At VentureBasecamp, we recently had the pleasure of picking the brains of Karthik Jayaraman, who is building a next-generation agriculture supply chain at Waycool. His venture recently raised a funding round for USD 25 million. The AMA session covered multiple areas, ranging form funding advice, challenges of working in the agriculture sector, and great insights on building a ‘phy-gital’ business. We broke down the conversation into 3 parts, here’s the first part covering their origin story:
Q. What inspired you to build the startup you did? How did you identify the problem that you wanted to solve?
This startup was triggered by angst. I worked in the auto industry for 2 decades, and at one point, started feeling a little empty.
We had built so much technology capabilities, but all of that seemed to be to the benefit of a limited set of investors. If our capabilities could be applied to solve larger problems and create positive externalities, then it would be more satisfactory.
This prompted the decision to move on into an area of social impact. We identified food supply chains as a focus area, as it was a basic need that had the maximum potential for social impact. Also, our strengths were in supply chain, and we believed that some of our skills were relevant to the problem at hand.
Initially, we went down the path of trying to build cold chains – hence the name “WayCool”. However, when we interacted with folks who had attempted to build this in the past, we realised that that was a solution in search of the problem. Each product had a different issue and we needed to work on solving the supply chain in toto, and not just build a cold chain. This is how we zeroed in on our solution.
We physically studied the supply chain for about 3 months, including talking to folks like Heritage, Reliance and others and that gave us a lot of insights.
Q. There are so many pieces to your solution – did you go through a process of building it one piece at a time (based on priorities) or building a “functional/lovable/” version of the entire solution in an iterative manner?
It was iterative. Our day 1 solution was a purely physical operation. Then we started building some technology in parts of the stack. As a third step, we added our ERP. Our fourth step was to add software loops that connected our customer and farmer to ERP. Our fifth step was to automate our warehouse and then snap together the WMS and ERP. We are possibly in our seventh or eighth iteration.
Q. How long did it take from idea to first order? Any hard lessons learnt along the way?
We actually generated our own first order! When we started off with the idea of a farm to fork supply chain, most people in the B2B space e.g. HoReCa and modern trade told us that they would consider ordering from us after we had proven ourselves with someone else. So we actually set up a retail chain of our own and started selling to retail (B2C) customers to get the business going. This took about 7 months from concept stage. Once we had run our retail chain for six months or so, we got our first order from a local boutique restaurant.
In sectors like us, it is possible to get a sliver of an order from customers. As I had mentioned, since we are not dramatically altering buyer behaviour, and the product is considered a commodity, folks are always willing to try.
Picking a non-mission critical commodity and offering excellence in quality and service on those, and thus getting a foot in the door works reasonably well and we have seen other startups do it.
The other, of course, is discounting. This is evidently the more popular option. However, it is very expensive and there is no evidence to suggest loyalty due to the same.
Q. What did you have to do to get customers to pay? Do you think discounts/freebies are important to win over customers?
We started off with paying customers. As shared above, we started off with our own retail store since we could not get any B2B clients. In our own retail store, we charged full price and gave a superior experience. Part of this was enabled by the fact that food retail is relatively a premium offering in Chennai in general. After this, when our first B2B customer approached us, we offered them a 10 to 15% discount to our retail price. This meant that we were making positive GM on the sale.
We did not face resistance to this. Hence, we have continued with this practice since then. Customers pay for service and quality, and are OK to try new players because we are not really fundamentally changing buying behaviour.
In our view, it is in situations where buying behaviour is fundamentally changed that free offerings become relevant.
Q. How did you find your first hires? Did you pay them market salaries? If not, how did you convince them to join? How did you check for alignment with your mission?
My first hires were former colleagues. We had fought in the trenches together at various jobs, and we had a pretty good idea of mutual interests and capabilities. Since most of our interactions had been during crises (e.g. a very large turnaround effort in my last job, tough operational transformation programs in the job before that), we had a decent understanding of how each of us behaved in a crisis. This was critical.
I also had an idea of who would look beyond salary and towards a larger goal. I approached only these folks.
Finally we arrived at a very structured compensation ladder. Most folks had to take hefty pay cuts to join us. We estimated the extent of potential loss of salary for the first four years, assuming that we could converge wages to market in 4 years. This loss was compensated by equity.
Q. Whom did you approach for mentoring and advice? What were your criteria for choosing them?
We have a very large number of wellwishers. Our first angel investor was my boss. He is a stellar operations man, and still engages deeply with us in designing and tuning our supply chain. He and we together chose a set of angel investors who would bring a lot more to the table than just money. Some of our angels are experts in sourcing and farmer engagement. Others engage on tech stack.
In addition to this, we reached out to most Indian and global institutes for their guidance and they responded very positively. Today, we have the Indian Institute of Horticultural Research, National Agro Foundation, IIT Hyderabad and many other institutes guiding us.
IIHR has developed a solution for us to improve the shelf life of greens. We have licenced and deployed this solution. Similarly, we are working to sponsor a research program at IIT Hyderabad for developing a solution for shelf life extension of tomato.
Some key takeways from this AMA were how Waycool decided to focus on being iterative and building their Minimum Lovable Product (MLP) by first launching a basic offering and refining it based on customer feedback. They also had a clear Roadmap for their business, which they defined after studying the market and Problemfor 3 months. And contrary to what seems like conventional wisdom these days, this startup decided not to discount their offerings (focusing on positive Unit Economics right from the get go), since they realised that they did not have to significantly modify customer behaviour. Karthik also highlighted how hiring the right people and having the right mentors in the Team ensured their early success. From an investor’s perspective, Waycool scored well in all the Critical Success Elements!