If you’re a startup enthusiasts, its highly likely that you would have read or atleast heard about the book – Saying No to Jugaad: The Making of Bigbasket by by T. N. Hari & M. S. Subramanian.

In today’s episode we have Hari Menon, BigBasket’s founder sharing the his experience in the Indian Ecommerce Ecosystem over the last two decades.

In May 2021, Tata Digital invested $375 Mn in BigBasket. They have also recently launched their quick commerce vertical called BBNow and will now compete alongside the existing players such as Swiggy, Blinkit, Zepto and Dunzo.

During the episode, catch Hari talking about his learning from his first venture, his thoughts on the current market and the investment slowdown, and much more.

 

Notes –

02:20 – Building India’s online grocery market in the last two decades

14:37 – Starting BigBasket at the age of 50

21:16 – Dividing equity between the founders

21:42 – Mistakes & Biases which got carried from his first venture

24:15 – Becoming a part of Tata Group and growing bigger

27:16 – Top learnings and observations from Tata Group

29:30 – His thoughts on “10-minute delivery”

33:14 – Any similar patterns between June 2022 and 1999 boom and bust?

35:14 – Business which are not building a profitable model will suffer the most

38:22 – Indian Startup Ecosystem in the next 5-10 years

40:20 – Framework to identify large opportunities: Scale & Profitability

42:36 – Culture at BigBasket which keeps people from moving out

46:45 – Growing with the business as CEO

 

Read the full transcript here:

 

Hari 0:03

We are equal from a founder perspective, it’s not about somebody getting more or less. The critical thing for us was that you want to make sure that employees have enough stake in the system. Once they have a stake first based on culture values what they see here, they love the work and so they have stake, second stake is your stake right, so they have enough available at and so whenever there is a exit opportunity, we will get it. So a lot at every round of fundraise to make sure that some mode of ESOPS are created. Our investors have been very cooperative on this, they’ve been very supportive. They believed in the same ethos that we had in terms of making sure employees are happy.Richard Branson says employees are more important than customers.

 

Siddhartha 0:51

Dear listeners, this is your host Siddhartha Ahluwalia, founder of 100x Entrepreneur podcast along with my wife, Nansi. Before we begin, I would like to thank our sponsors Prime Venture Partners. Prime is the first institutional investor in category creating tech startups like Mygate, Niyo, Dozee, Planet Spark, Prime is now investing out of its fourth Fund, which is more than 100 million dollars. Today, I have with me Amit Somani, managing partner Prime ventures. Amit, I would like to know, how do you evaluate founders? And what are the different evaluation criteria like?

 

Amit 1:26

Siddhartha, so at prime we look for what we call category creating or category defining startups, we’re really looking for, in what way is a startup 10x Better or 1,000% Better than the current state of the art, it could be product, it could be technology, it could be go to market, it could be a business model, whatever. So that is one of four criteria. As to the founders themselves, we’re really looking for founders that have very high learning agility, or a very high learning quotient. You know why that is important is, as you’re going through your seed to pre series A to series A and sort of journey to build your company to get product market fit to accelerate it, you have to make a lot of trade offs and a lot of decisions. So we’re really looking for founders that have very high learning agility.

 

Siddhartha 2:10

Thank you Amit. So listeners, let’s dive straight into this week’s podcast. Today I have today somebody on the podcast, who built the online grocery market in India for the last 20 years. Welcome Hari Menon, founder and CEO of bigbasket, Hari, your journey started in 1999, with Fabmart, and you were the very first early entrants into the E-commerce market, I would say. Getting groceries, getting even the electronics on the internet, and 2006, you exited the business profitably? What made you come back into the business again in 2010?

 

Hari 2:52

So the reason we came back is, I need to go back to 1999 and tell you what happened there. Interesting story, we started our business in 1999. We were actually working in another company called Planetasia.com. And there’s a long story as to how we started accidentally, to some extent, and I’ll tell you that, so we used to work in an internet services company that was the first internet services company that existed in India at that point in time, called Planet asia.com. And what happened at that time was Citibank was planning to build a payment gateway. And we had approached them to actually help them and bid for that payment gateway. And in the course of the discussion, it also happened that to build a payment gateway they will need an E-commerce site, otherwise why would they need a payment gateway, there is nothing available to use it. At that point in time they were looking for people who could actually build an ecommerce site. And then we were sitting there and we looked at each other. And it was a moment of truth at that point in time. And we chose to actually pick that offer, and then move on and build that e-commerce site as we used to call it at the time, so that the payment gateway could be in a sense used.

 

And that payment gateway was the first payment gateway using a debit card. And I don’t know whether you’re aware that the first debit card in India was called Suvidha, Citibank had launched it so it was a payment gateway built around that. And that is how we got started. And that Venture was then called Fabmart.com. And was exactly what today Flipkart is, what Amazon is, it is horizontal at everything. We started with music. And those days, there was nothing like online music and there was no music to be downloaded. People used to buy cassettes. And if they are doing well, they will buy a CD. So if you have a car which plays a CD, you’re doing well. So That’s the way the whole business was at that point in time.

 

So basically, things were so high that there wasn’t absolutely any ecosystem that was available for an E-commerce company to run. And there were hundreds and hundreds of E-commerce companies coming up every day. There used to be I think 5-10 companies coming up all you needed was a .com attached to your name and you’ll get funded, that was it. That was the situation in 1999 and 2000 in India, a lot of them in Bangalore. So actually remember once when we were traveling from Santa Cruz airport to Nariman Point, there were 89 .com Hoardings we counted at. And that was the stuff happening at that point in time. And as you all know, this bubble burst in 2000, it was just so overhyped.

