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!)

What ails eCommerce in India?

The day started with me getting this lovely book from Flipkart, a day before they had promised it to me. A friend, who had also ordered a book by another eCommerce retailer was still waiting for his to arrive, even though he had ordered it way before I had. This prompted a discussion on why eCommerce companies in India, barring a few notable exceptions, still suck.

A few other friends also joined in and put in their own 2 cents to the debate (some opinions were actually worth 2 cents). In the end, while we had a rich and comprehensive discussion, we decided to move on. Partly because we were hungry and partly because we were really really hungry.

So I decided to take up this oft mentioned and widely written about hot topic of contention for customers, entrepreneurs, investors and the media, based on my observations and the comments of others who work with eCommerce startups very closely.

1. Cash on Delivery (COD)| Logistics – Apparently the saviour and great innovation of India’s eCommerce wave. It is so…but to an extent. Flipkart, Letsbuy, Yebhi, Fashion&You, Myntra etc (well funded big boys) have delivery teams in major cities like Bangalore, Mumbai and Delhi but don’t have those teams in smaller cities, towns and villages. Hence they tie up with national courier companies and even the Indian Postal service to deliver. Now, not only does the cost of delivery increase using these partners but the real loses happen with COD and return of unaccepted goods. Usually there is a separate Rs. 50 to Rs. 100 (sometimes Rs. 300) charge for the COD facility and a charge in case there is a return, which is between Rs. 100 to Rs. 300 (approx) and the return route charge, since they will now deliver the goods back to where they came from… the eCommerce company.

Considering that many companies now deliver up to 80% of all goods with COD payment and that the Return rate may sometimes be as high as 15% of total goods, the bottom line (if any exists) gets squeezed or is brought into the red real quick.

Logistics Partner Delivery + [(COD Charge) or (Return Back Charges)] 

This is not sustainable in the long term and needs to be rectified.

2. Non-Aligned Logistics – Lets be clear, apart from exceptions like Chottu (The Delhi based logistics startup) most local and regional players have shown only token interest in eCommerce. Most of them just aren’t willing to change or create plans for eCommerce Startups. Most National players also have the same approach though notable examples like Blue Dart, have a formal approach to it, but like their rep told me, small volumes just don’t matter for them. This is unfortunately true and if you are a great eCommerce company delivering only socks (great idea) you will bleed since you don’t have the volumes or the value of transactions to make it worthwhile for any of them. Till the time relationship driven, local and regional players don’t become active, at least in Tier 2 and 3 cities, eCommerce will be a money losing proposition for a large chunk of eCommerce products and penetration into the underserviced markets of India will either be prohibitively expensive or just relegated to a few categories. 

3. Culture | Touch and Feel – This one is fairly simple. As a nation we just don’t trust stuff which we haven’t held in our hands, before buying it. Such is our culture. An emergent younger generation does trust brands and is fairly comfortable with branded products on eCommerce. But new brands will still face this cultural and physcological wall. The theory behind eCommerce is that it can help brands and people take advantage of the long tail in retail. But if people don’t know the product manufacturers and names on the site, then these eCommerce sites will have to develop their own brand and hence develop trust.

And trust is something that most eCommerce sites are screwing around with. If you don’t believe in this theory, ask yourself how many times you or your friends have gone to Chroma or Staples, just to look at that computer accessory/smartphone, before buying it online.  

4. Focus on Discounts – Most eCommerce sites don’t know it yet, but this will kill a number of them eventually. With not enough buyers leverage, their focus on cost by cutting down on their own margins and mostly selling at cost or at a loss, was never going to be sustainable. They all came in thinking ‘Hey! let’s give them a great deal and if we make a loss right now, it’s cool, we will call it Customer Acquisition Cost and then when we reach scales of efficiency, due to logistics and buying power, we will hit profitability’. 

Well it hasn’t happened yet. Logistics is an issue for eCommerce sites (though by setting up logistics teams in the main cities they have been able to reduce costs) and buying power is still a fraction of what it needs to be.  And then to top it off, the next thing happened.

5. Junglee.com – This point is fairly predictive in nature and only a few people will agree with me. Junglee.com is the Amazon.com venture in India. Though Amazon.com is an eCommerce company, in India Junglee.com is a marketplace. Which means, they don’t really aim to sell (though they do put up their own Amazon prices) but want to let the customer know, who is the cheapest seller of the product they are looking for, out of over 500 selected online sellers.

They are doing this because 1. They need to be ready when Amazon finally launches in India, probably after 100% FDI is allowed in retail. 2. They want to build up their logistics infrastructure for India. 

Since 100% FDI is allowed in Logistics, Amazon will probably start offering delivery services to other eCommerce players thereby making money from eCommerce, whether the sellers do… or don’t. 

Also a number of uncompetitive sites will start getting killed off due to intense price competition on the site (see how discounts is working against them) and prospective acquisition targets can be easily identified and bought.

6. Shitty Sites – My biggest grouse. Most sites are just bad looking and people can’t find their products, make multiple shopping cart choices, get good product suggestions, check out reviews etc . More than looks, their GUI (graphical user interface) functionality makes some sites very difficult to deal with. Ads, notices, offers, distractions leads to the kind of clutter which retailers have been trying to get rid off in their stores for decades. Site designers would do well to follow their lead and not just cut copy paste from existing templates. So not only does the sit look bad, it works badly, distracts and puts a customer off from shopping. Reminds me of one of those Subhiksha stores during the last few months of the company.

7. Trust & Broken Promises – The fact that most eCommerce players can’t commit to time or even the right product, gives a bad name to eCommerce sites and eCommerce in general. If players can’t establish trust by sticking to what they mean, then deep discounts won’t really create any customer loyalty. Ask the average buyer why he buys from Flipkart and most will state great service as one of the top 3 reasons. 

8. Language – Sites, emails, messages and customer service in languages other than Hindi and English will lead to higher adoption of eCommerce services across linguistically diverse regions. It’s worthwhile remembering that we feel more connected and feel a certain trust with people and services who talk to us in a language we are most comfortable with.

And we have over 30 languages spoken by a minimum of 1 million people.

9. Newbies – There are lots of guys out there who have read a few articles, downloaded a template, contacted some vendors and are selling stuff online. Which is good for startups and eCommerce in general. Unfortunately most end up creating a really bad quality company and keep it that way. Many of these teams have very little idea of the quality and details that go into creating a great eCommerce company (most just claim to run an eCommerce ‘site’). Most feel that setting up a site sits takes less than 1 lakh and then the money starts rolling in. Such sunny dispositions leads to failure and almost zero innovation. Hence, today we have a horde of mediocre to bad sites which just do not work.

My Point. Running an eCommerce company is not easy; it is NOT a tech centric company. If anything it is mash between a retail, tech and a logistics company. And unlike 3-5 years back people expect their products to come on time, featured products to be in stock, a professional site, multiple modes of payment, good customer service, a return policy, a constantly updated site and lots of professionalism.

10. High Attrition – Though recently it has stemmed, major players for eCommerce had shown high attrition before and around Diwali due to the proliferation of well funded startups looking for people. This  has led to a nascent industry developing on shifting sands. After all, even for a process-centric, strong, services company, you need experienced and talented people to set the processes, follow them, tweak them, document them and then create a process centric culture. This is critical for most companies.