Snapdeal’s Kunal Bahl on Creating a ‘Discovery Platform’ for Indian Consumers

In less than two years, Snapdeal, a group discounting site in India, has grown to become one of the leading e-commerce sites in the country. According to co-founder Kunal Bahl, deals are only an entry point into the customer’s life. The vision, he says, is to build a brand that participates in consumers’ lives every day, across product and service categories. Talking to India Knowledge@Wharton, Bahl shares his journey as an entrepreneur and the challenges and the opportunities ahead. A key ingredient for success, he says, is to have “an insane amount of animalistic passion.”

An edited version of the transcript follows:

India Knowledge@Wharton: Let’s start by talking about Groupon. What’s the difference between Groupon and Snapdeal?

Kunal Bahl: There has been a mixed reaction to Groupon as a company over the past few months, but I think that’s a transient phase. If you zoom out and see a company that [went from making] zero in revenue to a company that’s making a few billion dollars in revenue in less than three years, I don’t know of many examples when that has happened before.

In India, we’ve taken a slightly different approach. Our origins as a business were in things like coupon books, discount cards, mobile coupons. And when the Internet space started taking off in India about 18 months ago, we migrated the entire business online. So we were in the couponing business even before Groupon-type companies started coming into existence. And we actually changed the model on multiple parameters. For instance, we didn’t have the concept of group buying to begin with. We didn’t require a minimum number of people to purchase on the site before our deal went live. Our proposition was that for a consumer, the best experience is that if you are the only one who wants to purchase, you should be allowed to purchase. So we structured deals and merchants in a way where they would even entertain one customer.

India Knowledge@Wharton: What’s the reason for group buying not really taking off in India?

Bahl: On the contrary, it has actually taken off really fast, and probably our business is testament to that. When we started 18 months ago, we were a very small company, maybe 15 people. We are about 700 now, and the operation is in 50 cities. And we will soon, probably, go international, also. We are the highest traffic e-commerce site in India and amongst the top 50 sites in terms of traffic in India. We have 10 million subscribers, and we’re adding about 1.5 million subscribers a month. So that just demonstrates to you the velocity of growth of the business. And that wouldn’t have happened if consumers didn’t see significant value in what we were offering them.

India Knowledge@Wharton: Based on what you just described, I think you have a pretty unique perspective on consumer buying trends in the Indian market. What are some of the most interesting trends you see, and what are the most active sectors?

Bahl: It has actually surprised me a lot — the appetite for Indian consumers to purchase online now, and purchase a wide variety of things. A lot of consumers don’t see us as a deal site. They see us as a discovery platform. They see us as a way to find things to do, or, basically, things to spend money on during the weekend — where they, earlier, were only going to that one restaurant or one salon, etc. So we’ve enabled that discovery in a city.

In addition to that, the way we look at our business is that deals are an entry point for us into the consumer’s life. Our view has always been that we want to build a brand that participates in consumers’ lives every day. And that participation doesn’t begin or end with only restaurants, bars, salons, etc. It’s also physical products. So a few months ago, we started selling physical products to the same customers — which are iPhones, Blackberrys, iPads, watches, sunglasses, apparel, wallets — you name it. And we’ve seen tremendous traction.

India Knowledge@Wharton: Right. So then, let’s talk a little bit about your own entrepreneurial journey starting Snapdeal. After you finished studying business management in the U.S., you went back to India, and you noticed that India’s retail environment was changing. Tell us about those changes and how that inspired you to start Snapdeal.

Bahl: I was actually involved in an entrepreneurial project when I was at Wharton. It was a consumer product company that I had joined as one of the early employees. And I realized that couponing and sampling were very powerful marketing tools that were being used in the U.S. for decades now. In 2007, 400 billion coupons were issued in the U.S. In India, that number was zero. Now, there are two ways to look at that as an entrepreneur. You can say no one has done it before, so there is no opportunity here because it’s probably too risky. Other people have tried and failed. [Or] you can say no one has done it yet, and, hence, there is a great green-field opportunity, and we’ll be the pioneers.

We were 24 years old then, and I think you need to be 24 and naive to believe the latter. And, fortunately, we did that. So we just said it was a great opportunity. Indians are deal hungry. I often say Indian consumers are about A, B, C, D — Astrology, Bollywood, Cricket, and Discounts. So as long as you’re doing one of those four, I think you, as a business, are in pretty good shape. So we picked the “D.”

India Knowledge@Wharton: Your initial experience in the discount business was somewhat disappointing. Is that right?

Bahl: It was slow. And I think we really were slumming the streets every day.

