S2 Episode 3: Manu of Xiaomi: The Making of India’s Favorite Smartphone Brand

On this episode, we have Manu Kumar Jain, the global vice president at Xiaomi and the managing director of Xiaomi India. Xiaomi is currently the world’s fourth-largest smartphone brand. Besides smartphones, the company also makes other smart devices connected to its IoT platform. It is the youngest company on the Fortune Global 500 List for 2019.

In the wide-ranging conversation, we discussed the biggest success factor of Xiaomiin India, how he goes about hiring, working with Xiaomi’s founder Lei Jun, and his advice for foreign brands who want to make inroads into India.

Manu joined Xiaomi in 2014 as the first employee and managing director of XiaomiIndia, where he has grown Xiaomi to India’s NO.1 smartphone brand for 6th consecutive quarter. Before joining Xiaomi, Manu co-founded the fashion eCommerce company Jabong and worked as a consultant at McKinsey. He holds a bachelor’s degree in mechanical engineering from Indian Institute of Technology in Delhi and a post-graduate diploma in management from Indian Institute of Management, Calcutta.


Hans Tung: Today on the show we have Manu Kumar Jain, the Global Vice President of Xiaomi and the Managing Director of Xiaomi India. Xiaomi is currently the world’s fourth largest smartphone brand and besides smartphones, they’ve come now to make other smart devices connected through its IoT platform. It is the youngest company on the Fortune Global 500 list for 2019.

Rita Yang: Manu joined Xiaomi in 2014 as the first employee and Managing Director of Xiaomi India where he has grown Xiaomi to India’s number one smartphone brand for six consecutive quarters. Before joining Xiaomi, Manu co-founded the fashion e-commerce company, Jabong, and worked as a consultant at McKinsey. He holds a bachelor’s degree in mechanic engineering from Indian Institute of Technology in Delhi and a post-graduate diploma in management from Indian Institute of Management, Calcutta. Welcome to the show, Manu.

Manu Kumar Jain: Thank you so much. Thanks for inviting me.

Rita Yang: Manu, what about Xiaomi that made you join the firm in the first place? India had a lot of fast-growing startups back when you started at Xiaomi, and why Xiaomi?

Manu Kumar Jain: Okay, it’s an interesting story. This goes back to 2011 and ’12. We were about to start my previous company, which is Jabong.com, and at that point in time I thought it was a horrible idea because we were supposed to sell clothes online and I thought, I spoke to my co-founders, why are we setting up this business? Nobody would ever come and buy shoes and clothes online. They said, no, it’s a great idea. We will figure this out. A few months down the line, we were doing tens of thousands of transactions every single day, but that was not surprising for me. The most surprising thing was majority of people, more than 60% of them, were coming and buying using a mobile phone and mobile phone they were using was small, two-inch, three-inch, which we call widget phones. That got me excited about mobile phones and I started searching and I read a blog from one of the US bloggers that said the company to watch out for in the mobile handheld space is Xiaomi. It’s a company, they’re disrupting the space, it’s a small startup from China, nobody heard of it. That got me excited and I got introduced to Xiaomi founders through some common friends. We were in touch for more than a year, through the time I was running Jabong, and when I exited Jabong, Ben, who was one of the co-founders and president of the company, he approached me. He said, “Hey, do you want to do something in mobile? We want to start a Xiaomi business. Would you like to start it for us?”. I thought it was an incredible opportunity, so that’s how this whole journey started.

Rita Yang: Hans, you’re an early investor in Xiaomi. How does that fit into your side of the story with Xiaomi, with them coming into India?

Hans Tung: I knew that- I’d run a model on Xiaomi back in 2010, even before I had the phone, and did a forecast on how this could be as big outcome as they wanted it to be. Through that calculation, it’s very obvious that if Xiaomi stayed as a China-only business, you’ll never reach the lofty goal that Beijing had for Xiaomi, so you had to be a global player. They’d look around the world, where the next billion users are going to come from, India is definitely on the top of that list. Based on that, it has to work, but in reality, no Chinese brand had ever done well in India, so thus it appeared as a mission impossible. When Manu was hired, I was very thrilled to see how it was going to turn out. I don’t think anybody back in 2014 had ever imagined that Xiaomi would be number one in India today and the number of phones being sold in India is comparable to China, so kudos goes to Manu and his team.

Manu Kumar Jain: Thank you.

Rita Yang: Manu, for people who are not aware of just how successful Xiaomi is in India, can you give us a few descriptions on how would an Indian consumer, how crazy they are about the Xiaomi phones?

Manu Kumar Jain: Sure. I would say today Xiaomi’s probably the most loved technology brand in the country.

Rita Yang: Wow.

Manu Kumar Jain: Why do I say this? In just three years, from 2014, May to 2017, May, we became the largest brand in the country, smartphone brand, and since then, for the last eight quarters, last two years, we’ve been the number one smartphone brand. We introduced many more categories. We introduced smart TV’s last year. Soon we became the number one smart TV brand. Now, we have been the large smart TV brand for five consecutive quarters. We are also the number one wearable brand, fitness wearable brand, with more than 40% market share. We are the number one power bank brand in the country with more than 35% market share. We are just building many more IoT products and categories and consumers, even though we don’t do any advertisement, consumers just love it and they continue to buy multiple Xiaomi devices.

Rita Yang: How do they get to know the brand in the first place?

Manu Kumar Jain: It’s a tough question because most of the users can’t even pronounce the name. They can’t pronounce Xiaomi. If you ask many users, they will call it as Zyo-mi, Zio-mi, Gio-mi, Gao-mi, but all of them know one thing, which is Mi. That’s what they recognize as us. That’s our brand identity. Most of the people come to know us from three different sources. The first and the biggest one is word of mouth. People who buy our devices, they become big fans and they told other friends and family, this is the product that you should buy. Second is PR articles and a lot of videos that people do on Xiaomi products. Third is just social media. We actively put everything on social media. All our employees encourage everybody to do it. People just see good reviews, good comments on social media and hence decide to buy Xiaomi products.

Hans Tung: When I open my LinkedIn app, the first thing is the post from Manu, and you come with it. It’s impressive how active Manu and his team are on social media.

Manu Kumar Jain: Thank you.

Hans Tung: Yeah. It’s an amazing job.

Rita Yang: I just have to ask this, is this something Lei Jun told you to do? He himself has enjoyed a huge success on the Chinese Weibo. He’s a big influencer there. Is this something he specifically said to you, “Manu, you should be very active on social.”?

Manu Kumar Jain: Definitely yes.

Rita Yang: Okay.

Manu Kumar Jain: I remember when I first met Lei Jun during my interview process. He asked me how much money we were spending on marketing at my previous company, Jabong. I gave him the number, whatever that number was, as a percentage of revenue. Then, he asked me guess how much money we are spending at Xiaomi. My guess was five percent. He said, “No, no, no, think again.” I said maybe three percent. He said, “No, think again.” I said maybe one percent. Then he stood up, he went to the board, and then he drew a big zero.

Hans Tung: A big, fat zero.

Manu Kumar Jain: And he said, “That’s what we spend because we use social media.”

Hans Tung: Yes.

Manu Kumar Jain: Then he actively encouraged me from day one to use social media.

Rita Yang: Interesting.

Hans Tung: Yeah. I remember the test he did to the head of marketing in China back in 2011. It was also a big, fat zero. The first campaign that Xiaomi ran was Shoujikong or a campaign about people who love phones, who are phone freaks, who are just very ardent users to talk about their experience with phones in their history of life. Lei Jun had pictures of the 50 phones he ever owned. He posted on Weibo on the website of Xiaomi to talk about the phones that he had, why he liked them, why he did not like them. Within the first week, 460,000 people shared the phones that they had and why they didn’t like it in anticipation of what the Xiaomi first phone would look like. By going through that campaign, he made it a lot easier to sell phones later. About 2,000 people showed up and about 340,000 phones were purchased after the launch. Without going to the heart of the users and the most active user, get them to share your thoughts, there’s no way Xiaomi can to that kind of social following by spending such little money.

Manu Kumar Jain: In fact, in the beginning of this year, a particular team within Harvard Business Uni, Harvard Business School, they approached us and they asked me to come down to US to give a lecture only on this topic, how we became the largest brand in the country without spending a single marketing dollar.

Rita Yang: Wow.

Hans Tung: I remember when Lei Jun talked to me in 2010, he said he has so many ideas on how to improve smartphones, but no matter how many emails he sends to iPhone or Nokia, no one’s going to respond, so he said you want to build a company where the most active users have a voice.

Manu Kumar Jain: Yes.

Rita Yang: If you were to rank the three success of Xiaomi phones, the price point, the distribution channel, and the fan-based community you just described, how would you rank it? Which factor would be the number one reason?

Manu Kumar Jain: In India?

Rita Yang: Mm-hmm.

Manu Kumar Jain: Okay. I would say the first one is definitely product. If the product is not great, we cannot succeed no matter what we do. Second…

Hans Tung: What makes Xiaomi product so attractive in the eyes of Indian consumers?

Manu Kumar Jain: Every time we launch a product, there are three key things that we keep in mind. It needs to have the latest and the best specs of innovation. Second, it needs to have the highest possible quality standards. Third, of course from a pricing perspective it has to be probably one of the-

Hans Tung: Extremely affordable, Yeah.

Manu Kumar Jain: We coined a term called honest price, which means it may not be the lowest price, but we’ll keep less than five percent profit margin for ourselves. We cut down on the cost and then keep very little margin and then pass it on to user, and that’s what we call this honest price. If you look at many of the historic brands, they were great at innovation and great at quality, but extremely bad on pricing.

Hans Tung: Yes.

Manu Kumar Jain: Some of the brands which came about six, seven, eight years ago, they had good price, good specs, but horrible quality. I believe today we are the only brand across different product categories which can take the box on all three: product, quality and price. That’s what makes our value offering so unique. I would say that’s the first thing. If you don’t have a great product with great quality and pricing, you cannot win. That’s a given, and there are products centered company. I would say second thing which makes us very different is our people. Look at Xiaomi India. It is the place you know majority of people do not come from smartphone background. They come from internet background. They come from companies such as Google, Facebook, eBay, Flipkart’s, Snapdeal, from Flipkart, from e-commerce background, from internet background. Many of them, because they have never done anything like this before, they are willing to take risk. They’re willing to try out new things that have never been tried before. For example, we just launched a new IoT device, a smart water purifier, in India two days ago. The guy who’s leading it and who’s built it, he does not come from water purifying history, he comes from e-commerce background.

Hans Tung: Yeah.

Manu Kumar Jain: He just brings a very different thought process from what a traditional water purifier person would bring on the table. That’s second. The average age of the company’s around 30. Most of the leaders are in early 30’s. I’m one of the oldies in the company.

Hans Tung: You’re doing well. 

Manu Kumar Jain: That’s the second one. Third, I would say the reason why we’re successful is because we haven’t done anything similar to what other companies did. You spoke about distribution. Five years ago, 94% of the market was offline. Only six percent was online. When we were launching, I went to large number of tech CEO’s, my mentors, people who had run mobile companies before, tech companies before. They said, “Manu, this is the wrong strategy.”

Hans Tung: Right.

Manu Kumar Jain: “You are going after a small six percent market. Ninety-four percent market is offline. The way to sell a smartphone is spend a lot of money on marketing and sell offline. You are doing none”.

Hans Tung: Right.

Manu Kumar Jain: I was worried. I said maybe we were doing something wrong, but we have never done what others did. When at the time the market was going offline, we went online. We now have close to 50% market share within the online segment. We grew that. When everybody was going after feature TV’s, we went after smart TV’s. Almost an entire growth of smart TV’s, we have captured 85% of that growth. A lot of things that we have done differently, but it is our channel, whether it is distribution or it is marketing using social media, and that has helped us to differentiate from any other brand which has been traditionally here in India.

Hans Tung: I remember with the product design, Lei Jun specifically wanted to make sure that if he doesn’t spend money on marketing, which for Apple is about 20% of the sales, he doesn’t spend money on distribution to sell in offline stores, not initially anyway, and not go through the carrier offline stores. He said no 100%. This is why the phone’s going to be a lot more affordable, because he doesn’t have these costs, and that’s why he can keep the operating expense at only five percent of the sales. One or two percent on R&D, three percent on operations, that’s it, so extremely lean and almost didn’t even pass through the hand of the consumer, yet can still be a profitable business.

Rita Yang: Xiaomi is probably one of the first direct to consumer brand out there.

Hans Tung: Right. This happened after Google failed with the initial launch of Nexus to sell phones online and this happened right when Motorola was acquired by Google, so nobody believed that Xiaomi could’ve worked.

Manu Kumar Jain: In fact, to point on direct selling, we have our own e-commerce platform, Mi.com, M-I .com.  You’d be surprised to know it has become the third largest e-commerce platform in the country when it comes to electronic and smartphone sales.

Rita Yang: Wow.

Manu Kumar Jain: After Flipkart and Amazon.

Hans Tung: Right. Because people come, they share comments on how the phones could be better, give advice and so forth, and I’ll share tips, and I’m supposed to buy products.

Manu Kumar Jain: Yes.

Hans Tung: Yeah.

Rita Yang: Can you tell us what is the whole market strategy Xiaomi has for India? That’s a term that has come up again and again for the Indians as a market. Can you share with us on that?

Manu Kumar Jain: We at Xiaomi believe that India is almost like a second home for us. Everything that we do in China, we are replicating here. We are designing phones, we have R&D, we have product team. We have manufacturing. We have end to end all operations that we do in China, we are doing it in India. A lot of products we are designing for India in India. I’ll give two examples. One is some of the phones are completely redesigned for India. For example, in China we launched a phone called Redmi Note 7, but we launch a different one in India, which was meant for Indian consumers with a much higher pixels and a different camera, different specifications as Redmi Note 7 Pro. This year we launched something called a beard trimmer, which was a product which does not exist anywhere else in the world within the Xiaomi ecosystem and that’s because a lot of people are clean-shaven when it comes to the rest of the world and China, but in India, thanks to the latest fashion of some of the cricketers having beard, life and one of youth have beards, so we designed and launch a beard trimmer in India for India. The product that I was speaking about, water purifier, we have something in China, but it’s very different because in China there’s no power because of Watercart. We had to re-develop the entire product in India for India because in India there are a lot of power shortage and water shortage, so you need a big tank to hold the water in this power kind. A lot of these products are being completely redesigned for Indian market, and that’s why we think this is a second home for us.

