had reached from 17 crores, I think 17-20 crores we were making annually. And what is your gross margin? Like if you sell something for 400 rupees, how much was the gross? Also, the average amount of gross margin was about 60-65%. One third was the cost.
00:19:28
Speaker
So we used to do that. Whatever the cost, we used to multiply it by three. Because there's a lot of design, massive design team going. We had about 20 designers working for us. So it was, but we realized that this business is not going to sustain.
Building Ustra and Online Success
00:19:41
Speaker
It can't grow. It has too many limitations, especially from an internet perspective. If you want to do internet business, you need to have 10 SKUs. They should be selling in multiple quantities so that production is easier.
00:19:51
Speaker
So one thing that both Rahul and me were very confident about was men's grooming because you know that is one area which has not looked by anybody and we felt that like men were growing beards but there were no products located to beards. So we figured that maybe if we do something with this category, without realizing that the FMCG is a different business altogether, if we get into FMCG and good gross margins and repeat sales. Now I assume there is no repeats. I bought an ashtray and it's for with me for life.
00:20:23
Speaker
And at that time, like the Beidou, Bombay Shaving, all of these were there? No, nobody was there, nobody was there. This was 2015. So, 2012 when we raised the first round, October we raised the first round, and then 2015 we were already working on a men's grooming rate. And we took a factory on higher end bowana. So, it's called low license to take an existing factory and you start working on it. So, we hired a cosmetologist.
00:20:47
Speaker
I said our face wash banado or beard oil banado, whatever lily we would understand. So we started making. And then what we did was we would go to... There was no like bucket research and all of that you did before. No, nothing. Just that based on our, you know, we said, so many guys with beards, there has to be something here. So many, you know, and then the social media. So what we did was we actually spoke to some of our HU customers.
00:21:13
Speaker
We had the numbers because they used to come to our website. They said, look, we want to start this. What do you think? Yeah, great idea. There's nothing like that. So we started working on this.
00:21:22
Speaker
And then in I think August of 2015, till then we had done about 17, 18 trials of different products. We said, let's launch it. So we saw on the Applean Merit website only we launched Ustra. Within three months of launching, Ustra was outselling Applean Merit and we were like shocked. Ustra was outselling Applean Merit. So I'll give you an idea that HU would on the website would maximum reach out to about 30, 35 cities across India.
00:21:49
Speaker
Ustra, we have now touched about 1,200 cities and towns across the country. So we realized the scale was so different and that for once was very good because we used to niche, niche, quirky, and now we are mass. So it was a great experience. One quick question here. When you went online for happily admired first, how did you build traffic and all those things of e-commerce which you need?
00:22:18
Speaker
So a lot of organic traffic was coming. We never advertised for a couple of minutes. Okay. You already had a Facebook following. We had a Facebook. And that time, the post would go, the travel virality was there. How much was the website doing monthly? As a business, you were doing 17-20 crores. So what contribution was coming from online?
00:22:42
Speaker
online would be, I think not more than 25-30% because it is quite, it is quite a minuscule. So, once Ustra started doing giving travel instruction, we went to Sanjeev again and said,
00:22:54
Speaker
we didn't tell you but we launched a men's rooming brand and this has happened to us since then that it's getting fabulous traction and we are now releasing this many countries so he said you know guys I think you have also found your nokri so he said you know before I started nokri.com I had doing 8-10 different things but when I realized nokri was getting traction I shut down everything else
00:23:16
Speaker
So, however attached you have to happily married shut it down and focus only on USRA. And we did that. Actually by that time and it was very interesting that the same team which was running happily married suddenly started running an SMGG brand and there were no big changes in the company. The same spirit, the same DNA. Of course, we had to hire cosmetologists and that's how started and USRA was selling online.
00:23:37
Speaker
And then we started selling in marketplaces. And then suddenly there was a lot of influence. So it was the same legal entity or like you created a new... No, no, yeah. HU was a company and HU was a sub-brand. And this is also the time when Beardo was launched and Man Company was launched. So all came in the 2015 end. So there was good traction, in fact. And we did a lot of spending on Facebook. So, Usra became a case study, Manish, who had joined us when we got our first round and was heading an e-com.
00:24:06
Speaker
was invited to present to Facebook USA. So he went to, he was his role to Facebook office and he made a presentation of how we had built an FNCG brand on Facebook. So good days. And then there was fabulous investor interest suddenly, you know, from HU, we had a line of people asking us about it. And then we got, you know, feelers from three big FNCG companies.
