Chhotu – The Logistics Startup (Part 2)

(Part 1 Here)

Today & the Future

Chhotu today has over 160 employees, with 11 warehouses and is present in 9 major cities across India. It does over 1000 transactions a day and though I don’t wish to give you their growth stats, they would probably blow you away. They plan to grow to 20 cities, with 40,000 transactions a day and employ over 400 people by mid of next year. To put this in perspective, in Apr 2012, Flipkart was reportedly shipping 17,730 products a day.                                                                             

After getting their angel funding from Super Angels of India, founded by Rajesh Sawhney, they have been scaling up at a frantic pace while also ensuring that they don’t leave quality behind. It’s the kind of outlook that has helped great businesses persevere. 

Both Co-Founders continued to work based on a strict division of responsibilities and reporting lines for their HODs. Navneet as CEO interfaces with the media, investors, customer service, finance, sales and technology as CEO while Aadhar as COO looks after operations and warehousing.

Aadhar Aggarwal Co-Founder & COO

They now define themselves as an ‘Ecommerce Enabler’ – a startup which looks at logistics, payments, customer support and vendor management for various ecommerce players.

Their mission is to support ecommerce players in doing business in India.

Over the last many months they had to let go of various customers because of a shift in focus. However, they have also had no issues in getting their last 7-8 customers as they were all in-bound leads through the Chhotu website.

Chhotu is now slated to raise its Round A of funding, an unspecified amount, to fuel its blistering growth and scale.

 

The Business Model

In today’s date eCommerce companies have limited choices in logistics. They may develop their own end mile delivery capabilities, develop the entire end-to-end delivery capability or depend on logistics service providers. The first two options are cost intensive and the third is what most players have been relying on. It must be noted here that with over 300+ ecommerce players in India and over 1,00,000 transactions carried out by non-travel ecommerce companies, there is a long tail of players which need support and enablers like Chhotu, if they have to survive.  

The established courier companies consider ecommerce to be only 1%-3% of their total business. So while companies like DHL have created offerings for eCommerce, most haven’t aligned themselves with eCommerce realities. 

Chhotu has created a niche and a business model by keeping various issues faced by ecommerce players, in mind. Commercial and

Navneet Singh – Co-Founder & CEO

performance terms for Chhotu are aligned with the success of the ecommerce player. Delivery in many cases is based on the value of the product, return forward charges are discounted or done away with and the organization understands that when they go to deliver a product at someone’s doorstep it is still a sale in progress. Their delivery boys are trained to ‘sell’ the product rather than just ‘deliver’ it. And commercial terms for the eCommerce companies are created keeping in mind their products, ticket size, category etc.

They have created an in-house customer care department which shows how seriously the organization takes ownership of the delivery item. Technology has been created to track and support various functions so that eCommerce clients of Chhotu can track their shipments, understand any delivery issues and also receive analytics on a regular basis. One would assume that all Logistics players would be doing the above, but as I learnt from my Chhotu interviews, the answer is shockingly No.

 

Challenges of the Logistics World

There are many major logistics players out there who in theory commit to servicing eCommerce players. Over the years they have picked up fancy eCommerce terms, tweaked their existing model of business to service ecommerce players.

This tweaking usually means that they now undertake COD exercises and charge a bomb in return, almost ensuring that COD becomes unprofitable for most players. Charges may be as high as 100 Rs. just to perform COD and then forward return charges in case of returns.  It may be shocking for some to note that certain categories of products have return rates as high as 40%.

To tell you what that means is that if you were to buy a T-Shirt online for say Rs. 400 and select COD as payment option, it means that someone like Blue Dart might charge about 150 Rs. just to deliver the product, then charge Rs. 50 for COD facility and then if the item is not accepted by the customer and gets returned, they charge a return forward charge i.e. money for the item to be delivered back to the eCommerce company. Back journeys mean more profit for these organizations.

People Management is also not a great strength of this Industry as attrition is high, employee engagement is low and skill levels are really not an issue. Lately eCommerce companies have also been affected by the fact that many of their Senior Management and Mid level guys have been directly recruited from major Logistics firms. Sometimes the quantum and level of experience works against a startup organization’s goals where openness to innovation, new ideas and sometimes throwing out due process in return for results is the order of the day. Chhotu has also been affected by these issues, as such employees, with senior positions in distribution are not receptive to new ideas and concepts of doing business. The Co-Founders of Chhotu were quick to let me know that such employees are difficult to deal with even though the top management show great understanding and support. Needless to say, Chhotu refrains from hiring ‘Grey Hair’ from this and other similar industries.