Hans Tung: Right.

Rita Yang: For the beard trimmer you just mentioned, I think it’s absolutely fascinating. Does Xiaomi in India also goes the same way how it builds different products in China by investing in them instead of doing everything themselves?

Manu Kumar Jain: True. When you buy products that we design ourselves, which are phones, TV’s, laptops, routers, and OS.

Rita Yang: Okay.

Manu Kumar Jain: Everything else is designed by one of our ecosystem companies. The way that we did Mi Beard Trimmer, we enter our product specification in India, then we found the right ecosystem company. We have 200 such companies where Xiaomi is invested in, more than 200. We found the right partner who could then work our product design into a reality and then we work with them to launch this product in India.

Hans Tung: What are these other products you guys were thinking of that will be launched soon or that you think are quite unique to India as well?

Manu Kumar Jain: Some of the products which we did in China do not make sense for India. For example, we have drone. Now, drone is not illegal in India. Or you have 9 bots scooters, the self-driving scooters. Indian road conditions would not allow that. I’ve tried it myself. There is nowhere you can drive it on Bangalore roads. I would say there are three broad categories of products. One, which are there in China, and we can just launch them in India by small modification.

Hans Tung: Some examples include?

Manu Kumar Jain: Such as TV. On hardware, we had to make some modifications. For example, add more number of connecting points, sockets, because Indians have far more things. They have cable TV, they have dish TV, and many other things.

Hans Tung: Sure.

Manu Kumar Jain:  We do change brightness and sound level because watch TV during daytime unlike China where most of the people watch TV in nighttime.

Hans Tung: At night.

Manu Kumar Jain: The brightness levels have to be different.

Hans Tung: Sure.

Manu Kumar Jain: We can broadly use the same product 80%, 90%, but it’s a small change-

Hans Tung: One piece.

Manu Kumar Jain: and then launch it in India.

Hans Tung: Yeah.

Manu Kumar Jain: The second category which is there in China but does not make any sense in India, which is the example that I gave, drone or standing scooter or, say, rice cooker. It’s a small rice cooker and people in China love it. Most Indians really don’t care for it. There’s a third category, which has to be completely redesigned or developed only for India. The two example that I gave.

Hans Tung: Water purifier.

Manu Kumar Jain: Water purifier and the beard trimmers are the ones which are completely designed for India. We are working on many more such things, for example laptops. Laptop exist in China, but the average price point of laptop in China is 5,000 RMB, which is too high for Indian market. We are thinking of doing laptops in India, but whatever we do it has to be completely redesigned for India, as for user needs and/or Indian price points.

Hans Tung: Right. How much of those products you guys sell in India that’s manufactured locally versus imported from China?

Manu Kumar Jain: We started by importing five years ago and then we slowly started assembling in India, and then we started manufacturing a large number of components locally. If you look at our phones, which is our biggest business in India, almost 100% of our phones that we sell in India are made in India. Not just that, a large number of components, including PCP, camera module, battery pack, touch panel-

Hans Tung: Are local now.

Manu Kumar Jain: Are either localized, being sourced from local vendors, or are being manufactured here locally from our international partners with company here. Our smart TV’s, 80% are all made in India, 20% are still imported. Power banks are 100% manufactured in India. They will be imported sometime, only if there’s a big sale. Other categories are still imported, but slowly we are trying to figure out a way to start locally manufacturing each one of them.

Hans Tung: Right. Has your popularity here made it easier for the Taiwanese and Chinese hardware partners to expand to here as well?

Manu Kumar Jain: Yes. Five years ago, there was always a problem because when you would you go to partners, manufacturing partners, to set up a shop here in India, they were not comfortable because there was no big anchor point, plus there were no competent suppliers. When you would go to competent suppliers, there were no manufacturers. It was all the chicken and egg problem.

Hans Tung: Correct.

Manu Kumar Jain: Four years ago, we convinced Foxconn to set up a first plant in India and that really helped because we started growing our volume and all of them were made by Foxconn at that point of time. Now we work with Flextronics, we work with many other partners, because of which there was a huge incentive for competent suppliers to start coming here. Plus, they had big clients such as Foxconn in this, and Foxconn only felt comfortable because they had a big anchor client such as us.

Hans Tung: Yes.

Manu Kumar Jain: I believe because of which, in last four years in that ecosystem of electronics manufacturing has developed significantly as compared to where it was, but we still have a long way to go.

Hans Tung: Sure.

Rita Yang: What about the software side of things Xiaomi’s doing in India or content, for example?

Manu Kumar Jain: That’s an interesting question because that’s our core business. Most of the people just talk about smart phone and the way Lei Jun explains it is of course we’re a smart phone company, but we are much more than a smart phone company. We are an IoT company, we are an internet company. On the internet side, we have been building a large number of internet products for India in India. For example, we have Mi Music, Mi Video, Mi Pay, Mi Browser, many more internet services.

Rita Yang: And they came with the phone, I would imagine.

Manu Kumar Jain: Yes. Of course, phone has to distribute these services.

Hans Tung: Sure.

Manu Kumar Jain: It’s a very easy distribution. Mi Music comes with a very large library of music content and it’s free for users, and that has been done in India. Mi Video comes with more than 700,000 hours of content, which we showcase both on our Mi TV’s as well as on Mi phones. Again, that has been completely done in India because we take content from, 12, 15 different content providers and then show it in one seamless line. A lot of these internet products we are now beginning to design in India for India. We have our team here working on this.

Rita Yang: Now, let’s come to you working in a company that has its heritage in China. What does that feel- From a day to day perspective, how much time do you need to spend with the China team or the headquarters, quote/unquote? How does that reflect in the whole market strategy?

Manu Kumar Jain: Before I joined Xiaomi, a lot of people told me never to join a Chinese company.

Hans Tung: Just like a lot of Chinese people told that never join an Indian company.  

Manu Kumar Jain: True. People were way off. Some people heard horror stories saying how a company beginning in China will never empower you, will never give you decision-making power. For everything you’ll have to go back to headquarters and check with them. Lucky for me, I’ve never personally faced any of these issues. I’m extremely happy with the way things have progressed over last five years. I talk to Lei Jun almost on a daily basis through chat.

Rita Yang: WeChat or WhatsApp?

Manu Kumar Jain: No, we have a Mi Chat.

Rita Yang: Oh.

Manu Kumar Jain: MiTalk.

Hans Tung: Yup, MiTalk. I still have it.

Manu Kumar Jain: Lei Jun and I talk almost on a daily basis on MiTalk and we discuss about anything and everything, about what is happening with Xiaomi globally, what is happening in India, the political situation in India.

Hans Tung: You type in English and he types in Chinese?

Manu Kumar Jain: No, I also type in Chinese. I have a team member who will do translation for me. I don’t miss any places. I send it to the team and then they will translate into Chinese and then I will send it to Lei Jun and vice versa. Lei Jun can read and understand English.

Hans Tung: He’ll read English no problem.

Manu Kumar Jain: Sometimes if I’m sending something urgent, I will just send him in English, and he will read it and he will reply in Chinese and I will use Google Translate to quickly translate it back.

Hans Tung: Right.

Manu Kumar Jain: It’s very seamless. We have never faced a problem. Because Lei Jun and I speak so frequently and then I present our business case, quarterly business plan to our board and to Lei Jun every quarter, so we align on milestones on a yearly basis and on a quarterly basis, mainly on our business plan. As far as we are not significantly changing the strategy or not changing our business plans drastically, it’s openly fine for us to take decisions locally here. I’ve never seen him come or interfere, or anybody else to interfere, so that way I would say the involvement is extremely high.

Hans Tung: It’s unusual.

Manu Kumar Jain: I don’t know, actually, whether it is unusual or not because it’s what I’ve heard, but I’ve never experienced this myself.

Hans Tung: Sure, yeah. It’s very impressive that both of you guys can do that.

Rita Yang: You actually have said in an interview back in 2014 that Lei Jun was the most visionary guy you have ever met, and four years, actually five years after that, what are some of the unexpected things you have learned by working with him?

Manu Kumar Jain: I would say two things. One, almost all the leaders that I have worked with, they would either know product very well or business very well. For example, operations. How to run business, e-commerce, customer care, etc., a lot of these things. That’s what it is I know. I’m not saying he’s the only one. I’m sure there are other people, but among the people that I have worked with, I can’t think of anybody else who’s a great tech and product guy who’s also a great business and operations guy.

Hans Tung: Right.

Manu Kumar Jain: It’s amazing at how he could have a conversation about building business, building operations, building billions of dollars of business at one hand, and other hand he can go very microscopic, talking about the camera features of a popular phone and just go in depth and spend next few hours discussing that and everything.

Hans Tung: Amazing.

Manu Kumar Jain: Yup. His ability to discuss both product and business is incredible, and he spends equal amount of time on both of them. I’m yet to meet anybody else who can do this as efficiently as Lei Jun. Second, I would say, is the ability to connect with a large number of people despite him not being very comfortable speaking English. When it comes to him, he makes it a point to meet all the key leaders, team members in India, one on one. He will spend a lot of time with me, sometimes our one on ones would last six, eight hours.

Hans Tung: Right. He can talk.

Manu Kumar Jain: He can talk, he can discuss, he can debate, and it’s not easy to convince him. Sometimes our debates have lasted four hours and then one of us had to convince other person for our debate on one single topic. The thing that he really connects well with everybody and he’s very responsive. He won’t miss any messages, maybe one o’clock at our time, which is 3:30 in the morning his time.

Hans Tung: No problem.

Manu Kumar Jain: I will get a response immediately.

Rita Yang: Hans, he is like you in that sense.

Hans Tung: Even more so than I do.  Yeah.

Manu Kumar Jain: He’s amazing.

Hans Tung: He’s amazing.

Manu Kumar Jain: Yeah.

Rita Yang:  What is one of the things you guys disagree about or debate about?

Manu Kumar Jain: Anything to everything. The first thing that we ever disagreed about, the first big debate that we had almost five years ago was where should we have headquarters in India. He said it should be in Delhi, I said it should be in Bangalore.

Hans Tung: Thank God.

Manu Kumar Jain: We debated for weeks and weeks and maybe months. Somehow I convinced him to say that it should be Bangalore because-

Hans Tung: His experience is with Beijing, it’s the capital. He has to deal with the government, so he’s not there, you cannot just go past the government policy changes and influence of them.

Manu Kumar Jain: Yeah. But Bangalore is a tech capital and all the partners, Flipkart, Amazon, everybody’s here. It’s easy to hire tech talent. We were thinking of hiring and building a R&D center, so it made sense. We debate a lot about product, product strategy, what is right for India versus China because not everything that gets launched in China is launched in India. About nomenclature. This year, in the middle of this, he came to India only once this year in May, and we had a debate for almost four hours on the naming, the marketing name of a particular product.

Hans Tung: You’re kidding.

Manu Kumar Jain: Four hours we debated just the two of us.

Rita Yang: That’s why you don’t spend money on marketing.

Manu Kumar Jain: Finally, he convinced me. Then, there was a recent product that we launched a few months ago where again we debated for weeks and finally I was able to convince him. I think we have this great relationship where we respect each other’s point of view and we know if you are disagreeing with each other and we’re debating, that’s not because we don’t value each other’s point of view, but because we have the best interest of the company in our mind. He respects that and that’s why he’s willing to debate and discuss with me at length. Either he convinces me, or he gets convinced.

Hans Tung: Right.

Rita Yang: Amazing. What are the challenging part of running Xiaomi India? We’ve talked about all the good things and amazing things.

Manu Kumar Jain: A lot of them. I think the first challenging part five years ago was that nobody knew Xiaomi.

Hans Tung: Right.

Manu Kumar Jain: At first the office was a small café and every time I would go to a partner and say, hey, we should be doing something together, people would ask me how big is our team. I would say one person. I am the head, I am everybody in the team. We didn’t even have an official office. It was just a coffee shop. People would think that I was a fraud. I would just take their money or do a business contract and I would run away because it was unimaginable for them that we would talk about these, at that point millions of dollars, $10 million, $15 million dollars. There’s no office, there’s no team, there’s no legal entities for our business. Hiring was very tough, extremely tough in the beginning because nobody knew Xiaomi and a lot of people who would agree to run Xiaomi would, on the last day, on the day they would join, they would not turn up, but they would say their family’s not in India, their family’s in this company. Are you joining? What is Xiaomi? They have never heard of them. Why would you even risk it? Building up our business was really challenging because traditionally online is what our strength is and two years ago we started bringing it offline. We struggled a lot in the beginning, for almost a year, going through the process of going offline brand, and it’s taken largest offline brand in the country. Online we are number one, offline we are number two. Some of the products haven’t done well. Let me be honest. I would say 80%, 90% of the products have done exceedingly well, but there are also then 20% products which have not done well. How do you course correct? How do you solve the inventory problem? In our business, inventory is something which can really take down the company, so how do you immediately solve for it and course correct and move forward? From the time we have faced a large number of problems. Of course, from outside it looks like everything is hunky-dory, everything is going right.

Hans Tung: Everything, from outside, that’s exactly how we feel.

Manu Kumar Jain: Internally, a lot of problems that we have faced, but I would say two things: One, we have been able to course correct quickly and move forward. Second, there’s a confidence that our board has shown in me and the one that I would like to show in our team, that it’s okay to make mistakes as long as you don’t repeat mistakes.

Hans Tung: Right.

Manu Kumar Jain: We learn from them and never, ever repeat the same mistake again. Just make a new mistake.

Hans Tung: What other new apps do you think that you need to launch in India to leverage the distribution channel you have in India, but yet the app itself has to be appealing to end user, to want to spend a lot of time in engagement with your app?

Manu Kumar Jain: One of the ones that we are piloting right now is our lending platform. We believe lending app is a huge opportunity in India, just like anywhere else in the world, especially mostly in India because a large number of Indian users do not have access to organized lending or credit cards or any kind of-

Hans Tung: It’s hard to have credit.

Manu Kumar Jain: So, we believe that there’s a huge opportunity which is laying over there. There are many startups which are doing bits and pieces of this, but there could be many forms in which doing consumer lending, product lending, supply chain lending, many, many different forms of lending. We believe we are in a very good position where we can do lending across all different areas. It’s something that we’re still working on a beta phase, so it’s open to a very select number of users for testing, but if everything goes right, maybe next 6 to 12 months we should be able to launch it in a much bigger way.