00:24:35
Speaker
there was Imami and there was Mariko. So we were talking to all of them. And this is 2017. 2017, 2015, 2015, 2015.
00:24:46
Speaker
And how much were you doing since the revenue, like annual? We were doing about a crore crore in half a month. Yeah, I think that is the number we were at. And you had shut down happily on merit. This was all Ustrasic. I think that is also the time when demonetization happened. That was 16. So we were doing a crore before demon and then we stuck to a crore number. We did not spend money and so we could have become two. In fact,
00:25:09
Speaker
I think March 2016 we had done that with us the 2 crore a month number. But after demon, the signal we got was just, just lie low and don't spend too much money. So we were steady at a crore a month and then Vipro invested in usra and they invested as a financial investor which is very good for us because we didn't want to get tied to a strategic investors so early in our
00:25:30
Speaker
Life of the companies. There is no value argument. Let's not. And Vipro seemed like the most ethical and the most clean bunch of guys among all the companies that we had met. So Vipro came in and... How much did you raise? That time we raised 30. It was a big business. And it came in trenches.
00:25:52
Speaker
So various, and then the money, then Nusrah became the core and then Vipro got these, so 2017 the Vipro came in and then they got in the discipline of FNCG, MI systems, financial, financial health, financial, and they also set up, started helping us in helping build the offline business.
00:26:11
Speaker
It was only online. So in 2018 onwards, when we started building the offline business, and then things are moving well, we kept growing. How do you build offline in FMCG? What's the way to do that? Is it that you appoint these stockists or how do you do that? Yeah. So offline in FMCG is like offline in FMCG. You have to do it the way the big companies have done it.
00:26:38
Speaker
It is very painful. It is a very slow process. And it also involves building a lot of trust with the community, with the distributors, with the retailers. And we did that. Just take me through the steps. What's the first step? There are two things that happen in an offline business. One is general trade, which is your corona shops, which are all over the place. And there's modern trade, which is your big bazaars and more or whatever.
00:27:09
Speaker
So, it is very, it is easier to get into modern trade because you have to just pay money, get your products registered and they do the distribution, they put all your products everywhere. But it is more expensive. You have to pay money for what? Like aren't you, I mean, you're selling them, right? Like typically what a modern trade outer does is suppose they want to
00:27:32
Speaker
They have to also find ways to make money. So they'll say, OK, you have 20 SKUs. To register each SKU, I will take, say, 5,000 rupees. So that's about a lakh rupee. And if they have 10 outrades, that becomes 10 lakh rupees.
00:27:48
Speaker
Then they'll say, OK, I'm putting your product. But if you want a dedicated space, which is called an end cap, like the end of the shelf, I will charge you money for that. So that is their way of making money. But I'm still thinking. In-store branding and visual merchandising. In-store branding. And they insist on that because that's how they make money. Like if they put up an FSU, they'll say, what is FSU? Floor Standing Unit. So when you're like, typically, Gillette will have these things with their branding.
00:28:18
Speaker
So that is the model that they use. The other is the general store, where you put your salesman who goes to every shop and says... And this is the distributor. So you have to first convince the distributor to invest in you.
00:28:41
Speaker
And distributed like one per city or something like that? No, multiple, multiple. So like in Delhi, we'll probably have like one for South Delhi, one for North Delhi, like that. Yeah. And like in West Delhi, we have three. So as the business expands, you increase the number of distributors. He finances the business, right? He has to say ROI.
00:29:01
Speaker
So he pays you upfront when you give him? He pays you upfront. And then he gives some working capital financing to the Kirana stores. Yeah. So I tell you, so the difficult part was that we wanted to do, we said we want to monitor, we do general trade because it's less money. We'll work with distributors only on advanced payments. And I'm telling you right now that out of
00:29:24
Speaker
All the FMCG, new age companies working in India, nobody does this. And then you have to pray and make sure that it sells. Now we are selling about 15,000 outlets, Pan India. And what is the product range? Product range is everything from face pouches, to shampoos, to hair oil, to beard oils, everything. So we have about 85 SKUs. But out of this, our top 10 SKUs are giving us 80% of the business.
00:29:51
Speaker
So we built that. So we have classic FMCG here. So now it's a pan India business. It's a fully grained business. We have almost 200 people on our rolls right now.
00:30:11
Speaker
Out of these 200, how many do sales? What's the split here? Sales is the biggest chunk. But as a company, we believe that everybody does sales. We all believe that our job is to sell. So I think sales would be about 120 people are in sales, 120 to 130.
