Ananth Narayanan's Billion-Dollar Baby

Mensa, the Indian company to reach unicorn status fastest

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Two years into Covid and the rise in consumers shopping online and founders coming with newer direct-to consumer brands has seen a new era emerging. While consumers were excited about the new segments of brands on the platter, brand creators were serving them a new set of products. Amid the two, a business mechanism emerged which realized the gaps that existed between reaching a bigger audience and scaling a brand to make it a household name. The new concept of a house of brands ensured that execution with a well-laid-out growth plan wins the market. Ananth Narayanan ex-Myntra CEO and Co-founder of Medlife, which was sold to Pharmeasy knew where his strengths lay at the peak of the D2C boom. Instead of starting something from scratch or helping a bigger brand go further bigger, Ananth thought of using the best of his capabilities: bringing scale and growth to existing brands and making them a household name. This essentially led to the start of Mensa Brands, a thirteen month-old startup that has reached the valuation of a unicorn, scaled to INR1500 crore revenue run rate, and is a profitable business. With all the boxes ticked in terms of making the business a success, I reached out to Ananth and went to meet him in Bangalore to understand how he does what he does. The ex-McKinsey Director who has traveled the world and has worked with founders from his Myntra to Medlife days and has run bigger operations knows what gives the required push to a brand. In his words, anyone can start a brand but not everyone can scale it. He means what he says as he has got 21 brands across fashion, personal care, and home under the Mensa Brands portfolio. The aggregator model has plenty of competitors in India too including Goat, Global Bees, 10Club, and Upscalio fast acquiring brands in this emerging space. Ananth's focus remains clear on growth. His ultimate aim is to take Mensa Brands public. In D2C you either build a strong brand and scale the same or aggregate small brands and scale them together with combined strengths, Narayanan chose the latter. Ananth likes to call it the digital version of Unilever. The fast-paced acquisition process and tech-led growth playbook has helped Mensa Brands reach the unicorn status in the shortest period of time: a mere six months.

Entrepreneur India
Ananth Narayanan, founder, Mensa Brands

The Growth Hacker on Building a Profitable Unicorn

How did the idea of Mensa Brands come?
I think after Medlife I had a bunch of conversations with some of my mentors on what to do next. I could have gone and become an investor with a successful exit. Or I could have gone back to being a CEO, or I could have started something. The question was, should I start something that requires a lot of energy and I'd never done zero to one. I'd done scale up, but never zero to one. And I think a bunch of mentors advised me saying, no, there's no right time to start. You're passionate about an idea or a problem you want to solve. You can start at any point in time.

On one side you have investors in Mensa Brands and you are an investor in all the brands. How does the role differ?
Venture capital investors are very different. We do the majority. So we have control. It's a partnership with the founder, but we own the brand and we run the brand alongside the founders. An investment fund doesn't do that. Venture capital investors in particular want an exit in some period of time. We want to own these businesses forever. Mensa Brands may list at some point in time but the brands we own currently, we will own forever. So we'll be a house of brands. We are not in the business of buying and selling. We really are sort of partnering up to operate the brand and grow and scale the brand. You can think of us as operators who are bringing expertise, technology, and capital as just one of the pillars.

How do you select the brands to partner with?
It's a very tech-led process. So we look for three things. When we look for brands, the first is customer love, which can be measured quantitatively with reviews, ratings, and repeat ratio. Second, we look for founders with similar values and aspirations as us. And third is we look for complementary elements: what do the founders bring to the table? What do we bring to the table? So if they are sourcing and designing, we bring branding, marketing, and technology, and therefore we can build something special. How we do these three things is we actually have a custom scraper. So we look at all the brands between 10-20 crores in revenue. There are 4,000 plus brands in India, which fall under this. And we look at the reviews and rating momentum, how has it changed week on week? And we generate lists of brands that we can talk to. Our usual conversion rate is 2 per cent. So every hundred founders we speak to, we end up doing a partnership with two of them. So we go through quite a systematic process. In the early days, there were a lot of times when we would do calls. Now that Mensa Brands is more known we have a lot of people inbound reach out to us saying why don't we figure out something together. In the last year, I must have spoken to 750 founders, which I think is wonderful. In India, you see a lot of people actually creating real entrepreneurship across every small town. We have founders from Indore, Pune, Calcutta, etc.