Hans Tung: And then users’ behavior and what they do on the phone will help them to earn credit and build up credit over time?

Manu Kumar Jain: Yes, if they opt in.

Hans Tung: Right. Very often. That’s right. Yeah. I can see that could be a huge game-changer for this market for sure.

Manu Kumar Jain: Yes.

Hans Tung: In China you have Alipay, WeChat Pay, it’s much harder to build a new business against that, but here it’s wide open.

Manu Kumar Jain: Exactly.

Hans Tung: Yeah. Very smart.

Rita Yang: So, you have built an e-commerce fashion company before. How has that experience helped you in building Xiaomi in India?

Manu Kumar Jain: To be honest, I was very nervous in the beginning because I didn’t come from any smart phone background. I also asked Lei Jun, hey, why do you want to even hire me? I come from an internet background, not from a smart phone background. His answer was, I’m not even looking for a new smart phone guy, because we are not a smart phone company. In fact, if you look at most of the people that I said that we have hired, that I have hired at Xiaomi, are also from all internet background. Now, the reason, the way it helped me, it helped me really understand the whole e-commerce landscape because for the first years we were only selling through e-commerce in India. It helped me understand the importance of e-commerce and how we can really scale up our operations using the internet as a platform. If you look at Indian users, a large number of Indian users still do not have access to physical shops because they’re living in small towns and villages, and there’s no branded shops in their town or village, so they will have to travel three hours, four hours. For example, my aunt lives in a city called Salanpur, which is a small town, and she’ll have to travel to Delhi for four hours to buy any kind of product. Through e-commerce, we can deliver it to her home without her necessarily traveling to Delhi. I liked the importance and we were able to move very fast on e-commerce for the first few years and build a big business over there.  And because I don’t come from smart phone background, maybe we haven’t done what others have done.

Rita Yang: What are some common pitfalls for foreign brands that are trying to make inroads into the Indian market?

Manu Kumar Jain: I would say two things. One, when people come here, foreign brands, it’s very difficult to identify talent. Most of the time people go for long experience, relevant experience rather than being more experimentative. If a FMCG company is coming, they will try and hire the person with 20 years of FMCG experience, saying he or she is the right person to bring to business. Point number one. Point number two, a lot of brands don’t realize that India is not one country. India is a combination of 30 countries in a way, because we have 30 provinces or states. Every state, every province has a different language, different core, different religion, different food, different clothes, different language, everything different. When you’re building product, when you’re building your business, you have to keep in mind that it’s almost like building a business for Africa or for Europe, which has so many different countries, so many different culture.

Hans Tung: Right.

Manu Kumar Jain: You have to keep that in mind and if you cannot build it the way you would build it for US or even for China, because it’s not one homogenous thing. When you start building phones, from the day one we had it always available in 12 different languages. Now we cover almost all key Indian languages. People will want to consume content in their local, native language. My solution to anybody who comes is thinking about this very up front on how will you hire people, what kind of people will you hire, and how will you build products which can last for 30 different markets and not just one market.

Hans Tung: When you’re comparing notes with other friends who are at Google and Facebook or other big Silicon Valley firms in India, how is their relationship with their quote/unquote headquarter the same or different than how you work with Lei Jun?

Manu Kumar Jain: Very different. A lot of companies that you mentioned, their India head, or even the APAC head, would very rarely talk to the formal CEO or Chairman on a daily basis. They will typically meet once in a year for an annual review.

Hans Tung: Right.

Manu Kumar Jain: They will not have the direct access to the entire board in case of any problem or issue. In my case, I talk, as I mentioned earlier, I talk to Lei Jun almost on a daily basis. Every time I go, I meet many of our board members and even co-founders and we in depth discuss about how or what are we doing in India, how do we build up even a much more robust business.

Hans Tung: Right.

Manu Kumar Jain: Second way it is different is because many other multi-national companies, India is part of APAC, which has been part of some other organization, and then which is then part of [crosstalk].

Hans Tung: Layer by layer.

Manu Kumar Jain: Since four or five years ago, the way Xiaomi structured is horizontally. It’s China and the rest of the world. Probably the only multi-national company that I know of where there is China and the rest of the world. This also was important in getting that ecosystem, because of which the dynamics are very different. Unlike many other not just Silicon Valley company, but many other multi-national companies, where India is just a recipient. Whatever products are built for other countries. We just bring it to India and just figure out a way to sell it. Here, we’re bringing products for India, in India, and that is a huge, huge difference.

Hans Tung: How many product design folks and Indian folks do you have on your team here in India?

Manu Kumar Jain: We have four different product teams. Phones, TV’s, IoT, and OS. Each of the things will have anywhere between 10, 15 to 40, 50 people working in India right now.

Hans Tung: Okay, got it.

Rita Yang: I wanted to ask, the access you have, either to daily conversations with Lei Jun or your board, does that come after you have shown really positive results?

Manu Kumar Jain: I would say this started in the first year. Lei Jun and I, we of course interacted, but not so frequently. I would meet him similarly, maybe on a quarterly review meeting. This was in maybe May of 2015, our third quarter of 2015 when Lei Jun called me for a meeting to China and then he started discussing and I was ordered dinner, I remember, in some hotel or restaurant which I don’t remember. I don’t remember the name of the place, but I remember it was a dinner. We ended up discussing for many, many hours on Indian market, problems that we were facing in India, issues in India, and how they were very different from China. I believe that was one of the first few turning points when he realized that Indian market is, even though there are a lot of similarities between India and China, but they’re also very different. Then he realized that he should probably spend a lot more time on India to understand India. That was a moment when we somehow made it a pact that we will a lot more frequently so that he gets live a bit on what’s happening in India, what is going on so that he can also give live feedback, which is very important, I believe. It has played a big role in our success because anytime I wanted to change our plans or change a product, I had access to the entire team, and they were running behind me in making this happen. 

Hans Tung: Right.

Rita Yang: How did you solve the hiring problem? When Xiaomi first started nobody has heard about the company and the families who would be like, why don’t you join Google or Flipkart or Amazon? Why this company? We can’t even pronounce the name.

Manu Kumar Jain: Yes. It was very tough. It took me almost three months to hire the first person.

Rita Yang: Three months?

Hans Tung: Wow.

Manu Kumar Jain: Three months. We had a small office with six seats, maybe a 10 feet by 6 feet kind of office, the first official office. I used to serve the coffee myself, I used to open the door myself, I used to do everything myself.

Rita Yang: You were the janitor and the managing director.  

Manu Kumar Jain: Everything was like one single bad thing. I still remember the day when the person joined. I was very happy, not because somebody joined, but because I had somebody to speak to. Those first three months were so lonely. Every time I had to speak to, I could only pick up the phone and talk to either Hugo or Ben. I used to sometimes just feel I had this huge urge to talk to somebody to say, am I doing the right thing? I don’t know. I’m here for the first time. Maybe I did something wrong. I just want to bounce my ideas on somebody. The person joined, he was my junior at McKinsey, he joined, and I was so happy. Then, we slowly hired one person who was a HR member, our first HR member. Then, we hired the head- There used to be a Mi fan club in India, even before Xiaomi was there.

Rita Yang: There are fans of Xiaomi before?

Manu Kumar Jain: Thousands of fans of Xiaomi even before Xiaomi existed.

Hans Tung: That’s right.

Manu Kumar Jain: There was a person who started this Mi fan club in India, and he was the President and the Founder of the Mi fan club. We hired him, so he was employee number four.

Rita Yang: Wow.

Manu Kumar Jain: And then we slowly, gradually started building team. In the first six months we had doubled the team. First three months, we doubled the team from one to two, and another two months from double two to four, and then next six months we doubled from four to eight. The first few months were very slow. Until the time we reached about 30, 40 people it was a rule that everybody who has been interviewed had to be interviewed by everybody else. Sometimes it was tough because you had to be interviewed by 15, 20 people. Everybody interviewed everybody. Then, we relaxed this condition and for the longest period of time I was the person interviewing every single person, including an intern who wants to join Xiaomi.

Hans Tung: I see.

Manu Kumar Jain: Until the time we were about 200 people, 300 people. Then, I relaxed that rule because I said it’s humanly not possible for me to interview every single person. Initially, hiring was tough, but as our  business started getting built, we started getting a lot of reputation in India. I would say first one and a half years, two years, were extremely tough. Last years have been very easy. Today, we are hiring large amount of people, including managing directors of some of the largest internet companies in India, directors from different e-commerce companies and others. They’re willing to come, even on a lower cash salary, but of course we give them stock options, because they just believe in the whole vision of Xiaomi and what Xiaomi’s been able to achieve.

Hans Tung: Right.

Rita Yang: What are some of the principles you have in hiring?

Manu Kumar Jain: I look for two things when I look to hire a person. One, I always look for passion and intelligence over experience. A large number of leaders who are very intelligent, very passionate, and have zero relevant experience, and that does not matter. In fact, I strongly recommend people to move different roles within the company and move roles radically. For example, the person who is sitting on Mi Finance business, he was a business analyst and was leading our Mi.com business, and now he’s leading our Mi Finance business and he has never built financial products. The person who was still recently leading our brand marketing, he joined us as an executive for, which is the junior-most post, for events team, and then within two years he became the head of events and then two years after that we made him head of brand marketing. He just moved from being the junior-most person to head of brand marketing in four years. So a lot of people, they are encouraged to make very different trajectory because we believe if the person is intelligent, relevant experience does not matter.

Hans Tung: Right.

Manu Kumar Jain: That’s one. Second, personally, for people that work with me and people that I interview, the second thing that I look for is will I admire this person, and do I think he has a quality of being my boss? If I respect that person, if I think I admire that person, I believe he or she’s a good person to hire.

Rita Yang: Now, let’s go to the final part of the podcast, which is a round of quick-fire questions. Just say whatever comes to your mind.

Manu Kumar Jain: Sure.

Rita Yang: What is one thing about you that is surprising to people who don’t know you very well?

Manu Kumar Jain: That I used to run a comic strip before Xiaomi and before Jabong about relationships, about husband and wife and how they tend to fight each other on everything they think.

Rita Yang: Wow. Okay.

Hans Tung: That helps you develop a strong team. I like that.

Rita Yang: What are some routines in your life that keep you grounded?

Manu Kumar Jain: I would say my wife. She’s my biggest supporter and biggest critic. Whenever she sees me doing something wrong, she’s the first one to bring me down and say, hey, you’re doing something wrong.

Rita Yang: Do you have enough time for her?

Manu Kumar Jain: I try to very consciously. I stay three minutes from office so that I cut down on commute time and then I try and spend at least an hour in the morning and an hour in the evening with my family, which is my wife and my kid.

Rita Yang: If you could have dinner with anyone in the world, live or dead, who would it be?

Manu Kumar Jain: Elon Musk. I would die to have a dinner with him.

Rita Yang: Why?

Manu Kumar Jain: The kind of thing that he is doing is amazing. Unbelievable. He’s thinking of going to Mars. He’s thinking of changing the world. Amazing. Huge respect for him.

Rita Yang: What was one thing that you used to be skeptical of and then changed your mind later?

Manu Kumar Jain: I used to be very skeptical of just Xiaomi success in the beginning because I met so many tech CEO’s who said, Manu, I am telling you, Xiaomi can never succeed in India. Manu, this is the biggest mistake that you are making in your life by joining Xiaomi. You will regret this. Since the first time you have joined, you have not announced publicly that you have joined. It’s my turn to lead. Yeah.

Hans Tung: I’ve heard that when I made my first, second, and third investment in Xiaomi, so I really appreciate that.

Rita Yang: Oh, that was before Xiaomi go public. Right. Last question. What does success mean to you?

Manu Kumar Jain: For me, all the measurable terms, such as market share, profit, or the wealth or the money that I make, these are all things important, but more than that I’m extremely proud of the team that we have built and the respect that we have earned here in India. A lot of people, they walk up to us and they tell us how their lives have completely changed thanks to Xiaomi. That is something which can never be quantified. For example, I was traveling from Delhi to Bangalore two weeks ago and met a security lady who will do frisking and who will check if everything is right at the airport. She recognized me and then she started talking about Xiaomi and then she told me she bought a Xiaomi phone, Redmi Note 4. Then, she convinced her husband, who’s a soldier in Kashmir Region, to buy a Redmi Note 7 Pro and her entire family is now on Xiaomi phones. For me, that is 100 times more valuable than anything else.

Hans Tung: Right.

Rita Yang: Thank you.

Hans Tung: Thank you.

Manu Kumar Jain: Thank you so much. Thank you for hosting me.

Rita Yang: Fantastic. Thank you.

Hans Tung: Love it.

S2 Episode 2: Kunal and Rohit of Snapdeal: from Surviving to Thriving in India’s eCommerce Battleground

On this episode, we have Kunal Bahl and Rohit Bansal, co-founders of Snapdeal. Snapdeal is India’s leading online marketplace. The company started out as a flash deal website in 2010, soon evolved into a leader of India’s e-Commerce sectors. In early 2017, it was on the verge of being merged to its biggest rival Flipkart, then upgraded itself to Snapdeal 2.0, with a focus on the value-conscious buyers in India. Over the last couple of years, with this focus, the company has seen a significant and positive transformation. As of July 2019, the month this interview is conducted, the company has increased its annual revenue by 70% and cut its loss by 70% comparing to last year.

The two co-founders of Snapdeal are high school friends bonded over food and math. Kunal graduated from the University of Pennsylvania with two bachelor’s degrees in Business and Engineering. While studying in the United States, he also started a detergent company and worked to sell his product at Walmart stores. Rohit graduated from the Indian Institute of Technology New Delhi with a bachelor and a master’s degree in computer science, India’s top engineering school.

On this episode, we covered the behind the scene story of their decision in saying No to Flipkart, focusing on the 400 million value-conscious buyers in India, navigating substantial change in high transaction velocity business, building a culture of acute intellectual honesty, and going through the best and worst of doing business alongside of your best friends in high school.


HANS:  Hi guys.  First of all, since I’ve known you guys for almost seven years now, since 2012, I’ve seen you guys go through quite a bit of up and down.  So, how is Snapdeal doing these days?