India Knowledge@Wharton: What were some of the biggest hurdles you had to face, and how did you overcome them?

Bahl: Me and my co-founder, Rohit, went to high school together. We had no capital when we started. We had no family contacts. We had good academic backgrounds, but we had a grand total of 18 months of work experience between the two of us when we started. So we had very few things going for us other than the fact that we were just blindly optimistic about the opportunity. And a degree of irrationality that really worked for us. Every day, when we were coming into office, even though the needle was not moving as much in the business, we were still very optimistic that the next day would be better. And just having that core belief that, of course, we are doing better than yesterday, kept us going and kept us thinking about how we could make the business bigger, better, faster.

India Knowledge@Wharton: You referred to the fact of raising capital. That’s a typical challenge for any entrepreneur. How do you get the seed capital to get going? How did you manage?

Bahl: We had [some] savings of our own. We put that into the company. Also, interestingly — and this is where Wharton has really helped us — I was part of this program called the Management and Technology (M&T) Program here. And it’s interesting that our first angel investor was an M&T alum, who was a 1982 graduate, and really supported us. He’s an American gentleman who is based in Seattle, has never been to India, and wrote us our first check without even having been to India, without having seen a business plan. That shows to me how powerful a network Wharton can be.

Interestingly, our most recent round of financing — US$40 million — was done by a venture firm called Bessemer Venture Partners, where one of the senior partners is an M&T alum, too. So it’s funny how the world’s a small place and comes full circle sometimes.

But financing after the seed round, the series A, is the big hurdle for any company because that’s kind of validation of whether you’re working on something that’s potentially of value or not. And we had to go to 15 VCs before the 16th one said yes. And 2009 was the hardest market to raise money. There were three early-stage deals done in India, and ours was one of them. It took six-and-a-half months to close that deal just because investors were asking a lot of questions. But after we got that initial sum of money, we were full steam ahead because that’s what we were waiting for — that infusion of capital — because we had a lot of ideas at that point.

India Knowledge@Wharton: So what were some of the issues that came up when you were trying to raise that funding? And what could other start-ups learn from the experience that you went through in a tough market?

Bahl: We approached fundraising like we approached sales. It’s very simple. We are a very sales-oriented culture. So we mapped them as accounts — like, here’s what this investor thinks about us; here’s what this investor thinks about us. And we just kept on going back to them — always keeping them posted about what we’re working on, knowing who’s actually serious and who’s just wasting our time. And knowing that early on and knowing who’s going to back you — even if your business is not perfect but because they believe that you can create something — those are the investors you want to go after in the beginning.

Our philosophy was very simple for our series A, series B. We wanted to pick investors who had been entrepreneurs themselves because we knew that the empathy that a former entrepreneur would have towards our business, a career investor may or may not have. It’s not like they won’t have. But my sense was I was better off betting on getting a former entrepreneur investor on board. And that has really, really helped, because in India, a lot of these businesses are evolving. The models have to be adapted. And you want someone who, at a board meeting, will say, “You guys are doing a great job. Keep trying new things. Keep experimenting. Keep making mistakes.”

India Knowledge@Wharton: That’s a great point. Now, in addition to fundraising, the other very critical piece of starting a new company is choosing the right team. Tell us about that experience and how it worked out.

Bahl: It was very tough because when we started the company, we were about 24-and-a-half. Now we’re 28. And it was very hard because no one wanted to work for 24-year-olds. And other 24-year-olds in India didn’t want to work for 24-year-olds either. And before that, everyone is in college in India because people generally do their undergrad and MBA back-to-back. So by the time they get out, they’re 24, 25. It was a huge challenge.

So our initial inclination was let’s hire a senior guy to enhance the senior team. That didn’t work out too well because we realized there was a gap in mindset between a guy you hire at a senior level vs. an entrepreneur. So then the approach we took was we hired junior guys and kind of brought them up in the company, gave them an increased amount of responsibility. And that worked out really well — so hiring very, very junior guys and giving them more responsibility.

India Knowledge@Wharton: So what do you look for in people you hire?

Bahl: Just an insane amount of animalistic passion. We just seek that because so much in Internet business in India is to be figured out. Unless you’re hiring an engineer who’s good at data warehousing — which is a specific skill — if you’re looking for a guy who can do sales or marketing or those kind of things, I don’t have a job description. We kind of make the job description every day, and it’s different on different days of the week. So then you need a person who can adapt, who’s like clay, and who can really take a lot of initiative and doesn’t really need a ton of coaching day-to-day.

India Knowledge@Wharton: Were retailers receptive to the idea of discounting?

