Batting It Out Of The Park: Zomato Founder And CEO Deepinder Goyal How India's now-global startup struck out, hit home runs, and stays in the game.
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Let's start with a disclaimer: I'm a regular user of Zomato, the global restaurant discovery and food ordering platform that was founded by Deepinder Goyal and Pankaj Chaddah in India in 2008. As someone who finds cooking to be an arduous and time-consuming task, the ability to order food online on the Zomato app has been a godsend for me, especially on nights when I get home hungry (and tired) after work. As a result, there were a few moments in my Skype conversation with Goyal where I heard myself transform into an unabashed Zomato fanboy: I gushed over how useful I found the app to be, and how I go about professing its features to the people around me. Goyal, to his credit, didn't seem to mind my zeal, and he accepted all my compliments with a gracious smile; in those instances, he looked like every other entrepreneur out there who chances upon a user who loves the product he/she built.
But let's be clear here: Goyal is not just another entrepreneur- he is the founder of a unicorn startup that has become one of India's most prolific brands, with a presence in 24 countries around the world. Goyal and his team have built a company that today has over 2,000 employees, received about US$225 million in funding, and with an operating revenue of more than $50 million, recently became a profitable enterprise as well. That's right: Zomato is now making more money than it is spending, and for a company that started out as an online platform featuring scanned restaurant menu cards (more on that later), its profitability is an indication of how far the business has come since its founding in 2008.
Zomato's growth has truly been outstanding, and while it has had plenty of hurdles along the way, the company has managed to come out of it all looking stronger, and well, better. But did Goyal ever foresee such a good fortune for Zomato when it started out? "Not really," he replies, quite candidly. "I think, as you grow bigger, I would say that the goal post also keeps on shifting. So, when we started off, we would have happily taken even an outcome one-twentieth of this size. And as you grow, you get to know more, you get to learn more, and then you want to do more as well. Your organization grows; you get more people, the team grows, and collectively, you want to do many more things to grow bigger. So, I think, it's a journey; it's not about the destination as such."
Zomato's journey has been an exhilarating one to watch. The startup's origin story is almost legendary now- Goyal and Chaddah were working at Bain & Company's Delhi offices at the time, when they noted how they and their colleagues had to queue up to look at a stack of menu cards at the company's cafeteria, just so that they could decide what food to order. "The rule was that you cannot take these menu cards to your desks, because if you would actually lose them, then nobody would be able to order," Goyal remembers. "So, we just solved a very simple problem of people ordering food- we just scanned those menu cards, and put them up on the Bain intranet portal."
It was a simple premise, yes, but the concept was a hit- Goyal and Chaddah saw their colleagues at Bain react very positively to their little online outing; the frequency of visits was particularly noteworthy. And that's when the duo decided to scale up their offering- there was a world outside of the Bain cafeteria, after all. "I think we'd spent a week of traveling around Delhi, and we picked up pretty much all the menu cards that we could find from different restaurants," Goyal recalls. "And we just scanned these menu cards and put them online on a website, which you would hate to see the first version of. It had blue HTML links; there was no search, but you could use a browser search bar to look for a restaurant. And as soon as you clicked on one, you used to get its phone number on top, and a bunch of JPEG files [the scanned menu cards]. So that was the first version of what we were called back then, which was Foodiebay, and that was the first version- people used to love it!"
Goyal laughs at this point, and it's easy to see why, when you look at the sleek, and, quite simply, beautiful interface that Zomato has today. But back then, Foodiebay's look didn't really matter: it may have not been easy on the eyes, but the online enterprise was solving a genuine problem in India then, and people flocked to use it. Restaurants began to sit up and take notice as well- they began contacting the Foodiebay team to advertise on the site, and that's how the revenue stream began. Goyal and his team bootstrapped for the first two years, and after seeing how their offering was received in Delhi, they began to include other cities in Foodiebay as well.