KUNAL:  Thanks Hans and obviously you’ve been a great partner for all these seven, eight years and have seen the company go through various twists and turns along the way.  You know, after going through a bit of a challenging phase a couple of years ago, I think our company found a great opportunity in refocusing ourselves and in a way going back to our roots of building a marketplace that serves the needs of the next 400 million e-commerce buyers in India.  Where what has changed structurally in India over the last three years is with the 4G revolution that Reliance Jio brought and other telcos followed suit.  The buyers and sellers of very value-focused goods have only come online significantly in the last three years.  So, we found ourselves to be in sort of the right place right time where we had a big brand because we had invested a lot in building it over the years.  We had a lot of traffic.  We had an existing technology platform.  We had all the supply chain built out and a very, very good team.  We said if we focus our energy on categories that are more suitable for this audience where they’re very aspirational but want affordable goods, I think that focus and discipline has really helped us as a company.  And as you said, over the last couple of years we’ve seen our order volumes grow almost three times.  Last June we actually became profitable at a company level and post, which we decided to reinvest all our margins back into growth.  And over the last one year we’ve been adding nearly a couple million new buyers every month now.

RITA:  So, Hans as you said, you have known Snapdeal for a really long time.  And can you help understand how throat-cutting the e-commerce business is India now and why is India such a competitive place for e-commerce giants to play?  Like Amazon or Flipkart who was bought by Walmart?

HANS:  I think a lot of people look at India e-commerce space as what a second version of what has happened in China e-commerce space.  So, back then in the 90s and then 2000s you have eBay buying EachNet in China and fighting against Alibaba launched Taobao.  And over the 10-year period you see Taobao, Tmall, JD, Pinduoduo, all grow up in China and valuation of Alibaba grew from, which did invested $180 million in 2003 to now $0.5 trillion plus $150 billion on Ant Financial.  So, a lot of people look at what happened in China as what could happen in India.  And therefore a lot of money got poured into India on e-commerce companies.  In Amazon in particular because kind of lost China to JD and Alibaba doubled down on not missing out on India.  Yet GDP per capita in India is a lot lower than China in 2000s so it ends up having a lot of subsidy, a lot of money poured in, and everybody focused on growing GMV at negative gross margins.  So, that made the battle over e-commerce in India extremely bloody.

RITA:  How does Snapdeal fit into the picture then, if Amazon and Flipkart is pouring so much resources and money into the market?

HANS:   I’ll let Kunal and Rohit answer that question.  I think that what they have done from when they were sort of an inspiration inspired by Groupon to what is now going through a Tmall and Taobao version of India, it’s very localized, is quite interesting.

ROHIT:  What we see happening in the market in India is that the businesses that are being built by other companies are very inspired by what happened in the U.S. or in the Western markets where the audience is much more homogenous, it’s much more richer, and as it is buys a certain type of product.  As Hans just mentioned that the GDP per capita in India is much lower.  And a large number of Indian users who are coming online now, they do not have that kind of income.  And they do not want, or they don’t find the platforms that exist very relatable for themselves because what they buy is not available online.  The pricing in which they buy things is very different from what is being sold.  And the overall experience that they expect is very different.  So, Snapdeal fills the gap for these consumers by bringing online what they buy otherwise offline, which is value for money, high-quality selection, not necessarily branded, and also delivered to them in a very engaging way because unlike the rest, again, a lot of Indian users are not trying to save time.  They’re trying to save money.  And as a result they are actually even willing to spend a little more time, enjoy spending more time on shopping apps if it helps them save a little more money.  And Snapdeal is a platform does things in which not only do we bring that selection, which is relevant for this audience, also in a manner which is very engaging, very seamless.  Even if you don’t know what you’re looking to buy you can just come to the app, start browsing, very seamlessly start showing you certain products.  While you’re at it you can play some games to win some coupons, which will help you save money and consumers are completely okay with that. 

RITA:  But you have made a conscious decision to not be merged with Flipkart.  Instead you actually launched Snapdeal 2.0 focusing on that particular group.  Can you walk us through how you make that decision? 

KUNAL:  Yeah, I think it was an interesting period for our company where we had many discordant– typically when there’s M&A there will always be voices that say it’s a good idea and then voices that say it’s a bad idea.  But you would think that there would be a resolution in the end.  I think in the end where we as entrepreneurs and as a team felt that given a resolution was not being reached, it was important for us to step up and take a decision about what should be the path forward for the company.  And we believe that given Indian e-commerce is still very early; in a country with over a billion people no more than 100 million people have bought a product online.  So, why fold our cards right now?  We require a little bit of refocusing the business but we saw back in 2017 what everyone probably is seeing now in 2019, that there was going to be a flood of new users, hundreds of millions of e-commerce buyers are coming online, and there is no platform that serves the needs that Rohit mentioned right now for them.  And it seemed like a dream then.  It seemed like something on paper and not many people believed it could be done given the irrational competition that we see in India.  But despite that I think we just worked with a lot of focus and discipline serving the needs of these particular customers with this type of selection, with the type of service and experience that they wanted.  And it seems to be showing quite promising results.

ROHIT:  I think the other thing that worked really well for us, which has made all this happen is to set up our entire organization with a clear focus of serving the needs of these consumers, which also means that we set up our supply chain fulfillment and logistics capabilities in a manner that we can sell products which are $5, $7, $10 and fulfill them while still making money at the time of selling these products.  Whereas all the other companies that have been set up in India, they’ve set up their logistics in a manner that they just can’t profitably sell a $7 item and as a result, as a consumer, even if I want to buy a $7 item, the only choice for a company to sell it is to make losses while doing that.  Whereas we as an organization, once we are very clear of who are target audiences and the kind of selection we want to sell, focused on making sure that we are profitably able to sell that selection and bring their selection on board. 

HANS:  As you tried different models from Groupon and to sort of a shopping mall, Tmall model, and then now more to a C2C marketplace, Taobao model, how do you decide which model to use over time?  And how do you think this compares to the Amazon, Flipkart B2C model?  And how do you think consumers decide where to go and shop what kind of goods?

KUNAL:  Yeah, it’s a good question.  I think I would give you credit for us moving from the Groupon model to the marketplace model because I think if our meeting in Beijing in December of 2011, we might still be running a Groupon business or not running a business at all.  So, I think credit goes to you for that answer as you know.  But I think over a period of time, at least one thing which is there, which is a good aspect of our company’s culture is we’re quite intellectually honest where if we see that something’s not working, we are open to changing.  But not like every day.  It’s not like we make changes on whims and fancies.  But after spending a decent amount of time and looking at a lot of data, if you think some aspect of our business, big or small, needs to change we change it.  You point it out to two big changes of Groupon to marketplace and then within marketplace from being focused on brands to the long tail.  But even within these changes there are a lot of smaller changes that probably are never known out a company.  But the big team is just constantly looking at what our customers are saying, what our seller partners are saying, what our team is saying, how the competitive landscape is evolving and whether we need to change something or not.  The key is we keep an open mind to change and we don’t become too stubborn about that it is our way or the highway.  I think that seems to be the theme in our culture from day one.

HANS:  You’re very kind.  I think that a lot of ECs like to think that their ideas matter a lot, but as we all know execution is much, much, much more important.  How did you guys figure out how to evolve the company and what are some of the lessons or takeaways that you can share with other founders and wannabe founders?  How to navigate a company through those kinds of dramatic changes?

KUNAL:  Yeah, I think navigating our type of high-transaction velocity, B2C, or consumer businesses, consumer Internet business is very challenging.  It’s like this bullet train that’s just going in a particular direction and how do you take a quick hard right or hard left?  It is very, very challenging and given we’ve done it a few times, I guess the main learning I would say there is around having very, very high amount of clarity on the goal and then making sure you communicate that very, very abundantly and repeatedly to the team.  So, like in our company if you are to wake up any of our team members at 3AM at night from their sleep and ask them, “What are the goals of Snapdeal?”  They wouldn’t even need to think for two seconds and they will tell you what are the top three goals of Snapdeal from quantitative goals.  And those cascade down from Rohit and me down to everyone in the company.  It’s the same sheet of goals for the most part.  So, I think clarity of goals, doing very few things, being very focused and disciplined on a few high -impact outcomes, and then constant communication with the team in different shapes and formats.  Communicating what is working, communicating what is not working in an acutely, intellectually honest manner.  Those are very critical.  But then all said and done there is a big element of luck also where fortunately for us that whenever we’ve had to take a hard left or a hard right the overall ecosystem in the market is also headed in that direction.  We just ended up taking a hard right or hard left in a direction that the market was anyways going to go.  I don’t want us to take all the credit for it.  I think luck also does a play a bit of a role.

RITA:  When you were rebooting Snapdeal by selling its logistic and payment arm of the company, what are some tradeoffs you guys have to make?

KUNAL:  You know the learning we have is that whenever you are in trouble, everyone will try and squeeze the last drop out of blood out of you, especially when you’re selling assets and people think that the overall company is in a bit of a distress situation.  I think the tradeoff we made in selling those assets was we couldn’t optimize for value.  But at that point in time it was more important to sell them and harvest them for cash then to optimize how much cash we could get into the company.  Those businesses were worth more than what we had to sell them for.  But in hindsight it was the right thing to do.  The certainty and speed of doing those transactions were more important than optimizing for the last dollar of value.  That said, in hindsight those are also good decisions to sell those businesses because we realize that our business, we as a company are far more successful at focusing on one deep problem and solving that, rather than trying to solve multiple deep problems of payments, logistics, which are in the end very different businesses.  Everything looks similar or everything is transactions and commerce, but each business has its own deep nuances and they can be very distracting away from your core business. And fortunately in India over the last few years, at least on the logistics side, there’s a very vibrant ecosystem of third parties, third-party logistics companies, which are run by entrepreneurs like us who are tech savvy and have built good technology, good processes.  So, we are now one of the largest customers, if not the largest customer, of most of the third-party logistics companies that serve e-commerce businesses because 100% of our volume goes to third parties.  We don’t do any captive logistics of our own.  Similarly on payments, there’s been an explosion of number of payment companies that have come into India.  All the global multinationals from Google and Facebook to Walmart, Amazon.  Everyone’s running payment companies in India.  So, it seems to be a business which nobody wants to make money in.  And everyone is willing to give away a lot of subsidies and coupons and cashbacks to consumers.  So, we are more than happy integrating all of them as long as they’re willing to give promotional dollars to our consumers and their expense.

ROHIT:  The other tradeoff which we had to make inside the organization, I would say, which again in hindsight was the right tradeoff to make was forcing ourselves to discipline and pick our priorities right.  I think the way the Indian startup industry grew up is that everyone started looking at China and the U.S. and started seeing that all the successful technology companies in these countries are in a lot of businesses.  What they didn’t see is that those companies became successful at one business first and then after starting to generate cash or money or profits in one business, they started reinvesting that to build other businesses.  In India I think there was a sense that if you’re at technology company you should start doing many, many things together and that’s how everyone in the organization also starts thinking, forcing ourselves to pick priorities and saying, “Hey we’re going to do only one thing.”  Or within that as well, just picking priorities, which are not more than two to three at any point of time, no matter how lucrative the other opportunities sound, was an important tradeoff for us to make and which we still make on an ongoing basis.  Which in hindsight is absolutely the right thing to do because as Kunal has well mentioned rightly, what seems like a great opportunity and should be doable, the moment you get into the details and stared doing that, to do it better than anybody else is incredibly harder than just doing it for the sake of doing.  And I think we learned that through experience as well that it’s very critical to force ourselves to pick two or three bets so that we can spend the time and energy and the cycles required to make those things work.

HANS:  You guys made the most dramatic improvements in the business when you guys were running out of cash.  Most funders tend to believe that in order to make dramatic changes they need capital to help to do that.  How are you able to achieve what you did specifically?  What are sort of the two or three things that happened that you did to make this transformation possible?

KUNAL:  Yeah, I think a few things we did.  One, we looked very dispassionately at our business and given we are essentially a marketplace that has thousands of categories and 200 million plus listings, we very dispassionately looked at the unit economics of each category, each product, each subcategory, and unit economics post-fulfillment, post-marketing like fully loaded costs of selling, servicing, and order.  And we tried to make an assessment that if something is negative unit economics, is it because we are inefficient or structurally those products or categories can’t be sold with positive unit economics at this point in the Indian market?  Could be for a variety of reasons.  So, if we felt something had the opportunity to be made more efficient, to more efficiency can be made positive unit economics, we did that.  And wherever we think that with all our energy, all our efforts, we can still not turn a category or a line of products into positive unit economics, we just cut them out.  And it seemed like a very unpopular decision back then that for instance, smartphones is the largest category by GMV in the Indian market.  Where for some platforms it may be 60%-70% of their GMV potentially in some months.  And we said, “Look there is no way to make money in this category post all fully loaded expenses of marketing, fulfillment, customer service, etc. Let’s get out of it.”  And we will come back into that category when the market cools down or there are some new brands that want to work with us on commercial terms that work for us.  So, I think it seemed unpopular then that, oh, like a lot of people said that then people will stop coming to you because you don’t have this head category.  Actually none of that happened.  What happened was consumers started building a much more sharper profile of what Snapdeal is and what Snapdeal is not.  Like consumers don’t look at Snapdeal as a place which will launch the latest, jazziest smartphone and give you cash backs if you buy it on the flash sale.  There’s nothing wrong w that.  It’s just that they don’t see Snapdeal as that.  They see Snapdeal as a place, it’s like a dollar store.  You come, you don’t know what you want to buy, we’ll help you discover some interesting products, and you’ll most likely check out with something in your hands.  And it takes a little bit of time for that positioning to sink into consumers but if you are sharply focused on what you will do and what you will not do, it does eventually solidify in the consumer’s mind.  So what that did, Hans to your question, is like in high-transaction velocity businesses, the most amount of money that companies lose is on unit economics because it compounds with your high velocity of orders.  So, the number one thing we focused on was just making sure at a company level, at a category level, at a product level, we are generating positive economics post all expenses.  The second thing we did was, as we discussed earlier, we sold off assets where we didn’t think we could ever make money and decided to work with third parties and build deep partnerships with third parties where maybe they’re able to manage their businesses, their logistics or payment business more efficiently than we could, or they don’t need to because they have a lot of capital to run those businesses.  Third thing we did was just made sure that we don’t bloat the team, that we work in a very, very lean structure.  Our whole company, for the scale of business we operate is very lean.  There’s 750 people in the whole company fully loaded, which is by Internet company standards very, very, very lean.  The whole company is on one and a half floors in one building and it’s quite incredible.  And we have not seen an increase in headcount over the last couple of years.  It’s stayed in the same zip code despite the fact that the orders have grown.  So, that operating leverage kicks in where your revenues keep going up, but your fixed operating costs don’t go up.  And as a result your bond goes down materially.  So, I think these are two, three things specifically that we would have done.  There are some others also.

