The office rent was overdue. For three months. Almost Rs.6 lakh. The landlord had run out of patience. So had the 10-month deposit money for the lease. There was money due to suppliers as well—some 50 of them. Almost Rs.60 lakh. The suppliers had waited long enough. And now their pestering calls had taken a slightly demanding turn. Customers were complaining—on social media, review websites and to whoever cared to listen. They had ordered things and paid online, but they had not been delivered.
Suppliers wouldn’t ship incoming orders unless their dues were cleared. But customers didn’t care; they wanted to know why the products hadn’t arrived. They kept calling customer support, the office landline. Relentlessly. And they wanted their money back. But nobody would answer.
Over the last 18 months, almost 95% of the staff at Indiaplaza.com had quit. Taking up whatever assignment came their way, leaving behind a sinking ship where they were tired of delayed salaries, and for some months, no salary at all.
He had been contemplating the reality for a while. That there was no getting away from it. Indiaplaza had to vacate its office: 2nd floor, No21, Brigade Square, Cambridge Road, Halasuru, Bengaluru-560008.
He zeroed in on 12 August 2013, a Monday. Like every other Monday, Vaitheeswaran walked into office early. Around 8.30am. With his laptop bag. His stained, green jute lunch bag—the one thing he always carried, lunch from home, packed by his wife—was missing. Because Vaitheeswaran wasn’t hoping to stay for long. He just wanted to get it over with. Once and for all. And go home.
By about 9am, six other people, the only ones remaining at Indiaplaza, trickled in.
Then, came the landlord, with a few of his men, to ensure that everything was in order. He spotted two laptops lying in a corner. “I am taking that,” he said. Vaitheeswaran was okay with it. After all, he owed him money.
While the rest of the staff got down to packing the books, computers, phones, printers, speakers and whatever else was left, Vaitheeswaran sat quietly observing them. Then at about 10.30am, the first call came. From a supplier.
News had spread that Indiaplaza was vacating its office. The supplier wanted his money. So did a few others. He said he was on his way to the office along with the others. By about 11.30am, the office was teeming with angry, anxious men, keen to get their dues.
Vaitheeswaran protested and pleaded. “I have no money,” he said. “But I am not going anywhere. I will still be available on the phone. We are vacating this office only because we have no money to pay rent. If we had the money, we would still be here.”
Though angry, the men relented. But they didn’t want to leave. Certainly not empty-handed. Not without laying their hands on whatever little was left. Some picked up the desktop computers, others the few laptops, speakers, phones and printers. And someone took the bronze Ganesha idol from Vaitheeswaran’s desk.
A bad dream
By about 1pm, the commotion was over. The office was empty. Almost nothing left to pack or take home. Everyone had left except the landlord. And Vaitheeswaran knew it was his turn to leave.
And just like that, he walked out of Indiaplaza, one of India’s first e-commerce companies, which started life in 1999 as Fabmall.com. A company which he had built from scratch, with five other friends, with no rule book on how to build an Internet firm. A company that had survived the dotcom boom and bust, 9/11 and the global economic meltdown. A company into which Vaitheeswaran had put in the best years of his life.
Once home, he couldn’t fathom what had come to pass. Perhaps it was all a bad dream? A bad night? Because it couldn’t be happening. No. Not after toiling away for 14 years. That would be so unfair. This wasn’t supposed to be his destiny. E-commerce had finally become big, it was going to become bigger, and he was right in the thick of it, after 14 long years.
That’s called vision, right? That’s what they call a pioneer, right? No. It can’t end like this. At that very moment, Vaitheeswaran felt a mix of emotions that only a man who has lost something really dear to him can feel—an equal measure of anger, frustration, helplessness and bitterness.
It is the story of a headstrong entrepreneur, who had his own ideas on how to run an e-commerce business but made the mistake of over-relying on venture capital funds and perished. This is also the story that questions the very tenets on which the e-commerce industry has flourished in India—cash burn, frenzied fund-raising and cash on delivery.
Search for $5 mn
Though his business was small, compared to Flipkart and Snapdeal, Vaitheeswaran was happy in his own little universe. The company employed about 30 people, and according to documents filed with the Registrar of Companies (RoC) in March 2011, Indiaplaza had a gross merchandise value (GMV) of Rs.14 crore. GMV is a term used in online retailing to indicate total sales of merchandise through a particular marketplace over a certain time frame. The company’s revenue was Rs.3.8 crore. And it recorded a loss of Rs.1,179,795.
While Indiaplaza was present across most categories, such as books, electronic products, consumer durables, Vaitheeswaran wanted to grow faster. So, he went to the market to raise money.
After the investment, Vaitheeswaran immediately got down to putting the money to good use. So, he hired more people, allocated some money in upgrading the website, invested in marketing, launched a microsite called ThinkDigit within Indiaplaza specifically dedicated to tech products, and after much back and forth (and contrary to his original belief), launched cash on delivery (COD) as an option for consumers.
Considering that he had wanted growth, Vaitheeswaran’s plan worked out pretty well. Within a year, Indiaplaza grew to about 130 people. And business increased by almost 174%. The company recorded a GMV of Rs.38.4 crore, as on 31 March 2012.
But a close analysis of the books reveals a less rosy picture. In pursuit of GMV, Vaitheeswaran had sacrificed making money. Or rather conserving some. As of 31 March 2012, Indiaplaza’s revenue dipped by almost 25% to Rs.2.9 crore. The company’s loss grew massively. Not two or four times, but almost 10 times—to Rs.9.25 crore.
Indiaplaza, which used to be small but happy in its little cocoon, was now, all of a sudden, bleeding. And bleeding profusely.
Needless to say, Vaitheeswaran desperately needed someone to come in and fund the losses. So in July 2012, within just a year of raising money from Kalaari, he set out on the road once again.
Let’s put this in perspective. For a company which raised all of Rs.40 crore in 14 years of its existence, this was a daunting challenge. All its earlier rounds were led by the question: perhaps, we should consider this investment? This time around, the sentiment was: we need the money. Now.
It is not like Vaitheeswaran was asking for the moon. He wanted just $5 million. Or Rs.26 crore.
Over the next three months, Vaitheeswaran travelled across India, from Mumbai to Delhi to Chennai and Hyderabad, selling the Indiaplaza story to whoever let him in.
His pitch was simple: Indiaplaza is a well-known brand; it means the marketplace of India, you can’t have it better than that; while the company is making losses now, it will use the money to grow its GMV and cut its losses; over the next two years (by 2014), it will look at achieving profits.
By October 2012, things had become difficult. Indiaplaza was running out of working capital. So Vaitheeswaran stopped drawing his salary. That was almost Rs.2.5 lakh per month saved. But employees needed to be paid. Same for suppliers. Soon, that too became difficult.
Even as all this was happening, Vaitheeswaran was spending most of his time outside the office, trying to meet as many potential investors as he could. Swiping his personal credit card for flights and travel. In all, he met about 30 people. Most of them were happy to spend time and sit through his PowerPoint presentation but unwilling to put money on the table.
And then he waited for the money to be credited. Every week, every second day, every moment, late in the night, he waited, hopeful that tomorrow will be the day. A day when he won’t have to worry any more. But that day never came.
Seeing where Indiaplaza was headed, on 3 December 2012, both directors from Kalaari Capital resigned from the board.
Starting 2013, the Indiaplaza story went further downhill. One miserable day. After another. People started quitting, debts piled up and Vaitheeswaran found himself cornered. He had knocked on every door he knew and returned empty-handed. Then came the fateful Monday, 12 August 2013, when Indiaplaza vacated its office. But Vaitheeswaran still had some fight left in him. He hit the road again to see if anyone would be interested in buying whatever remained of Indiaplaza—the brand name, software solutions and even the customer data.
Vaitheeswaran was confounded. Bitter. So on 8 December 2013, he sent out his resignation letter to R. Parameswaran, one of the co-founders of Sulekha.com, an investor in Indiaplaza and the longest serving director on the company’s board. Parameswaran didn’t acknowledge the email. Vaitheeswaran didn’t care to follow up.
Swept away by the current
It is late in the afternoon. And our meeting is set in an unusual place—inside a gymnasium at Vaitheeswaran’s residential complex in Ulsoor, Bengaluru.
We help ourselves to beige plastic chairs—one for each of us and one for the tea, in a thermos, and a few paper cups. Vaitheeswaran is about 5’8”, dark, bespectacled, clean-shaven and dressed in an untucked white shirt, dark blue trousers and leather sandals. At 53, he isn’t the entrepreneur you run into these days but he comes across as easy-going, sprightly and thoughtful.
That is till the subject of Indiaplaza comes up. And it is not about the good or the bad days; Vaitheeswaran is okay discussing how Indiaplaza went down. He understands that it is business, after all. An entrepreneur starts a business and runs the risk that it won’t work. That’s fair game. What he isn’t comfortable with is how the whole fund-raising bit went down. The term sheet that never materialized. And that not a single investor found value in what Indiaplaza had achieved or its potential going forward.
“See, I am not comfortable going there,” he says. “But what I can say is that specifically nobody tells you that they will not invest. But when you meet enough of them, you realize that they are not very enthusiastic about the whole thing. Unfortunately, if you know that fund-raising is going to be difficult well in advance, then you try and take certain steps. If you don’t, then it becomes too late and after some time, the whole thing just gets out of control. The collapse happens reasonably quickly after that.”