00:30:27
Speaker
And you have like a typical FMCG structure with NSM, RSM, ASM. Yeah, yeah, yeah. So we have actually two divisions now, we have an online division. Online still is a bigger business, online is about, I would say 65% of the business is online, 65-70%.
00:30:43
Speaker
30% is offline. So there's an entire online team, including developers, digital marketing, UX, and then you have these customer care people. And then you have the entire offline structure, like you have, you know, national sales director, then you have any RSM, then ASM, then sales executive, then you go down. So you have to build that. You have to build that otherwise. Okay. Okay. And like this year, how much will you do revenue wise?
00:31:13
Speaker
We will cross 100. So it's a big year for us. It's been a long journey, but yeah, I think this year we'll cross 100. How much did you grow? Just tell me the last two, three years in numbers just to understand the growth. So last year was about...
00:31:32
Speaker
65. That's a pretty big jump. But again, there was a de-growth during the COVID years. And COVID was a bad year, so we digressed. Last year was 65. And this year we're going to cross 100.
00:31:44
Speaker
What is driving this growth? Like 65 to 100 is a pretty big jump. What's driving it? Is it that you are...
The Acquisition and Future Goals
00:31:51
Speaker
Oh, I hope I understood the listening to this. No, no. Yeah. So, essentially, one is that, you know, the business is growing. We still feel that, you know, if you look at the size of the opportunity, it's massive. So, because now we ask ourselves, can we be a 500 crore company or a 1000 crore company? And we feel yes.
00:32:08
Speaker
In another five years, maybe yes, that is a possibility. So the growth has been driven by increased businesses online while online is growing. And also we've now started expanding offline. So like I said, we have 15,000 stores right now. The idea is to be in another 40 by the end of 2023.
00:32:27
Speaker
What is the way in which you have spent for growth? Like, you know, one way is to you spend on, let's say a TV ad to grow, or you can spend on building your sales team to grow, or you can spend on performance marketing to grow. So what has been your strategy?
00:32:42
Speaker
So, we are doing a bit of both there while there is always the need to feed for the feed on street. For instance offline we have what is called promoters or you know grooming advisors. These guys are at at premium shops and they help the customers. So, at the last count we had about 450 grooming advisors. Those guys are on our payrolls and their job really is to tell the customer about the products. So, that is what we do in offline. Online we have we do performance marketing also and we do lot of
00:33:12
Speaker
brand building kind of ads on Facebook and Instagram, then we do both the thing. Have you still kept away from modern trade? Because I think you said modern trade, your margins are lower. Okay. A little bit. But we are like we're doing some, we've done some regional modern trade. So we're doing this chain called Lulu in Cochin, which is now expanding to Bangalore. They also very big in the Middle East. But in India, they just won't open the store in Lucknow and doing very well. So we are we are going with them.
00:33:42
Speaker
We also know toxic reliance and we should be there soon. So now what's happened now is that the band has become acceptable. So this one also relies that you know for us at demand. So we are hopeful that soon there will be better terms and there will be not so much but the best is yet to come.
00:34:01
Speaker
Okay. So you are putting maximum amount of your capital on expanding offline, like that's where your spend goes. So there is also a considerable portion of our marketing spends are on advertising online. They are still are. But what that does is it also helps our offline. So we discovered, you know, when you run ads on Facebook or Instagram, it also reaches out to the offline customers.
00:34:28
Speaker
So, it does both. But yeah, our choice of advertising, if you have the biggest money, goes to digital marketing. That's our biggest spend. What is the difference in the economics of each of these channels, like Modern Trade, General Trade, Online? Which one gives you better gross margin? The best gross margins, obviously, are from our own website, of course, because at the time, there was no middleman. But there you would spend on customer acquisition costs.
00:34:53
Speaker
So, but the when the repeats are kicking in and so, but I still think yeah. So, having said that even now for online as a single medium our website is the biggest source. So, it not only it does not give you valuable data information, it also tells you what the customer is referring in an interest.
00:35:10
Speaker
Okay. Then why are you focused so much on offline if the gross margin is lowest there? It still is. That second is that while online is growing very big, it's still a very small part of your overall. So there's a ceiling there. Online can only grow up so much. No, it's growing faster. I think in the next five years, ten years, offline will go. But India is so diverse, so vast and so many different people with so many different
00:35:39
Speaker
the consumer kind of spending years. But what's happening is that the tech is also getting integrated into offline, which is very good. How is that? Like, how is... So, you know, like we use apps for our sales team to track their very needs. Our promoters, our grooming advisors also have an app to let us know what is being sold every day. So you get a monitor on real-time basis what is selling. Then all the auto placement right now is
00:36:06
Speaker
through apps again. So a lot of interesting works happened in this, a lot of development work is happening. And then there's actual startups who are trying to disrupt the distribution business. So they're saying we'll become virtual distributors of your products. So they're all trying to find faith. I'm sure that, you know, in India, it's such a wonderful and such a massive landscape that there is something in it for everybody.
