Vaibhav Gupta co founder Udaan

A Conversation with Vaibhav Gupta: Trust is the Cornerstone of a B2B Business

Trust is a word that comes up a lot when talking to Vaibhav Gupta of Udaan, India’s top business-to-business (B2B) eCommerce company. The Bengaluru-based Udaan, which directly translates to ‘taking flight’ in Hindi, is often referred to as India’s fastest unicorn, having raced to a $1 billion valuation within 26 months. Udaan operates a mobile app-based B2B marketplace that connects small retailers with wholesalers and traders.

Gupta first met his two co-founders, Sujeet Kumar and Amod Malviya, at the Indian Institute of Technology, where he was completing his bachelor’s degree in Computer Science and Engineering. All three were former executives at one of India’s most famous startups, Flipkart, between 2008 and 2016. Contrary to most startup trajectories, the trio made the decision to first work together, while the idea for the company came later.

“I think three of us spent enough time at Flipkart together.” reflects Gupta, “We have seen each other in action, through good and bad times. We had that ongoing strong trust between us.”

Growing up in a small town in India’s countryside, Gupta found common ground with Kumar and Malviya, both also from solidly middle-class families and tiny Indian towns. “Because we have the same background, there’s chemistry, there’s a value system match, and we have the ability to push each other”, says Gupta.

With the trio at the helm of Udaan, they quickly assembled a core team of fifteen to twenty people. Gupta proudly terms these early joiners as “some of the best tech, consumer tech and Internet tech folks in the country”, and because of their excellent qualifications, his team could trust one another to do their jobs well.

This, he stresses, was how Udaan freed up the ability to truly “focus on the problems and solutions. Everything else was not as relevant.” Drawing from their joint Flipkart experience, the three maintained laser-focus on the big problems they could solve in India, rather than - as Gupta puts it - “developing power centers in the company”.

Local Problems, Local Solutions

“One of the big things we learned at Flipkart was that India has power, and opportunity to build large scale platforms but they have to be thought of natively,” Gupta shares. “You have to think about India as India’s problems and figure out solutions targeted at Indian society, Indian economy, Indian ways of doing things.”

The opportunity Gupta saw came at the convergence of two circumstances; the first was the sharp rise of mobile adoption and penetration among businesses and consumers in 2016, evidenced by a 1,100% rise in monthly data consumption “People started using mobile to not just buy and sell things,” says Gupta, “but also to run their lives and run their businesses.”

The second was the current state of the domestic trade economy, with its large fragmented marketplace. “The timing was right,” affirms Gupta. “We saw an opportunity to solve the problem of fragmentation on the supply and demand side. If you look at how India’s economy is structured, we have many manufacturers and sellers on one end. And on the other end, you have 25 to 30 million retailers selling goods. In between them are multiple layers of distributors and wholesalers who make the most.”

Gupta and his team soon found the reason why the distribution and wholesale business got to be so profitable, and it all came down to the issue of trust - or lack thereof.

Trade, especially among small businesses in India, runs largely on informal credit. “Most small merchants don’t have formal credit histories. They don’t even have recorded bank statements of their sales and they don’t have a strong set of financial documents for their business. And they’re also small,” shares Gupta. “So it’s typically very difficult for them to get a loan or a working capital line from financial institutions.”

Suppliers and wholesalers then come into the picture with a huge advantage. “These suppliers, wholesalers come in the middle and solve the merchants’ credit problem,” adds Gupta. “But suppliers will tend to inflate the selling price and the merchants are willing to pay a bigger margin because they cannot take the payment risk. Ultimately this is because the merchants don’t have a lot of credit options.”

The result is a landscape that disproportionately favours the middleman. Small merchants are stuck doing trade with only a handful of partners, effectively limiting their growth, “because those are the people they trust based on past history of credit.”

To solve this, Udaan started offering credit lines for their users, “based on their transaction and usage behaviour on the platform,” says Gupta. “We created a credit product based on economic data, and which is transparent to buyers and sellers.” What happened next was that sellers started to price their products more competitively, because the high margin that came with payment risk was removed. Competitively-priced products drew the attention of buyers, who started transacting more on the platform.

Building Trust, One Payment at a Time

“People in India don’t trust new people easily. Especially in the context of trade, people tend to just stay with their existing supplier relationships,” says Gupta. “A lot of old ways of trade and buying and selling still persist in the country.”

When Udaan’s sales team started the groundwork on getting more sellers and merchant buyers on their platform, the founders began with the mindset that it would be tough to pry individuals away from existing supplier relationships. But they were proven wrong.

“Almost everybody was willing to try the app,” recalls Gupta, “It was a bit surprising for us. But we quickly learned that we just had to make it super easy for them to try. We delivered the products to the shop and we gave them cash on delivery. They had a good experience and started buying regularly.”

More than just a good experience, Udaan gave these sellers access to variety, good pricing, convenience and reliable delivery. As a result, the platform became a growth solution for many manufacturers and sellers looking for ways to scale their business. Today, Udaan has more than 3 million retailers and more than 25,000 sellers from 900 cities and towns in India.

Late payments, payments not made in full and no visibility on payments due: those were just some of the long-term issues plaguing India’s sellers, who grew resigned to these hiccups. Gupta and his team set about fixing this, creating “a very, very reliable on-time, every single time, payment system” for sellers.

“I remember one of our sellers telling us a story. He says, ‘Every morning, I go to the temple at 8:30 and at 9:00 I get [my] payment from Udaan and I know my day has started well’,” recalls Gupta, laughing. “That’s now his habit. He’s wired like that and I think that’s the implicit trust that they have in Udaan.”

This trust is not something Gupta takes for granted. “We have focused a lot on ensuring that people can trust Udaan to do their business. When mistakes are made, we’ve always been open about it. Our customers understand that we are working on it and that we are transparent.”

In providing trustworthy, reliable solutions plaguing India’s disorganised B2B eCommerce market, Udaan has uplifted millions of small businesses that form the backbone of India’s economy. It could not be more apt to hear Gupta elaborate, “Udaan means taking flight. It’s a term typically associated with somebody who is small but is actually achieving big things.”

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