 

The Yapper Analysis

1. Successful Startups may have major business model shifts but not commitment shifts.
2. Delimitation of responsibilities and roles is pre-requisite to a startup gunning for great results.
3. There is always value in experience, though not in ways in which we may imagine.
4. If a bunch of your existing customers aren’t in line with your business model then you either have the wrong target audience for your product/service or you need to lose those bleeding you/those who create a loss of focus
5. Try and move up the value chain – Service Provider to Partner – when working in a niche area
6. Hustle and Talk. All the time. That’s the only way to develop great contacts and unearth opportunities.
7. Chhotu has never had an issue in attracting major investors. The secret is but obvious. Build something great. Solve real world issues. Be the Band-Aid for someone’s pain. And then go out and Talk about it.
8. You need co-founders (Mostly). You need a great team (Always).
9. There is great value in working in a messy market with messy opportunities. Embrace them.
10. Getting Funded is not just about the money, it’s about the Big Boys aka Investors who offer advice, contacts, connections and rock solid belief on days when you are down and out.

Chhotu – The Logistics Startup (Part 1)

This blog is first in a series of Human Stories about Startups.

These Human Stories are created using a combination of interviews with founders, understanding the back-story, digging out mundane yet critical details, creating a picture of the market they operate in and unfortunately my own analysis (prejudices). These are not about numbers and targets, but about the path which a bunch of fantastic people decide to take. My focus on these Human stories stems from the fact that most of the available material on Indian Startups is replete with insufficient research, restricted by word count, lots of Masala (Startup commentators usually miss out on the meat of the story) and just not enough commitment to telling a story.

In short, I endeavour to write about the journey of a Startup. Past, Present and Future.

This is the first part of a two part blog post on Chhotu.

Introduction

My meeting was at an nondescript society, one of many that have mushroomed up all over Rohini. I was finally going to meet two guys who had been talking to me over the phone and through emails for the last 4-5 months. I was really kicked, a hundred questions being formed and discarded simultaneously in my mind.

Here were two really young ambitious guys who had decided to create a startup which ventures into an area considered ‘messy’ ‘unsexy’ ‘over-crowded’ by scores of other aspiring entrepreneurs. They are creating value and finding solutions to real world problems when others are using the CCP (Cut Copy Paste) approach to build startups in the name of innovation.

 Walking into their building on a lazy sunday evening, I was surrounded by flats with ageing couples, chattering housewives, carpenters building cupboards and the odd snoring watchman. I wondered how anyone could get any serious work done in such a place. After seeing my share of Startup cafes, Office Spaces, Meets and Workspaces, I understood the value of Ambient Energy.

As I entered the flat-converted-to-an-office, I realised how wrong I was. With the average age lesser than the legal drinking limit of Delhi (25 for the uninitiated), the place was filled with energy. At 4 in the evening. On a Sunday.    

And then I met Navneet and Aadhar, Co-Founders of the logistics startup Chhotu.

The Founders

Navneet Singh is the kind of guy who is comfortable in his skin and talks in a way peculiar to most entrepreneurs. Their conversation is in sync with their energy and thought process. Nothing is held back and the conversation meanders, just like a bunch of friends drunk on wine on the Countryside. It’s good fun, really.

After completing engineering from DCE, Navneet worked at a bunch of places though he always wanted to do this own thing. His work at Hughes Software Systems, Microsoft, Runaware and Clickable prepared him for his role as CTO of Chhotu which evolved into being the CEO.  He left Clickable, when the urge to do something beyond a ‘job’ just got too much and essentially sat at home for a while, working at a freelance project every now and then. Soon he was introduced to Aadhar by a common friend in June 2011 and that’s when things really started looking up for an unknown startup lost in the cacophony of Delhi’s business world.

That Startup was the baby of Aadhar Aggarwal, a young, sprightly, bundle of energy with a blunt head-on stare that forces you to take him seriously, regardless of his age. Though he started off as CEO of Chhotu, in a highly unusual and commendable action of understanding ones core strengths, Aadhar decided to look after operations as COO and hand over the other functions to Navneet, who then took over as CEO. Aadhar set the foundation for Chhotu in the end of 2010, though at that time it followed a different model all together.