HANS:  What are the others?

KUNAL:  I think there’s a lot of optimization that we would have done on things like what we pay for collecting payments as an example.  Our philosophy is that this type of business, you build by conquering one basis point at a time.  There are generally no broad brush strokes that will suddenly improve your unit economics, suddenly grow your business, suddenly make you profitable.  We are very, very focused on small basis point improvements also and I think those, over a period of time, compound into large numbers.

ROHIT:  I think also, some of the other things that we did was once we decided that this is the kind of business we want to be in, which is positive unit economics serving a certain type of consumers, serving a certain type of selection, then our business was not built this way for t he longest period of time.  Slowly and steadily we started moving everything in our entire business in that direction, which means that while we started focusing on selling value-for-money products, our apps still looked like it was built for selling branded products.  And then one piece at a time we started changing the navigation of our app whereas earlier there was a lot more focus on showing categories, brands, banners, merchandise, etc.  We wanted to focus incrementally towards showing a more continuous feed of products because this is what our consumers were telling us.  A lot more traffic and a lot more purchases were happening through Browse than through Search, which means that from a consumer behavior standpoint we were seeing that these are consumers who don’t necessarily have an exact idea of what they want to buy but they know they want to buy something and they want to browse around.  Which means that making the navigation easier for them to start seeing products, almost like a social platform, became very important.  The entire way we do fulfillment and logistics, we went through a complete change because earlier we used to obsess a lot more about speed of getting a product to a consumer, whether we can get it in one day or two days.  As you started conducting experiments, we realize that consumers are okay to wait for four days as long as the product is 50 rupees cheaper.  And in fact they would prefer that because they think, “I don’t need the product tomorrow, but I can definitely use the 50 rupees I saved by waiting for a day or two more.”   So, we changed our fulfillment mix in the way we get products to end consumers to make sure all of that saving we’re able to pass back to consumers and then help them buy more from our platform.  So, I think there’s, as Kunal mentioned, it’s not one thing, I think the major thing that we decided as a company is that, which we still very strongly believe, is that for commerce businesses the product market for definition is incomplete without economic fit.  We feel if the economics are not right then any product can be made to fit into any market.  The true test of the product market fit for a commerce business is when you’re a product market as well as economic fit, which means that while you’re selling products to consumers you are able to sell them in a way that you make money.  Unless you can do that, at least at a unit economics level, we just felt that there’s no point in being in that category or in that line of business.

HANS:  Great leaders can make decisive and efficient adjustments on a battlefield based on what’s happening.  So, based on the things that you guys have done in the last few years, what does that tell our listeners about the state of e-commerce market in India?  You guys started off doing the more branded goods, fast delivery, one-day, two-day guarantee, and a lot of Western companies going to India, they focus on the top of the pyramid that they think are the most valuable, maybe 50 million people or so.  Yet you, over time, choose to go after the more mass market and with unbranded goods.  That’s more like dollar shop, almost like Wish and Taobao model.  How big is that segment market in India and do you consciously decide to change based on what you see on the marketplace?

KUNAL:  Sure.  Actually you’re right Hans.  I think when folks who have more exposure to the developed world, which is far more homogenous or wealthier, they tend to believe that most of what is sold in every country is reflective of what they see in the developed world, which is mostly branded goods.  That branded goods, people would feel intuitively contribute to the largest part of the non-grocery retail buying in any country.  In India it’s exactly the opposite where out of about $220 billion of non-grocery food, FMCG-type categories, there’s about $220 billion of sales that happen every year in those categories in India, overall not just e-commerce, in offline, online.  Of that, no more than $5 billion is branded.  And about $160-, $170 billion is actually unbranded.  And a greater share of branded is already online, like for smartphones, most estimates would put it at almost 50% of all smartphones are sold online because it’s a highly price-elastic purchase.  So, if you get a discount, small discount, why would you not move your purchase online?  It’s the same product.  But for unbranded, this $160 billion market is barely online, maybe not even 1% is online.  And the reason for that is the buyers and sellers of that merchandise have only started coming online in the last couple of years after the JIA-led 4G revolution in India.  So, the market size we see as being theoretically infinite for now and this pie is getting bigger by the day, not smaller because the overall retail pie is growing because the overall GDP is growing in India right now.  So, we see tremendous headroom from here on and given, as Rohit mentioned, our platform, our brand, our positioning is set up to serve this type of selection and buyers of this type of selection, we feel pretty optimistic about the runway in terms of growth ahead of the business.

HANS:  People who look at India, it’s 1.3 billion people and GDP per capita is just under $2,000 per capita.  Yet you focus on the 400 million user base.  What is roughly the GDP per capita of your target audience?

KUNAL:  Yeah, I think 40% of our users are– 80% of our users would be below $15,000 and 40% of the users would be probably below $5,000-$6,0009 for a family, for a household, not at an individual level.  And so, that’s broadly the distribution we see.  But the average is generally not a great determinant for how the distribution actually works.  But anecdotally we see enough users who on our platform were making maybe as little as $200-$300 a month.  So, in the $3,000-$4,000 a year type of income bracket.  So, we feel that as the income levels go through the $3,000-$4,000 mark and as, Hans you’ve also said before, that the inflection point in most geographies happens at $4,000, we are quite optimistic that the next $1,000 that gets added to the $2,000 of GDP per capita is going to be spent on a lot more discretionary items rather than utility items.  I think that’s where we fit in nicely for this audience.

ROHIT:  And also one of the other things as you mentioned Hans, we believe that while working in a market which has low GDP per capita, it becomes extremely critical to build your model in a very low-cost manner because we can’t influence the income that people have today; that will take its own time for it to grow.  But what we can influence is what products are we selling to them and how are we able to get those products to the hands of end consumers.  And those will get determined by their income levels today and as a result, making the call that this is the income level of people, this is the price at which they like to buy products, and those are fixed data points for us.  It’s our job as a company to work backwards from there and figure out how do we profitably sell these products to these end consumers and get them into their hands, which is where we choose to spend most of our time and energy.

HANS:  I think sitting in Upper East Side in New York or Park Heights in San Francisco or in the bay area, when you design products it’s easy to design for people like yourself or your friends.  But time and time again, not to pick on those cities, those cities are all great, but time and time again it’s designing for the mass market on the global basis and in designing for even users that use “low-end” android phones, that has only 1GB in ram, that’s actually the much bigger market and that’s the market that’s readily available and underserved that allows you to build the multi-billion dollar outcomes.

RITA:  So, starting up a company is never easy, not to mention transforming one constantly.  What was the hardest thing along your journey?  Is it the pushing investors or is it the skeptical media or is it your staff, your team?  What was the hardest one?

KUNAL:  When you’re building a company, especially sort of a prominent consumer brand which touches lives of millions of people every day, every month about 75 million unique visitors on Snapdeal.  So, it’s a very large number.  So, almost everything you do, if you sneeze, people are watching.  And it does become challenging at times because you don’t want the constant external tracking to influence your day-to-day decisions and not allow you to do what you need to do, even if it is tough or unpopular.  I think for us, we’ve been running a business for long enough that we’ve known how to cope, we’ve learned how to cope with the external pressures and all the scrutiny that comes with running a prominent consumer brand in India, especially in the tech space.  That we have gotten better at I would say. I don’t think we are great, but we are a little more inert to it now.  I think the part, which is always hard when you’re going through a transformation is how do you instill the sense of belief in the team that you have but you also have at the same time a lot of insecurities of your own because we don’t know all the answers, it’s like we can’t look in a crystal ball.  We can have a hypothesis, but we know there’s a lot of– the Pacific Ocean can fit between the hypothesis and the actual result, there’s so much in the middle.  But to the team you have to instill the belief that we can actually make it happen if we are very focused.  And I think that can be a very grueling journey.  It can be a very demanding journey emotionally and physically because to each person who has a doubt on your team, you can’t make them feel that they are the hundredth person who has brought that doubt to you.  Like you can’t come across as being tired or fatigued or insecure in front of them because to them they are looking into your eyes and seeing, “Is my leader confident that we can pull it off or not.”  That’s all they want to see.  So, to them you have to come across as being confident, secure.  Not overconfident but also transparent that here are all the things we think we can do but here are the things we don’t know how we can do, but we’ll solve it together.  And I think that probably is the most challenging and also the most demanding part of going through a transformation.

RITA:  Does it help that both of you are high school friends?

ROHIT:  I was actually going to say that as you were asking the question, I was thinking about what my answer would be.  And one of the things of being co-founders for 12 years and spending 14 hours a day sitting like three feet from each other does to you is we can complete each other’s sentences.  I don’t think I would have given a different answer even by a word as compared to what Kunal said about what is the hardest thing to do.

KUNAL:  Even the easiest periods are hard without a co-founder.  So, you can imagine the hard periods are impossible to cope with if you don’t have a co-founder you trust, you believe in, you depend on.  Like I remember in 2017 there were days when I would be on the low and Rohit would step in and say, “Don’t worry.  We’ll make it through,” and maybe vice versa.  And I think sort of being there for each other is so critical especially in the tough phases, especially when everyone around the world, everyone outside of the company is out for your blood, you feel like that, and just sticking by each other and giving each other the support implicitly also, not just explicitly is super critical.

ROHIT:  I think it applies both and we’ve seen that as well between the two of us.  It’s incredibly helpful, both in the good times as well as the bad times, to have the support of co-founder along because, as Kunal mentioned in bad times as well, given the position you are in, you can never be seen as insecure.  And there are so few people in the world you can share your insecurity with because at the end of the day you have a plan and you have a certain hypothesis.  You have a strong belief it will work.  But only time will tell will it really work.  And there is always, always, always that doubt in your mind as well whether this will really work, what happens if it doesn’t, how should you make it work, etc.  And I think having a person to, without being judged, exchange those talks with and have an open conversation with is so incredibly helpful.  Even in good times because as we go through good times, it starts becoming easier to believe that everything we do will work out.  And having one person to just bounce those thoughts off where you know the person has no other agenda but the exact same agenda as mine is so enriching to a conversation and a decision-making process.  I think that just, it’s almost unimaginable how one would do without it.

RITA:  Many people say that one shouldn’t go into business with their friends, otherwise they wouldn’t be friends anymore.  And I bet you guys have differences, too.  But how do you resolve the differences between the two of you?

KUNAL:  Yeah.  I think if we didn’t have differences the company would need only one of us.  So, I don’t think the company should have two of us then.  I think both of us bring different perspectives.  Doesn’t matter what’s right, who’s right, who’s wrong.  Obviously, we have, I wouldn’t say differences but differences of opinion on particular topics.  But not as obviously holistically or comprehensively on the direction of the company.  But on particular topics we may have differences of opinion.  What we generally do is we’ll get in a room, in a meeting room, and discuss in great detail what our respective perspectives are.  But at the end of the meeting we would always have decided whether it is my perspective, Rohit’s perspective, or some hybrid of the two, then and when we leave the meeting room that is our collective perspective and it doesn’t matter whether we enter the meeting room whether it was mine or Rohit’s.  It doesn’t matter.  Then anyone else in the company, if they walk up to me or Rohit about that particular topic, they’ll hear exactly the same thing.  Sometimes you see people try. 

HANS:  Right, for sure people do try. 

KUNAL:  But I think over a period of time people work with us long enough and most of our team has, like the average tenure of a team member in Snapdeal is 4.5 years.  At some point people may have tried and they realize it doesn’t matter.  You can talk to whichever of them, they’re going to say the same thing.  They’re always fully aligned. 

ROHIT:  I think one of the other things that is so critical, and I think you learn the importance of it more and more over a period of time is just, having completely unshakeable trust in each other’s intent.  Our judgments may have errors.  We may have a certain point of view, Kunal may have a certain different point of view, and even our collective judgment tomorrow may turn out to be the wrong judgment, which happens all the time.  But just having incredible ability to trust each other’s intent and making sure that that is never questioned while you’re discussing sometimes very intense topics of very high importance as well is so critical.  And I think one of the other things that we’ve seen happen is because of the way we make decisions with this very high degree of trust and very consistent decisions after they’re taken, we’ve seen that there has started, over a period of time that has flown to our larger team as well.  I mean actually they see this as the right model to work, not only for two co-founders but also as a management team.  Where we’ve seen that within our management and leadership team as well, there is an incredible degree of trust in each other’s intent and while people respectively have different areas of responsibility, they’re core focus is on something else.  All of us by and large trust each other with doing their part of the job really well and doing something, which is great for the business.

HANS:  This amazing journey would not have happened if Kunal had stayed in the U.S. and worked for Microsoft and get the green card to be able to stay.  President Trump even used you as an example.  Yet you see so many incredible Indian executives do so well in the Bay Area in tech, and not only in tech and also in academia, in many other industries in the U.S. rising to the very top.  How do you see sort of the flow of talent from elsewhere back to India these days and how is that impacting development of internet sector in India?

KUNAL:  I think we obviously continue to see the inflow of talent.  The interesting thing is a lot of the entrepreneurs are turning, a lot of people are returning post either business school or having worked for a large company or a startup in the U.S. but most of them are coming back not to work at a company but to start a company in India.  And I think that trend is quite visible in recent times.  Rohit and I get pinged all the time by folks who are returning or planning to return to the U.S. through common connections, not with the intent of joining us or interviewing with us or getting a perspective on where to look for a job, which company to join, but a very, very focused approach to starting a company and, “Here is my idea,” or “Here are three ideas I’m assessing, what do you think?”  Which I think is a great trend because obviously folks who’ve spent time in the U.S. working with, especially with tech companies in the U.S. have very unique perspectives.  They’ve seen how methodically, sensibly companies are built at least in the Valley with deep focus on product.  And we are seeing that have a very positive impact on our overall ecosystem.  And I think that trend will continue.  As the Indian internet ecosystem becomes larger, more mature, more success stories come out, you’re going to see more and more people give up the opportunity cost of a great lifestyle with high income in the U.S. to come back to India, work for zero salary and start a company with the dream of building something big. 