Bahl: Not really.

India Knowledge@Wharton: Tell us about that. How did you make the case, and how did you actually build your business?

Bahl: Initially, it was a lot of cold calling — cold calling and cold emailing. We would literally just sit outside merchants and retailers — waiting for them to get into office so that we could catch them then, or waiting for them to leave office so that we could catch them then — because nobody wanted to talk to two young guys with a laptop. They’re used to dealing with larger companies in India. In India, unfortunately, we are in a culture where — it’s changing very fast — but still, a lot of people feel wisdom comes with age. And that’s why we always have a 70-year-old prime minister. But I think that’s changing very fast.

So one was just brute force approach. When you have nothing to show — no product, no customers, nothing — you have to do something. You have to sell your dream. But over a period of time, life got simpler. As we drove results for a retailer, he told his neighbor or some friend who is running some retail shops that why don’t you do a deal with these guys — they’ll send more customers to you, etc.

India Knowledge@Wharton: Could you share any war stories with our audience?

Bahl: It’s actually a positive story…. This is pre-starting Snapdeal. We were still doing offline couponing then. Retailers called me and said, “You know, we’ve done a couple of deals with these online couponing sites, and we’ve gotten five, seven customers. Why don’t you guys try this also? We trust you.” Because we had educated them about this, they trusted us. They wanted us to do that.

To me, that was a watershed moment in the history or evolution of local merchant commerce and e-commerce in India. When a small business owner who is probably 50, 55 years old — doesn’t use internet, doesn’t use a computer — is calling us up and saying, “Internet is working for me as a means of customer acquisition,” we didn’t waste any time. Eight days later, we launched Snapdeal. So, literally, February 4 last year, we launched Snapdeal. So that way, it’s a very symbiotic relationship that we have with our merchant partners in India.

India Knowledge@Wharton: Interesting. So you raised US$12 million from private equity.

Bahl: US$52 million.

India Knowledge@Wharton: Oh, US$52 million. How did the investors’ expectations change as you started trying to raise larger amounts of capital?

Bahl: I don’t think investors’ expectations changed that much. I think even when an investor puts in US$2 million, they think about your company eventually being the next Google or Facebook. I think investors should not put money into a business thinking that this will be a quick flip. And we were never of that mindset. I think it’s more how it has changed our mindset.

India Knowledge@Wharton: How so?

Bahl: When you raise your seed round, you’re thinking that, OK, this gives me enough money to build up proof of concept so I’ll get my series A then. Once you get your series A, you start building your team a little bit more. And to scale, you raise your series B. And once you hit scale, to really accelerate — to get to the finish line — you raise your series C. So in an entrepreneur’s mind, your goal changes based on the size of the investment that you take at the various milestones of the business. So now, we are very clear that we need to go for the finish line, which is probably take the company public a few years out, etc.

And so we think very differently now compared to how we thought of the business maybe even 9 or 12 months ago. We are now steering the ship in terms of building the right team, the right senior management, so that each one of us is dispensable.

India Knowledge@Wharton: How will you know it’s the right time to go public?

Bahl: I think we will figure it out. I don’t think we have a date. We [don’t] have a timeline as such.

I feel we should be confident that if we went public, the business would still continue to grow at an exponential rate for at least five to 10 years hence. If we know that that kind of headroom exists in the opportunity that we are addressing, that, to me, is significant validation — and, also, if we know that we have a team in which all of us are important to the growth of the business, but none of us are indispensable. I think once we get to that point, we’re probably ready.

India Knowledge@Wharton: You had, I think, predicted — I’d read somewhere — that by the end of 2011, you’d have $20 million in revenues. Where do you stand in terms of your revenues? And give us a sense of your operation and –

Bahl: As I had mentioned, we are about 700 people now. We’re still hiring very aggressively. We’re making tremendous progress on the product side of the business. I mean, these things are just flying off the shelves right now. We’re probably looking at 30 million members this year, up from maybe 12-13 million at the end of 2011. So it’s going to grow very fast on that parameter, also.

Our sense is by the end of our next financial year, we should probably be getting close to US$100 million in sales. I mean, we went from US$3 million to US$35 million, so US$35 million to US$100 million shouldn’t be hard. And by two years from now, we’ll probably cross US$200 million in sales.

India Knowledge@Wharton: What accounts for this kind of growth? And which are the most active categories?

Bahl: One of the most important things is the customer experience. Interestingly, 70% of the consumers who have ever bought on Snapdeal have come through the word-of-mouth channel. They didn’t come through advertising. It’s not like they haven’t seen advertising. But when we do surveys of our customer base, we find out that 70% of them came because someone told them to come to Snapdeal and buy something. That makes me very happy because it means we have a good customer experience that people like.