At this point, Goyal was still working at Bain, and Foodiebay was something he worked on over the weekends. But given how the latter was turning into a large operation, Goyal made the decision to quit Bain and become a full-time entrepreneur. "We were making enough cash to pay our rentals, and put food on the table- that's all you need at the end of the day, anyway, right," Goyal tells me. "So, we had enough cash for that, and [for] six months, we did that." And then, a major development: in 2010, Foodiebay got its first round of funding from Info Edge, which is today a publicly listed holding company with a portfolio of several noteworthy Indian internet companies like Naukri.com, 99acres.com and others. "We launched in a couple more cities, and then Info Edge gave us the seed round of $1 million," Goyal remembers. "That was almost a tad more than seven years ago. And yeah, life changed since then."
Changes were aplenty after that Info Edge investment- and perhaps the most impactful one that consumer saw was with the renaming of the Foodiebay enterprise. The CFO of Info Edge then, Ambarish Raghuvanshi, told Goyal and his team how the last four letters of Foodiebay alluded to another prominent internet company, and so, changing its name now would get rid of any potential trademark issues down the line. Goyal and his team agreed with this notion, and they eventually zeroed in on two options for the company's new name: one was Zomato, and the other was… Forkwise. (Yes, dear reader, I raised my eyebrows at Forkwise as well.)
Personally, I couldn't see why one would choose the staid Forkwise over the livelier Zomato- but Goyal has a sheepish smile as he explains the economics of the situation then, which was just after their seed round. "Zomato.com, the domain name was $10,000. And Forkwise.com was $10… So, I mean, that was a big deal for uslike, how do we spend $10,000 out of the million dollars that we just raised!" As a result, Goyal and his team were leaning toward choosing Forkwise- but that's when Raghuvanshi intervened and made his voice heard. "He was quite pissed at us for dropping Zomato.com, which is such a cool domain name, and wanting to buy Forkwise.com," Goyal remembers. "He actually offered to buy it for us personally! And then, I was like, if you have that much confidence on this to buy it personally, we will buy it ourselves, so, don't worry about it. And that's how we bought Zomato.com."
And thus began Zomato's growth story. The startup decided to focus on India as a market, and as more and more people visited the Zomato website, they also added new cities in the country to their platform, which was now becoming more than just a listing of restaurants- users were reviewing these outlets as well. The company also launched an app; Zomato was one of the first in India to do this, and Goyal says that this enabled them to onboard a lot of users back then. The startup had more rounds of funding as well: $3 million in 2011, and $2.3 million the next year, both of which was led by Info Edge.
By 2012, Zomato had come into its own as a restaurant discovery platform in India, and it was making good revenue as well- but now, Goyal and his team were thinking about how to further grow the enterprise. Zomato had made a name for itself in the business of food in India, and now it had to decide what to do next. "There were two choices in front of us: one was that we could get into other verticals within the country- so, for example, we could start doing spas, salons, plumbers, all of those things, become a horizontal classifieds business," Goyal explains. "Or we would have taken the food business to other countries outside of India, i.e. the restaurant listing business. We thought that learning new geographies is going to be easier than learning new businesses. And therefore, we took a call that, okay, we'll stay focused."
The UAE was the first country they chose to take Zomato to (Goyal recalls one of the factors influencing this decision being the cheap flight tickets from India to there), and started getting the business off the ground in this new locale. This move into new markets outside of India was a massive step for Zomato, and it was one that worked out extremely well for the business in the long run. While the UAE may seem like a smaller market when compared to India, Goyal points out another factor that makes the former a very attractive market for a company like Zomato.
"The ticket sizes in the UAE for your meal are almost 3-4x the size of ticket sizes in India," he explains. "So that makes the UAE alone a market which is almost the same size as India for us. So, people don't see that, because all you see is a billion and a half people in India, and you think the size of the country is big. But when it comes to our sector, I mean, like, the UAE is almost the same size of India." And Goyal points toward Zomato's UAE business to prove his point: four months after it was launched, its operations here broke even, and it also became the market leader by traffic. "That was very, very fast," Goyal says. "That gave us the confidence that we have a good product on our hands, and we should probably take it to more countries."