00:36:25
Speaker
So, compared to traditional FMCG sales, you are able to have a lot more visibility than a traditional FMCG because of your app through which you get real-time data on what is selling. Yeah, I think compared to our traditional FMCG, we are also faster in reaction. It's a newer category, so the guys are also willing to... So, because of our app, what you get is the refurbishment is faster. Refurbishment means like refilling once the stock is over.
00:36:52
Speaker
I was reading about how HUL now is setting up nano factories. They are massive factories. They are selling up small factories to actually compete with companies like us, where they will be able to produce smaller qualities, innovate faster, get products in faster. How many SKUs do you have now?
00:37:14
Speaker
We have 85 SKUs. And then there are multiple packages they're bundling. What are some of the lessons that you can share with founders who are building in the FMCG space? Like, you know, what are some things which you've learned from experience? So what is it? Don't do Ben's Ruby. Don't do Ben's Ruby because we are doing it and we did a good job of it.
00:37:35
Speaker
Well, it's an interesting category. I would say that, you know, unfortunately, it does take a lot more money because in this business, the biggest chunk is not the product development, it's distribution and marketing. So you will spend a lot more money in telling people about your product. But you have very patient investors, right? Like Premji Invest, Info Edge are both patient investors.
00:38:01
Speaker
They have been entrepreneurs themselves and they have seen the journey so they are very very patient and they are very aligned to what the promoters feel. So the FMCG are part of the business. So they again are, they have their own funds so that makes a big difference. The other investor is IIFL which is the sort of a private equity.
00:38:26
Speaker
I feel it's fairly new, it's been two years. But they all align to how we see the business and I think they are okay with the growth. Of course, it could have been more, advertising could have been less, it could have been higher, but that is how it is.
00:38:45
Speaker
What do you think, what do you regret? Like you said that it could have been more, what could you have done differently? I think what happened was that during the lockdown, we stopped advertising completely. And we realized that was a mistake because some of the companies that kept advertising that time, when the thing got over, they were really on top. People are saying that this is a very big winter, things are very bad, it's very bleak.
00:39:10
Speaker
But at the end of it, the companies that emerge will be much stronger and bigger. What is the exit for your investors? IPO or acquisition? I think the company will have to be much bigger. So there are two or three ways. One is that we merge with another company and that company itself does an IPO. Secondly, somebody acquires us. Thirdly, somebody puts a lot of money in us and we acquire a class of companies.
00:39:34
Speaker
And then we go and do it. So these are the options right now. And like Ravi Shastri says, all three options are open right now. But what would you like? Do you have a preference? So I would like, the important thing is, whoever it is, they need to have the same vision for the band that you have. What I would only want is that Usta should stay in perpetuity. If we are not there, the band should stay for as long. That's how big good FNCG brands have stayed.
00:40:04
Speaker
There are all these, like Thrasio model, e-commerce roll-ups. Have any of them approached you? Yeah, they did. All of them, all of them did. But you were not interested in selling? No, we spoke to, we spoke to everybody here. But the thing is that, you know, these models are not fully evolved yet. So they are also experimenting. But it's an interesting take. But because it's worked somewhere else, it doesn't mean it'll work in India.
00:40:32
Speaker
And secondly, because, you know, it will also have a lot of creaking, even if you get it from one. But it's, I would say it's an interesting thing because the only way if you look at all these companies, even P&G is a cluster of multiple brands, Unilever is acquired multiple brands. That's how F&G is. So it's not a unique model. It's unique in the sense that it's only because it's online first and that's the uniqueness of it.
00:40:53
Speaker
So, you know, like Mariko has acquired Beardo, which I think, I mean, would you really be able to like, you know, go up against Beardo considering that they have all these advantages, which you're talking about, like the Mariko sales team is selling Beardo as well.
00:41:11
Speaker
Yeah, but they are not able to sell it that well. I don't know what's wrong with it. No, no, honestly, so Beardo is, I think, Beardo is about 95 or close last year. I don't know what to look this year. And if you're that kind of number with the Mariko support system, then I would say that something is not working. You know, I don't know what's in it. But like if you were, we were on a similar network with that, we would probably be three times, four times of what we are right now.