In a way, it also makes me a little anxious because that part you can only control if you keep running a good business. You can grow that 70 to 75 by advertising, but if your customer experience becomes worse, that 70 will go to 10 in no time. But it’s a happier place to be in than a business which is very dependent on advertising.

So, for us, it’s a lot about customer experience. Our vision is very simple for the business: helping consumers get the best deals every day and everywhere. And nowhere does it say what kind of deals. We could be selling anything. It doesn’t matter. As long as consumers trust us — that our promise is solid, that whatever they come and buy from us, they’ll get the best deal — then I think we’re in good shape.

India Knowledge@Wharton: What are some of the most popular things that people are buying through Snapdeal?

Bahl: Mobile phones — very, very popular. People love mobiles in India. They change their mobile phones, every six months, it seems. We sell a lot of apparel, a lot of jewelry. Restaurants, bars, are very, very popular. As both family members have started working in India now — compared to one of them being a housewife early on — I think people are eating out a lot more. People have a lot more discretionary income, so they’re going for spas, where three years ago, no one went to spas in India. People are traveling a lot now in terms of weekend getaways. So consumers are buying almost everything from us. And we have some great, very interesting consumer-buying trends. For instance, we know that people who eat Chinese food a lot have a higher propensity to buy a Blackberry phone. So we have some really interesting data around purchase patterns of consumers.

India Knowledge@Wharton: Very interesting. Kunal, a lot of companies are now trying to jump onto the group-buying bandwagon. How do you expect to sustain Snapdeal’s competitive advantage?

Bahl: When we entered — about one year ago — there were about 50 players in this space in India. There’s almost no one left now. We have over 70% market share in that space. Even in the product e-commerce space, the rate at which we are growing, we’ll be number one in no time just because of the reach we have.

I came back from China two weeks ago. And what I realized was that the companies that won the e-commerce race in China were the guys who had the most amount of consumer traffic — people coming to their site. And given that Snapdeal is, by far, number one there, there is absolutely no doubt in our mind that that will serve as a great differentiator.

So to that earlier point I made about us wanting to always build a brand that participates in people’s lives every day, it’s interesting that hundreds of consumers have written to us — written to me personally — saying when they come to office, before they check Facebook, they check Snapdeal.

India Knowledge@Wharton: I want to tell you something that a Wharton marketing professor, Dave Reibstein, told us when we interviewed him about Groupon. In his view, online group buying sites face lots of challenges: rapidly increasing competition, unsustainably high rates in customer acquisition, and problems in retaining deal-prone customers who are constantly looking for discount deals and the fact that these discounts may have to be withdrawn as the economy picks up. Do you face any of these issues at Snapdeal?

Bahl: Not really. And that’s largely driven by a number of reasons. One of the criticisms I’ve read recently is that it’s unsustainable for a merchant to give these kinds of discounts. It’s very different in India.

India Knowledge@Wharton: How so?

Bahl: In the U.S., there are high fixed costs and high variable costs for a merchant because people [costs] are expensive here. In India, they have high fixed costs but very low variable costs. So despite the average discount in India being higher at 70% or 75%, even then, merchants make money to the point where they are actually clamoring to pay us money so that we feature their deals — which we don’t do because our model is very simple. We don’t charge a fixed fee. So merchants see tremendous value.

Also, there’s a supply-side glut from a merchant’s side in India. I’ll give you an example. When I was here, even if I had to go for lunch in New York or Seattle, etc., I had to make a reservation. In India, I’ve been back for four years, I’ve never made a reservation at a restaurant or a spa or a salon, even on a weekend. So the model is even more powerful there, actually. That’s one.

Secondly, because we sell so many things to customers — not only the deals — to us, the deals are a great entry point, essentially a low cost to customer acquisition. And then, we cross-sell other products and travel and other things to them, where we monetize that customer even further.

India Knowledge@Wharton: Could you give some examples?

Bahl: For instance, a customer wants to go out for a haircut. They’ll buy the haircut deal from us. Now, we know that other people who have also bought a haircut from us recently have also purchased, maybe, a Tommy Hilfiger shirt. So, now, next time they log onto the site, they’ll see a Tommy Hilfiger shirt. So they may actually end up buying that because a consumer’s wallet is fairly clearly segregated in their minds. This much money I spend on restaurants. This much money I spend on travel. This much money I spend on clothes, gadgets, etc.