Soon enough, Zomato was making inroads into countries all around the world (these include the UK, Turkey, Brazil, New Zealand, Portugal, and many more), which was buoyed by new funding- a $10 million round from Info Edge, followed by a $37 million round by Info Edge and Sequoia Capital. Goyal proudly declares that users always loved the product, regardless of where they were- of course, there were some markets where Zomato didn't work, because the local competition was already strong there. And that's how the company began on its acquisition strategy: it simply bought out its competitors.
In July 2014, Zomato made its first acquisition by buying Menu Mania in New Zealand, which was followed by the buying out of Lunchtime in Czech Republic, Obedovat (Slovakia), Gastronauci (Poland) and Cibando (Italy). Following a sixth round of funding of $60 million by Vy Capital alongside Info Edge and Sequoia Capital again in late 2014, Zomato made headlines in 2015 when it acquired Urbanspoon, the leading player in the restaurant discovery platform space after Yelp in the United States. But Goyal tells me now that it wasn't the US market that was the key target for them in this acquisition- Urbanspoon's presence in Australia, where it was the lone player, made it a very attractive investment for Zomato.
As all of this was happening for Zomato, the online food delivery space was garnering a lot of steam back at home in India, and around the world as well- Goyal says the first quarter of 2015 saw a crazy number of investments being made into the food tech space in India. The market was hot, so to speak, and Goyal and his team decided that they had to get into this sector as well, and they launched online food delivery in India in June 2015, the same month Urbanspoon got switched to Zomato. As you can see, it was a period that was filled with a number of changes at Zomato, and given the multiple priorities requiring the team's attention at the time, Goyal admits that they weren't really focused on revenue then. They had scaled massively, but they were also being spread thin- and they were, as Goyal later put in a blog, "losing focus on what matters and what works."
But then something happened that caused them to reevaluate- the market suddenly turned. "It was almost overnight, and fundraising suddenly became 100x harder," Goyal remembers. "And then, we were like okay, we are not going to be able to raise money in this kind of an environment, so [let's] start cutting down losses. We pulled our teams out of a few countries where we had just started, because, I mean, there was no meaningful traffic back then, and we had just startedit was pure cost. So, we shut down some of those countries, and we started focusing on revenue."
Layoffs also happened, and Goyal still grimaces as he talks about it. "When we look back at that [period], I think doing all of those things was necessary to save the rest of the organization," he says. "We're not particularly proud of what we had to do. We had to let go of a lot of people who we had hired ourselves, and they are actually still good friends. So, I mean, that was never an easy thing. And I think going through that, I mean… There's a thing, they say that "great companies only get built once they have seen the value of death.' So, if you don't know that, you don't really appreciate what it feels like being there. So, I think that phase made us learn a lot, and we hope we never repeat those mistakes again."
According to Goyal, the strategy that Zomato took then –which was to focus on their core advertising business, as well as their new but rapidly growing online delivery arm, and bring them together- saved the company. Investors continued to back the company- April 2015 saw Info Edge lead a seventh round of $50 million, and later in September the same year, Temasek led a $60 million round alongside existing investor Vy Capital. The company got working on reducing its burn rate, and at the same time, it focused on raising its revenue numbers in all of the markets it is in. Zomato's international expansion efforts paid off as well- today, it is the market leader in 22 of the 24 countries it is in, with 82% of its total traffic and about 60% of its revenue coming outside of India.
This is not to say that Zomato didn't have hurdles post the 2015 downturn- in May 2016, HSBC came out with a report that slashed the unicorn startup's $1 billion valuation down to $50 million. This led to a slew of bad press (one noteworthy but undoubtedly painful headline said: "From Unicorn to Unicorpse: Zomato Flounders"), and Zomato found itself once again under scrutiny from everyone around it. For his part, Goyal defended his company, and called into question the veracity of the HSBC report- a point that is now bolstered by the fact that a new report released by Japanese financial services company Nomura pegged Zomato's valuation at $1.4 billion.
