Earlier this month, Pepperfry, the Mumbai-based ecommerce company founded by former eBay India country manager Ambareesh Murty, raised its Series B round of funding – $8 million from existing investor Norwest Venture Partners. Several things have changed inside the company since it went live with its online store a little over a year ago. Startup Central met up with Murty, to find out what has been going on inside Pepperfry in the past year, and how he is plotting the path to breakeven. Edited excerpts:
Startup Central: You’ve raised a relatively small Series B round. Why?
Murthy: See our model is very different. We don’t think that you need that much money in India to build a really good ecommerce company. We raised $5 million in our Series A round, which is nothing in this market. I would love to get more money at any given point in time. The question is how much do you need? I am of the opinion that over a 12-15 month timeframe, Pepperfry will break even. I am seeing a path to break-even that’s not five years years away. If that is the case then I basically need money just to get till there. Therefore, we didn’t want to raise too much or too little. I think there may be one more round (of fundraising) out there but that, my guess is, would be the final round.
Startup Central: How soon into the launch did you decide to focus only on home?
Murthy: About three months into the launch, when we realized that 80 per cent of our business was coming in from home, we started thinking whether fashion was a distraction for us. There are three things you need to evaluate when you decide which business you want to be in. The first is where are your strengths. Our obvious answer was home. The second question was whether the category in which you had your strength was a large consumer category. For context, the shoes and clothes segment is about $21 billion and all of home is about $24 billion. So it is a larger category. The only thing is that in ecommerce terms, or online shopping terms, it is not as large as shoes and clothing. The third factor to consider is how the consumer demographic shapes up. Pepperfry has always been about the ‘millennials’, folks born after the 1980s. What’s happening to them now? Most of them are between 25 years and 35 years old and that is prime home maker life stage. We got resounding ‘yes’ answers to all three questions and decided to make the shift.
Startup Central: You operate with less than 200 people. Isn’t that odd for an ecommerce company in India?
Murthy: Sometimes we think we’ve figured out a magic formula on the the people front but obviously there’s more to it. It goes back to the model and the investments that we’ve made in processes. The 152 people we have now includes everything. The way it breaks up is about 10 people in marketing and creative, 30-35 people in logictics, about 40 people in customer support, a few in administration and finance, and then everybody else is in what we call category management. Also, people work longer hours at Pepperfry. If you have a happening personal life, Pepperfry is not the place for you (chuckles). On a more serious note, we go with the philosophy that everybody can do more. People are encouraged to move across functions. There are people who have moved in batches from customer support to category management, for example. Also, when positions open up or are created, we first look inside. When we look outside, we first go through friends and family, not headhunters. This year, going forward, we will probably hire another 20-30 people. We pretty much have more or less what we need in terms of people.
Startup Central: Share some examples of these processes you’ve built into the company to manage efficiencies.
Murthy: Well for example, we don’t have inventory and so orders may get cancelled. This means that the merchant at the back end may not have the item either. That’s bad because we incur a cost in acquiring the customer. Earlier we used to do a weekly reconciliation of stock with our merchants. Items that are live for sale from a specific merchant would be checked on a weekly basis for availability. We changed that to a daily reconciliation cycle for the top selling items. What that ensured is that our cancellations came down from five per cent to two per cent. Then, we’ve built out our entire supply chain process on Salesforce. This allows us to know almost daily how much we are spending on shipment costs, how much on receiving goods and so on. And, it’s an open source platform which involves only a licensing fee.
We also use technology very well in other ways. Our technology approach is very nice. I believe it is called the SCRUM approach. We conceive an idea, test and implement and keep testing. So we will not first develop a business requirements document, then a products requirement document and then having a long engineering phase and then launch the product. This means that you will see us experimenting a lot. Take for instance, the user interface. We are an ecommerce company. At the end of the day, the site is my business. We have external analytics agencies who monitor the site and rip it apart regularly. As a result, what you are seeing now is version 3 of the site. We also use a lot of this analytics to aid us on the pricing front. On April 1 we launched a feature called ‘goes well with’. This is essentially a recommendation feature based on items that have previously been bought in that category by other users. That’s fairly significant analytics happening on the back end.
Read the rest of the interview here.
(c) StartupCentral 2013. StartupCentral is India’s leading independent source for insight and analysis on the startup economy.