 

Frankly, there was no business at all, even FabMart when he started. We were well funded, we had a good product, we were selling music, then we got in books, then we got in jewelry, then we got in Toys, there were hardly any transactions. The reason being that one, there was no ecosystem available, everything was on basically dial up lines, there was no broadband. And when you dial up the Lines button and the page loads, you can actually have a cup of tea and come back. That was the way the internet was working at that point. And people are building businesses around the internet, there was no payment gateway, what we used to do and what the other E-commerce companies were doing other kinds of commerce is to ask the customer to give you the card number, then you will ask them to give you the CVV number. And then you authorize that back end. So everyone got so scared that finally the news was that if you buy on an E-commerce site, you lose all your money in your bank, because you’re giving away everything, you’re giving away a CVV number and it was really scary for people who had lost money and stuff.

 

So essentially, businesses just started collapsing because nobody would trust an E-commerce site. Because we didn’t have a secure way of paying. They weren’t enough logistics mechanisms which had come in that was being run on on dial up lines, there was no broadbands, things were on a slow, access was only through desktops and stuff like that you didn’t have smartphones, you didn’t have your iPads and all that stuff, nothing was available. The business just collapsed. 2000 is when there was an absolute bloodbath. Companies just started shutting left and center, funding had completely stopped. So anybody who wanted to do anything, one year of frenzy, and that’s it, and the whole economy collapsed.

 

And that is the single biggest thing that I tell people that what you need to look for when you start a business is first the ecosystem, you need an ecosystem, which actually helps you to set up your business. If there isn’t an ecosystem, there’s an example I used to give everybody as to how businesses were set up: millions and millions of dollars were invested and it just all got wiped off literally overnight.

 

2011, fast forward. So our business, the other business ran. And then what we did was since there was no online business coming in, we actually did a pivot. And we were brave enough at that point in time, we will do groceries and groceries are the most complex, difficult businesses. So we said let’s do grocery online, businesses shutting all over the place. So we set up the grocery and we knew how the grocery was to be done. You had to set up warehouses. Groceries you can’t do without owning inventory. That’s the model that people are trying different models. So we set up this infrastructure and that infrastructure available for us. So what we chose to do at that point in time, when businesses are all collapsing, and there wasn’t anything happening on the internet was to see how we can actually pivot and do something else and leverage what we built.

 

And the first thing that came to our mind was to build a physical grocery chain. And that looked like a very promising business to get into at that point in time because there was just one chain in south India, which was called food world, there was a little bit of legalese. And nowhere else was there a model trade, what we call today, which is a chain of physical grocery stores, and we got this great opportunity. That pivot was one of the best things we did in life. That’s another story as to how you’re traveling on the flight and the three of us founders. We decided to do this pivot and I was the guy who said we shouldn’t be doing it. These founders are very emotional. They’re very attached. So they just don’t let go. So I was that very attached human being. It said FabMart would run, the internet will get faster, payment gateway will come. We can’t let this business off.

 

Two years of hard work, really hard work, and no customers, very new business. And my other two partners and founders kept saying, Listen, this is our opportunity to do something, otherwise, this won’t go anywhere. So democratic country, two versus one, I lost that battle. And today, I thank myself for losing that battle. Because I lost that battle. We went to the physical business and then there was no looking back. We really scaled that business and merged into a company in Hyderabad, called Trinethra. Eventually, in 2006, we had built close to about 210 stores in South India. We covered Bangalore, Chennai, Kerala, and there were two brands and we were running Trinethra and the other one was FabMart. That was a set of stores that we had built actually with these grocery stores.

 

And in 2006, the other group wanted to get into the grocery business because corporates it started setting up physical grocery chains. Reliance had started, future had started, they also wanted to get into that space and they came and made an offer and acquired us. So there was light at the end of the tunnel, the pivot, the flight was on our board for my head. And if it didn’t do it, you would be where we are even today with Big basket, because you will have gone through the experience of closing how we run a grocery chain. And which we did eventually for starting that view. And also online for about four years, setting up a physical, using technology using a lot of new things that we did, actually, at that point in time and became a very good chair. And those are the stores that you are now seeing, which are called More which developers renamed FabMart.

 

So that’s the story. And the reason we started. So then after that, at least I went home and my wife looked at me and said, another startup and I knew what you mean. So it was a terrible, six years roller coaster completely. Most times it’s not taking money home, just married young. So a lot of all these issues here are still the last two years, three years, but business really started looking at. And the physical change was really profitable and did very well. It’s a very profitable exit, as you rightly put it. So we took a break, I took a break first partners didn’t take a break, they started investing into young startups and stuff like that. I did a little bit of work in vocational education and set up something for the Manipal group and stuff like that.

 

And then we came back in 2011. When I heard of Ganesh and Meena, they are serial entrepreneurs, they run portea Ganesh is known to us for many years. So is Meena,who came up to us and said things are back and what the meant by things are back, the ecosystem is ready. And that is the key that was most important to us. Broadband was to get smartphones, we had iPads, we had everything available for the internet economy to actually work. And Flipkart has shown the way to anybody who wants to get into the E0commerce space. They set up in 2007. I think they were slow. By the time 2010, 2011 There was a serious transaction happening on the internet. Payment gateways available to banks, all banks had set up their own gateways. So payment mechanisms were damned. The internet was broadband. Access was easy through smartphones, iPads, etc.