"Valuations, I don't care about them much, because it doesn't really affect anyone, right?" Goyal says. "None of these things are real, except for a percentage up or down in the gap table, and it doesn't really matter in the long-term. What the HSBC thing did to us- HSBC did not know the business, right. It wasn't even an investor in Zomato. It's like my Uber driver telling me that Zomato is half the value I mean, come on… You don't even know what we are doing. You don't even know the strengths of the business, and you'll go around telling people whatever you want to. So, I think it hurt us quite a lot, in terms of investor sentiment, employees' own morale. And I think it made the value of death even harder to get out, because, suddenly, hiring good people became harder. So, that was hard. But I think, even that [experience] was a lot of character building for a bunch of us. And that helped us. That has definitely helped me become who I am right now. I'm very calm and patient; none of these things affect me… Like, stay on course, and everything shall pass. And, I mean, even Nomura- while the Nomura report is really well researched, and they spoke to us, they actually took the time to understand our business, it doesn't change real life, except for the fact that now people want to join us, and want to invest in us."
There are rumors aplenty now that Zomato is in talks with the Chinese company Ant Financial –the payments business arm of e-commerce giant Alibaba- to raise a new funding round of $100-$200 million. Goyal doesn't directly address these reports, but tells me that raising new funds isn't out of the picture for Zomato. "So, we don't need the money," Goyal says. "But, we would like to build a war chest of sorts, for a rainy day, although we hope it never comes… There are a bunch of new initiatives that we want to fund, but I think that our revenue will be able to fund all of them going forward. So, I mean, yeah, raising money will not be bad for the company, in the short-term or the long-term."
The company is also continuing with its acquisitions- in 2015, Mekanist, NexTable and Maple POS became a part of Zomato, which was followed by Sparse Labs and Runnr in 2016 and 2017 respectively. In the meantime, with his company becoming profitable, Goyal and his team are now concentrating on making investments in Zomato's future. "Almost 20% of our cost is actually being spent on new things," Goyal says. "So, you can really say that 20% of our revenue is actually on research and development, to put it in conventional terms. And that gives us the comfort that we're on our way to building something good and great." Proof of this is already showing: Zomato Gold and Zomato Treats are new subscription-based offerings that the company is offering its user base today. "There are a couple more things that are coming up," Goyal says. "We are actually piloting it in a couple of neighborhoods here; let's see if they shape up into something worthwhile."
At the same time, Goyal and his team are eager to make sure Zomato benefits from the lessons they have learnt over the company's tough phases. "I think the team has really matured a lot, and any problem that we try to solve, money is actually not even a part of the solution set," he reveals. "We just keep money out of the whiteboard, and ask people to solve problems without them. And that's when people come up with the most creative, sustainable answers to building and growing the business. If you have money, it can actually spoil you. So that's my biggest learning over the last few months, that, I mean, good work can easily replace capital- I mean, not always, or maybe always, but yeah, it can definitely do wonders."
As for Goyal himself, the entrepreneurial journey he has been on over the last nine years has transformed him as a person- but the essential principles that tie him to Zomato remain the same. "I think I used to love working on the product; I still love working on the product. So, I think, the biggest part of me that has changed is that I am more thoughtful about stuff. And thoughtful is not just that you end up taking the right calls- like, it's not about making less number of mistakes, but doing things in a better way… And I think I used to lose my temper a lot, and now, you are going to have to try really hard to make me lose my temper. And, it's not like that I try to do that; I've just actually become that person."
Of course, this doesn't mean that Goyal's passion for Zomato has diminished- on the contrary, he remains extremely committed to the enterprise and seeing it move ahead. "I think what's driving me, and a lot of other people at Zomato, at least in the senior management, forward is that it's not about the size of what you build- it's about how much meaningful impact you can create in other people's lives. And we're in that space which is so close to people's hearts: food. And there is so much to be done here. And, I mean, we genuinely think, and I'm not saying it in, like, any clichéd manner, but I genuinely think we're just getting started. There is so much more to do, and I don't want to spoil your fun for the next few years looking at us- but there's so much more coming."
Goyal is excited about Zomato's future, I can tell- and for the record, so am I.