What allows an enterprise to endure, is its ability to learn from its mistakes and make corrections, Bahl tells Abhilasha Ojha
You started at a time when the internet industry was going through a very tough time. What were the hurdles the Smile Group had to negotiate when it embarked on the journey?
I got the ‘timing’ of launching our company wrong. While I got the idea of being part of the digital industry when there was a dotcom boom, by the time I started the process, the industry was in the midst of the bust. My first strategic lesson in building—and thereafter expanding—the company was to persevere even in troubled times. I didn’t budge, stood in the game. So, while the industry was tanking, I had committing my life to it. Today, when we stare at another downturn of sorts, I have learnt my lesson well. Some of the more successful digital companies today were the ones that battled self-doubts, challenges and persevered even as their peers chickened out.
Then, there were huge bottlenecks in the infrastructure —the PC penetration and the broadband penetration—in short, the reach of the internet was simply not up to the mark. If you told clients that you could do a video call on the phone some years ago, they would laugh. Today, it’s a real possibility in India. When I entered it, the question that was asked was ‘why internet?’ Some years into the sector, we were asked ‘how’ [we could work] the internet? Now that it is confirmed that it is a growth sector, the digital game is in checking the profitability and the scale the internet can offer the digital businesses. It has been an evolution of sorts for this sector. The only logical explanation to how we grew is that we persevered, didn’t get out of the game and continued with our plans unabated.
Many other internet businesses that started around the time you did, have folded up. What are those one or two key things that have ensured the Smile Group has a sustainable business?
There are two fundamentals that have been constant for the growth of the Smile Group. Remember the digital sector, because it is so young, doesn’t offer any case studies, data, or lessons, as such. So what looked as the best strategy for a digital company till recently could be in need of severe changes today.
Our first fundamental is that we are committed to digital as the industry and are constantly incubating changes because that’s necessary for internet-related businesses. Second, we want to create entrepreneurs within the digital space. The biggest differentiator for us is that unlike most traditional business houses that have built conglomerates with one owner and others as employees, we encourage the concept of sharing wealth. So, we don’t have any business where we are 100 per cent owners. Every business of ours typically has three, or more, co-founders and partners who are the direct shareholders in the business. So, it becomes a “soft-landing” for people who want to get into entrepreneurship; something that we encourage. It has largely worked for us and in our growth story.
With no written rules, no benchmarks, or historical milestones for that matter in the digital industry, isn’t the room for making mistakes in the business much bigger?
Yes. I will be honest in admitting that our company has made the highest number of mistakes only because we’ve done the maximum number of things in the company in a bid to experiment just what the digital/virtual world can offer us. This is an industry where you have to be flexible enough to experiment, even if it means faltering. Face it, there will be businesses that will fail but also succeed.
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When we started fashionandyou.com, our company’s first major foray, we got our business totally wrong. We had no idea of whether this business [of selling fashion brands at discounts] could succeed or not? Most people told me it wouldn’t but some of the feedback taken directly by some women (including my wife), thought it was an idea that had merit. Because there was no benchmark, I had no idea about the profitability of this e-commerce platform. We had got a 2,000 sq ft warehouse (tremendous space by my standards). In three months, the business had soared but our warehouse couldn’t accommodate even a fly! So, while the business took off, our warehouse was a complete mess. We had choked, our infrastructure had collapsed in that expensive branded clothes and accessories were jostling for space, our accounting systems crashed even as the business grew.
Through the internal failure of fashionandyou.com, I had learnt one of my biggest lessons; in e-commerce, if your backbone is weak, your business is dead. We (fashionandyou.com) were a fractured backbone. Our business went into a massive crisis with some customers even remarking that while they were addicted to our ecommerce offering, they were upset with delivery of orders getting severely delayed. Realising the potential of fashionandyou.com, we quickly began stitching each and every process quickly.
How did you achieve that?
For starters, we raised money in this growing (category of) business, invested in it to create a better infrastructure. Most importantly, at the board level, we took a conscious decision of not running after growth. If the first lesson in e-commerce was having a sound infrastructure, my second biggest learning was that there are times when you have to compromise growth to fix the fundamentals. If you have to build a fundamentally strong business then there are times when you have to take that hard call.
Any other mistakes, which eventually translated into successful strategies for the company?
The other mistake, ironically, was when we saw tremendous amounts of success within the company. So, typically, when a company becomes successful, the growth path is then to head into the global or international markets. While it was natural for Smile Group to think the same way, we wasted nearly two years only discussing how to go international. But we did nothing. Then, one day, I got an email from a colleague: ‘meeting, meeting, meeting, and no action, is no business.’ This was my next learning; strategies can’t always work by sitting inside company boardrooms.
With an understanding of our core strengths, we decided to have an international presence in Africa; another country with a billion people in need of growth. From there, in one year, we set up various partnerships for the digital arena in places like Berlin, Zurich, Moscow, Singapore, among other emerging markets. We went into action.
Isn’t retaining consumer loyalty a major challenge too, given that so many online brands are jostling for eyeballs?
Let’s speak about e-commerce sites here, given that many offer deals, discounts, brands and other services on the digital platform. Most companies in the segment initially were in the marketshare game. While it lured consumers, the delivery of promise — critical for brand loyalty — was missing. The promise comes from the “niche positioning” taken by companies.
For example, compared to some other sites, which promise speedy delivery, fashionandyou.com has delivered its promise to its consumer that we are India’s largest women e-tailers with great brands offered at great discounts. Our customers are ready to wait for a couple of weeks because they are assured of quality. So, effective communication is one of the sure shot ways of retaining brand loyalty. It’s not about how aggressive is the promise, it’s about how you communicate it and live up to it that helps maintain brand loyalty. At Urban Touch (a lifestyle company acquired recently), my promise is ‘widest selection at the best customer experience.’
How does the sector grow from here, according to you?
Digital advertising will grow. Non-internet companies are already allocating as high as 30-40 per cent of their total marketing budgets to digital as a medium. Brands will be born on the internet. Freecultr, our lifestyle brand, is just that. There’s no store, nothing, it’s a shop in the virtual world.
We continue being hungry for talent in the sector. In our company, we have people from Columbia, Wharton, Harvard, besides IIMs and IITs. We have people from tier-one companies; many have joined us after taking massive pay-cuts – to the tune of 75 per cent. While we continue to make mistakes, I’m sure we are doing something right.