 

And so the ecosystem, the first big box was done. And so he said, great. So we used to keep meeting while we’re doing different things. Let’s start something, but we couldn’t find anything, for which I was ready. Going back home and telling them, let me start something, was also taking time. Finally 2011 happened. So the three of us took about less than five minutes to say yes. And took us another five minutes to get out of what we were doing, actually two very quick. So I got out of what I was doing. They were anyway not doing much. But they had their commitments to some of those people. But that went on. So that’s how Big Basket started in 2000. Long story.

 

Siddhartha 12:54

No, no, all the dots connect now. And it was initially the idea of Ganesh and Meena that now it’s ready?

 

Hari 13:01

It was initially Ganesh and Meena’s idea to say Grocery. They came up and said they can space. Nobody better than I can think that three of you did dabble in online when online wasn’t working, then set up the physical change to understand the whole supply chain supply chain is very complex and can be a very difficult category. So if somebody understands that supply chain, then they’re good. And they’ve also dabbled in online even better. So the only space that was missing that time was grocery, because Flipkart was pretty much doing most of the categories and a couple of other verticals were also missing but mostly one thing. So we said it was great. It’s right up our alley. We understand these things so we got to do it.

 

Siddhartha 13:40

And Ganesh and Meena Cut a $1 million check from GrowthStory.

 

Hari 13:44

Yeah, so there was no GrowthStory there. So there was just an individual at that point in time, GrowthStory came a little later. But Yes, we put in a little bit of money including Ganesh, all of us could contribute a small amount of money because I think we raised our, it was the largest Series A at that point in time because we didn’t do angel funding, it was whatever we put, a few of us. We moved straight to series A. I remember Ascent capital was the first investor who came in with a serious 10 million check. That time 10 million was a serious check.

 

Siddhartha 14:16

It would be like a $50 million series A capital today.

 

Hari 14:18

So we were the largest series A at that point in time.

 

Siddhartha 14:24

I think the salaries were 10x cheaper than today.

 

Hari 14:26

I think so, yeah. Big Basket continues to be 10x cheaper actually. People who join here love what they’re doing. But also love running actually.

 

Siddhartha 14:37

This was your second venture, or would you call it your third venture?

 

Hari 14:41

FabMart is one because Fab Mart became India plaza.

 

Siddhartha 14:48

And you had almost financially retired from your first exit. Why was this desire to start again? You could have led a retired kind of a life.

 

Hari 14:58

Oh, you’re too young with that.

 

Siddhartha 15:02

What was the age when you started?

 

Hari 15:03

37. And I’m 60 now. So now what you’re saying makes more sense than at 37. So we were just pretty young. We were one of the oldest entrepreneurs, because we started late, but then everybody else is 25, 26 even now it’s like this. It’s like we are in the 60s. Our investors come and say we’re investing in old people. Should we or shouldn’t we?

People who didn’t, Bad luck.

 

Siddhartha 15:27

Going back 10 years, you were 50 when you started Big Basket6?

 

Hari 15:30

Yes. So 50 is young. At 50 you don’t necessarily retire. So there was no question. And the exits those days were reasonably good but I don’t think you would be comfortable saying that is all I need for the rest of my life.

 

Siddhartha 15:45

And what advantages did you have as a second time entrepreneur?

 

Hari 15:50

Big advantages. So what we’ve gone through over six, seven years, I think very few entrepreneurs had the opportunity because they all shut within six months of opening. Because there was no funding. So there are very few people who went through that whole entrepreneurial journey at that point in time. And so we were lucky and we had the benefit. I’m telling you that flight that pivots No, I will never forget it. Because if you didn’t do it, then all this experience, all this stuff would have not happened. I don’t know what we’ll be doing. Sitting in some IT company somewhere painfully part of some 100,000 people, etc. Embark on that one tag walking, dog leash, I call it.

 

Anyway, so we’ll probably be doing something else. But I think the experience of one grocery itself, I think the whole benefits, we got a supply chain, because we really innovated a lot in our model. We brought a lot of new things, different technology, which no grocer was actually using at that point in time. And all that was really helpful to us once we got up and ran very fast, one. Secondly, when you’re on a rollercoaster know that all the learnings are within you. So there are a few things that it told us. One, the ecosystem has to be ready. I told you, we tick that box first because everything was ready. That was a very important thing if you asked me what is required. But people when they start these simple things, and we wonder what is so crazy about it.

 

Second is capital, of course you need capital. A mistake people make is that they don’t raise enough capital for a longer runway, because they want to optimize for stakeholding and not for growth. And not for getting that thing off your head. Raising money is the most difficult, painful process for any entrepreneur. Everybody behaves nicely, eventually, you’re going to ask them for money. And they will tell you five reasons why they don’t want to invest in you. And six months of your time goes into fundraising, three to six months, okay, if you’re lucky, it’s three months, otherwise, it takes six months, including diligence and training, the whole process is a very painful process. And the lesser you do of it, the more you will focus on the business. And so one of the big mistakes most people make is optimizing for stake and shareholding and hence valuation, rather than the quantum of money you’re able to raise, because if you raise it for a longer term, and it’s not easy, I’m giving you I’m telling you stuff, which today most people do.

 

But it took two people so much more time to realize that I will raise money for eight months because I want to hold 60-70% of the company. 7,8 months in a startup just flies like that. And then your business goes up and down. You can never predict what’s going to happen. Some competitors will come, they will disrupt your business. So things will happen, then two months are over and then you’re nervous again for the next round of money. Raising money is not easy unless you have a tap at home, which you open and money flows. Most people don’t. They’re all entrepreneurs who come out of not necessarily business backgrounds. And hence there is a need to raise money.