“People follow their heart and their decisions. But it left me in a difficult situation. For investors, it is a portfolio. But for an entrepreneur, for me, it is my life. That is a fundamental difference. An investor can write off and do portfolio management. Their portfolio is my life. And that’s a difficult thing to come to terms with—that your life is somebody else’s portfolio.”
“I sometimes ask myself: investors must be truly visionary, right? Here is a company which is making massive losses, perhaps it will become big, let’s put money here. And then, here is a company, marginally profitable, will do better going forward; let’s avoid them like the plague. This has to be incredibly insightful, right?”
“That is my point. If we were the old company making small profits and we had failed to raise money, we would have survived. Small but profitable, it is all right, you can live. If water is above your head then all it requires is one miss and then the current will sweep you.”
While Vaitheeswaran firmly believes in what he says and he is a man of firm beliefs, it will be twisting the facts to say that Indiaplaza was making small profits. No, it wasn’t. Not in the last five years of its existence. In those years, it was making small losses. Push Vaitheeswaran a little and he says that he doesn’t remember and then that the company was marginally profitable. Not in 2012 or 2011, but before that. Nope. But then this is something that has come up time and again, that entrepreneurs like to overstate things. Perhaps that’s how they are wired.
Profit, the bedrock
“First, it is not easy to close a business in India,” he says. “But I think that is another story. But, I suddenly got grappled and left behind with a whole lot of mess that for some strange reason was only my responsibility. And I felt that to be, at the very least, extremely unfair. So I can live with the fact, with great disappointment that I didn’t make much of the opportunity. What I can’t live with is that I was the sole person to answer to so many people the company owed money to. Nobody helped.”
“I didn’t owe anyone any money. The company owed money. And the company had a board and investors. It wasn’t just me. So there is a fine difference, because if it is a proprietorship, then you can’t distinguish. In a company, there is a significant difference.”
Why aren’t e-commerce companies making money? Are profits the bedrock of any business? Because if that’s the case, then the current ecosystem simply defies that bit of conservative logic.
“The short answer to your question on whether profits are important is yes,” he says. “A company that is not profitable has no business to exist. And I am not saying Day 1, but a reasonable period of time; the goal must be profits. No other goal, including sales, growth, number of consumers, valuation or fund-raising can replace profits. Because profits allow you to control the destiny of the company. Without profits, you may pretend it is in your hands but it is not. Your destiny is controlled by your ability to constantly raise money. Because somebody has to fund the losses, right? Losses don’t get funded by miracles.”
“It is quite possible that things have changed. And maybe businesses are meant to lose money, the more you lose, the better you are, and if you lose it quickly, then you are big and smart—I am not able to see the smartness there. I may be in the universe of one; the whole world thinks that the way to run an Internet business is to lose money, hand over fist, because people love such businesses. But I have thought long, hard and deep about it and I haven’t been able to change my mind and something tells me I am right.”
“See, I am speaking from experience. I started an e-commerce consumer company in 1999. Six months before the dotcom boom. E-commerce was the flavour of the month. Nine months later, it was a four-letter word. Nobody wanted to talk to us. On Black Friday, 14 April 2000, the value of companies didn’t drop by 5 or 10%, it dropped by 60%. That’s how businesses crash. Because all it requires is the mood to change. I have seen it change.”
“From June 1999 to March 2000, people were looking at us as if we were miracle guys. We were the cover story of a business magazine six months after starting a business. There were so many stories… and then after April, for the next three years, nobody wanted to speak to us. I have seen the ups and downs and it is brutal. Not one new Internet company in India has gone through tough times yet.”
A mug’s game
“I have strong views but I have spent considerable time thinking about them. And I argue from zero base. If you look at e-commerce companies today, the way most companies do their arithmetic. They say I will spend Rs.100 to acquire a customer and lose Rs.20 on the transaction to reach this customer, and I will spend Rs.200 to reach out to this customer; so about Rs.320 I’ve lost, but I have got him. But over the next 18 months, or whatever, the Excel sheet says I will sell this customer stuff at reasonable gross margins to recover the Rs.320 and thereafter I am home and dry. Then I make money hand over fist. The arithmetic never appealed to me. There are fundamental flaws.”
“If an e-commerce firm publishes this Excel sheet and says this is my plan for you, the customer: when you buy from me, I have lost money. But now, you better buy from me eight times so that I can recover my money. If the customer signs up for this, then I think it is a great idea. But nobody has told the customer. Tomorrow, somebody else comes along, cheaper, the customer will go buy from him. Then I have to look for another customer and spend another round for his acquisition. Thereby, it is a mug’s game. This is fiction.”
