Marketplace models are always chicken and egg stories

Foundermates,

Marketplace

We have been seeing the rise in e-commerce and marketplace business models globally, especially in India. With Internet adoption on the rise, and cost of starting a business getting lesser, entrepreneurs are resorting to e-commerce and marketplace models to startup. But are they as easy as they seem on paper. What are the challenges in an internet business? Or is Internet only a medium, the fundamentals of doing the business are still the same. We had covered on e-commerce businesses earlier here.

Today, in the Advisor Knowledge section, we have with us, Madhup Agrawal, an Intrapreneur, who has incubated several online businesses, both major successful ones and few which have failed. Someone who can truly be called a “Serial Intrapreneur”. He is the head of new initiatives at IndiaMART. He is the CEO of hellotravel.com and has also set up 3 online successful businesses. You can check his profile here.

1. You have seen the dotcom boom and bust and have been part of startup journey all throughout. How has it been like?

I am a Computer Engineer by profession. I started my career in 1990 as a programmer. I had the opportunity to work together with great entrepreneurs, Arun Jain, Vishnu Dusad and Yogesh Andley. It was a wonderful learning experience for me.

I got my first opportunity to work for a Start-up in 1995. Compunnel Software Inc, a US based company, wanted to setup an offshore software development center in Delhi. I took the challenge and joined them. We started working on three ambitious products, a resume tracking and management system, a skill rating system and an ERP application for garment manufacturers and exporters.

This was the time when I learnt a lot about how to setup, manage and scale a technology based business. Here I tasted my first success followed by the first big failure. I learnt what happens when you run out of money in a business. We tried to raise capital, partly succeeded but was not enough for us to wade through the capital squeeze.

That’s when I decided to move on, and in 2000, I started my own software development company. I did not have any capital to deploy, nor had I any projects in hand. Fortunately, I met people who were willing to finance the venture and I was able to quickly setup a small team and started working on few out-sourced web-based applications. Access Info Solutions India Pvt Ltd., my company focused primarily on developing web-based applications for Insurance, Shipping and Education domain.

The first couple of years were great, we had good business coming from US, using cutting edge technology, we developed and delivered some solutions that are still being used by companies who acquired them back in 2000-2004 timeframe.

Then came Sep-11, 2001, one of the most unfortunate events of modern history. Post this event, many small software companies found it very difficult to get any business from USA, and my company was no exception. The going got tough, and I had to pivot my business model and start looking for business within India.

In Sep-2004, I decided to close my business. I had choices, to cross over and become part of a large corporate but entrepreneur within me held me back and I decided to join http://www.indiamart.com , which was owned by my college friend Dinesh Agarwal. IndiaMART then was still a small company with about 250 employees

2. You have been involved in several successful businesses as well as businesses that have failed. What do you think went right for successful businesses and what went wrong for failed businesses?

Within IndiaMART, I managed multiple portfolios. I am primarily a Technology person, so the entire IndiaMART Technology spectrum rolled up to me – the Online marketplace http://www.indiamart.com at one end and our internal ERP application at the other end.

Since I had an entrepreneurial bent of mind, I discussed with Dinesh and we agreed that I will look at developing new businesses for IndiaMART. I started the journey with http://www.biztradeshows.com , a portal for marketing trade events. It is one of the successful portals and is arguably one of the largest portal in the world in its domain.

We kept our focus on the core business, did not deviate and continued to work to make the portal as one of the largest infomediary services in space of Trade Fair Marketing.

I started another interesting business, http://www.hellotravel.com, a first of its kind in the world, and pioneered the concept of Pay-per-seen-Lead, here travel agents were actually able to see a traveller’s requirement, before they spent a single penny on contacting the traveler. This business is now 4 years old and has rapidly gain popularity. This is another successful business that we have high hopes from. Again, we thwarted several temptations of diluting the core of the business model by mixing booking/transactions, and so far it has helped us and we have been able to maintain the leadership position in this model.

Another business that I built from scratch was http://www.clickindia.com, a classified portal. We were able to scale this portal rapidly and it found a place within top 100 sites in India. However, we made some tactical mistakes and before we realized, we were losing ground to our competitors. Though, http://www.clickindia.com, is not in top portals currently, it is still going strong, hopefully we will be able to come out with something nice soon on this front.

Talking about failures, we have quite a few, as already shared above, in my career prior to joining IndiaMART, I had witnessed two major failures. Within IndiaMART also, we had some bitter experiences where things did not go the way we planned them. Top of the mind recall is for a new channel that we had created for facilitating people to directly place import orders on Suppliers based in China. buynow.indiamart.com, was launched with great expectations, we had more than 2 million product and had bundled a very powerful Escrow mechanism to protect Buyer’s interest as well. However, we underestimated the complexity related to cross border payments and logistics issued involving Customs and shipping. We had to close the channel after running it for 9 months as it was not scaling the way we had anticipated.

In my opinion, the businesses fail because they fail to identify rapidly changing macro environment around the business. If a business has scaled a height, from there the only reason for it to fail is its inability to change its course and adapt to the changing needs of its customers. Marketing and PR plays an equally important role.

3. The most common dilemma aspiring entrepreneurs face is picking an idea. What’s your mantra of picking an idea to start a business? What are the key parameters of your decision making?

In my opinion, here are some of the key parameters for picking up ideas:

– Are there people around who will pay for this solution?

– How many such people are around?

– How complicated is the product?

– How fast it can be developed and taken to the market?

Having said this, there is no formula for picking up the idea. In the end it boils down to the entrepreneur’s passion and belief.

4. You have been working with marketplace models for quite some time. What is your take on marketplace models? What are the challenges and opportunities for online marketplace based startups?

There are several characteristics of a successful marketplace that make it a very exciting model to look up to, some of the most important ones are:

– Once it reaches a critical mass – it starts growing by itself

• More suppliers in a marketplace attract more Buyers
• More Buyers attract more suppliers
• More Buyers and More Suppliers lead to More Business

– It is a model that has the strength to survive any kind of downturn, slowdown or economic recession.

However, the challenge is that you never know what that tipping point is. It is always a chicken and egg story

– Why will Buyers come to marketplace if there are no suppliers around?

– Why will Suppliers come to marketplace if there are no buyers around?

Couple of other major challenge for the marketplace model are:

– Keeping the updated and correct data

– Keeping out the fraudulent entities and ensure Buyers and Sellers can transact without any fear