Retail


Ah.

Just after I wrote the post below (Finishing Line), I read Paul Graham on Kiko.
Its a thoughtful post, check it out..

Google in = Kiko out. So real.. so near.. US or India, I think it must feel the same..

Yesterday we finalised the sell off deal for S&D Retail.

Some recent developments helped us decide in favour of it. This sell off comes at a time when we are not even infinitesimally small compared to what we had set out to do. So why are we selling it off? Reasons are aplenty – mostly its the lack of funding (in the wake of) and entry of players like Reliance.

Its been a nice learning experience – and a journey of self-discovery. I will briefly talk about them. (If you are interested in our story, or want to talk about retail industry, or food manufacturing – knowledge or contacts – you are most welcome to take it up offline with me.)

Some personal thoughts (For budding entrepreneurs or for anyone who cares to spare a moment) –

1. The first business you get into should not be highly capital intensive.
There is nothing wrong with Starbucks or Walmart, they are a great business, but the only way you can expand is by setting up one more shop. That means ‘capital’ – lots of it. Unless you have other businesses generating money for you, its not the kind of business you should be into. Reliance and ITC can do it, coz both have huge cash cows pouring money for them.

2. This applies even more if your margins are low (as in Discount Retail).
Self-explanatory – With low margins, there won’t be enough of internal accruals to help fuel the (‘capital-intensive’) growth. The only way you can grow is by raising external funding.

3. And even more if the industry/sector is opening up.
If the business is highly capital intensive, and has low margin as well, then growth will be organic in absence of external money. Now in addition to the above two, if the sector happens to be one that is just opening up, then there are companies (well known and well established) with tons of cash who are waiting for the sector to show potential before they make the classic ‘land-grab’ move. Microsoft waits till Blackberry proved that mobile does have the kind of potential that would interest Microsoft, and now they are moving in. Here in India, Reliance and ITC are in a Microsoft-like position – lots of cash and highly agile.

There will be exceptions. But as I said, just thoughts – not to suggest that it must not be done, but to suggest thinking before it is done.

Ok, what else? As we draw near the end of this 2 yr stint, there are a few things that I can be blatantly proud of. Three things come instantly to my mind –

1. Feel Proud of – The fact that we set sail and went ahead.
Back then it was a big step for me – to leave a nice-paying job in US and return to India. From a field I loved to an industry completely unknown to me. But as they say, the only way you learn to fly, is by leaving the ground. Two years back it felt like venturing into an unknown world – software to retail, Charlotte to Chhibramau. Today I think, it was the most important journey I have taken.

2. Feel Proud of – The brand we built.
Believe me, getting into the mind of the rural customer is a formidable challenge. If you think its easy then either you have not done it yet, or you are a superman, or a case study for the IIMs & the ISB.

If you can sell to rural customers, then cities are a breeze! Its not just easier in cities, its easier by an order of magnitude. We always felt good about this fact. We thought, “We are honing our sales skill on rural customers, while the bigger guys (Big Bazaar, Food World etc) are doing the same in cities. When we move out into the cities, it will be much easier for us, and when they move to rural towns it will be much difficult for them.” Sales people from any FMCG company will vouch for that. But we did it. By turning some well accepted norms upside down, we did it. Not surprisingly, it is the brand name we have built that we are getting the premium for in this deal. 🙂

3. Feel Proud of – Our negotiation skills.
Actually it was something we had to learn – we had no choice. Initially we managed discounts from our margins, but soon had to negotiate our way through. Today our discount are fuelled by our ability to purchase inventory at prices significantly below the market rates. Most of our competitors have often wondered ‘How can they sell so low?’ Negotiations; it has helped us sell at discount while still maintaining the same (and at times even better) margins.

Next few days, work. Then one month vacations!

Reliance Retail moves in. And we find ourself at a decisive juncture.

My partner thinks there is nothing to be worried about. It will be another five yrs before they move into towns like CBR, and that gives us enough lead time to grow S&D to the point where it would make an attractive acquisition for Reliance. Or for other players like Pantaloon (now Future Group), Subiksha (provided they are not acquired by Reliance itself before that) or Trent etc.