“No. The argument works perfectly when you are the only website left. A consumer behaves like a normal man. Another website comes along and he buys from the cheapest place. Everybody wants to be the last man standing but today there are three last men and two of them will fall. I think we are just cheating ourselves by saying that customers will pay for convenience.”
“Sure. They are the largest e-commerce company. Yet, there are more people in America not buying from Amazon than buying from Amazon. I am willing to bet. (E-commerce makes up for only 6.6% of all retail sales in the US.) All those people who don’t buy from Amazon or are buying from others, you think they haven’t bought from Amazon even once? Of course, they have. Was their experience bad? Of course not, that is the one thing Amazon has got spot on. But customers are the same everywhere. If somebody offers a lower price, they go. He doesn’t say I’m the guy who pays for convenience and brand. Of course not.”
The flip side of COD
Well, you got cash on delivery (COD) wrong, didn’t you? You were pretty stuck up about not doing COD which changed the face of e-commerce in India.
“My view on COD has not changed. I think it is fundamentally inconvenient to customers. The premise of shopping online is convenience. People use COD because they don’t have credit cards. We were the first to experience COD in 2002. In 2004, I withdrew it. Because the administrative hassles were a pain. Then I had data that customers who were buying on credit cards were now buying COD, why should I do that? When the COD explosion happened in 2008…”
“Not because of COD but because it was cheap. Even today, I challenge any e-commerce company to say that I will offer COD and I will sell on MRP (maximum retail price). Let’s see how many people do that. It was a massive marketing spin. COD is an inconvenient way of buying. Why should you bother with cash when the guy comes home? And I have a flip side, give me your address and I will buy a refrigerator on COD for you. You deal with it, the return and everything else. When you pay by card, none of this happens. And we saw this happening. Let me order five refrigerators for you. Don’t want it, return it. Want it, pay cash.”
“Wrong. At least 200 million people have debit/credit cards in the country. (As of April 2015, 554.7 million debit cards were issued in India. The number for credit cards stood at 21.3 million.) How many of them shop online? 20 million. 90% of card holders in this country still don’t shop online. I am willing to bet the 20 million shopping, half of them have cards. This is not fiction. It is data.”
The way we are wired
“What’s there to reach out? I think as human beings, all of us have a very high estimate of ourselves. We all fall prey to it. It is not ego. It is the way we are wired. So I may be thinking, I am the pioneer in e-commerce, there is so much to learn from me, those guys should reach out to me. They must be thinking, who is this guy? No, nothing to learn from him.”
Vaitheeswaran isn’t very busy these days. Not since Indiaplaza went down. He spends a lot of time at home. And then he does some intermittent consulting work for companies who are looking at setting up an online business. Vaitheeswaran wouldn’t name them but says they are “big brands”.
And whatever he does with them is enough to put food on the table. “And then there are a few tech product start-ups who I mentor,” he says. “Not for money but just to keep the passion alive.”
We’ve been chatting for two-and-a-half hours. It is pretty dark in the gymnasium. The lights haven’t been switched on.
“I would be lying if I said I don’t think about the past,” he says. “You need to be thick-skinned to be an entrepreneur.”
Learning from loss
It is not so much the past as the present that bothers him. Where he is all by himself, doing whatever little he can because no one finds value in what he did at Indiaplaza. Because he is a failure.
“It is a big problem,” Vaitheeswaran says. “I don’t think entrepreneurs ever fail. I think companies fail. We have to differentiate. India lacks that culture. Here, the entrepreneurs are closely associated as the face of their company, that the company’s success or failure is the success or failure of the entrepreneur. Entrepreneurs always succeed because the experience of founding a company, growing it to a certain stage, building products, technologies, building processes, getting your first customer, raising funds, building a brand… that’s skill, right? Those experiences are invaluable.”
“If I was in Silicon Valley and something like this had happened, I would be overwhelmed by people looking to hire me. This is an important culture that’s lacking in India. Nine out of 10 companies fail, which means more start-ups close than succeed. Are all these people failing? Of course not, they are all succeeding.”
“But in India, you are treated as an outcast. Because I am a failure. Because the company I founded closed down. Which I find quite stupid.”
End note: As part of research for this article, emails were sent to a few shareholders and former board members of Indiaplaza. To seek their perspective on Vaitheeswaran’s entrepreneurial journey, or if that’s a difficult conversation, then just their thoughts on failure.
Many didn’t find it worth their while to reply and only one response came in—from Vani Kola (a former Indiaplaza director nominated by Kalaari Capital Advisors).
“Failure is a reality. We have examples of some entrepreneurs who have started new companies even when the first ones failed. If they have learnt from the process, it can be helpful to succeed.”