HANS:  Rohit, do you see the same thing?

ROHIT:  Yep.  I think one of the other things that’s going to happen is that even till maybe a couple of years back the size of the Internet industry in India was relatively smaller because the number of Internet users online was smaller.  I think in the last two years we’ve seen a true explosion of Internet users in India.  And as a result, one of the other things we are seeing which is happening now is that companies that start, because they have access to a very large number of users have started scaling much faster than they used to scale as recently as five years back.  And as a result I think we’ve seen a lot more people getting excited about coming back to India.  I agree with Kunal that many of them choose– I think we still see a lot more people coming back to India right after they graduate versus working for a few years in the U.S. and then coming back.  I think as the industry matures and becomes bigger in size and more success stories happen, I think it’s going to become more and more lucrative for people who have even worked for a few years in the West to come back to India.

HANS:  We have a hypothesis that whether Chinese companies have grown up a lot over the last decade.  Some of them, like Xiaomior ByteDance are expanding beyond Chinese borders.  However if you look at something like Oyo out of India is expanding rapidly globally even when Indian Internet market is a lot smaller than China’s.  Given the language ability and more international exposure it seems like more Indian startups can expand beyond India sooner than Chinese companies do.  How do you guys think about that and feel about that hypothesis?

KUNAL:  Yeah, I think so.  We’ve started seeing two or three examples, you mentioned Oyo, I think Ola has done some international expansion.  UrbanClap has done some international expansion.  It is still early days and I think these companies and some others are obviously pioneering the international expansion.  What would really turbo charge the confidence in Indian entrepreneurs to globalize their businesses is as we see more incontrovertible or undeniable success stories of Indian companies, Indian startups that have gone global.  Like for instance I would say Amazon or eBay were the pioneers amongst the U.S. tech companies to go global and did it extremely successfully.  That then charted the course for so many companies like Uber and others to also do rapid global expansion.  I think we are in the early stages of that in India and depending on how well and I hope and wish all these companies, Indian companies that are trying to go global do extremely well.  I think as we see more successes, we will see more companies out of India do that.  We obviously are talking more about consumer companies, a trend that is already significantly underway is on the B2B SAS companies where the product is being built in India but being sold to a global market.  That ship sailed a while back and I think we are going to see a lot of fairly large B2B SAS companies get created, product companies get created out of India selling to a global audience.  In many cases we may not even know that they are an Indian company, just by virtue of the fact that most of their revenues come from global customers. 

HANS:  We’re much more globalist at heart than nationalist, so we love seeing companies that can spring up all over the world and build globalized businesses.  I think we would be honored to have the two of you as GGV scouts to help us to invest in those companies and groom the founders into leaders and build global business. 

KUNAL:  Absolutely.  Anything for you Hans. 

HANS:  Thanks.

RITA:  So, we’re going to go to the final round of quickfire questions.  Both of you just say the first thing came to your mind.  Who are your source of inspiration these days?

KUNAL:  So, it would be more traditional, traditional business entrepreneurs like Uday Kotak who runs Kotak Bank in India or Sunil Mittal who started and runs Airtel.  I think they would be my sources of inspiration today.

ROHIT:  For me I think it would be still a lot, thematically the Chinese e-commerce companies, which think very differently, and which build a lot more engaging experience for users as compared to what we see the Western e-commerce companies doing.

RITA:  What is a habit that you have that changed your life?

KUNAL:  I think maybe not the habit, but I would say having kids changed my life, for the better.  Definitely for the better.  I think especially when you go through a tough period in your professional life, being able to come home to a family and kids who are just so happy to see you and don’t really care about what’s going on in your work life, I think it’s so refreshing and it completely reenergizes you. 

ROHIT:  For me it’s actually I get up before 5:00AM and it’s that couple of hours in the morning when I’m up before anyone else and I spend time either reading or thinking.  I think that just centers me for the rest of the day and the week and that habit has been pretty good for me.

RITA:  What is the most frequent advice you have given to young entrepreneurs?

KUNAL:  Focus.

ROHIT:  I knew the answer was going to be the same before he answered it.  I think every single person we meet just tell that there are so many things that you can do, don’t get carried away by them.  Just pick one, do it really well.  If it doesn’t work out, leave it and pick another one.  But at any point of time just pick one.

RITA:  What do you do when you are stressed?

KUNAL:  I mean I don’t think there is anything specific one would do but yeah, maybe spend time with the kids or watch something on Netflix.  Usual stuff.  I mean there’s nothing–

RITA:  Spacing out.

KUNAL:  -nothing particularly different that I would do. 

ROHIT:  In my case well I either read books to my kids or I read books for myself. 

HANS:  I ask one more question.  What does 9 and 6 mean to you?

KUNAL:  Nonstop work. 

HANS:  What’s your schedule like?

KUNAL:  Look, most entrepreneurs are 24/7.  So, in respect of whether we are in the office or not or in traveling for work or not, we’re always on.  And we’re always on not because we need to but because we like to.  We like to stay connected to what’s going on in our business.  We like to stay connected what’s going on in the ecosystem.  It doesn’t fatigue us, it doesn’t tire us out, because we are mature enough now to know when to take downtime when we need to. But outside of that we’re sort of always on but mostly because we enjoy it.

ROHIT:  I think the definition of what are the working hours has also evolved.  All of us use media as well.  I think now is the time as Kunal mentioned, we are always on but at the same time it’s not like we have no downtime at all.  I think the downtime has also become similar to the uses of mobile Internet downtime snacks, rather than like two weeks of downtime when you’re completely disconnected.  I just think we’ve lost the ability to do that at all.  And we don’t feel stressed out because of that as well, because we just enjoy what we do.  We are not doing what we are doing because we have to, we are doing what we’re doing for the amount of time we are doing because we like to. 

HANS:  So, as you guys build a culture at work, how do you encourage employees or staff to feel the same way and not be “forced” to work 9:00-6:00?

KUNAL:  Yeah, I think our culture is absolutely not one of face time.  We have no prescribed working hours.  People get in, in and around the same time, they start leaving whenever they think their work is done.  We don’t prescribe any timings.  Our office is open five days a week, but I think our entire team is also always on, and again by choice, I would like to believe.

ROHIT:  I think also we’ve seen that companies and cultures can do lip service to flexible timings or they can truly embrace it. We like to believe that we truly embrace it.  And we’ve seen in our office as well, people just perform very differently at different times of day.  There are certain people in our company who are exceptional performers who like to come in quite late and they stay up till late.  There are other people who are equally well-performing who like to get started as early as 7:00AM.  So, I think just being comfortable with the fact that everyone is different in how they perform and being accommodating as a culture and trying to enable that culture within the organization is quite important.

KUNAL:  Rohit and I, also, by that example.  Rohit’s an early sleeper, early rise.  I’m a late sleeper, late riser.  And so, our team jokes that as a result they get emails from both of us 24 hours a day. 

ROHIT:  So, after Kunal goes to sleep my emails start coming in. 

KUNAL:  We make shifts so that we have the entire 24 hours covered.  Yeah, but jokes apart, I think given we ourselves, we are both similar in many ways but so different in so many ways and yet are sort of high-octane, high-performance professionals.  It’s no different.  We recognize and appreciate and empathize that similar differences would be exhibited across our team also and we leave the room for them to do that. 

HANS:  Right.  Well what you guys have is a very special and more rare than what has happened with Amazon and Microsoft and Facebook, Apple, is more in the norm.  What you have at Google is much harder to have co-founders who can stick together.  So, thank you for your time today.  It’s been a pleasure and honor to have known you guys for seven to eight years. 

KUNAL:  Thank you Hans.  Thank you so much for having us.  This was really fun.

ROHIT:  Yep.  Absolutely.   Thanks a lot for having us. 

HANS:  Thank you.

RITA:  Thank you. 

S2 Episode1: Vaibhav Gupta of Udaan: on Building India’s fastest Unicorn in B2B

For the first episode of the Evolving for the Next Billion podcast, we have Vaibhav Gupta, co-founder of Udaan, India’s top B2B eCommerce. The company connects manufacturers, wholesalers with retailers online, often referred to as India’s fastest unicorn, having achieved over $1 billion valuations in a short period of 26months. Udaanis a GGV portfolio.

Prior to starting Udaan, VG was the senior vice president in Business Finance and Analytics at Flipkart, one of the most successful e-commerce platforms out of India, sold to Walmart in a $16 billion deal last year. His other two co-founders for Udaan were the former president of operations and CTO at Flipkart. VG holds a bachelor’s degree in Computer Science and Engineer from the Indian Institute of Technology and an MBA from the University of Virginia. Welcome to the show, VG.

On the show, VG shared how his time at Flipkart, the eCommerce giant of India sold to Walmart in a 16-billion-dollar deal, helped him launching Udaan, why distribution is a much bigger business in India than retail, India’s second generation of founders, and the most frequent item he buys online.


HANS:  On the show today we have Vaibhav Gupta, or VG for short.  Co-founder of Udaan, which is India’s top B2B e-commerce company that connects manufacturers, wholesalers, with retailers and do in online.  The company is often referred to as India’s fastest unicorn having achieved over $1 billion valuation in a short period of only 26 months. Udaan is a GGV portfolio.

RITA:  Prior to starting Udaan, VG was the Senior Vice President in Business Finance and Analytics at Flipkart, one of the most successful e-commerce platforms out of India sold to Walmart in a $16 billion deal last year.  His other two co-founders for Udaan were the Former President of Operation and CTO at Flipkart. VG holds a bachelor’s degree in computer science and engineer from the Indian Institute of Technology and an MBA from the University of Virginia.  Welcome to the show VG.

VG:  Thanks guys.

HANS:  First of all, you have a successful run at Flipkart, so do your co-founders.  Can you tell us what were the lessons you learned from Flipkart and what gave you guys the idea to do Udaan?

VG:  Sure.  I think one of the big things we learned at Flipkart was how India was changing very, very fast.  Across the country you see mobile and Internet penetration in consumers and in businesses growing very fast.  People have started using mobile to not just buy and sell things but just to run their lives and run their businesses.  The second thing we saw that a lot of the India market, and we’ll probably talk more about it as we go, India market is very unique like China is very different than U.S., India is actually inherently very different than China and U.S.  Although the digitization is going very, very fast but the purchasing power of the consumers in the country is still actually very, very low.  Country is heavily unbranded.  A lot of old ways of trade and buying and selling still persist in the country.  We considered one of the big learnings we have had from Flipkart is that India has power, has an opportunity to build largescale platforms but they have to be thought natively.  Like people have to think about India as India’s problems and figure out solutions and products, actually, more than solutions, products which actually are targeted at Indian society, Indian economy, Indian ways of doing things, and then you can actually build a largescale sustainable platform. 

HANS:  Right.  And remember GGV is an earlier investor in Alibaba.  There were many other e-commerce companies that started before Alibaba in China, many of them try to copy either eBay or try to copy Amazon and neither model worked.  When Alibaba did Taobao it was uniquely solving problems the Chinese way.  So, can you explain in more detail why you choose to do Udaan?  What it is, what kind of problems Udaan’s trying to solve that’s uniquely Indian?

VG:  Sure.  I think when three of us started Udaan, one of the big things we were focusing on, finding big markets in India where mobile and Internet can create a huge disruption or a huge change, change the way of doing things.  If you look at how Indian economy is structured it’s still a very, very strong domestic trade economy.  Large part of economy in terms of value, as well as people involved in economy, like buyers and sellers or producers and manufacturers are small businesses.  And it’s a domestic trade economy.  You have 100 million plus manufacturers, farmers, producing things in the economy.  You have 25-30 million retailer endpoints consuming goods and then you have a million plus traders, channel players who are actually solving for the trade.  What we saw was that as we saw that mobile adoption was making all of them available online and for us, we saw that as an opportunity to actually think about a marketplace which can actually create value from bringing, solving for the fragmentation on supply and demand side.  It can create value from pricing.  It can create value from selection discovery, price discovery, quality discovery, and I think that’s one of the reasons we were attracted for the market because it was large, and the timing was right. 

HANS:  So, it sounds like there were many manufacturers and sellers on one end.  On the other side there are many, many small shops, the kirana stores, in the middle there are multiple layers of distribution and the wholesaler right in the middle make the most amount of money. 

VG:  Yes.  If you would look across the country, you’d be surprised that one of the most profitable businesses is distribution and wholesale.  Most of these guys will typically have 40%-50% return on their capital.

HANS:  Wow.  That is very high.

VG:  If you look at the most successfully-run U.S. distributors like, let’s say, Sysco Food, they would have a return on capital of like 40%-50%.  These guys are actually very, very subscale but still are able to generate that much money.  And the biggest reason is because they’re sitting in the middle and you have fragmentation on both end and you also have the problem of India.  One of the big problems within the trade is that the credit, which is renewed to run the trade, runs on informal credit histories.  Most small merchants don’t have formal credit histories and thus these distributors, wholesalers come in the middle and actually start providing, start solving for the credit problem, which manufacturers, who are again small, are willing to pay a lot of margin for because manufacturers cannot take the payment risk.  And thus it increases the margin for the channel and returns for them.  And thus it is one of the very profitable industry in the country unlike retail in India, which actually is a relatively low-margin industry.  Distribution tends to be a highly capital-efficient, highly profitable industry.

HANS:  So, what you’re saying is that on the both ends the massive amount of sellers and the massive amount of small stores can only do trades with a few partners because those are people they trust based on past history of credit?  That limits their amount of growth they can do because they don’t have enough credit with more people to do business with.

