Bundling & Unbundling, Blitzscaling & B2B Opportunities with Dinesh Agarwal, