Don't Convince the Investor, Convince The Consumer First If your company is really good it will eventually attract good investors.
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It has been an exciting week for fashion ecommerce startup StalkBuyLove's team. It raised a 7-figure dollar amount from a set of seasoned investors including 500 Startups, LittleRock, and Singularity Ventures. Co-founder and CEO co-founder and CEO Tushar Ahluwalia spoke to Entrepreneur India a day before the funding announcement about the getting the right investor and what has been his learning from Spanish retailer Zara.
Convincing the consumer is the first priority
Tushar said that an entrepreneur must first convince the consumer and then convince investors. People these days think raising funds is a success but the actual work starts after you raise money. If your company is really good, investors will notice you because they have a mandate to get the right returns. If a company has good number of customers, then good investors will automatically reach out to them.
A majority of StalkBuyLove's investor base constitutes of foreign investors.
Business model at StalkBuyLove
Foreign investors firstly need to understand the background and development of Indian e-commerce sector – different phases like multi-brand, private-label brands and market place model. The differentiating factor for our company is that we not only build a brand. StalkBuyLove is just the go to market strategy for us, the entire structure of what we are building is much bigger.
I would describe it as three pillars; the most fundamental layer is our supply change, followed by the proprietary technology that enables us to execute something like just-in-time deliveries and the third layer is the brand. With the set-up that we have and are in the process of building, we will be able to launch multiple brands.
At StalkBuyLove, we have the fabric and we make 100 prototypes on the website every week. Then people click on it, which we call the customer approval process. Thereby we involve the customer in a self-selection process because once he clicks and selects something on the website we understand what the customer likes and we then do the inventory decision. Zara is inventory-decision sales whereas StalkBuyLove is sales-inventory decision model.
Notes from Lagerfeld and Zara
The two main problems in Indian ecommerce are life-time value plan and inventory. In an attempt to solve these two problems, we saw the way Zara emerged. In the end of 90's and early 2000 it was not the biggest brand.
Over the last 15 years it has emerged as the biggest company ever and the critical factor for their success is the "supply chain" model. We are not Karl Lagerfeld, we cannot predict the trends. Lagerfeld can predict what's going to be the trend in one year, which essentially means lesser inventory risk.
Zara plans two months ahead, they work really fast and work during the season. They omit trend risks. Zara is not a trend creator, they are trend followers and follows the trends really fast. At StalkBuyLove , we have a time-to -market of eight days.
Learning from Zara's evolution
The first learning has to be that if you get the trend right then you can charge a higher price for your product. Secondly, building a large fashion retailer is really more science than art. Get some assumptions of your business right and constantly work at it like Zara did and this will help one build a big company. I learnt from Zara's that if you get your basics right namely, low acquisition costs, high margins, right inventory with a good line-up of products, then over time you can build a big company.
The two main factors in the retail space are margins and inventory risk. In online it's the marketing ratio as the third factor and offline is the rent-to-revenue ratio. These are the three important factors in a retail business model.
Retailing on other platforms
We don't retail on other platforms – which is a typical short-term and long-term question that the company faces. In doing this, for the short-term it increases my revenue. But the long-term problem would be that a platform like Amazon will eventually make a higher share of revenue versus my own portal because they have more customers.
They will have more power over my brand because eventually they will dictate 80 percent of my sales. They will start discounting whether they you like it or not and eventually people will stop coming to StalkBuyLove's portal and prefer buying it at a cheaper rate on Amazon.
All your high-value customers will buy your discounted products on the other website and your high-margin potential erodes. You cannot build a brand on Amazon. It eventually comes down to good revenue and bad revenue. Strong entrepreneurs should not earn bad revenue just to inflate the size of their company.
StalkBuyLove is currently growing at 8 percent month-on-month with a current gross-revenue run rate of $5 million and the company plans to use the recent round of funds to further invest into its talent base and strengthen its supply and fulfil structures among other things.