 

So raising capital for the long run and not optimizing on equity holdings. I’m saying don’t give up, negotiate hard. And you’ll fight hard. But at some point, you will tell yourself that if this is the valuation, that’s going to help me get more money, I would choose more money for a lower valuation, but of course, there will be a baseline somewhere. And most people get this wrong. And because of me just spending more time raising money, rather than calling their business. And third is of course, the team. And I believe in one thing that must have a founding team which is minimum two or three, not more. But it can’t be one because you go crazy just trying to build a business center with nobody else to bounce ideas with.

 

And the single thing that binds your founders is not skill, not knowledge, not any of those. It’s only trust. And if you believe that you can trust each other, you will be longer. We’re probably the only founders who have stayed together for 20 plus years. And there’s a reason behind it. We just simply trust each other. There is never a day when you think somebody else is going to turn it back, my founders I’m saying. So never a day. So that is just a tip to do. We meet when we have to meet, we don’t meet when we don’t have to meet. And that’s the biggest thing. So to me, this is this Mantra of three things. One is the ecosystem. Second is to raise enough capital, which is not optimized for those things that I told you. And third is the team which is built around trust, the founding team. So when these things were ticked, we said we are on.

 

Siddhartha 20:30

And you have five co-founders?

 

Hari 20:34

Yeah, so that’s because we acquired a company in the very early stages, because that is one of the companies that Vipul and Sudhakar were consulting with, in my earlier avtar, when I was in Manipal, and trying to help build a case, and that company was building exactly what Big Basket was building, or was to build. Exactly the same. So there was a conflict. So we went and spoke to the founder and said, there are two options. One is that we won’t be able to continue because we’re doing something which is competing. Second is you can just join us. He also took less than five minutes. And he became part of it, he was Abhinay. And Ramesh has always been part of our old founding team, actually, we were four. So we just continued like that.

 

Siddhartha 21:16

And how do you divide equity between the founders?

 

Hari 21:20

Equally.

 

Siddhartha 21:21

All the five people equally?

 

Hari 21:23

It’s what we have. That’s what I mean by truste actually, the whole thing works around. That is you don’t have any egos on that front.

 

Siddhartha 21:31

That I’m the CEO, I’m contributing more, nothing like that.

 

Hari 21:37

I wish it was like that, but we never did that. We will never do it.

 

Siddhartha 21:42

And what are the mistakes that you made? Are there some biases that you carried forward from your first venture to the second?

 

Hari 21:50

See, we made lots of mistakes. In the first Venture, I’m being very upfront, people ask me this, what are your learnings? And what are your mistakes and very standard questions that I’m not saying that you’re asking a standard one. Well, this journey actually has been a journey that I really can’t think of or pinpoint a mistake that I made, which I’ve learned from and it has beaten us so badly, that we’ve got this. This journey has been touch wood, great. And I think because a lot of those learnings came, and I was talking to you about capital. So we only care about one thing, if we don’t raise money. And that’s why we had the largest series A, because we went after the quantity of money, rather than valuation, we got good valuation. If you’re good, you will get all of it. But I’m saying you don’t optimize too much around it. And that’s the reason. You know why we actually started at that point in time, and we told ourselves, if we don’t get that money, we will not start.

 

In fact, there were about five, six of us at that time. They told us very clearly that this money doesn’t come, you’re not doing a garage startup, you’re not doing that anymore. It doesn’t work for us. It’s too stressful, it’s too painful. So you will raise that quantum if you don’t do it. And that’s the reason I was giving you that. So frankly, in this journey, there hasn’t been anything that I can do today, look back and say I made this gross mistake, and I came out of it. But we made some in the earlier journey. Any online business starting itself was, if you ask me, a big mistake, because just the fact we knew the option to build an online site because somebody is building a payment gateway was not good enough to start.

 

You need to make sure that you research the ecosystem well enough. Today, VCs do it for you, they will not invest. So they do all the work for you. But those days, there was no such thing that people would do, you need to do it themselves. And understand that was the first biggest mistake we made. Second is capital didn’t raise enough money, nine months, 10 months, we were out in the market having to raise money. So it wasn’t a great thing to do. It drains you out completely.

 

So there are a lot of such things that get learned, relationships that we were trying to build, the model that we were trying to build, a lot of learnings from there, we made mistakes, caught up and started building back. Fortunately for us, our business lasted long. In the physical space, it was fresh new for us. Everything was learning. So there were many mistakes we made. Fortunately, we didn’t have to repeat any of those. And this journey has been fairly clean that way.

 

Siddhartha 24:13

And you exited 60% plus of your company for $1 billion from Tata. Do you think that you could have built a $10 billion company given a few more years?

 

Hari 24:27

Of course, we will still build a $10 billion company. So there is nothing different in Big Basket. So it’s an investment not an acquisition, because they even call it whatever you had some majority stake holding and we are of course now part of the Tata Group. You’ll see all our logos saying Tata enterprise. We really like it. We really think we’ve done absolutely the right thing. Lots of matching values, we just feel so much at home, because there’s so much of similarities between the group and us, because we are much smaller and that’s the reason we did it. The other, more important reason that we did it is that it reached a stage in our company, at a billion dollars of sales, you need to now get strategies. Or you need to get peace, because you will at one point go out of this whole VC, whatever the quantum of money that the company made, the amount of stake they will get. So their whole model has very different types, they start gearing up to early stage series A Series B Series D. At that point, you either need to get a P, or you need to get a strategy.

 

So, we had the first strategy that came in two years before in the form of Alibaba. Unfortunately, because of all the issues that were there with China and stuff like that they couldn’t make further investments, otherwise Alibaba was there. Then came COVID, and our business just boomed, we were a highly profitable business, business scaled no end. And that’s the reason why we are now heading towards a $2 billion business, we got a big thrust during COVID. And that’s when Tata approached. So we were very clear that a strategy coming at this point in time is very important for us. The thing is for us to evaluate what will the strategy add value to? So what are you doing? There is something that we can add value from a business perspective, or we derive value out from the strategy, it makes a lot of sense.