Before all this, at the time of his graduation, he took the unusual step of working for an educational institution, SOIL – School of Inspired Leadership, instead of working for a major company. Sometime after that he started developing a keen interest in having his own setup and was supported in this thought by Anil Sachdev, the Founder and CEO of SOIL. After a year and a half of working at SOIL, at the age of 21, Aadhar decided to strike out on his own.

And Raasa was born.

 

Genesis

Raasa is the prologue chapter of this story, which may not be as significant as the climax to most, but is of great significance to those who truly wish to understand Chhotu and its success.

Raasa was born after Aadhar quit SOIL and he set up a startup which delivered fruits and vegetables. Sometime soon after that he tried to tap into the need of people wanting to get things picked up and dropped from their homes to various shops and vice-versa. He already had started developing a team of delivery boys to deliver fruits and vegetables and this seemed like a natural extension. Though the business model didn’t quite take off after that, the name, given to the hordes of efficient nameless delivery boys of our country, stuck. Chhotu.

Chhotu’s old avatar, as a point to point delivery startup, started off in the beginning of 2011 and once it was understood that the model was unstable and unviable, it evolved into a logistics service provider for eCommerce companies with a focus on end-mile delivery only.

In July 2011, after Navneet joined as CTO, Chhotu was a startup which picked up goods from warehouses within the city and delivered them at the house of the end recipient. This leg of logistics was chosen because this is where eCommerce companies fundamentally differed from other businesses in their usage of Courier companies. Knowingly or unknowingly these ecommerce companies had partnered with Courier companies as critical players in their Sale process.

How? Because unlike other countries, a majority of our purchases in India on eCommerce (non-travel) are done on Cash on Delivery (COD) basis. Which means that since the customer had not paid for the product or signed an agreement to do so, all he had done was consented to ‘see’ and ‘hold’ the product in his hands and then make a decision to buy the product by offering Cash on Delivery.

Chhotu understood that this is a real issue for eCommerce companies as end mile delivery is critical to them. However, Courier companies make money (sometimes more) even if the consignment is not accepted by the customer. Returns threatened to make the COD Business Model unviable.

And though 2011 was the year when most investors were taken in by the media hubris on eCommerce and were as excited as a bunch of monkeys in a peanut factory, a significant number of entrepreneurs and investors knew that this was a serious problem to be dealt with, sooner or later.

In Aug 2011, Navneet attended eCommerce forums and was immediately swamped with introductions and business cards. He realised that there was a big need for their services in the market because they were being embraced by potential clients rather than having to hunt them down. By now they knew that they were in the right space and they would have to scale. They were only a 20 people startup.

 By the end of 2011, Navneet and Aadhar had realised that their existing model as an end-mile delivery player for eCommerce companies will also have to be tweaked due to the ‘high quality yet low price’ demands of certain customers. Their focus on technology was paying them dividends but they would also have to start looking at Chhotu’s role differently. They would have to stop being a service provider and start behaving like a partner. An enabler. Or they would bleed money just like the rest of the eCommerce players.

Aadhar and Navneet are quick to also point out that some of their early customers and potential clients supported them through the last year in trying to build Chhotu into a responsive and relevant business.

They are also vocal about the kind of support they got from Super Angels of India and various people associated with them. They felt that more than funding, it was the kind of access, insight and support given by this group of individuals, that they have been able to do so much in such limited time.

Oh and their first customer was through cold calling.

Yes, cold calling works.

(Part 2 Here!)

10 Lessons | $1 Billion Facebook & Instagram

It was the equivalent of a hurricane that hits a barn on a sunny Sunday spring morning without warning. It shook up the Startup world and has probably changed the ecosystem for years to come.

Monday night was when twitter suddenly started heating up with the news of Instagram being acquired by Facebook. The price tag was revealed shortly thereafter – $1 Billion.

Since then there has been an outpouring of disbelief, anger, frustration, befuddlement, confusion and lots of online petitions. Most people I know of are just plain angry at this development.

Its almost as if ‘yin’ and ‘yang’ decided to get together.

Facebook, the world’s largest and most profitable Social Media company, the ubiquitous factor (and sometimes determinant) in the social lives of millions of people, decided to snap up Instagram without the VC and Analyst community even getting a whiff of the deal. The deal may go down in history as one of the most secretive and probably the most expeditious for $1 Billion Dollars. The last time something like this happened was… er… never.