VG:  Exactly.  You’re right Hans.  And it’s just, trust is also part of the Indian society like as much as it is, I think, in China.  People don’t trust a new person easily.  And they tend to stick with the existing people and in the context of trade, credit is definitely one that’s also the trust with respect to quality of product, reliability of supply.  And it’s for these reasons people tend to just stay in their existing supplier relationships.  But one of the big things I remember when we were starting and almost everybody used to ask us that small businesses in the country have long-term supply relationships, they would not want to move away from that.  What pleasantly surprise was that every single person we went to was willing to try.  It’s not like they will say that I’m going to replace all of my suppliers tomorrow, but yeah, it is okay.  You give me the app; I’ll place two orders and I will see what happens.  And that willingness to try was something you could say was a bit surprising for us because we’re expecting people to come back and for us to do a lot of arguments in our sales to actually convince them to try.  But almost everybody was willing to try.  And we just had to make it super easy for them to try.  And that was one of the big learnings we had.  We made it super easy for people to try.  We gave them products, we delivered them on their shop, we gave them cash on delivery.  So, for them it was just an easy way to download app and start trying.  And the more people who tried, we saw the next power of this use case, which was that it’s inherently a repeat use case.  If the person buys today, he’ll get up tomorrow and will buy again.  It’s not like he’s not going to buy the same product later on.  So, what we saw was people tried, they got a good experience, they started buying regularly.  And that continues to be a huge value to our platform that even if you look at today, despite we are adding a lot of new buyers every month, 80%-90% of the business on the platform is repeat business.  And that continues to add the lots of sort of power to the platform as it scales because you have so much stickiness and repeat built into the system. 

HANS:  So, in your mind, when you started with doing Udaan, what is the biggest attraction that Udaan is offering to these sellers as well as the merchant buyers?

VG:  I think the biggest value for sellers was growth.  I think what we saw that when we started talking to some of these manufacturers, I remember talking to these typically will be a small-sized manufacturer, will have a factory unit, it will have probably about 50-100 employees.  When I started talking to them everybody was wanting to ask the question of how do I go on Internet?  What has happened was in India, Flipkart and Amazon had grown very well.  And almost every single manufacturer was thinking, how can I become Flipkart because they saw that Internet can scale so much and there’s so much people buying online, and I have products I want to sell.  And they were trying different ways.  They were hiring people to build apps for them.  They were hiring, going onto websites and signing for the listings, they were building their websites.  And the biggest underlying factor or intent was growth.  I think from Udaan’s point of view for sellers, I think that’s the biggest value that we create for our manufacturers and brand.  Udaan is one of the fastest growth channels now of trade in this country.  And for them that’s very, very meaningful.  I think for buyers, actually it is what you would see in an e-commerce platform like one of the things we saw that the small merchants in India actually behave very much like consumers when they think about buying products.  They want access to variety.  They want good pricing.  They want convenience.  They want reliable delivery.  They want an ability to order and forget about it and get it delivered and they want that habit of every time I order; this is the same experience I get.  That actually drives them.  One of the other things we didn’t talk about earlier is that we have built into platform early on the ability for buyers and sellers to negotiate with each other because that’s something which we were in going collective view of the world was that buyers tend to negotiate or buyers, sellers try to negotiate in trade.  As the platform started scaling, we quickly realized that small merchants don’t want to negotiate.  They just want to place the order and get done.  They don’t want to spend a lot of time on negotiating.  The bigger wholesalers negotiate.

HANS:  Because it makes a difference.

VG:  Bigger contractors, bigger distributors they negotiate but the smaller merchants don’t.  They’re just looking for selection.  Their job is, I am rotating my shop inventory once a week.  I just need to stuff it with one week worth of selection, get it sold, and make my fee.  I don’t want to negotiate that another 10% or 15%.  That was again was a learning from ground, that they want convenience.  They want just habit.  They want convenience.  They want selection pricing convenience and they don’t want anything to do after that.

HANS:  The sellers, you were saying earlier that they want to make sure they get paid. 

VG:  Yes.  I think one of the big things for India, as you can imagine with the fragmented channel and unorganized channel, payment reliability, like on-time in-full payments to seller is one of the biggest problems in the country.  Despite people having distributors and wholesalers, they don’t know when they will get their payments.  And typically they will have to keep working with their channel, keep collecting in small amounts over a period of time, which is generally a norm in the country now.  And it’s not like defaults happen in trade.  Default does not happen in the trade in India.  It is mostly delayed payments and uncertain timings of the payment.  And that’s what Udaan did for them.  Udaan created a very, very reliable on-time every single time payment system for them.  And our sellers loved us for that.  I remember one of our sellers telling us a story that every morning I go to temple at 8:30 and at 9:00 I get payment from Udaan and I know my day has started well.  This keeps happening every day, so I know that in the morning I get payment.  Everything is fine.  And that’s a habit now he has built in.  Like every morning he’ll get that payment at 9:00 and he knows that everything is well.  Like he’s now wired like that and I think that’s the implicit trust on Udaan.  And I think in early, first two or three years we have focused a lot on ensuring that people can trust Udaan to do their business.  Obviously, we’ll make mistakes and we’ve been open about going back to them and telling them about that, but they understand that we are working on fixing it and we are transparent, and we maintain that view with them.  So, I think that is another big value for sellers, which is sort of payment security, on-time, in-full payments.

RITA:  Can you share a bit more in terms of the operation that is needed to ensure that payment security that delivers the trust you have with your customers?

VG:  Yes.  The two types of payment today are available on Udaan.  One is cash payment and the second is credit payments.  Cash payments are typically done by a cash-on-delivery service.  India has actually seen over the last year good evolution of e-commerce cash-on-delivery services.  We have third-party providers who provide cash on delivery.  We have our own Udaan express service, which provides cash on delivery.  It obviously is a fairly disciplined tightly-run operation because what we have promised to the sellers is one of the fastest payment times in the industry.  Like no platform actually gives to the seller delivery plus two.  Everybody has sort of payment terms with sellers.  We don’t.  we want Udaan to be the fastest and cheapest way of doing trading in the country.  And on credit, I think it’s a completely different problem.  We’ve been working with the NBFcs, which are called as non-banking finance companies in the country who has an ability to create lending products for merchants and consumers.  So, we work with them.  We have our own NBFC and together we look at the transactional and the usage behavior of our merchants on the platform and we link them to their credit performance.  We have basically an algorithm, which is self-evolving and self-improving every time we do this.  We start by giving people very small credit lines and see their behavior, and over time just keep increasing the credit line based on the behavior displayed on the platform.  And what this ensures is that in absence of formal credit histories or formal credit scores, which typically would exist in, let’s say, a developed economy like U.S., they don’t exist in India.  Most of our merchants don’t have CIBIL scores.  And we have also seen from our data that credit performance does not correlate to the CIBIL score at all of the merchant in the country.  So, you actually have to look at the data of the trade to be able to estimate the economic strength of a business, both in terms of its ability as well as intent to pay.  And thus we are looking at uses data, transaction data of the buyer, as well as the repayment behavior to actually start giving them small credit lines and algorithm keeps increasing those credit lines slowly, slowly based on the behavior.  This ensures us an ability to actually keep payment security to our sellers while ensuring the credit needs of our buyers is sorted out. 

HANS:  In the Bay Area or China the full-stack companies tend to be either very product focused, or operational intensive, or they focus on business model innovations.  You’re building something that needs lots of expertise in logistics in credit management and also tech as well as a use acquisition.  How do you balance this mix at Udaan and be able to grow so fast, so quickly in the last few years? 

VG:  I think this is the one where you could say we benefit a lot from our Flipkart experience.  I think I can share that in Flipkart over the five years, there’ll be enough times we would have had discussion around are we a tech company or are we a retail company.  And like starts questioning and we have spent a lot of energies on that, we have done a lot of right things, good decisions, bad mistakes, but we spent a lot of that energy.  And I think e-commerce is fundamentally, and you know this Hans more than I do, it is actually a reasonably complex business.  It has a lot of elements into it.  Because we saw that at Flipkart and we saw pros and cons of that, what we’ve been able to do at Udaan is actually maintain a lot of focus on problem.  Then actually whether or not we’re a tech or a business, we’ve been more focused on what is the big problem we are solving for our buyers, what is a big problem we are solving for sellers, what does the big problem actually at a system level available.  And we bring all of the things together to that like be it technology, be it online, be it offline, be it delivery, be it operations, we look at for that problem, how do we create a solution.  And I think that has enabled us a lot better because I think it’s not just at a philosophy level.  Day-to-day when you are faced with such a problem, how do behaviors of the people sitting in that room when you’re talking what problem and like ensuring that the focus goes back to the problem instead of developing power centers in the company with respect to one single organization.  And I think that has helped us and I think you could say it’s more of the maturity we saw, we’ve gotten from the Flipkart, which has helped us maintain focus on problems rather than a particular type of the company we are. 

RITA:  I’m a bit curious about how the three co-founders of Udaan actually come together and have this idea of starting the company.

VG:  I think three of us spent enough time at Flipkart together.  Sujeet, I actually know Sujeet from also 20 years now.

HANS:  From your college days?

VG:  From my college days.  He was a year junior with me at college.  Actually I knew Sujeet as well, like Sujeet was also a junior of mine from the college.  So, Amod, spent enough time with him at Flipkart.  I think, when we guys were talking about it, I would say there are a few instinctive clarities.  Three of us have seen enough of each other in action and Flipkart was, as you can imagine Flipkart was not an easy time.  It was fairly stressful and was fairly spiky.  And when you see people in both good and bad times you are able to see the true fit or true character of the person.  And I think three of us have seen that.  Three of us have also backgrounds where, we were talking earlier, that we all grew up in small towns in the country, grew up in middle class, have those core Indian middle class value.  So, we saw that there is a chemistry, there is a value system match, and we had the ability to push each other.  But also know that we’ll always be, like as a relationship, we’ll always be tight.  So, I think we maintained, we had that ongoing strong trust with us.  We also did one thing.  Very quickly we started Udaan and we got about eight or 10 core people.  These were the people who are some of the best people in the country in the context of technology.  Like if we look at folks who joined us early, these are some of the best tech, consumer tech, Internet tech folks in the country.  Best operations people, best business and category management people.  And what that does, the whole team is now a team about 15-20 people who have a lot of trust with each other and who have the ability to ensure focus on the problems and answers and not worrying about each other at all.  And I think what that has done, that has taken that one of the things we saw in Flipkart was culture of how founders and how early teams operate is how the company starts behaving over time, like that starts setting the tone.  And I think that has helped us, like having a team which could trust each other.  Like people are not afraid about their weaknesses because everybody knows that, and they have sort of seen that.  So, it’s not people are trying to hide anything.  So, that early team of 15-20 people would focus on problems and solving them, and they were like right answer with the answer and everything else was not really relevant.  And the rest of the company developed that culture because they saw that.  And I think that has helped us at Udaan.  Most of the times it’s not like three of us do have the areas where we spend energies.  I spend a lot of energy on business growth.  I spend a lot of energy on category management.  I spend a lot of energy on finance side.  Sujeet, coming from his background, spends a lot of time on operations and Amod spends a lot of time on product and technology.  But three of us together spend a lot of energy crossed as well because we have that next layer of the team, which enables us to take our bandwidth away from and enable us to have cross focus.  We also get together every week, we talk about core decisions, we ensure that speed of decision making is not ever delayed.  And I think there’s a lot of ownership in the company, like people can go ahead and make their decisions and I think that’s beginning to work for us. 

HANS:  When I invest early from day one in Xiaomi, I see there’s a lot of ex Kingsoft people that know how to work with each other from before.  And when they go to Xiaomi they know how to get to work and make magic happen.  Hear you recounting how your Flipkart experience binds your team, so you guys know what to do with a new situation, new idea, is very, very similar.  That’s why we always encourage a lot of young entrepreneurs, don’t be a founder yourself.  You join a startup that’s fast-growing, so you see and hear and experience and learn all the things so by the time you want to do your startup you’re ready, you have a common set of experiences to draw from.

VG:  No, you’re absolutely right.  And I think what you are seeing right now in India is actually the second generation of startup ecosystem.

HANS:  That’s exactly right.

VG:   And what you see is that, and it’s actually I would say startup and VC ecosystem.  Everybody is now behaving more deeply. They’re more mature. They’re thinking more deeper. They’re more aggressive.  It’s not like they’re not aggressive or ambitious but-

HANS:  They’re more educated and more learned.

VG:  More learned.  Questions are more deeper.  Larger investments are being taken.  But I think startup ecosystem is also evolving.  It’s learning by itself and you’re absolutely right.  I think for us and for our team a large amount of learning came from Flipkart and I think that we are disproportionately advantaged to any other group of people who are starting because we just have so much of learning together in the team.

HANS:  And what people don’t realize is that in any innovation-type system is the iteration of generation of founders that learn from the previous ones that become better when they do other things.  India, I remember meeting the VCs and meeting the first-time founders in 2005, 2006, 2007. Some of them were still doing offline non-internet stuff.  Some of them was trying to do Internet stuff but it was still on PC desktop Internet.  And now you have, like you said, two generations of founders already. In China we see three or four or five generation founders, and the quality of founders inevitably get better in the next generation.  And this is why we’re hopeful on India producing very interesting companies now.  Can you explain how Jio, GST and UPI has made you guys building Udaan much easier than six, seven, years ago with Flipkart? 

VG:  Absolutely.  I think three of them were very big timing.  I think you could say that our timing couldn’t have been better.  We started in 2016 and right around that time, mid-2016 Reliance was aggressively pushing Jio adoption, Jio mobile, so we saw adoption.  And of our early users 8 out of 10 were Jio subscribers.  And Jio brought a lot of the Middle India onto the Internet and with almost high speed of adoption because the cost of data was so low.  And we didn’t ever have to solve, like we remember talking in 2000 early, before we started like how will we solve for people to get the smartphones?  And we never had to solve that now.  We never had to solve that problem of people not having smartphones.  There are certain categories we still do, but I think at a system level we didn’t have to solve that problem at all. 

HANS:  Do a lot of them use Redmi Xiaomi phones? 

VG:  I think people use a lot of Xiaomi phones. Like Xiaomi has grown quite a bit. 

HANS: Together with 4G.

VG:  The second thing was GST.  GST is basically good state tax. Goods and service tax.  India traditionally has had two hierarchy taxation system, government tax and estate tax. Basically at a summary level is, all of the supply chain in India were largely designed around taxation. 

HANS:  State focused.

VG:  The state focus.  So, if the goods have to move from one state to another state, they’ll be taxed.  So, manufacturers will ensure that they will create their distribution warehouses in two states, even though it doesn’t make sense in most cases. You would see that there is a state border between Karnataka and Tamil Nadu, the same company will have one warehouse on one side of the border, another warehouse on the other side of the border. 

HANS:  So it can trade within the warehouse.