 

And there was a lot of things that we now derive value from the Tata its not just the trust and value systems, but so the business that’s available to us now, within the group, in our b2b business, institutional business, we do a lot of stuff in there, even now going forward. If you think of an IPO and stuff like that, Tata will really help us do that. But Bigbasket runs like an independent company, there is no change, people in the company feel better, because they feel like being part of the Tata Group, and they all feel good about it. But Bigbasket will still build a $10 billion, $20 billion business.

 

Siddhartha 26:50

And you still own a good percentage share.

 

Hari 26:53

Yes of course, and we’re still invested in, still committed to it. But of course, I do a lot of work also, with a lot of my team people who are for Tata neu, building that ecosystem, supporting that ecosystem a lot. I also sit on the board of an NG, so there’s a lot of stuff that we do now, but Bigbasket runs like Bigbasket, there’s no change. So, we will continue to do it.

 

Siddhartha 27:16

What are the key learnings like the top three that you observed from Tata and bought into Bigbasket?

 

Hari 27:21

See one is simple respect for human beings is something we always had this within Bigbasket, but I actually see it happening there. And there is a lot of respect for people, they are just built like that. So that is one, second is, I think the respect that a brand like that has outside is built out of a lot of stuff, which is there internally. And this is one thing that we are learning as to even recently in this brand financing, they were rated as the best brand in India, all the brands actually have been rated very well. It’s a very known brand. So that’s the second learning we have. Bigbasket is very similar, it’s a very trusted brand. Because if you don’t deliver groceries, you will never be trusted. We are trusted because we thankfully managed to deliver groceries, it’s not as much as delivering a mobile phone or a pair of shoes well. But if you deliver bad food, then you’re not trusted.

 

So it’s a very similar feeling. So for us the learning is to see how we can really enhance that brand value. One is people and second is brand. And the third is the learning of how you can manage companies that you invest into, in a manner in which you don’t interfere much. And eventually going forward and looking at us, maybe acquiring brands, acquiring companies, we’ve not done that we build everything ourselves. But we will do that going forward. It’s a model to really, really learn. And that’s what Tata Sons is all about. Because the number of companies that they’ve got under their fold, and each of them operate like an absolutely independent entity, CEO driven, board driven.

 

When Tata Sons, there is a pretty company, there is tremendous learning in the way they manage it. And that’s the learning that you will have when you start looking at companies, we already have companies we’ve got Daily Ninja, we’ve got service, we’ve got that instant machine that we’ve got some three, four entities only issue is managing those entities without really interfering at the same time making sure that you have enough control is an art. And I think I manage that extremely well. So to me right now, in the first one year these are the three things that I look at. I’m sure going forward, there’ll be multiple other things.

 

Siddhartha 29:30

And there’s a 10 minute grocery delivery space. Do you think that’s the way to deliver groceries?

 

Hari 29:37

I’m answering this question for maybe the 100th time, 50th time in the last one month. That’s a very interesting topic for me because we came in last, BB Now. And now BB Now will scale the fastest. We’ve scaled it quickly. So I think it’s definitely a need. There is a need. It’s not 10 minutes. Nobody can profitably deliver every order in 10 minutes, it’s not possible. The network of dark stores will have to be set up to do that is not profitable. So you will never be able to build a good model based on only 10 minutes, which means all orders in 10 minutes. So you will build a model, which is within 30 minutes, less than 30 minutes, there’ll be some which will go upto 90 minutes. So 30 to 90 is a range you’ll find, that is less than 30, less than 90. For example, today, meat is delivered in less than 90 minutes. Everybody’s very comfortable. I don’t need meat, fresh meat because I’m planning to cook in the evening. So I have enough time available.

 

But it is still an impulse. Your decision to buy meat is not necessarily planned. Okay, Let’s cook something today which is using some meat product, so 90 minutes, sometimes it’s below 30. Unit economics profitability all works in that kind of model. It has got basically two strong use cases, very strong use cases, the right one is top ups, emergency items. So people who buy on BB when these 10 minute 20 minute things came a lot of our customers went there to buy stuff, which they used to go to a grocery store and buy. So none of the Big basket business went there. So we’re tracking because we came one year later, we were in no hurry, our business is a very different business and that business, we still believe we will continue to grow and run which is our full stack planned business as I call it. People who plan their grocery, then there are youngsters like y’all who come in at seven o’clock at home and want to cook dinner at night. Now that Big basket never serves. So that’s the second use case.

 

So the first use case is a top up emergency for what I need, which is the typical planned customer would also call your store and say, Listen, just deliver that bread to me or that toothpaste to meet whatever it is. So it’s a lot of that Kirana neighborhood business that will now move here. Second is unplanned youngsters, who come home at seven in the evening or eight in the evening and decide to cook for them, they will move their grocery purchases now to this model entirely. Earlier, this thought of cooking food. So Swiggy and Zomato were there. When you come home and you order food because there’s nothing available to cook unless you go down to the kirana and pick up some flour and some stuff and start cooking.

 

So these are the two strong use cases. And in my view, this will contribute to about 20 -25% of the grocery purchase. Rest of it will continue to be planned and continue to be the way it’s working. This behavior is about 20- 25%. Except for that new set of new customers, for them it’s 100%. But even they will decide at seven o’clock whether to buy masala dosa or to buy flour. So it’s not that 100% Grocery goes up there. So this is a very strong use case. It was bound to carpeting, got it going fast, and the VC community chases all this very quickly. And then everybody starts in India.

