India’s e-commerce space that has been evolving at a rate of knots with no other parallel around the world now stands at a very interesting juncture.
Over the last 7 years obnoxious amount of money was poured in to the e-commerce space by VCs from across the world. This was absorbed by the startups, some by the book and some though loopholes in the system, which was struggling to keep pace the fast changing online economy. Most of these funds were spent on discounts and advertising, and growth was shown as that hugely misleading number – GMV or Gross Merchandise value.
The VC Effect!
VCs as some of the people closely associated with the investing space would know, tend to operate with a herd mentality. Most of them are scared of missing the bus on any trend that has the possibility of creating billion dollar valuation companies. And there was no dearth of these trends.
This is what went on in the brain of the strange organism called a venture capital fund in the early part of this decade;
“Oh, so interior design is the brand new online trend! Where is the interiors play in our portfolio?”
“Oh, look we found one; topped with 2 MBA stamps and an interior designing degree!”
“How much did the competitor invest? Let’s raise that by 50% and part with $5mn here!”
Now, the intention is not be disrespectful to VCs, some of them are freakishly smart people, but unfortunately this is pretty much how it played out and they will be the first ones to admit it!
So what has changed now?
At the end of the day, VC’s investors are looking for return on their capital. With profitability seeming a far off goal for many of the startups now, the funding was bound to dry up. And this realization as one would expect also dawned upon the VCs together!
So, with investors now tightening the screws on funds and working aggressively to make their earlier investments profitable, what does a budding new entrepreneur look to go after in the e-commerce space?
The answer will take anyone who has opened an elementary marketing book back to its first chapters and the famous Kotler’s marketing mix. The answer is product!
Let’s first analyze what the ecommerce companies did till now. They disrupted the established distribution cycles, which were marked with high cost and passed the savings (along with a lot of VC money!) to the consumers. As a result they became online supermarkets, all selling the same products and having fierce competition on price – the only thing they had to play on. They are technology based shops not product based companies, and the market is filled with them with no space for new ones!
An online entrepreneur in today’s context will need to bring “product” to the forefront of their business plans. Identify a consumer need and create or acquire products to meet that bill. The operating difference here is that the “product” is your offering not your “platform”. Product exclusivity will allow you pricing freedom and enable you to earn money on every unit sold and build solid and robust financials to meet your other overheads.
Once this key difference is clear, you can go around building a distribution strategy where an “online only” strategy now makes a lot more sense, thanks to the buying behavior changes that have happened over the last 7 years and the low costs.
Technology will once again need to become the enabler to product driven business, not the business itself!