So our goal is very simple. Get a greater share of wallet because Indian consumers are extremely deal conscious. And we can’t change that. We can’t fight that. And, actually, at Snapdeal, we play to that. So it’s very natural for consumers to come to our site because they are online to look for deals. If they weren’t that price sensitive, they would just be shopping offline.

India Knowledge@Wharton: Let’s continue on the risk theme. When you think about Snapdeal’s operations, what do you think are some of the business risks that could potentially put Snapdeal out of business? And what are you doing to prepare for those risks?

Bahl: I think I’ve been more sleepless and paranoid now than I have ever been. And people question me: why? Now, the business is doing really well. You don’t even need to be here for it to grow, and you have capital and brand and everything.

India Knowledge@Wharton: That’s when you need to be most paranoid.

Bahl: Yeah. And that’s the reason I’m most paranoid, because the times when you have nothing — when you have nothing to protect — what’s the point in being paranoid? Now, we are super paranoid. I mean, as an organization, we are a very paranoid organization — but in a healthy manner, not to an obsessive extent.

But I think that in a very people-driven business, there are, basically, in our case, two big risks. Making sure that we retain our best people, and we keep bringing on board better people — I think that’s a big risk and something I spend a lot of time on. In the last couple of years, I have done 3,500 interviews just myself. Our selection rates in our company are one out of 30 people we interview. We have six rounds of interviews. For an engineering role, it’s one out of 57. So we are very, very stringent in terms of quality control as to who comes in and who doesn’t come in. And we’ve seen, because of that, our attrition rates are lowest in the IT and internet sector in India. Average would be about 30%. Last year, we had an attrition rate of 3.2%, which is very good for India, a fast-growing market where people get better salaries all the time.

I think the second one is a brand risk. We’ve invested a lot of capital, a lot of energy, into building a brand that’s top of mind for consumers, and a brand that consumers trust. That’s why they’re willing to come and buy from us — because they know if we mess up one day, we are also there to fix it for them and make it okay. And that trust takes a long time to build, although it took us 18 months — relatively, not that long. But it took a lot of effort. We had to put in a tremendous amount of effort to build that trust in just 18 months.

India Knowledge@Wharton: What were some of the things you did to build trust so fast?

Bahl: From the first month that we started, all the customers who’d transact in a month, the first Saturday of the following month, they get an email directly from me, even today. And when they reply, I reply directly to them. It comes into my inbox. So two months ago, I remember when we sent the mail, I got some 5,000 emails back from customers. I responded to all of them in, like, five days. At the end of it, I had to soak my hands in cold water for five days. But you’ll be surprised how big a confidence-builder that can be …. It gives them great confidence to give us their money.

India Knowledge@Wharton: Let me ask you a couple of personal questions, just to wind up. In your experience so far in your 28 years, what’s the biggest leadership challenge that you have faced? And how did you deal with it, and what did you learn from it?

Bahl: I think one of the biggest internal conflicts we’ve learned to deal with now is how to work with people who are smarter than you. And a lot of people talk about this stuff, but I’ve kind of felt it and continue to feel it. I know a lot of the folks we have in the company are much better at what they do than what me or my co-founder could be at the same task. And we didn’t know that feeling when it was just the two of us. At that point, it was us and us and us. And we did everything, and we were good at everything, or so we thought.

But the moment you get on board somebody who is just doing marketing, and they’re doing a great job at it, sometimes you take a step back and say that if I were in that role, could I even think about doing things like that or even do it with so much structure, with so much precision and execution, or not? The chances are probably not. And then, knowing that it’s important to let them do their thing is very critical. And everyone makes mistakes, and you have to make peace with that. But just stepping back and saying thank God that we have people who are better than us at what they do. Let’s just let them do their own thing.

But it does sometimes create a feeling of inadequacy as a founder and entrepreneur because there is always this aura around entrepreneurs that they’re just some super human beings who can do everything. Probably not the case — at least, I don’t feel it. I’m sure there are some who have that. I don’t have that, which is why we’ve learned to defer to our colleagues.

India Knowledge@Wharton: That’s a great answer. One last question: How do you define success?

Bahl: That’s a really deep question.

India Knowledge@Wharton: Saved the best for last.

Bahl: I think just being excited about coming into office every day. I think that, to me, is success, because it’s definitely not making a certain sum of money. It’s definitely not my valuation being billions of dollars. It’s definitely not that. I think it’s being happy about coming into office the next day. I think that to me, as long as I’m doing that, I can do this forever.

India Knowledge@Wharton: Kunal, thanks so much for speaking with us.

Bahl: Thanks for having me.

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