Exclusive: When Sachin met Rahul | Business Insider India

Exclusive: When Sachin met Rahul

When one of India's most disruptive innovators sits down for a fireside chat with the biggest maverick the country's startup ecosystem ever produced, you know it's got to be cracking.

Business Insider sat through the Sachin Bansal-Rahul Yadav session at the IIT Bombay Entrepreneurship Summit 2016, and we liked it. We liked it bad!

Here are the best bits from the session that the heady combo churned out:

IIT Magic

Rahul: I was supposed to collect my degree on this stage. I didn't do that.

Sachin: IITs are definitely places where you learn the world is much bigger than you thought before you joined. That's the first thing that hit me.

At IIT you'll find people pushing themselves on what they're good at. You always find someone better than yourself. At the end, everybody who's in IIT comes in after a lot of hard work and perseverance. That helps when you start a company as well.

Rahul: For me it was meeting the best minds at one place. Bad infrastructure in hostels. Very small rooms, and you don't have place to study. Thirdly, free movies, courts, and lots of activities. That's IITs minus academics.

Change in Indian Entrepreneurship Ecosystem

Sachin: The biggest problem really is that it still takes 45 days to incorporate a company. Those challenges still exist. After quitting our jobs, we launched Flipkart in 10 weeks. That was practically impossible, given the infrastructure that was available and the time the government takes to react.

The other side has changed drastically. People are seriously considering starting up. These are good people from good colleges and good jobs.

The investor's side of things has improved a lot since 2007-08. Back then there were a very small number of investors chased by a very large number of entrepreneurs. Today, the equation has changed. High-quality entrepreneurs are getting multiple investors.

Hiring is a big challenge for startups. Many people are now willing to join startups because of the challenge, and because of the significant wealth creation opportunity they see.

Lot of change, really.

Rahul: If you're starting from college, team is not difficult. You need 5 people from 5 different streams.
Secondly, you need a base where you all can work. Now it's a mass story. Back then there were 2-3 startups. Capital is also not a problem. Seniors can put in money. Space can be a problem, that's all. It's very easy now.

Sachin the Investor

Sachin: India is at a stage where not a lot of technology transformation has happened in a lot of
areas, and it is going to happen. Technology is going to transform a lot of things.

Is the entrepreneur going for really big problems to the extent that it's almost scary when they talk about it? That's the level I want to look at. Often people go after small problems. That's also a sign that they're not confident.

You also need very high quality understanding of the space you're going to operate in. What I don't look at is what they're doing today. That really doesn't matter. That will undergo so much transformation as things progress further. If you have a great team, and have great understanding, that's good enough.

As time progresses, execution becomes important as a company, but in the beginning it's only the team and scaling.

Lessons On Scaling

Rahul: On day 1 we assigned our team. We were all out of college. Product, Tech and Design could scale easily. In areas like marketing, they never had much experienced. I didn't add HR, Finance or

Admin. I thought they were useless people, and you don't need them. You have a product, you just sell. That's not the way. You need these departments as you scale.

Sachin: Change is the only constant. That's the absolute reality of the situation. People who can change quickly, and are nimble get ahead.

Growth Vs. Profitability

Sachin: It depends on the space. If you're operating in a hyper-growth market where there's a lot of headroom to grow, growth has to take the priority.

Even after 8 years, e-commerce is still 1.5% of India's commerce. Still long way to go. It's still not a meaningful portion.

What's hidden from the world is the fact that investors don't just invest because you're growing fast. You've got to show them you're a high quality business, have great talent, are able to solve real consumer problems, and can be capital efficient. While you may be burning money in the short term, you need to show them how you'll become profitable at some point of time.

Housing's Scaling Fiasco

Rahul: Investors actually wanted to go a little slow. Sometimes it makes sense to grow and lock the market, but it some cases you really need to crack the template and then scale. The mistake we did
is that if we were making losses in a city, rather than investing on the unit model, we scaled to 10 cities, and started burning money.

On Investors

Rahul: There are individual investors, people who put their personal money, and become advisors. Then there are funds.