VG:  So, the whole system wasn’t designed and also what we saw was most of the earlier wholesale and distribution structure was all city areas, as you would imagine.  Like if you go to Delhi, some of the older areas of the Delhi city is where you would see these big wholesale markets.  And these are narrow streets all aging go-downs.  If you go to a fresh wholesale market, there will be like fresh fruits and vegetables.  In underground go-downs, which are not hygienic to be stored for. So, you have this aging infrastructure and you have this GST now coming and then government actually came back with GST reform and abolished the state tax pretty much. 

HANS:  Right, one national market. 

VG:  One national market and goods can flow all over India without seeing interstate issues.  It did two things.  It obviously reduced the cost of the business so a lot of the supply, which was earlier north of India at cheaper prices was not meeting the demand of the south started meeting demand of the south.  So, you’re seeing that value.  And second is it reduced the time, it reduced the time and the cost of delivery.  Earlier a truck from Delhi to the south will take probably six to seven days because you have to stop at every state, go through the state process.  Now the trucks don’t stop, they just go.  So, it increased the speed of delivery, it reduced the cost of delivery, and reduced the cost of taxation.  So, basically at a system level, we have benefited a lot because we got a lot of supply nationally and goods were flowing fast and cost weren’t that high.  So, we got benefited from that and I think that’ll be a push for a long-term tailwind for us will continue to push our business forward.  And I think the third thing was demonetization.  India historically has had what you call as both a white economy and black economy.  Black economy is where people tend to evade taxes.  Now it’s reasonably prevalent in trade in India, depending upon categories.  And there was another thing at back of our mind as to how will an online platform, people will think about online platform because online platforms typically make trade transparent.  But we said that there is enough. When we did our research, what we figured out there’s about 60%-65% of the market was white.  So, we said there’s enough market which is white so let’s work with that.  What happened was Indian government came with demonetization, which was rightly aimed at actually black money in the country. Now what that did was, I would say, more than changing the structure of the cash was white, like that obviously has changed.  It changed the psyches of the people.  What most manufacturers and traders realized that a forward-looking viewpoint of black in the country started going down.  And people started finding ways of how we can actually convert or do a part of our business in white.  Or over time move large amount of our business on white and Udaan there was one of the best channels.  Most convenient, most easy, with high payment security to actually drive a lot of growth in the white business.  So, all three of them, Jio, GST, monetization, they came roughly at the same time when we were early seeding the platform and we got a lot of good tailwind.  And we also didn’t have to solve certain problems we would have earlier, otherwise would have had to solve.  So, I think these were very beneficial to Udaan. 

HANS:  How has UPI impact your business?  Unified payment interface?

VG:  I think it’s early days.  If you think about still a lot of the merchant sales are in cash.  It’s still not a move to electronic payments.

RITA:  What would be the percentage of that?

VG:  I would say for most merchants at least 90% is still cash.  It is moving but I think as of today, large amount of sales a merchant does is in cash and obviously they pay back in cash.  However, UPI is definitely, in terms of its adoption going fast.  I think what we also, forward-looking view for us is also that UPI is going to be a large part of the payment, so in the context of e-commerce.  So, we’re investing heavily with our merchants enabling them to pay via UPI directly and also enabling products for them to be able to collect payment from their consumers via UPI.  So, I think we are pushing alongside the trend.  However the current composition is still heavy cash.

RITA:  Hans I wanted to ask you, if you think about Alibaba back then, when they scaled, digital payment was a big player in their success.  Looking at those 90% of the trade is still on cash and it looks like Udaan is doing really well, can you explain that a little bit to us from your perspective as an investor?

HANS:  I think back when Taobao got started by Alibaba, GDP per capita in China was at around $3,000-$4,000 per person.  And in that range, it was easier to see consumer aspire, buy something, goods on Taobao from a manufacturer seller who’s far away.  When you’re dealing with two participants who are far away from a distance standpoint then cash is not going to be useful, will not be as good.  So, what Alibaba ended up doing was coming up with Alipay to get the seller and buyer to work with each other more efficiently.  So, if I’m a seller and VG is a buyer and I sell him something and I ship the goods to him, I need to be sure that he has money to pay for it.  So, if he leaves money in his Alipay account, Alipay let me know in my Alipay account that the money is already in Alipay and I feel secure to ship my goods to him.  And when he gets the goods, he wants to make sure that my goods to him is as good as advertised.  So, he’s not going to release money to me until he’s sure the thing is good.  So, in seven days he doesn’t complain, that’s how the money in his escrow account at Alipay will get released to my Alipay account.  This way Alipay becomes an escrow service to make sure the transaction is good.  And that’s how Alipay grew very quickly with the expansion and growth of Taobao.  And what VG was saying earlier is that GDP per capita in India is still low enough that B2C commerce takes so much time, C2C commerce takes so much time to grow the business over time that he’s better off focusing on B2B first.  And a lot of B2B business today are local so cash is still a big component.  But over time as B2C business, more of them move online, B2C commerce go online then I’m sure there will be more business done between buyer and seller across different regions.  And that’s when UPI mobile payment will become useful.

RITA:  This question has been on my mind from the beginning of this podcast. So what does Udaan mean from a language perspective?  How did you come up with that name?

VG:  Yeah.  So, Udaan is actually a Hindi word and in India, Udaan as a Hindi word is typically associated with somebody who is small who is actually achieving big things. 

HANS:  Perfect name.

VG:  Udaan has that connotation of hope, positive, achievement, ambition, for small guys.  Literal meaning of Udaan is taking flight.  Udaan means taking flight.  But typically associated with small guys.  When we were starting the platform, we had this thing in our head that we wanted our platform to be able to connect with our core market.  And we said, let’s have a word which is Hindi and let’s have a word which connects with them.  And we are actually lucky to find the domain name available because as like we purchased it.  But it is a reasonably popular word in the context of the country.

HANS:  Yeah.  Alibaba obviously got started because the fiction, the folklore around Alibaba and you open sesame.  And Jack wanted a term that a lot of people automatically can recall and remember.  And Rokurotan is a very Japanese term that also means hope, that tomorrow will be better, that Japan was modernizing so they use that to connote confidence of consumers into their platform as well.  Can you tell us a bit more about Udaan credit system and how that plays in your value add for the seller and buyer as well?

VG:  Yes.  I think the two points to the current system, which are important to understand the trade credit in India, which are important.  One is that most of the merchants in the country do not have, as we were talking earlier, do not have formal credit histories.  They don’t’ have a lot of recorded bank statements of their sales.  They don’t have a lot of strong set of financial documents for their business.  And they’re also small.  So, if you add all of these three, it’s typically very difficult for them to actually get a loan or a working capital line from a financial institution like a bank.  What that does is, suppliers or wholesalers or family and friends are the people who finance that person as they’re running their business.  And the second thing, which is interrelated is that because of this opaqueness in the credit system, suppliers have a huge advantage.  What they tend to do is they will tend to inflate the pricing at which they’re selling the products to the buyers because those buyers don’t have a lot of options of the people who are going to give them credit.  So, what credit does, it artificially increases the price consumers are buying, small merchants are buying for.  Now what Udaan does is actually trying to address both of these things together.  One is that we are coming onto the platform and making credit very transparent.  We are creating credit lines for our buyers based on their transaction and usage behavior on the platform.  We look at a buyer, they start buying on the platform, we start looking at them for a few weeks and see how frequently that person is buying, how many selection he is buying, how many different sellers he is buying from, what time of the day that person is browsing.  And we have started creating a correlation.  [inaudible 00:39:16] correlation with creating a model, which enables us to start seeing with a certain behavior on the platform.  If you give certain people smaller credit lines how do they behave?  And we start giving the very, very small credit lines like 5,000 rupees, 10,000 rupees and starting the repayment behavior.  And what that does is it enables us to create a credit product, which is based on economic data and which is transparent to buyers and sellers.  And the second thing is it also decouples the pricing of the product from the credit.  So the manufacturers are very, very competitive on pricing the products on the platform because the payment risk has been solved for them.  They get their payments on time, so they are very aggressive in competing on the platform because they want to grow their business on Udaan because their growth channel with high payment security.  So, what that does is it increases the demand on the platform, which helps us keep creating a better credit product because the more buyers are transacting on the platform, we get more data on which we can keep improving our credit model.  So, I think these two notion of decoupling credit from the pricing of the product and using the transactional and the real economic data to assess the credit capabilities of buyers and sellers enables us to really add the value in the system, both from a marketplace point of view as well as for us to create products, which are important.  The SME lending market in this country is actually one of the largest markets, about $400-, $500 billions of unmet credit demand in this market is there with high cost of credit.  If you can create lending products, which we are now, we’re creating lending products for our buyers, we’re creating lending products for our sellers, and we’ll continue to keep increasing that side of the business because by itself it helps a lot on the trade on the platform, and also by itself is a great business opportunity.

HANS:  So, over time you may create your own FICO score on your seller and buyer as well?

VG:  Yes. You would say that if you go at some of the ways the current trade does, they have their own proxies of that.  Like they have things like caution list, like there will be the names of the buyers, they will circulate them on WhatsApp groups between traders and saying like, “Block this guy if he’s in the market,” because nothing exists and now Udaan has an ability to create a transparent.  And we have seen that power.  There are manufacturers.  Let’s say a merchant goes to a manufacturer offline into a market.  That manufacturer asks him, “Okay do you have credit from Udaan?”

RITA:  Do people already asking that?

VG:  If they say no, then say, “Why should I give you a credit?  Udaan has not.”  So, what that does is like Udaan is becoming a system.  If you have not been vetted by Udaan, I’m not going to give you credit.  So, and I think we’re still early in the title but I think that’s where we’re taking, we want us to make it very transparent.

HANS:  We just had an investor in Square, my partner Glenn Solomon, our investor in Square in, obviously, post-IPO Square capital is probably the biggest reason why the stock price and value has gone up.  It’s so useful.  So, speaking of which, as you do more for your sellers and manufacturers, what other services beyond credit, beyond the marketplace that you would want to provide, whether it’s a POS solutions or recordkeeping, whatever it is.  What else are you thinking of?

VG:  Definitely.  I think there’s a bunch of them right because we envision Udaan as an SME platform, as an SME Internet platform. 

HANS:  What we call SMB tech in Silicon Valley. 

VG:  One area of services we have started focusing on products and services is, what you call as small business SAS, which will be services, products like invoicing, point of sale solutions, billing, accounting, inventory forecasting, demand planning, so that is one set of products, we have started work on that.  Second set of products is helping our manufacturers and brands with creating brand analytics.  Helping them provide analytics on their data, what kind of products, what kind of price point are selling in what parts of the country.  There are older research firms like Nielsen, which provide this data and Udaan is now a huge repository of data in terms of what products, what price points are going.  So, we are working on creating analytical products for our manufacturers and our brands.  We’ve also started work on helping our small merchants with local area marketing for them to be able to leverage, as most of their consumers are becoming digital, we have ability to actually have merchants market their product to consumers digitally, and we’re doing some pilot. I think the more if you see the future of the system or the commerce in the country, you will see these plays like B2B2C plays because now the merchant is digital, consumer is digital, product is available.  If you can market the product to the consumer at the right time, then the gratification can happen very, very quickly for the consumer at the right cost of delivery, which is supported by the system.  So, I think that’s another line, sort of area we’re going to experimenting in.  So, I think these are some of the ones which come to light.

HANS:  Have you ever heard of a company called Payfazz in Indonesia? 

VG:  I’ve not but would love to hear that.

HANS:  They’re providing payments, they’re providing inventory management, different kind of solutions to the convenience stores as well in Indonesia.  We’re seeing something similar in Columbia, Bogota, Columbia for Latin American market.  So, it is a common problem.  We have so many mom and pop conveniences that dominate local retail and it’s completely fragmented.  They all need similar solutions.

RITA:  So, let’s go into the last part of the podcast recording.  It’s going to be a quick round of five questions.  So, just say what’s first come to your mind.  Don’t think too much about it.  What are your most regular purchases online for yourself?

VG:  Shoes. 

HANS:  How many shoes do you buy?  How many shoes do you need?

VG:  I buy once every six months.  I’m not like—

HANS:  Oh okay. 

VG:  That’s the only thing I buy typically online.

HANS:  Interesting.  What kind of shoes?

VG:  Typically sports shoes.

HANS:  Sneakers?

VG:  Yeah sneakers or sometimes casual shoes. 

HANS:  Oh, okay.  Have you ever shopped on StockX or Goat before?

VG:  No, I haven’t.

RITA:  Who’s the entrepreneur you admire the most and why?

VG:  I think for me, I would say definitely I admire Jack Ma a lot.  I think what he has been able to do, at least my outside view of what he has been able to do with Alibaba and what Alibaba did to China, I think it’s a completely different thing about the country.  I think that’s somebody I admire most.

HANS:  And you probably want to do something similar in India as well. 

VG:  Yeah, I think India has potential.  It has that potential, where it is in its life cycle as a country.  I think it has potential for large, big transforming businesses for economy in society. 

HANS:  Yeah, that changes lives. 

RITA:  What’s something that you’ve read or heard recently that you would recommend to other people?

VG:  I’ve read, recently on LinkedIn, there are people who keep forwarding things.  There have been some of those clippings, which come by what Jeff Bezos has done with respect to his style of management and I think some of them are fairly neat.  The other one I tend to read a lot is there’s a guy named Ray Dalio for Bridgewater and I think his principles on managing and building a culture, I think they are very, very powerful.  A sort of group of people who are very ambitious, I think it’s very powerful. 

RITA:  What’s something on your desk that has been with you all of these years?  Or specifically when you were at Flipkart it’s there and now it’s on your desk at Udaan?

VG:  I think it’s my laptop bag.  I’ve had that laptop bag for a long time now. 

RITA:  Is that the one you carry today?

VG:  Yeah, I do.  I think that is something that has not changed for a while now. 

RITA:  What do you do when you’re really stressed?

VG:  Actually one of the things which I’ve realized is, we didn’t talk about it, I have two kids.  One is two-years-old, and one is six-years-old.  And I think it’s amazing to just spend time with your kids because no matter, you spend time with them and then you start feeling okay.  Everything is going to be fine. 

RITA:  It makes you optimistic. 

VG: Okay as long as both of them are fine.

HANS:  Life is okay.

VG:  Life is okay.  Everything else can be figured out.  All other problems can be solved.  So, I started thinking about that and I think that helps me go easy a bit.

HANS:  Great.  Thank you so much.

VG:  Thanks guys.  Appreciate.

HANS:  This will be a fantastic podcast.