This deal is seen as over-priced for a startup. YouTube, Skype and a few others were and are also in the same league.

If you thought this post is going to be another digital hate rant, then I am sorry, you have come to the wrong place. I genuinely harbour no sentiments regarding this acquisition apart from abject envy for Kevin Systrom, CEO and founder of Instagram who, along with much of his 6 (or 13) member team, just became a millionaire.

And for what?

An app that turns your crappy iPhone (now android) pics into vintage hipster shots worth putting in art galleries.

I shall however try to explain, through this post, that this app is not just about crappy smartphone pics but much more. Hopefully, we lesser mortals may now learn what that ‘more’ exactly is thanks to Mark Zuckerberg spending a Billion Dollars.

 

10 Things that 1 Billion Dollars have revealed

Being Social is being Visual –This is something Facebook realised, pioneered and has possibly struggled against it since its inception. Remember how people suddenly went crazy sharing, tagging, untagging and commenting on pictures on Facebook a few years ago? The below infographic just shows how many pictures have been created, shared and finally stored thanks to FB. This underlines just how important it is ‘to be visual to be social’. Think about it. Our most social beings, in the offline world, are those who are also the most seen and most heard about. Before the internet came into being, being seen at the right places, with the right people and the right time was essential to increase your ‘Social Value’. Now transpose this concept to the ‘Online World/Social World’ and we see that similar dynamics exist. Your ability to be seen in the right way and at the right places ensures a certain ‘coolness’ to your reputation online. Suddenly when people see something they like, (a picture of a sunset, a party, a concert) they comment and this leads to a growth in Social reputation. Instagram is a mobile only social network for sharing kick-ass photos and hence increased the social reputation of users by making them seem cool. The fact that you don’t have to put actual hard work but just use simple filters helps!

What Mark Zuckerberg bought – It’s no secret that Facebook considers itself to be a ‘Design’ driven company. It is also no secret that they really suck at design. The Facebook app on my Galaxy Note sucks battery and has a number of features missing. The fact that a $135 Billion Market Cap (Some people value FB like that) social tech behemoth with thousands of employees and $4 Billion cash sitting in the bank can’t make a decent app is disturbing. It also means that while users are moving to the mobile platform for Social Networking, Facebook has stayed far behind. For that matter even LinkedIn doesn’t have a great app. But then again, most people who use LinkedIn don’t mind using it on their laptops or tablets as they see it as a business tool/network. So what exactly did Mark buy?

Largest photo sharing app in the world – 30 Million iPhone users and probably 6 million android users

Tons of Mobile buzz – 5 million android downloads in 5 days. 340,000 waiting list before it was launched.  

Mobile stickiness and pics – 1 Billion uploaded pics, 5 million pics uploaded every day

Startup – 2 years old and 13 employees

Monetization Strategy – None

Cash Flows – None

Consumer Love – Lots

Stickiness IS a business model – After the 2009 slowdown, a certain amount of much needed rationalization set into the startup world with startups defining revenues models, monetization plans and related issues at inception. Unlike before when startups with ‘cool’ ideas were funded only because they may eventually have millions of followers, VCs also became aggressive in their search for startups that made business sense. On the whole this made sense and lead to a tempering of the market. But this also might have led to ‘uncoolness’ across the startup landscape. With this acquisition, Instagram has shown that startups and VCs can expect to make a pot of money and cash out if their product/service has lots of users who swear by their name. Most importantly, if the product/service shows great ‘organic’ growth with lots of passionate following and evangelists, you are assured that people will be interested in buying you out. The reason is that with our society’s short attention span, consumption and gimmick driven worldview, to have a product/service with large, genuine and engaged long term following is a great asset in itself and this means much more than just a substantial place in the ‘Goodwill’ section of a balance sheet.

Social is now Mobile – This one is a no-brainer, but since many of us are devoid of suitable grey matter, I shall spell this one out. Social Networks need to have substantial and comprehensive presence on the mobile platform to survive. Over the last year I along with tons of my tech savvy friends, have moved our primary consumption of media (primarily articles, blogs, newspapers etc) from laptops to our mobiles. The young and the social tech savvy, thanks to BBM, twitter, whatsapp and ‘hyper-sms-ities’, feel comfy with this tech and drive the demand + consumption of social apps. The fact that laptop face time is reducing in comparison to mobiles, due to their ubiquity, makes the transition a pressing matter for social networks.