 

Siddhartha 33:14

Hari, in 2020 June did you find some similar patterns as of 1999, boom and bust?

 

Hari 33:21

No, I think businesses are here to stay. I told you this. I wish you well, you bought them. I was bought. Yeah. But I wouldn’t have you would have seen that system that it was just think back and wonder why would somebody start that’s very different. So right now it’s very mature.

 

Siddhartha 33:37

But the talk of recession, downturn?

 

Hari 33:44

Funding downturn has nothing to do with business. The business keeps growing, downturn funding has to do with what happens in some parts of the country and that’s how the investment community works actually. So they’ll be down, there will be cycles, there will be some depression somewhere, there will be some issue somewhere there’s war going on somewhere people have pulled back on funding hold funding 10 minute to look at it right now. Right now people are holding back on funding because people want to see profitable models which are going and the only one that’s going to build a profitable model today is us, because for us, it’s an extension of our business. I’ve got the same DC, the same supplier, same everything. My supply chain is just getting more and more loaded, which helps you get more efficient. And my front end has no new set of stores, it becomes easier for us.

 

So they’re waiting for models to become profitable. So they’ll step back and step up. So these cycles will continue. But that is not the worry. The worry is that if there is no business itself and there isn’t an ecosystem for the business to run, that won’t happen. I think the businesses are just going to stay, grow. You will find more and more people moving online. Today online groceries are 1% of the grocery in India, this will move 3% eventually will go to 8-9% And then they will become very large businesses. Groceries are very large tanks, 700 billion 800 billion. So that’s the size of the business. So you have enough space, enough opportunity and businesses. So the problem of 1999 won’t happen. Cycles of investment will continue.

 

Siddhartha 35:14

And which are the businesses that are going to suffer most, I’m not just talking about online groceries, I’m talking about the entire startup ecosystem.

 

Hari 35:21

I think your businesses, which will suffer the most right now, are businesses that are not building a profitable model. People who are building on just for growth, and hence, the model burns a lot of money, or the business then struggles, because I think that wave has turned, people are now wanting, you don’t have to be profitable overnight, all you’re wanting to demonstrate or you’re requiring to demonstrate is a profitable model, you must explain to me that the model is profitable, that’s happening. And if you don’t do that, then it becomes difficult. And then if after getting the money, don’t demonstrate it as you keep going forward, raising money will become more and more difficult. So I think unit economics and profitability are going to be the next, and logically also, why would you build a business that doesn’t make money, doesn’t make sense.

 

Siddhartha 36:09

But Some people are just building that profit.

 

Hari 36:13

It won’t work anymore. You’ve seen in this instant grocery itself, it’s literally people are just, those who started it, they are also going through so much difficulty. Now they’re sending people home, there is so much pain, because their model is built on stuff, which will become profitable at some point in time, which is just too far away for anybody to really fathom.

 

Siddhartha 36:33

And Hari when you were backing founders, you have been backing for some time as an angel, you’re putting your own money, what are the things that you look for?

 

Hari 36:41

Actually I’m not backing founders.

 

Siddhartha 36:42

But you backed Afsal.

 

Hari 36:42

Afsal was a close friend, I came under emotional pressure. So I did that. I’ve invested in a chain of pubs aperture, because they’re old Fabmart Colleagues. So it’s got some connection like that, Afsal is a very close friend. And I like what he’s doing also. But I actually invest in funds. So I’m likely on three or four funds, because it’s like, in mutual fund, you have the money someday and somebody that you’re going to trust with. I’m telling you, I just look at how good is the business from an ecosystem perspective? How much capital is that business going to raise capital? Is the founder in the same wavelength? As I am saying listen, I don’t want to, I’m repeating now, I don’t want to. Because this is the only thing that I understand. Because if you don’t raise enough money, then no, I don’t think you should start the business.

 

The founders are very critical. I just try and figure out whether these founders live on trust, or they just live on skill. skill you can hire. And if you don’t get a sense of the fact that these people trust each other, you just really want to know how long back do they go? Do they really know each other? And that’s something that I really want to look at, and gauge. Afsal was easy because he was the only guy at that time, and I knew that what he would do is what he’s seen happening and they were friends from IIM-L, who got together, they understand each other extremely well. So that’s really the three things that are really important for me. It’s important to know that the ecosystem is in the right space, it’s raising enough capital for it to last longer, and founders are not going to be spending time raising money. And third is the trust that people are building amongst the founding team. These are the ticks, what else can you look at here?

 

Siddhartha 38:21

And since 2011, to now 2022, a lot has changed in the startup ecosystem? What would be your sense of how this is going to shape the next five to seven years for India?

 

Hari 38:32

See, I think what will happen is you will see the ecosystem is getting a tremendous amount of focus, tremendous amount of push from the government and from regulatory bodies, from every perspective you want to see this ecosystem, because this is standing out to the rest of the world. What India has built in this ecosystem. In fact, people say you’re number three in the ecosystem. But to me, I think we are better than a lot of these other countries, but they have a lot of regulatory stuff that’s going on in the US. And the US is only tech. We’ve built businesses across domains, which actually you haven’t seen even in the US and to me, I think this ecosystem is really going to build now. All you will see now is that people are starting to focus more on profitability. That’s the point we’re trying to make: build businesses, which makes sense. From a perspective of scale.