Given the highly focused individual he is, he is very much right. Yes, he wants to step on the gas and go into overdrive. He wants to run bigger promotions, launch more aggressive schemes, and set up twice as many stores in coming months than initially planned, (which means hiring employees and building up inventory twice as fast at a capital outlay of atleast twice as allocated) and things like that.

Unlike him though, I find myself thinking. Given my knowledge of Reliance and the way they operate I have an uncanny feeling that we are hitting the end of it. I won’t really go into exact details of why I think so, except this – Reliance is only like Reliance. They dream up large-scale, truly gigantic projects. And then execute them with utter ruthlessness in record times at globally competitive capital costs. That is what I admire about them.

So what is the difference between then and now. I guess only this much – VCs are suddenly wary of anything Retail. You give the best presentation, and show them the biggest market opportunity to be cashed on, and a growth record with impressive profits but the moment your slide shows Reliance as one of your competitors, the water dries up. ‘Reliance! Forget about returns. If I don’t invest, I will actually have saved my money!’ – That’s the effect of Reliance.

And it is no surprise. Who will bet on you when there is a Reliance Retail charging ahead with a pan Indian roll-out in 1500 towns, with multiple formats ranging from neighbourhood convenience stores to hypermarts, integrating the chain all the way right from farmers in Punjab, Haryana and UP to end consumers across India, and covering an entire spectrum of goods including services. That they are pumping Rs 15,000 Crores in their venture makes any VC money look like petty change. If Biyani is worried by this $20 Billion monster in the making, maybe I should also be. 🙂

Though I pride myself for being one hell of an optimist, I think that speeding up things at our end won’t help. Infact it will only make it worse. Should I listen to VCs and save myself, or – fight it out. The problem is, howsoever glamorous and adrenalin pumping fighting out seems, if it reaffirms my thinking then it will have done that at a greater cost of time, effort and money.

Plus everytime we have been aggressive (for ex, by offering really steep discounts for a limited period of time or giving away free gifts to customers) we have faced not-so-kind resistance from the local shop owners. These are people who have been here for 20 years, and suddenly they found an ‘outsider’ eating their pie. There have been various manifestations of this resistance, from trying to form a union to get us ousted, to threats, break-ins in the shop and other forms which are better not listed here. But we have managed it. Given the software background that I come from it has not been easy. But with an ear on the ground, and an eye on the speedometer, we have somehow managed it till now.

Now what I am wondering is this – if offering deep discounts, running huge promotions, or giving gifts to customers can draw this kind of resistance, what would expanding twice as fast mean. I think then we will need to be prepared for anything.

In the meantime, over the horizon Reliance Retail is emerging. How will Reliance change the retailscape (ah! new word?!) of India? Inspite of all the competition that Pantaloon, Trent, Pyramid, Lifestyle etc may offer, I have just one thought about Reliance Retail.

Where does an 800 pound Gorilla sleep?

Anywhere it wants to.

Who is your Employee? An Employee? Or a Customer?

My first company – Webtek. Ok, that was not ‘my’ company, I didn’t own it. I just worked there. But even today I call it my company. Why? Because I always felt like that. Morning, I used to almost fly over that small three-steps-stairs and felt electric entering the building. Night, I left for home wanting the next day to begin at its earliest. Many of my colleagues felt the same!

Now, that is what some companies acheive. Every employee feels valued. I think the atmosphere at Webtek was largely a result of their recruitment process and their policies. They took great care in recruitment.

Its so easy to get a wrong person on board. And one wrong person is all you need to spoil the show. So be *very* careful with recruitment. Turn down. Turn down. Turn down. Go vacant if you have to, but never compromise on the kind of people you hire. And when you get the right person, do the best you can to keep them happy.

