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.

What does the Flipkart acquisition of LetsBuy mean?

Let’s look at the facts first

1. Flipkart, India’s most successful eCommerce company and definitely the most talked about, reportedly worth $1 Billion, acquired one of its biggest competitors LetsBuy for a reported amount of $25 Million to $30 Million (Cash and Equity).

2. Letsbuy, one of India’s top eCommerce companies, with an approx topline of 15 Crore per month, was looking at raising another round of funding but just could not.

3. Flipkart has been funded to the tune of $ 150 Million and LetsBuy received around $6 Million.

4. Both of them were funded by Multiple VCs. Tiger Global and Accel Partners were common VC firms.

5. Flipkart, though known for its Books category, offers multiple categories and Letsbuy concentrates primarily on consumer electronics.

6. This is Flipkart’s 4th acquisition of a startup, but its first of a competitor.

 

What does it all mean?

Consolidation – Over the last 3-5 years a number of eCommerce companies have sprung up almost out of nowhere. Moreover a number of offline players are also getting into the online space. Sites often indicate that it takes less than Rs. 1,00,000 to set up your own eCommerce site. With a number of entrepreneurs jumping in to build sites, offering categories across the spectrum, to super specific niches, to weird things which you may never want to buy, the era of unchecked eCommerce proliferation has reached a certain inflection point. The acquisition of a fairly ‘Successful’ eCommerce company which has visibility on TV, Radio and other mediums, just like any other national brand, means that it will now take more than just great topline to convince your investors and others for further rounds of investment. Lets be clear about this, LetsBuy was acquired (in part) because it and Flipkart had common investors and they wanted greater scaling up of Flipkart’s business. But the real kicker was the fact that despite impressive exponential growth and topline, existing investors of LetsBuy just did not think that another round of investment was a great idea. A squeeze on investment funds and requirement of exits will lead to consolidation in the market.

2. Changed funding dynamics – Venture Capital money is now going to turn smarter than what it was before. Startups which are general or broad category players, will find fresh funding an issue to deal with. Since new VC money is limited in supply and now looking for a few quick exits, the bet is that acquisition worthy targets, like startups which help in the process or transaction of eCommerce, specific/niche category eCommerce players, logistics players, Warehousing etc will be of great interest due to the intense scaling up requirements of the eCommerce ecosystem. So no more blind funding, though the famous herd mentality of funding certain startups is expected to continue.

3. Development of an ecosystem – A natural progression of the above point, it means that Startups like Chottu (End mile logistics players) will start supporting and creating an entire eCommerce ecosystem. We may soon see eCommerce Social Media, warehousing, SEO, GUI etc startups, which essentially take a small yet important bit of the eCommerce ecosystem and make it better than what it already is. This will lead to greater value and efficiency for major eCommerce firms. This in turn will lead to greater value and experience for the end customer leading to exponential sales in the future for established Ecommerce players.

 4. Competitive mindset – Till now eCommerce and other startups in general, considered the ability to capture the market, scale up and deliver products/services to customers as their biggest challenge. In short, their own ability and the lack of market infrastructure was ‘Competition’ for most. However with the substantial growth in the number of ‘big brand’ startups (Snapdeal, Myntra, Fashion&You, Flipkart etc) over the last couple of years and an aware, value conscious consumer set, this is leading to inter-startup competition of sorts. This is a great sign as now Startups can’t just hope to survive on building and tweaking the same mousetrap. They will have to reinvent the mousetrap or find a better way of killing mice altogether.

5. VC exit issues – It’s a fact, that with the volatility in the economic scenario and no great history of exits for the Indian Venture Capital market, VCs are looking at results in the short term to get the money in from investments made over the last few years. Since no major Startup is anywhere near an IPO, acquisitions are seen as the way forward.

6. Reality Check for Startups – You can have great topline and yet not get funded in the next round. VCs may force you to sell out if they don’t see an exit in the medium term. Most retail consumer driven startups will burn cash in the medium term. The amount of VC money ‘readily’ investible is overstated. Vanilla (undifferentiated) eCommerce was yesterday’s great idea, Niche eCommerce is today’s good idea and we better start working on tomorrow’s idea. There is no shame in selling your startup if it will ultimately lead to greater value for consumers and stakeholders. Only the well funded survive the ‘Cash Burn’ reality of eCommerce. Good is not good enough, you have to be world class now.

ATAR – Why you should focus on this for Customer Acquisition

Usually I am the kind of guy who thinks that as far as Business based Models go

These

Make far more sense than this

 And the fact that most of you are still looking at the Victoria’s Secret picture (both men and women) should be enough to prove my point.

Now if you may be so kind, so as to tear your eyes off the picture on top, I want to talk to you about ATAR.

As a Model for Customer Acquisition and Revenue Projection, ATAR is very simple to understand. Theoretically is makes sense, its easy to describe, fairly easy to follow and makes financial projections really easy for fictitious business plans.

 

In short its too simple to work… or is it?

Most B-Schools I know of, don’t really teach this model for customer acquisition and revenue projection. Well the problem may lie with the fact that ATAR is just common sense. Then again if they taught a course on Common Sense it would probably make MBAs far better equipped to deal with the world.

ATAR, as per me, for aspiring and real entrepreneurs should be considered a way of looking at ‘critical’ issues related to Customer Acquisition. I know of a few successful guys who use this ‘way of looking at stuff’ to make things work for them.

