10 years is a long time. That’s the amount of time I have spent with my current surviving venture.
In between, I have been a part of multiple ventures as a consultant, partner, co-founder, etc, etc.
One of those recent ventures was an online store which was a completely new industry for me.
Well…The whole country has been crazy about ecommerce for last few years. Everyone wants to buy online. The big boys in the industry are spending a fortune there.
Although the craziness has come down a few notches (after multiple ecommerce stores shut down or failed to raise next level of funding), the hype around the sector is still there.
So, a few months back I started working on an ecommerce business model along with my better half. Our plan was to buy and sell home décor and home utility items (curated collection) from exporters who do not sell in the Indian market and sell them in India via exhibitions and online (ecommerce).
Like every business, the model was excellent on paper. (why else would I get into a business? At least, it should look profitable on papers 😊 )
The process was quite simple. You buy from vendors who are mostly manufacturers in tier 2 cities like Moradabad, Aligarh, Jaipur. You take a small warehouse on rent (in our case, one of the rooms in our house doubled as a warehouse) and you sell via online (ecommerce websites like amazon, flipkart, etc) and exhibitions.
We did the maths – the breakeven point was around 4 months. An advantage of starting with a small budget or seed capital is, you can quickly try the model. You do not have to wait for years to see how good/bad your business model is (few perks of running a small bootstrapped startup).
The venture is now unofficially closed. Officially, we will be shutting shop in this coming week. (we were waiting for GST closure facility to be made available online).
The good thing is we have recovered almost all our investment and I have a truck full of learnings to take with me for my next venture which I will be soon sharing here on the blog.
The bad part is the sadness which fills your heart (I am getting poetic) when a venture closes. The feeling can be heart-wrenching.
The venture has already failed. All I am left with is a set of ecommerce tips for small businesses and startup owners.
Let me quickly move ahead of my sob story and get down to what the ventures taught me (I am sure it will be a helpful set of tips for anyone looking to start an ecommerce business in India):
- The Trading Model is not an easy one:
Theoretically, it is the easiest model to carry out. You buy from someone. You keep your margin on top of your purchase price (inclusive of all expenses) and you sell it further online without incurring a cost for renting a retail store.
What we forget is the pain of dealing with the vendors. I have dealt with a few of them in past but my vendor team was a part of the so-called “sophisticated” lot from IT industry.
The suave IT vendors carry themselves very elegantly and coming from the Industry which talks in dollars. They are more Americans than you and I are.
Here we were dealing with our small and medium-sized manufacturers from tier two and tier three cities. Professionalism is a trait they leave at home when they deal with you. From day one, our vendor (whom we found through India mart) kept reminding us our order is of small value for you.
God knows why he took the order if it was of small value! Then, after taking 50% advance he sent us substandard products which were not worthy of passing our Quality test (forget the end customer).
Here is what I learned:
- It’s better to buy ready to use products than place an order. The guys who are manufacturing the products will either send you a delivery which is substandard or not near to what you order. For some reason, they take you for a ride when they know you are not from their industry and you are a small enterprise starting your venture.
- When you deal with manufacturers, try and understand few finer points of the quality of a product, they are supposed to deliver. For ex, when we ordered a glass home décor piece we did not realize, they will use the thinnest glass possible to save the cost. We were told it will be a high-quality glass, but we did not talk about thickness measurements which was a big lacuna as it allowed our vendors to set the thickness of glass to jack up his profit.
- Select someone who can treat you with respect. Once the manufacturer gets an idea of your startup being a new venture, they will try to arm twist you in every single way possible. The better approach is to speak to a lot of vendors before you give your advance payment. Don’t be stingy but smart.
- Lastly, have clear-cut payment terms.
- The Great Indian Tax structure was never simple:
I started writing this article long before Columbus discovered India and Modi ji discovered GST (just kidding 😊 ). Since I am going to be cribbing about our “simplified” tax structure, I will start with our ex-tax structure based on VAT.
How can I ignore VAT?
It is the most annoying tax structure ever invented in the books of taxation.
So, we started with VAT registration and the first thing we were asked to do was give an FD of 25K in the name of UP VT department.
And now when VAT is closed, I don’t know how to get the FD back from UP VAT department.
Here are few taxation tips for you which I learned from the e-commerce business model:
- GST means more expense added to what you were paying too your tax advocate. Please add the money to your expense column.
- GST means a lot of compliances and paperwork. Be ready to divide a major chunk of your time for the same. (I believe, they have reduced the same for business with turnover less than 1 Cr. You can rest in peace from now on)
- Understand GST slab of everything you sell. Since our collection was curated, the taxation structure was complex. It took us a great deal of communication to simplify the GST slab of everything we sold.
- None of the websites will allow you to sell without GST. Kindly get the number before you plan to register with them and don’t forget to take your tax credit after you make the sales (Your CA can better explain you this point).
- Learnings while dealing with E-commerce portals:
We are registered vendors on 2-3 e-commerce portals today.
Here is a common grievance I have for all of them – None of them are vendor friendly. They work on a simple model of “customer first” which is good until the customers start returning damaged products or being unrealistic with their expectations, etc, etc.