Do you make a complete acquisition or own a majority of the brands?
We always get the majority with a path to ownership over a certain period of time. So in many cases, it may be a full buyout. In other cases, we buy a majority say 75 per cent, and the remaining 25 per cent get bought in over three to five years. Later on, it would be a 100 per cent acquisition by Mensa Brands.

In how many categories are you present right now?
Fashion, beauty, and home are the three areas where we have about 21 brands. Our growth rate is north of 60 per cent year on year and continuing to grow very fast. All these are digital-first brands but not digital-only. I think offline is a good thing as you build brands and grow and scale them. You can actually build offline into a very interesting channel today. Offline maybe 15, 17, 18 per cent of our business but it's okay for it to be 20 per cent of the business.

Some insights you could share in terms of how the brands are selling on marketplaces?
One interesting thing is India is a very distributed market, so there's no one dominant platform. Amazon, Flipkart, Nykaa, Ajio, Meesho, we sell through all of them. And therefore there's no one dominant channel because at some level you're not depending too much on one channel so you are channel-agnostic. In general, I think we do a lot of fashion across Myntra, Ajio, and Amazon. We do a lot of home across Amazon and Flipkart. We do a lot of beauty across Myntra and Nykaa. So it varies by category. One interesting thing is we also export several of our brands. So we sell in the UAE, the US, and Europe.

Once the brand becomes a part of your portfolio, how do you bring in scale?
Usually, most of these brands are good in one marketplace, not equally good in all. So somebody's very good on Amazon. Somebody's very good on Flipkart, but not everybody's good on every channel so the first thing you do is to make them good on every channel. Second, we introduce new products and new categories, and new SKUs that drive growth. The third thing that we do is also open up new geographies. So if you're selling only in India, now you can sell across the world. That's the third unlock of growth. And then the final unlocks of growth is we do a lot of what we call growth hacking, which is how do you go up the Amazon algorithm. So the results start showing in three to six months, which is very technology-led. So our ability to sort of immediately integrate into a channel is very high. We centralize many things. So we centralize operations. If you have 21 brands, you don't need 21 warehouses, you need only four. So we've created central warehouses in Delhi, Bombay, Bangalore, and Calcutta. So all of it gets centralized and then the operations become more effective and efficient. The cost comes down, and the delivery and time go down. Another thing we centralize is financial
accounting and working capital.

What level of brands comes under the Mensa Brands portfolio?
We were buying smaller brands earlier but as we get bigger, we want to buy bigger brands. So now the number is probably closer to INR30-40 crore but we will take it to a hundred crore. I think each of these brands can be a thousand-crore brand. So we could be an INR21,000 crore company over time. Currently, it's already doing a revenue run rate of INR1500 crore. And in five years we want to be at a 3 billion run rate.

And how do you plan to achieve that?

We'll do it in two ways. One is whatever brands we have bought. You continue to grow and scale them. If you continue to grow them at 50, 60, or 70 per cent year on year compounding really helps. And the second is we'll continue to buy new brands. So in a four-year timeframe, I think we can try and get to maybe 100 brands, out of which about 10 brands are likely to become very large. 10 brands worth 100 million each and the others may be 30, 40, or 50 million. That's why I think we can get to a 3 billion type business.

So what is the secret sauce for figuring it all out?
If we had picked a different set of categories, we might not be making money. We are doing so because we picked high-margin categories like fashion, beauty and home. And the second is we are growing at 60 per cent. We could grow at 300 per cent and lose money, getting the balance between growth and profitability is a choice that you, as a founder, have to make. So I would say, surround yourself with great people, choose your investors wisely and have reasons beyond money. And third is building a sustainable business model. So you're not very dependent on external capital at all points of time.

But so far, in the last year, the company has grown through external capital.
So if you look at the INR1500 crore, not all of it has been bought. A lot of it has grown. So we bought much smaller companies and grew them to be much larger companies. If we had just bought the companies and not grown them, there would be no value. The reason Mensa Brands is quite a valuable company is that we have a system for being able to grow the brands better than what the brands would've grown on their own.