00:41:35
Speaker
So, also I have discovered that, you know, this, you know, one doesn't have to worry about, you see, because when we started and when we were online, Buildfume launched its beard grooming products and they launched a beard oil.
00:41:50
Speaker
And then everybody was thinking, what are you going to do? What are you going to outspend you there? I think they ran that and we discovered those two ones when they were doing it. I mean, our sales were getting more increasing. So, you know, our listeners have heard the story up to a certain point. There's a major development which has happened. Can you tell us about that? So we got acquired by VLCCA.
00:42:14
Speaker
Couple of months. How did it happen? We had an investment banker who would be scouting for either funds or some kind of a strategic tie-up. Because we had reached a certain scale. I think we were almost 100 crores last year. So that scale, to go further beyond that point, either you needed a lot of money, or you had to need a sub-channel strategic partnership.
00:42:37
Speaker
When you put, you know, leverage existing capabilities and skill sets to expand. So we were working with the ENY on this and then they introduced us to Carlyle. We met Amit Jain who heads Carlyle India and his team, there's Amir and his stage. And there was a very informal meeting over coffee and it was more like, you know, let's do you want to understand our story and he was trying to tell us what Carlyle is doing in India.
00:43:07
Speaker
Kalail is a private equity fund which has acquired VLCC. Kalail is one of the biggest private equity funds in the world. They are pretty big in India, but they don't only do investments our size. And this one also is not actually through Kalail. Kalail acquired VLCC and then VLCC acquired us. But initially, all that talks were with Kalail. And they are a young, very focused, very hardworking one.
00:43:35
Speaker
set of people who get really involved in the business. So they want to know everything. They want to know the full details. So unlike, you know, the venture, we work with a lot of business, we work with a lot of business. I felt private entities, guys who fall into detail, probably because they want to acquire a company. You know, they're not a bet. We are an investment for them to take return. It's not like one of the many seven bets that they'll take in a sector. And then they sort of told us that, look, we have
00:44:05
Speaker
A very interesting situation here. There is VLCC. Strong legacy brand. Almost 30 year old. Very popular. Once upon a time. Still as I go to recall, people know where. Has a pan-india presence. Also present abroad in the Middle East and Southeast Asia. But with absolutely very negligible online presence. Tran on the other hand was a strong edgy young brand.
00:44:35
Speaker
more online than offline. Challenger D2C brand looking to expand in offline. Because unless you have a sizable presence in offline stores in India, you can't really build a sustainable business or you can't build a big business. So then the idea was that if these two companies get together and we work with VLCC and take their entire business online,
00:45:02
Speaker
and help them set up a D2C site which we've already done. Help using our skills in market based sales. Help VLCC also build a business like we have for Dallvastra. And we use their warehousing logistics and offline distribution skills to expand Dastra.
00:45:24
Speaker
offline. And it seemed like a very good idea. Of course, because it was a 100% acquisition, we had to talk to all our investors, convince them they were caused with investors and Amit, then from online. So all those things happened. Thankfully, everybody realized that this is a very good decision for the creator and good of the business. And it's been, yeah, almost two months now and we've been
00:45:52
Speaker
going through what is called integration pains or trying to integrate. And it's a huge learning experience. So what VLCZ also done is they were a very new team, very, very good people. There's Vikas who's joined as the CEO, he's an ex-annual guy, he worked at the car, he worked in like a, there's Kapal who's, again, ex-annual ex-recker when he's a, he was a staff member, he was a CFO.
00:46:19
Speaker
Also very good team, very good people and they're trying to build a solid company. So it's a lot of fun, you know, it's like, it's like being in a startup group. This was like a stock and like an equity and cash, all equity, all cash service. So what was offered to us was that, you know, it was part cash and part equity for all the investors. And for us, it was,
00:46:46
Speaker
Mostly equity. So basically our shares were getting swapped for real users. And we were very okay with that because we see huge value being realised in the next couple of years. And in fact the interesting bit is all the investors also did not want cash right now. They said, here's equity. But I think there was only a limited number of equity available. So all the investors had to make some sort of a cash agreement. Which is the deal.