 

And when I say profitability, I must tell you what I like doing and what I want people to do is scale profitably. There’s no point in getting a tiny business that’s profitable, so you need scale, and you need to be profitable. You’ll see these businesses coming up now and getting a tremendous amount of boost and push from all sectors from all businesses. Traditional business houses are now starting to look at using E-commerce. See one is E-commerce or startups. Second is I think this whole wave of digital data moving into organizations will be the next big thing. Now, most organizations don’t survive without data, now they’ve realized that it’s such an important thing and they’re trying to build data that makes sense. So what if the digital wave across organizations is the next big thing, that’s not E-commerce, that’s not startups. But I think these are the two things you will see big time happening going forward.

 

Siddhartha 40:20

And hurry if you have a framework that shows how to spot large opportunities, what would that be in your own sense?

 

Hari 40:26

To me, the framework is basically built around scale, and built around profitability. So if you see businesses that are large, that tells you that you can scale, and then you have to also check as to how many players are already there, it’s very crowded, then you don’t have to. So scale and profitability are the two things that make up the lens . If you don’t have one of the two, then the business just doesn’t make sense.

 

Siddhartha 40:59

But even for Bigbasket, to become profitable, you took 10 years to reach.

 

Hari 41:02

So that’s what I said. See, from year one or year two, or year three, we knew exactly that this model is profitable. And the first thing we demonstrated five years back or six years back is to become CM positive. So we are not yet profitable. At CM three CM four level, which is basically everything you sell, you’re making money, you’re not selling it at a loss. That’s the first thing you have to achieve. If you’re selling it itself at a loss, then there is no point. So contribution margin was our first focus, we brought in all and then we added our contribution on the way we look at it, post discount, post warehouse post logistics, on top of it, it is only corporate and above the line marketing, and that I will continue to invest for the next 10 years, because that’s what helped me grow. And that tap, I can shut anytime, growth will come down, but it’d be much higher than what it was earlier.

 

So you are very comfortable shutting that or reducing that. Corporate anyway, is all salaries, that doesn’t scale with the business. So we brought in everything into the CM about four or five years ago, including discounts. And at that level, we were safe, when you look at that business profitable, then what are you investing in marketing, you’re investing in technology. And that’s all for scale. You’re 1% of the business of all E-commerce, grocery is 1% of it.

 

Siddhartha 42:36

Hari, can you describe what the cult is? You mentioned that to people in a Big basket, they are not going for 10X salaries outside. What is the culture that keeps them here?

 

Hari 42:44

We basically have four value systems and four elements of culture. And I’m not going to go through each one of them. And we are very focused on making sure that people internalize and imbibe this. And we don’t do this for basically putting it up in my reception, saying, so we don’t have mission, vision and all, we don’t have that, because there are certain goals that we set ourselves every year. And so we don’t make such glorious statements. There are good things to it. I’m not saying good or bad, but just for us, it’s all about somebody by me, my value systems and my culture that we are actually defined for an organization. For example, we have one one of these elements, which is called integrity. Now, everybody has integrity, which organization you tell me doesn’t have integrity as part of its value systems are part of its cutter culture. Everybody has integrity. The issue is that if you define integrity, the way you want your people to behave, and that we define.

 

So integrity for us is the power to say no. That’s integrity for us. Stealing gets your integrity, obviously, you want to say don’t steal. You don’t need to tell people not to steal. But most of the organizations the way where they say integrity means that. For us integrity means the power to say no. Which means that if I don’t know something, if I’m able to sit in a meeting and say sorry, I don’t know it in front of people, in front of his boss, I think we have achieved integrity, which means that I’m honest to myself that I say no, this is how we have defined all the elements as to what it means for us to focus on customers. Everybody says customer, which consumer organization doesn’t say the customer is key. So for us being on steps below to define what it means.

 

Yeah, so the CEO burning Midnight Oil solving customer issues is a known fact, in this company, and I’m not feeling proud about it. It’s just that I love doing it because it’s such a core value for us because we just live by customers. I will give you an example when we started, we have these rewards and recognition programmes. So I’ll just give you an example from 2011, we do this rewards and recognition programme. So I used to go there myself, nowadays. I am not able to because we have some 40 DCs. So there was this Banglore DC, so I went there on the Dice and somebody was getting an award, we finished out there and then asked this crowd of about maybe 50 People, today we are 30 thousand. Who pays your salary? So everybody said, Hari Menon, HR, standard answers.

 

There’s not a single person who said customer, today, when I went to a DC, 5000 people, 8000 people sitting there in chorus, people said customer. So that only tells me that my maniacal focus on customers has gone down, it’s if people are at least saying that. More importantly, if you go to any DC of mine, you’ll see my day’s customer metrics, that day’s metrics, everybody sees it visible there, if something goes wrong, you’re getting really excited, our mechanisms of managing that to multiple levels are at a very different level today. So we know exactly whether customers are happy on a day, or not. So that’s what maniacal focus on customers meant. So each of those eight elements, we say what it means to us, and drive that in. And I think that’s what makes people comfortable. Yeah. And they see everybody right from me downwards, following it, living it. And that helps. So I think we just do great work, selling pulse, rice and flour is what we do for a living. Somebody asked me about it at the BITS Pilani graduate ship, what do I do? So I sell pulse and rice.

 

Siddhartha 46:22

Pulse and rice at scale.

 

Hari 46:27

So they just love doing that. Because it’s complex, it’s working. We’ve got this end to end integration with farmers right now. It’s called Farm Connect, you know exactly which farm it’s come from, we’ve now started to show farmers pictures that this comes from this farmer. It’s very deep in the supply chain.

 

Siddhartha 46:44

And as a CEO, you set the culture for everything, not including what the deepest level just focuses on. How you have been able to grow with the business, because there’s a saying that as a CEO, if you don’t grow along with the business, you need to hand the raise.

