On October 8, 2018, Kunal Bahl, one of the co-founders of Snapdeal wrote an article on LinkedIn to give a long-awaited update on Snapdeal’s current status. But why were people waiting for an update? To understand this, let’s go back to a flashback of last year when the Indian e-commerce unicorn started bleeding profusely in a fierce discounting battle with other Indian e-commerce giants and its sustenance was a question. It was even termed as “India’s first unicorpse”. Lack of funds led the founders to lay off almost half of Snapdeal’s workforce. The attempt to survive presented them with 2 options: take the blue pill (merge with Flipkart and enjoy the spoils of the secondary exit) or the red pill (continue fighting independently for glory with only a few months of runway left). The founders took the red pill.
Since then, there was not much news coming from the company and most critics had given up any hope of seeing a revival. However, in June 2018, the company left skeptics aghast by hitting an absolute positive cash flow. In his LinkedIn article, Kunal Bahl recounts what had gone wrong and how they changed to make this incredible turnaround happen. He has done an excellent job of explaining the whole journey of Snapdeal 2.0 and no else can do it better than him. Therefore, I would not get into the specifics of their strategy. Instead, I am going to do a deeper analysis of this journey to derive what other startups could learn from this incredible turnaround and how they can develop a powerful roadmap to avoid what happened to Snapdeal last year. If you haven’t read Kunal Bahl’s article yet, I would strongly recommend you to read the article here and then come back here to read our analysis.
For the analysis, I will be using VentureBasecamp’s Critical Success Elements of a Business. Before I start, let me briefly explain what the VentureBasecamp’s Critical Success Elements of business are. With the help of the Capria Ventures network and its partners’ investment expertise built over 45 years, we identified 12 critical elements that make a startup investable. Following are the 12 elements.
For more information on the Critical Success Elements, you can head over to this article. Without further ado, let’s dive into Snapdeal’s rejuvenation using the CSEs.
- Unit Economics & Business Model: Our co-founder, Dan Kranzler always says that there is only one definition of a business. “A business is an entity that brings in more money than it spends. Period!” Everything else is secondary and everyone else is NOT a business. Kunal also realized this saying, “We were clear that while the arc of building a company is long, it needs to bend towards profitability.” Kunal shares a learning from the journey saying “Nothing that sells at a loss can be finally good for business. The business will run into a wall eventually.” They went through a painstaking task of optimizing costs by sharply reducing logistics costs, re-negotiating technology contracts, converting fixed costs to pay-as-you-use and optimizing establishment costs. In Kunal’s words, “Anything that lost money had to either go or had to be recast in a profitable mould.”
- Team & Execution Capability: The brutal downsizing last year had left a bad taste in the mouth of the Snapdeal employees and they were very skeptical about Snapdeal’s turnaround. In tough times like these, it is the company’s culture and transparency that holds the team together and focused. As Kunal recalls, “The first thing that the leadership team did was to start an intensive outreach with all members of the team. Each individual was spoken to by one or more members of the leadership team. Personalized copies of contextual motivational books, monthly newsletters and progress updates went out regularly.” They even went to the extent of installing screens all over the office, where live dashboards transparently displayed in real time their progress vis-a-vis targets. Building a culture is not easy but essential. Kunal shares, “Well stocked pantries and after-office parties create temporary highs, nothing more. Culture is built on a shared sense of purpose, clarity of goals, prompt feedback and genuine appreciation.” They set up forums for recognizing team members, facilitate discussions and connect personally with each other. This paid off as old members of the team stuck together, and ex-employees rejoined which is a cost reducer itself as it saves the cost of re-training and achieving alignment & synergy with company goals and processes.
- Pain, Problem & Desire: Knowing what you are solving for whom is the most important piece of building a startup. If you are not solving a real and urgent problem for a specific customer persona, people will only care about you until you are giving away freebies or huge discounts. Kunal says, “Unlike our approach in the previous years, instead of trying to be everything for everybody, we focused on listing what our audience wanted and then made sure they found it as soon as they came to our app and also in all our advertising.” Kunal also clearly identifies the customer that Snapdeal caters to stating the need to “…go back to our roots of catering to the needs of the value conscious buyer, because that’s why our most loyal consumers came to us over the years.”
- Competition & Sustainable Differentiation: At VentureBasecamp, we help entrepreneurs discover what makes them different from their competitors and an important takeaway of this process is their Unique Value Proposition (UVP), which is a benefit you provide to customers better than anyone else. Kunal Bahl clearly identifies Snapdeal’s UVP stating, “This process of churn that we went through over the previous months clarified to us and to our buyers and sellers, who we are – a platform that offers good quality merchandise for the value conscious Indian consumers, along the lines of what one would get in the offline bazaars in India. Buyers were using our platform to find the products that best suited their individual price-quality equation and sellers were happy to stock more of the same, since this was selling fast.”
- Roadmap: A clearly defined roadmap with concrete success metrics in place helps a business focus on where they want to reach and how they will achieve that. Kunal says, “Having a visible goal that was consistent and well understood across the company really helped us align all our business decisions.” They were able to regain focus through a clear roadmap for Snapdeal 2.0 and therefore, decided to stay a pure-play marketplace divesting all non-core assets which also helped them build some cash reserves for executing the strategy.
In hindsight, while raising huge amounts of capital in an attempt to race the company towards scale, Snapdeal had overlooked almost half of the CSEs which came back to bite them later on. However, not everyone has to learn it the hard way. At VentureBasecamp, we advise entrepreneurs to balance their CSEs by working on all of them together. A lot of times we meet entrepreneurs who say that all a startup needs to do is to capture an emerging market opportunity with the right product and drive it to scale quickly before your competitors can catch up. Unfortunately, hundreds have tried, and hundreds have failed while trying to do the same.
Not everyone gets a second life like Snapdeal. However, everyone can learn from the second life of Snapdeal that a business is not built by chance but by following a clearly defined roadmap.