The second company I worked at was Techspan where I came across a new concept. The HR there maintained that Employees are Customers. Internal Customers. It meant that employee’s need would be treated as a customer’s demand. Which I think was a pretty neat idea. I would say, ‘I will be travelling to Charlotte on Tuesday.’ and Deployment team would service that request as if a Customer is to travel. Same for technical issues, equipment, network, books, resources etc.

When every employee is a customer, and is required to treat the other like a customer then the level of service in the whole organisation goes up. Requests become demands. And are processed differently. There is afterall bound to be a difference when an ’employee’ calls up a DBA, and when a ‘customer’ calls up the DBA.

Employee: Hey DBA, can you create a user for the sales data. I need to fire some querries on it.

DBA (who happens to be sipping his coffee): Sure E. Will do. (E waits for sometime, and checks his mail, chats to his colleague, plays sudoku etc in the meantime.)

Customer: DBA. Where is my data?

DBA (the coffee mysteriously vanishes. It will come again later) Right here, Sir. (Rushes back to his machine).

Now at S&D we are implementing yet another model. Its the oft promoted but hugely misunderstood ‘Family’. Our Employees are a Family. Right at the begining, we decided, there would be no designation which says ‘Manager’. No Store Manager, no Sales Manager, no Regional Manager. All work is still done, and there is someone doing it. Only thing is, he is not called a Manager. We have anything against Managers. We just thought that the word ‘Manager’ creates an illusion in minds of most people about why they are actually in the company. So we decided to part with this term. Let everyone be Family. And everyone has a responsibilty to the sum total. Not to his work or job description.

Now, the Family is not very easy to start with. For ex, how do you inculcate the spirit of a family? How do you produce that bonding? How do you feel comfortable discussing things with newly hired people that you would actually discuss with your family? And how do you encourage them to do the same? Its difficult, and it can develop only over time. But if you keep pushing hard enough and are able to implement it, then its a fairly easy model to maintain later on.

Today, we talk among ourself as a family. That means I get to hear things, like

  • I am having a back problem today.
  • My brother got 86% in his exams. Now, which college should we try for?
  • Mom/dad are travelling today, and Choti is alone at home. I won’t be able to work late night.
  • Whats cooking at your place this Thursday? Why don’t we all have ‘chola-rice’ with you?
  • Should I take up a job at ZYX?

Now, the last question has been the most often asked question. Does that means they are not happy working here? I don’t know. But I do know (to my pleasure) that it means that one, Our employees are needed / wanted in the market. And two, they find it natural to discuss it with family. Actual and the company!

Similarily, employees also get to hear everything – the good news as well as the bad news. When Ambani announced their plans of Reliance Retail, we told everyone about it. We said that if we sink then atleast they will be able to find a better job with Reliance (as Organised Retail is a sunrise industry in India, and there is acute shortage of trained people). They appreciated and said that given a choice between Reliance and us, they would like to be here! 🙂

Today, coz of this family nature, I can call up anyone anytime for a work widely outside his ‘job description’. The idea of a ‘job’ has fazed out, all we are left with is ‘responsibilty’. Responsibilty towards a shared vision.

Today, due to this family nature, they can bother me with problems that has got absolutely nothing to do with my current business. And consume my time. Its okay. Because when times are bad, I know they will go out of their way to keep us going.

Our employees have turned down job offers which were paying twice, (yes, twice!) their salary here. And proudly told us about it. And we reacted as if it was expected from them.

Similarily at times when there has been some friction between an employee and a customer, we have taken sides with our employee (unless he was wrong). We have brushed aside the popular dogma – ‘Customer is always right. Customer is the king’. Right, Customer is the king. But the employee is my family. I seriously think, you can let go a customer. But you cannot let an employee down. How else will he work with the same zeal? (Though I wonder how many Entrepreuners feel the same.)

So of the three models – Employee as Employee Vs Customers Vs Family, which one is the best? Having worked in all three, I think a lot depends on you (the Entrepreuner). Each has it advantages as I have mentioned above. But if it has to be family, then please remember, it has to come from both side. And that is precisely why the Family is the most difficult model to implement.