 

Hari 46:57

Very good question. That is another thing I find a lot of young founders. I’m not saying this because I got gray hair, but it helps. Investors don’t like it better for some strange reason. But just kidding. What is necessary is that every founder, every senior person in the team has to start scaling with the business, mentally scaling, you need to be able to think scale, and you can’t start collapsing when scale happens. I’ve seen this, you would have seen too in many places and that’s because you’re not tuning yourself internally, there is no magic to that. It’s that all the time, you got to give yourself now in one city, in three months, I’ll be in three cities. In the next six months, I’ll be in 12 cities in the next eight months. So what happens is that you start thinking of building processes and systems for scale.

 

So today, it’s a cookie kind of system. So you just now be just one property, see, and it takes us a week, 10 days to get operational, what used to take us a month. That’s what scaled us, that’s what mentally you prepare yourself for. And if you don’t do that, you won’t scale first of all, you’re always scared and worried about scaling. And that’s what pulls companies down. So I think it’s a mental issue. It’s a preparedness issue that you will tell yourself. That’s why I keep talking about Capital. If you don’t raise the capital for scale, you’ll never think about scale. But then you’re always thinking, how am I gonna optimize the money I have and keep growing, it becomes very difficult.

 

Siddhartha 48:27

So even you’d like to go after ambitious founders who are really industry 50 to 100 million at the first round?

 

Hari 48:33

Yes, Absolutely.

 

Siddhartha 48:37

But how do you identify those core team members that you had initially. All of the five, every person is going to scale.

 

Hari 48:44

We knew each other before we knew our wives. And that’s the advantage we had.

 

Siddhartha 48:52

Even later two co-founders joined.

 

Hari 48:53

Yeah, I think we were just married and stuff. So we knew each other for a very long time and worked together from even the previous company, the Planetasia, going back along with that helps just knowing more of each other’s weaknesses.

 

Siddhartha 49:09

And what about the people that you hire? Were you able to do now that this person is good for now, but he or she will not scale.

 

Hari 49:15

Attitude is a very big criteria plus a very big critic, so if I can harass somebody. I’m trying to figure out whether this person has the right attitude. And I keep saying people will come with some skill, but I don’t have too much to understand the depth of that skill unless it is a very specialized job. But otherwise, to me, it’s all about attitude. And if you’re in a new business, you can never get people to know everything about your business. And so you have to take these chances. And the chance I will not take if somebody I read and see what is referred to me and gets a reference that this guy has a poor attitude. I will not touch him. But the first tickbox for me is absolutely his attitude. If you have that, to me, I think everything else falls in place. And it’s very difficult to measure.

 

Siddhartha 50:02

It’s very subjective right? attitude can be like, I’m very good at managing 10 people.

 

Hari 50:03

Sometimes thinks he’s got a good attitude or it turns out the other way around, but that’s okay. I can’t measure it otherwise, I do referencing. I asked people how he is, and that’s how I do it. you make mistakes. I’ve made mistakes.

 

Siddhartha 50:21

And I believe initially, you would have been a hustle person. In your early entrepreneurial days. Right now you talk about processes, how do you become a processor?

 

Hari 50:29

We would never hustle. That is one thing, please read this book from Big basket. It says, “ Saying no to Jugaad”, it’s written by T.N Hari and M.S Subramanian. It’s fantastic, Hari has really captured what is our essence. Our essence is process, from day one. And we’ve come like this. We don’t do Jugaad, the first day of the company. We build processes. We also expect people to just follow the process. We’d rather prefer people not asking questions than just follow a process, it doesn’t work like this. then you’re not promoting innovation. Process and innovation doesn’t necessarily go together. Because people who innovate, don’t necessarily follow a process because you have to break the old process.

so we balanced that very well. So we make sure that company is completely process driven Otherwise, mostly not possible. At the same time, we get innovation so much deep into us. And we balance the two, this requires a little bit of gray hair. But it helps us understand that well. So I think we just balanced innovation and process. But we don’t start anything without first laying down the process.

 

Siddhartha 51:54

And a personal question, with the exit or the partnership with Tata, did enough people become financially independent in the company?

 

Hari 52:03

See I can’t speak for what independence is. But I think yes, a lot of people handle ESOPs. And a lot of people managed to sell it and it was nice. That’s all I can say. And I can’t talk about how independent they got. Because there is somebody who also once mentioned to me that I don’t think there’s enough space in my bank account. This varies depending on where you are in your organization. But it was a very comfortable, happy moment. A lot of people sold ESOPs.

 

Siddhartha 52:31

It for me personally is the people that will work with me, can I make them financially independent or not.

 

Hari 52:36

So that’s the key thing for us here. So like I told you, we are equal from a founder perspective, it’s not about somebody getting more or less, the critical thing for us was that you want to make sure that employees have enough stake in the system. Once they have stake first based on culture values, what they see here, they love the work and so they have to stay. Second stake is the real stake. So you have enough available, so whenever there is an exit opportunity, we will get it.

 

So a lot at every round of fundraise to make sure that some mode of ESOPS are created. Our investors have been very cooperative on this, they’ve been very supportive. They believed in the same ethos that we had in terms of making sure employees are happy. Richard Branson says employees are more important than customers. And it made some sense to me also, if you don’t have good employees, your customers are going to suffer. So what do you focus on? You need to focus on the customer, you need to focus on the employee. There’s no question about it.

 

Siddhartha 53:35

Thank you so much for this wonderful conversation. I’ve learned a lot personally.

 

Hari 53:40

Pleasure.

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