Will E-commerce Industry in India Sustain? An Alternate Perspective

Off late, the Indian e-commerce industry has been one of the most trending topics of discussions. And it has all reasons to be! The nation has never before seen such levels of euphoria. Thousands of young, bold entrepreneurs are quitting their plush jobs or giving up their hard earned premier school seats to get on board the “e-commerce startup” bandwagon in pursuit of instant stardom or with a dream to change the world! High profile investors from around the world are placing their bets on theses 20’s youngsters. A bird’s eye view on Indian tech startup funding scenario today.

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While this picture looks really rosy on the face of it, is it really that hunky-dory out there?

  • Can these e-commerce firms really scale as per the projections?
  • Can they really turn profitable in the long run?
  • Can they really keep delivering exceptional services as they scale up?

Perhaps the million dollar question that we need to ask at this moment is – “Can these businesses sustain in the long run?”

If many analysts are to be believed, the answer is a shocking “No”. While most analysts cite reasons such as – unable to find investors at right time, cash on delivery rejections, inefficient delivery logistics as the prime reasons of the impending doom, there is yet another reason that is grossly overlooked. The big problem: In a hurry to ensure “Me First” in the rat race and hence to achieve an uber-quick Go-To-Market, these e-commerce startups tend to ignore the biggest beast of all – backend processes & systems. To Scale it is imperative to have strong, efficient and dynamic backend processes, systems and best practices.

I recently had an opportunity to interact with one of the first movers in the mainstream e-commerce space and amongst the best known brands in the country that is struggling today. What startled me was – such a brand is using a primitive system at the backend that gives no controls or visibility into its operations, forget best-in-breed processes; no wonder the business is facing an operational nightmare. Even worse – it’s now exceedingly difficult for the business to switch to a proper system that helps it convert the backend operations, its weakness into a strength, since the system has grown into a giant elephant sitting within the office premises. This can be compared to a space mission that is in a hurry to reach the moon. With all the excitement revolving a quick launch, the mission misses out on few critical aspects – how to land on the moon and how to get back from there. So, once the spacecraft has launched, it has nowhere to go and has no option but to die in the hollow space.

A major reason for today’s rush in the e-commerce sector is the ease with which one can launch a business. It took just 3 months and a handful of undergrads to launch the first version of Housing.com – the posterchild of India’s Grand E-commerce Story. Compare this to an engineering R&D firm which would have taken 3-4 years of hard work, deep technical knowhow and huge investments before it could be launched. Typically, e-commerce entrepreneurs are the marketing or technology geeks eyeing the benefits of instant Go-to-Market and has limited operations knowhow. Today, all one really needs is a convincing business model, a beautiful website & mobile app, an online billing tool and a payment gateway integration.

It’s really easy to launch an e-commerce portal – it is easy to develop, tap the social media and acquire the first customer. Well, that is the easy part, the difficult part only comes later – systems to monitor and manage employees, tasks, projects, building a seamless supply chain, accurate financials and accounting practice, and powerful backend operations to deliver cost efficiencies.

You see, in e-commerce, clocking good top line revenue is not a major hurdle. Even easier is to achieve the recently popular benchmark – GMV or “Gross Merchandise Volume”. But when it comes to profitability – a key to sustainability, ensuring a healthy bottom line is a BIG problem for these e-commerce firms. Only through work management systems, powerful & integrated supply chain, smooth logistics and streamlined backend processes can this be achieved.

Take a look at the Indian airlines industry – an industry that has been marred with stories of failures, bankruptcies and unceremonious exits. Ever wondered why IndiGo Airlines, the SouthWest Airlines, stans so tall and bright in the airlines industry rubble? The only airline that is profitable in India and at same time rated highest in all customer satisfaction ratings, IndiGo has focused on things that others haven’t. They ensured that backend operations – the weakness of other airlines, become their biggest strength. With more focus on delivering customer satisfaction & streamlining operations than clocking high revenues, doing operational innovations and staying focused on a particular market, IndiGo Airlines achieved unimaginable turnaround time, achieved operational excellence that others couldn’t think of, and built trust & loyalty amongst its fliers. Rest is history!

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E-commerce startups need to learn from this – streamline your operations and be forward looking. Think like IndiGo or Southwest, not like the space mission that compromised its future in a hurry to launch.

The good news is – today, a handful of the e-commerce firms have begun to think in this direction. Flipkart has started to change its stance. To ensure that it sustains itself, Flipkart has announced that it aims to become profitable in the next 2 years. The organization is taking a series of measures to get its operations right. It is even considering robotics as an option.

The message is simple, if the Indian e-commerce industry wishes to survive, the businesses need to focus on operational excellence and delivering customer delight, not just on GMV. Common perception in the e-commerce industry is that first one should reach a scale and then get the right systems, processes and industry best practices.

However, what the e-commerce firms should actually do is get their backend systems and processes right when they are building their team so that they derive operational efficiencies at early stages and are able to withstand when the scale hits them. The point is, it is not impossible to get the backend operations streamlined early. By ignoring the backend operations, one unnecessarily invites the risks of perishing even before hitting the right scale. Also, by not streamlining backend processes at an early stage, businesses actually magnify the cost of switching to the right processes & systems at a later stage by a zillion times.

The age old “customer satisfaction” has now been replaced by “customer delight” as many can now satisfy a customer but only a few can truly delight. New age service industry is all about delivering “Customer Delight” which can only be delivered if we always exceed our customer expectation.

“Folks : keep the customer at the centre of everything you do”

[About the author: Vikram Dham is the cofounder & CEO of Emkor]

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