 

What is ATAR?

ATAR stands for Awareness, Trial, Availability and Retrial. Essentially the four stages of converting a customer.

This is what it looks like.

The idea behind this model is simple and this is my take on how an entrepreneur could look at it.

Universe (U) is the total (TMS) Target Market Segment for your Product/Service

Awareness (A) is the total number of people out of (U) who are or should be aware of your Product/Service

Trial (T) is the total number of people from (A) who have or should try your Product/Service

Availability (V) is the total number of people to whom our Product/Service is or may be accessible

Retrial (R) is the total number of people who have or may retry the Product/Service

 

How Does it Work?

For those who know how ATAR works, you might as well go to the next section.

Now for projections one can make educated guesses regarding the total market size for a year which is (U)

Lets take (U) = 400 People

As an entrepreneur you target that for the year 2012, you will make atleast 30% of these aware of your product

[So (A) = 30% of (U)] & (A) = 12o People

You plan to have atleast 50% of these people try your product

[So (T) = 50% of (A)] & (T) = 60 People

You now plan that 30% of these people will have your product readily available

[(V) = 30% of (T)] & (V)  = 18 People

You finally feel that out of these, atleast 50% will retry your product

[(R) = 50% of (V)] & (R) = 9 People

Lets say that the price of this Product is Rs. 100

So you plan to achieve (R)X100 = Rs. 900 for the year of 2012 (Considering that all product trials were at 100% discount/promotion)

What it also means is that the Total Market Potential (U) is 400 X 100 = Rs. 40,000

So your startup has been able to achieve (A%) X (T%) X (V%) X (R%) = 30% X 50% X 30% X 50% = 2.25% of the Total Market Potential in 2012

Please Note – In actual projections a number of issues come into play, but one may treat this as a BASIC model for revenue projection.

 

Thanks for the Maths – Not Interested

The brief and simple example was to just warm you up for what my real (non-mathematical) point was.

When you create an ATAR for your startup, don’t look at it for revenue projections but as a tool for Customer Acquisition.

And most importantly ask yourself and your team

What steps are we taking to move from (A) to (T) to (V) to (R) so that we MAXIMIZE the conversion?

 

So how can an Entrepreneur use ATAR?

Lets say you are running a Cafe.

Then the ATAR model should make you ask the below questions for every stage.

Now these questions could form the basis behind you Customer Acquisition or Sales & Marketing efforts.

(U) – How many people, specific to your TMS, exist?

1. How many households exist in the localities around your cafe?

2. How many schools, colleges, offices etc exist?

3. What is the general age of people living in various localities?

4. What are the kind of jobs, incomes, businesses etc these people are involved in?

5. How many newspapers are delivered in the localities around?

6. How many cable connections are there in the localities around?

The above questions will give you and your team a fair idea about the number of people who exist in your TMS universe

(A) – How many people are aware of the cafe and its offerings?

1. How many people talk or engage with you on Social Media?

2. How many people have called your cafe up for enquiries?

3. How many people have your marketing efforts been directed at?

4. How many people have been met by you or contacted through cold calling?

5. How many people have been sent newspaper pamphlets about your cafe?

The above questions will give you a good idea about awareness

Similarly for 

(T) – How many people came to our cafe due to promotions and discounts?

1. How many people came on special promotional days and nights?

2. What is the change in new traffic on cafe festivals or theme nights?

(V) – To how many people is our Cafe easily available and convenient?

1. How many households are at walking distance?

2. How many schools, offices, institutions, businesses etc are at walking distance?

3. How many buses, autos, cars etc ply near or on the road of the cafe?

4. How many F&B businesses are based around the cafe for spill-over effect?

(R) – How many people have come back to the Cafe?

1. How many people have utilized offers on loyalty cards?

2. How many credit or debit cards have been used multiple times?

3. How many people does the Cafe staff recognize as regulars?

4. How many businesses have credit agreements with us?

The above questions are simple questions an entrepreneur can ask himself and his team while trying to determine Customer Acquisition or Sales and Marketing success of this cafe.

 

Furthermore….

Because he now knows that (U) X (A)% X (T)% X (A)% X (R)% = Total customer acquisition.

So now he can get PROACTIVE and in a sense, he can get empowered by these numbers.

 

How?

Because now he knows which part of the ATAR model he needs to improve at in order to increase customer acquisition.

If he sees that for his cafe, the below is the state of affairs

100 X 20% X 50% X 50% X 10% = 5

(U) X (A)% X (T)% X (A)% X (R)% = Total customer acquisition

Then he needs to really look at why his Awareness and Retrial numbers are so low!

Digging deeper he might find that he isn’t sending out enough paper pamphlets or that his banners are put up at the wrong places, his social media efforts are not really that good or maybe his cafe location hides it from incoming traffic. He now needs to remedy the above to get his Awareness (A)% up to acceptable levels.

His retrial numbers maybe low because the prices are too high, the loos are not clean enough, the staff doesn’t do a good job at recognizing people and servicing them or just simply, his coffee is really shitty.

 

The trick here is to always have this model in front of you and your team. To keep measuring these numbers. Keep communicating these numbers to your team and keep finding solutions to them.

Like they say – “A big part of the problem is usually the lack of realization of it” – Startup Yapper.