00:47:12
Speaker
I read an article which said that there was a 40% discount to your last fundraiser's valuation. I mean, did the investors agree? I think that was a clickbait because what it didn't tell you was that that donation was really hype. So I'll give you a context that when that donation was almost about 450 or 490 crores,
00:47:38
Speaker
On a run rate of about 6 crores a month, about 70 crores. We are getting over 7x. This is not realistic for the company which is not yet profitable. And it was happening because that was the crazy post COVID year when everything went well. You know the valuation just got agreed. So while everybody knew
00:48:02
Speaker
that this is not realistic but you are in luck because finally money be on the table. So then I write somewhere that value is what you get paid for and valuation is what is on Excel. So that I think was an Excel valuation and this is the regular valuation. How we see it is that it gives us a lot of leverage and a lot of opportunity to now take two brands to a scale which we couldn't have done otherwise.
00:48:30
Speaker
And because we have equity, the relation of value can happen in the next three, four, five years. And we are all firm believers that we will realize value in some time. It's a matter of time. Okay. Got it. I guess also fundamentally like PE and VC valuations are different, right? Because as you said, PE is looking to buy a goal and for a VC it's one of seven bets.
00:48:58
Speaker
Yeah, exactly, exactly. That is a big difference. I also realized that while we spoke to Carlyle and VLCC, we were also talking about a couple of other strategic companies. And most of the valuation that was being offered was in the similar region or lower. VLCC is a pure FMCG now because I remember when I was a kid and VLCC used to be a weight loss centre.
00:49:23
Speaker
No, that's so interesting. That's still the bigger business. It's not just weight loss center. They have a fantastic set of clinics. I think more than 100 now. And they've known a lot of Sridharvat services around beauty. The core is beauty. So, right? So, you know, this slimming, this lassic.
00:49:45
Speaker
There's a lot of hair treatments. So that is still a bigger chunk of business. And then there's a product business which is smaller. But it's getting more traction and you see the product business also getting bigger in the next couple of days. One thing to note is that it's a profitable company.
00:50:06
Speaker
and good solid margins, good businesses. And we have to learn how to think like a bank manager or a business or somebody responsible for P&L to see how do you deliver profit given the constraints. Very interesting. How is your decision making changed? Like you said that you had to learn to work within constraints, more focus on unit economics. How has that changed the way you've decided?
00:50:34
Speaker
No, it hasn't changed fundamentally. It may have become a little slower because there are more stakeholders involved right now. But we weren't going crazy overboard in Spain even before. What we felt was that there's a matter of size and scale where automatically the profits will start appearing.
00:50:55
Speaker
whether it is using the same sales force to sell both brands, using the same warehousing to house both brands, using the same back end to sell to DTSO customers. Once that is in place, given that our unit economics are strong, profitability is a matter of time. Sir, you would essentially be responsible for the entire product division, both VLCC and Australia. So, what's happening right now?
00:51:24
Speaker
Our team is taking care of the entire e-commerce piece. I am also involved in the offline piece with both Ustra and VLCM. I am looking at how we can use the BEA as a channel to create a separate channel. My partner is trying to build a range.
00:51:48
Speaker
for VLCC to show that which can sell in modern trade, which can sell in e-commerce, slightly more premium and higher ticket price items. So we're doing all those things. So while the e-commerce team is fully involved in selling VLCC and Astra, we guys are also involved in building sales, sales and products for both companies.
00:52:16
Speaker
Both bands are the company's only one, both bands. Right. What's the beauty advisor channel? Are these people who are standing in shops and they make you try stuff? We had this experiment in Houston and we felt that this is a very good way to educate customers about the band. If you can do this well, if the BAs are well trained, if there's enough tech
00:52:41
Speaker
integrated so that whatever feedback is being received at the customer end is reported to the right stakeholders at the right time. You can do multiple movements and you can act really fast in everything. So I would think that, you know, more than empty, the BI channel is what is going to drive offline growth for us.
00:53:02
Speaker
And empty are not exclusive, right? Like, you could have BAs placed in empties in, like, large from GTEs. Yeah, you're right. I am seeing it as a beacon on empty. So, you'll have no empties where there'll be no BAs. There'll be a lot of one-grade outlets where there'll be no BAs. I am seeing it as, you either have a thousand BAs stores, and you have the others. Okay, have these thousand BAs stores give you 100 crore of business in a year?
00:53:31
Speaker
And then the others will be useful. So we're trying to work on that. I'm personally looking at the BHL, so I'm more invested in that. So yes, we're looking at BHLs for both modern trade as well as general trade, or what is called the standalone modern trade or the regional modern trade. Fascinating. And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them.
00:53:58
Speaker
Do you have questions for any of the guests that you heard about in this show? I'd love to get your questions and pass them on to the guests.