If I as an Entrepreuner am not willing to put up the emotional and monetary and time cost of having another family, I won’t be able to reap the support it provides.

Holi Greetings! Finally I can say that. Last 15 days has been electric for us.

March 1st: Was when we launched a promo. Kickstarted by our vision of doing “something”, collective brainstorming, and finally setting up of a big hairy audacious goal – “Let everyone in CBR talk about us this Holi”.

Mar 15th: That is today as I write this, the promo is already a roaring success and going strong. When I look back at all that we did, I find that among the numerous factors, if there was one deciding factor that did the magic, it was drawing up a scheme that would appeal to the psychology of people here, and then executing it in record time.

Now to spare some words, I’ll let some pictures do the talking.Here is what the (normalised-to-base-month) sales graph had been at one of our stores prior to the promo.

Till Feb 28th,
Before Promo

Look at the sales in Oct and Aug. They have been the best months. And look at the Y-axis. Now, here is how the graph looks 15 days later.

March 15th.

After Promo
So, if you are in a consumer business, what can a well executed promo do for you? It can dwarf the best selling months, and cause a rescaling of axis in your sales chart 🙂
Btw, the graph is not complete as its been just half the month yet (and there is still 15 days of sales data to be added before March closes.)

Apologies for not being able to post for quite some time.

We are planning to launch a promotional campaign this month end, and that is consuming most of my time. Its like planning, designing and executing the whole promo. I have not done much of it before in my software career – things like designing the ads, writing sales pitch and thinking of ways to attract general public! As much as I like it for the creative and imaginative opportunity it offers, I do hate on other important things getting delayed because of this. Wish we had an ad agency here, we could have made use of their services.

But till the time the first ad agency comes up here, its me and my partner, trying to understand the advertising world. Lets see what else this retail will teach us.

I think its time to read The Mirror Makers, by Stephen Fox. 🙂

Completed one year of our startup today!

26th Dec, 2004 – was the day when our first store was inaugurated. Many things have happened in last one year. We started as a 2 person team having one store with 300 SKU. One year past we are 2 store and a warehouse facility, 5 people team, with 1300 SKU, and double the sales. We have graduated from being a new comer in the market to becoming the most well known retail brand here.

But that is not the most significant thing to happen in last one year. The more important thing has been the learning associated with this venture. I will share it with you. Any startup is a high-risk, high-velocity, high-adrenalin atmosphere. I think four skills are crucial for an entrepreneur who hopes to strike it right.

Think Ahead: Yes, you are the navigator-without-maps. You have to steer the future course of direction for the company. You need to decide left or right. Just left or right. But that may be ALL the difference between success and failure. So think ahead. Look b-e-y-o-n-d the obvious.

Prioritise: At any point of time, there can be so many things that you can do. There is a huge number of things, all seemingly important, that one could be doing, be absolutely busy, and yet achieve nothing in the sense of “creation”. Its easy to get lost in details, in nuts and bolts – there are so many of them in a startup. You need to prioritize, to find only the most important task and do it before the less important ones.

Delegate: Delegation is multiplying yourself. Maybe the person you delegate to will not do as good a job as you think you can, but if you try to do everything yourself then you will simply run out of time. Decide the wireframe structure, and hand it over to someone else to hammer the sheets and nails. Its difficult to believe that someone else will do the job as good as you, but an essential part of being an entrepreuner is to have faith in your team. Its difficult to tear yourself away from something you think you can do best and leave it to someone else, but it has to be done. You only have one mind, 2 hands and 24 hours – delegating to your team will overcome that limitation.

Do: There is NO substitute for action. There are no right ways – what may be the “best” strategy today, may become wrong tomorrow, and a blunder the day after that. It is better to do something now (even if it is not-so-right) than to do it perfectly right much later (and waste time preparing for that). Yes, there is something called “killing through the speed of action”. There IS no substitute for action

Surely, there would be many more “must-have” skills. My learning is far from over. Its just one year, and we have lots to cover. Miles to go before I sleep…

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