Google better watch out – Instagram has 1 Billion pics. But just try and Google one and you won’t find any apart from those which have been posted or reposted on blogs and pages. Not try googling Facebook statuses, pages, notes etc. Again nothing. This may not sound like much but the creation of these ‘walled gardens’ is really something that Google is very very concerned about. Their crawlers and search capabilities are kept out of the largest repositories of user created content… forever. It means that socially relevant content for you can never be accessed by Google. It also means that Facebook has now more eyeballs looking at more things for longer and hence more ad money. Oh! And it also owns all your content, pics, videos etc.

‘Frictionlessness’ is the Secret Sauce – Over the last few years this term has really come to define the core of many super-startups. I define ‘Frictionlessness’ as “Qualities and Features in a product/service that makes it easy to use, cool to own, efficient to run and requires the skill of newbie while bringing ‘sex’ (A term used by Steve Jobs for Apple products) to the entire experience of using it”. Instagram, Flipkart, Pinterest, Zappos etc all have this sense of ‘Frictionlessness’ which make them so wildly successful.

Below is what Instragram did for a crappy office Pic I took.

Ridiculous Money Ridiculously Fast – Not many people know that Instagram closed a round of $60 Million of funding, valuing the Startup at $500 Million… just 1 week back. What does this mean? Well it means that maybe Facebook got so jittery of Instagram’s success, especially after the Android release that they put in motion probably the world’s fastest acquisition deal put together at this Billion dollar level. It also means that the VCs who participated in the last round of funding for Instagram (Sequoia Capital and Greylock Partners) just made 2 times their money in one week since the Valuation went from $0.5 Billion to $1 Billion. Considering that they had just closed the round and probably hadn’t transferred the money to Instagram’s account (This is usually done in tranches or in blocks) they might have just made $100 Million for signing a piece of paper which says ‘Yo Dawg! We will fund you for $50 Million’. I wish they start teaching “Venture Capital” as a subject in school because it’s stupid to be an engineer or lawyer or an astronaut when you can double fictional money into real money by signing an agreement. I jest of course; these guys have made this pot of gold only after carefully curating a reputation over decades. The team of Instagram, which is 6 to 13 people depending whom you talk to, has also suddenly gotten a bunch of millionaires and the CEO Kevin Systrom has attained a place in Startup History for posterity. One must note here that while $1 Billion seems like a lot of money (Its after all Rs. 5,158 Crore) it also represents less that 1% of the market cap of Facebook and it actually a cash + stock acquisition. FB has $4 Billion in cash just sitting and making piddly savings account interest so this is not a bad deal.

Prepare for a Startup Boom! (And Bust) – This acquisition is like the gong at a gathering (or trumpet at an orgy) which sounds off the start of a great evening. Expect to see lots of first time and serial entrepreneurs rushing to make photo or social apps as targets for eventual acquisition. Also expect VCs to take the bait and deliver their freshly raised funds to the coffers of these startups. If history is anything to go by and due to reduced boom-bust cycles, I would start preparing for the bust cycle right now. For India however, I don’t expect VCs and entrepreneurs to start gunning for non-monetization business model startups. It just won’t happen. Not yet.

You don’t need to be an engineer/programmer by education– Instagram Kevin Systrom wasn’t a programmer by education but learnt it in his spare time in the evenings. This just goes on to show that you don’t need to brood if you missed the chance to go to an engineering college (I didn’t go to one and it hasn’t been a disadvantage in any way). It also shows that while there were better programmers out there, Kevin Systrom took a simple idea and made technology work for the user by making the experience ‘Frictionless’. Unfortunately most entrepreneurs are working on complex ideas which are further compounded by them expecting potential users to work for the tech they develop.

Facebook = Monster – Ok! Let’s get this clear. People hate Facebook despite using it all-the-time. Even the mighty Google is looked upon with suspicion but never hate. Apple is revered, LinkedIn is respected, Twitter is liked, 9Gag or Tumblr are heavily used and Instagram is adored. But Facebook is just hated. I have yet to come across more than 1-2 articles which rated this development as positive. And even those seemed as if they were pleading the reader to share their point of view. This is troubling for an organization which claims to want to change the world and is going in for probably the most anticipated IPO in the last 5 years. The forced ‘Timeline’ shift on profiles is the latest such change which is reviled and hated by users. Mark should do some soul searching, become a Buddhist Monk or get a new PR agency. I would probably recommend all three.