The individual investors are a support. They're always there. My preference has always been taking limited capital from limited people and building the venture.

Sometimes VCs are also confused. Sometimes they say they'll invest for 5-7 years, and crack the market. Sometimes they see something not working, and get jittery. They start saying, let's make it profitable. I don't have so much respect for the fund managers, seriously.

Investors in the US, they know the kind of products they fund. In India, most of the fund managers are not from the tech background. There's that gap.

Sachin: Not sure about that. There are some right investors. Rahul got all the wrong guys on the board, or something. However, if the investors are not aligned with what you're planning to do, you're going to have a very hard time. It's important to make sure that investors are shareholders.

You need to be very clear to them about your playbook, otherwise they can find somebody else, and you can find somebody else.

Rahul: ...but sometimes the power dynamics is not on your side. You need the funds, and you're in a bad position. So then you get any sort of investors. You have no real option there. You have the bad guys, or shut down the venture altogether.

Sachin: True. Sometimes companies get in positions where they have to get money from investors who don't really understand their business models. You're getting into that relationship hoping they'll get it. Those things generally don't work out. The founders need to be in-charge. If there are mistakes, it's got to be their mistakes. They have to own that, and learn from it.

Founder Shares

Rahul: The young generation, if you give them Rs. 1-2 Crores, they're ready to dilute 20-25% of their company. I see this interest in money. In India people dilute up to 90-95%, unlike the US where the entrepreneur hold 30-35%. Then you have a say. Here after 2-5 years you'll eventually lose.

Sachin: The primary interest has to be to take care of the business. Entrepreneur, employees and shareholders come later. If the business is successful, they're all successful. If it isn't, it doesn't matter how many shares each has. You have to ensure that the business is well capitalized.

On Competition

Sachin: Competition motivates us. The worst thing that can happen to any company is to not have any competition. Then you really don't move forward.
Before this competition we were growing at arounf 40% YoY, after that we were growing at 200% YoY!

On Managing Scrutiny and Speculation

Rahul: So...like....I really don't read articles about myself. The best thing is to really not care. That's the best you can do.

Sachin: I completely agree. You often see the media painting extreme pictures. Either super positive or super negative. It's absolutely important to keep your focus on the right things, and if that means you stop watching news, or reading newspapers that's completely fine.

Rahul's B-Plan

Sachin: As I said, I don't really look at the business plan. 90% of the business plan is going to change in the next 6 months. I met Rahul at one of the Flipkart conferences, and got to know his ideas.

Rahul: I never make any plans. In IIT there was a module where you need to give a presentation. I just dropped that course.

In my last startup also, there were 20 CEOs who wanted to support us. Some wanted the B-Plan. Jo nahi manga usko le liya, baki ko chod diya (I chose those who didn't want it, and left out the others!

Sachin: I talked to Rahul about the product he's designing. He's after a huge problem. At Flipkart, when I give something to the VP, that gets transferred multiple levels down, and by then it's changed quite a bit. A lot is lost in translation. This is one of the problems.

The least efficient organization in India, except a few pockets of excellence is the government.

On Rahul Yadav's Fantasy

Sachin: That's what he does, anyway *laughs*.

Rahul: I think going to the Himalayas. It's amazing really, the grandeur of Nature.

Will Sachin join Rahul if Flipkart wasn't there?

Sachin: *Silence* I don't know whether he'll hire me!

*Laughs and Hoots Galore*

Indian Startups in Global Turmoil

Sachin: The downward impact does percolate down to investments. In the short term we're going to face some challenges. From top to bottom, people will become conscious of their investments. In the next 6 months to a year, we can see a little bit of the investment going down. However, just like the good times never last, the bad times don't either.
Rahul: Global problems will impact large companies. Students don't need to worry about the global market.

Sachin: I agree...The smaller players don't need to worry. They have to create a meaningful product for the consumer, that's all. The good thing about a downturn is that assets become cheaper, good people are out of jobs, and you can get them onboard. You can capitalize on that.

(Image: Indiatimes)

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