Don't Let The E-commerce Bust Fool You!
It seems that the past 6-9 months have played out a full boom-and-bust cycle as far as e-commerce in India is concerned. While in July-August, $10 million fund-raises were being inflated to $40 million and investors seemed willing to pay 5-8 times the gross merchandise value as pre-money valuations, the world suddenly seemed to turn cold over the past three months. What does this mean for entrepreneurs?
· Customers continue to buy: Not unlike 1999-2000 experience, customers seem unaffected by all the kolaveri around. Keep the focus on customers and deliver great consumer experience â€“ that is the essence of building a great business.
· Build a business, not transactions: The only currency of a good e-commerce business till now has been transaction volume. Now is the opportunity to answer more fundamental questions â€“ why would customers buy from you (apart from getting products below your cost price), what really differentiates your business from the guy next door (no, really!), what will drive profitability in your business, which customers do you want to target and whom you don't want to, etc. "Internet is cheaper than retail stores" is not enough anymore.
· Time for innovation: Premium will shift back on great teams with propensity to innovate, rather than the best search engine marketer. If you do have a customer proposition that goes beyond discounting, can you run the business at 25 per cent + gross margins (including logistics costs)? How can you build a business without investing $100 million in inventory and still ensure great consumer experience? What's uniquely Indian about e-commerce?
· Investment is still available: E-commerce in India is not a space that investors can ignore (even Mahesh Murthy is investing in e-commerce now). They just seem to be correcting themselves to look at the right things.
Let us get back on the roller coaster. The party has just begun!
(Alok Mittal is the managing director at Canaan Partners.)