Here are few lessons you should learn before you start dealing with e-commerce portals:
- All the portals are “customer friendly”. They have their customer support number dedicated to customers. For vendors, they have a web-based system for you to upload products, view transactions and do other activities. Quite a few of them have a dedicated support number for vendors.
- You are expected to do everything online. You better be a PC friendly person else hire someone to help you. One of my acquaintance, who is allergic to the computer but wants to enter e-commerce industry has been struggling with taking his products online to sell on e-commerce platforms. Recently they hired someone just to help them in managing everything on internet.
- Most of the portals take their own sweet time with the approval process. At times, the “sweet time” can turn into “eternal wait”. I had to tweet one of the ecommerce website’s twitter handle to bring their attention to our “under process” application. The application had not moved an inch for weeks. Incidentally, their twitter handle’s response was quick and prompt. They did raise my hopes high with their support work.
Unfortunately, everything again got back to normal (the eternal wait!) once the process shifted from twitter to emails and phone. They took close to 2-3 months to get us onboard.
- Keep a close watch on your transaction history. One of the portals did not have our sale updated for a product we sold through them. It took me a lot of time and energy to find the lost sale and an endless round of arguments with their support team to make them realize their mistake.
The same portal also has a restriction “You cannot download more than 3 months of transactions”.
WTF! I run a software company and we have done enough accounting software to know how crucial this feature
is for everyone.Anyways, the company I am talking about (thou who shalt not be named) is in doldrums today. They have run out of funds. Have no buyers and have been on sacking spree for months.The last I heard. Most of the vendors have kissed them goodbye. Few vendors have sued them, and their courier partner has taken them to court.
I am too small to get into any of the above activities but hey _____, if you are reading the blog. Please allow your vendors to view transactions for a time span of more than 3 months.
- The “hidden” expense:
From a business perspective, I had covered all my expenses before we decided to calculate the net margin we will be getting on each piece.
At least, that’s what I thought.
For some reason, all my past business experiences instead of making me smart turn me into an overconfident fool.
I forget to add a % of expense for “hidden expenses” which only show up once you start running the venture.
Here are few learnings to help you better manage your costing which selling online:
- To start with, we forgot to add the cost of photography, breakages, returns, courier fees, etc, etc. By the time we realized all these expenses, our profit % had shrunk to a very low margin.
- Speaking more about photography cost. Please note, it’s better to buy large number of one single product than buy a lot of products in less quantity.
The logic for the same is the costing per product for photography.
For ex, you have 10 different products 100 piece each (1000 pieces in total) , it will cost you 10 X to get pics clicked for 10 products (assuming cost of photography per product is X).
Assuming a different scenario for what I wrote above. For ex, 1000 total pieces, where you have 200 different products with 5 pieces per product, you will actually end up spending 200 x X (where X is the cost of photography for each product) money for getting the photography done for 1000 products.
Add the time to get this exercise done and you will realize, the effort isn’t worth the money you will get paid.
Moreover, when 5 items of the same product line are sold, the photograph becomes useless.
You are better off utilizing the single image for 100 items than have the image wasted once 5 items of the same product are sold (limited quantity).
- Did you know – the courier cost for returned products/items by the customers is put on your head? And if a defective product returns (which could very well have turned defective by mistake of courier company or customer), you my friend are liable to take the hit.
You will be hitting your wall against the wall fighting the customer support department to get some money for the damages you have incurred. In the end, it won’t be worth the effort.
Summarizing this section. You should keep a % of expense combining of photography cost, breakage, courier for returns. If you have around 1000 items. A 3 to 5 % is a fair number to be added to your expense sheet.
- Tips before I end:
- The fastest product to sell are “garments” and though the market has been declared as “saturated”, it is still one of the market segments where the items never go out of style.
- The products bought the most are the cost-effective products under the budget of 300 rs. Our product range was in between 500 to 5000 which did not lead to many sales.
- Don’t forget to add a rough percentage for breakage, product returns, courier expenses for unsold products.
- If you are running a digital marketing campaign, focus on tier 2 and trier 3 cities in India. The sales are quite good in tier 2 and tier 3 cities and since everyone is focussed on bigger cities you have a better opportunity/chance to prove your brand here.
And here ends my blog with a long list of learnings from my recent failure.
Time to pick myself up. In addition to my existing long running business which is crawling under the load of GST, I am taking my digital marketing training venture from strength to strength
I am working on a web based course, where I am recording my sessions so that they are available in the form of e-learning course for students who attend our workshops.
I will keep you updated on the progress I make there.
Why did this venture fail?
Here is another addition to the list of failed startups started by me.
This startup failed because none of the founders had time to dedicate to the venture and the company lost a lot of money in dealing with manufacturers, who delayed the delivery and when they delivered the products. The products were substandard.
Also, the ecommerce model was not correctly implemented by the team.
Ecommerce is still a growing market running on the whims and fancies of the spoiled consumer lot of our country (no offence intended).
The new ventures entering the space have a fight to win against returns, marketplace commissions, courier cost and then save whatever is left after making sales.
We misjudged the profit % and revenue models and overestimated the market size.
The next time I enter the ecommerce industry again (I will be back!), I have promised myself – there will be less mistakes and hopefully a better sustainable business model to show for the learning from my failure in this venture.
Till I write next – Au revoir!