The firm was started in 2015 by 3 people who had a fair amount of work experience in mid to large companies. Two of them have worked in the construction industry. Their idea was to establish a market place for the building products segment, keeping in mind that it is a segment with a huge market, in terms of variety of products and volume. They wanted to serve the retail customers for whom building/ renovating their home is almost like addressing a life-time objective. They were supported by a $5 mn investment by the promoter of a company who has a fairly large presence in the building products segment among others. While the initial traction buoyed their enthusiasm, they found it difficult to sustain and scale-up, eventually leading to its closure in 2016, after about 18 months of operation.
Name of the start-up: Promoters have chosen not to reveal
Names of the founders: Founders have chosen not to reveal
Key reasons for the start-up’s inability to sustain operations:
1. Focusing on the retail market, they were competing with the neighborhood shops that had a visible presence in each community. To cut through to the end customers living in such localities calls for a very strong pull and the push mechanism of the firm possibly only increased the cash burn.
2. The building products segment operates in “cash” mode to a very large extent, more so at the retail level with incentives thrown in to the end user for payment in cash. An entity that works in the online space did not have the wherewithal to handle such transactions, making it a large disincentive for the vast majority.
3. Being a capital investment, buyers would like to touch and feel the products such as taps, bathroom fittings, tiles, etc. before they make the decision to purchase. While the firm did come up with the option of sending in samples by courier for some products, my personal view is that this possibly did not fulfill the buyer’s thirst.
4. In many cases, the buyers are influenced by the people who execute the work and that include architects and engineers, apart from the masons and supervisors. Engaging them is a long drawn exercise and possibly essential too. It is not clear if they had a strategy in place to leverage this channel, though the founders acknowledged that this channel only enhances the cost of operations and they were keen to offer price benefit to the end users.
5. Delivery logistics is also a significant issue as quite a few of the building products are voluminous. City corporations place restrictions on movements during day time and this hampered delivery operations to people who purchased items online.
6. To raise capital to sustain operations, venture capitalists look at the threshold GMV. This proved to a hurdle to raise money when the founders wanted to ensure unit economics are viable.
7. The founders tried to pivot by switching to a classifieds model, not just for products but also for building services such as architects and interior designers. This did not excite employees who looked at the ‘ecom’ tag for the company they were working for.
Maybe, the founders could have leveraged the investor’s background and piggy-rode on their products instead of looking at the investor only for funds. After they shut down the operations, demonetization and GST happened. Possibly, if they had lived for a few more months, they could have competed with the neighborhood shops. Had they rolled out budgeted and built experience stores, could they have survived?
What are the founders doing now?
Two of them have gone back to employment while one of them has started a new ecommerce firm.
Points to reflect for entrepreneurs
• Are you trying to radically change the behaviour of your customers? If so, do you have the required physical, intellectual, emotional, financial, and social strength to make it happen?
• While it is good to cut-off the people who are part of the value chain, what is it that you are offering in your service such that the end customer does not suffer?
• Running a lean operation is good, but does the industry allow you to start your operations small and scale up? (Big Basket promoters were clear that their model requires $x mn to begin operations and they did not begin till they raised that money.)
• What are the expectations of your employees? Are you meeting their needs?
- Reported by
Rameshwar ,healthyjio.in
rameshwar at healthyjio dot in
About Founders :
Total : 3
Educational back ground : one B.Tech, One with Hotel Management another B.A ( English)
Any Start-up experience prior to this start up : None
Experience : 7 years, 17 years, 19 years
What they are doing now: Two people have taken up jobs and Engineering graduate started another new Start up.
- Reported by
Ramesh kumar
rameshb at vsnl dot com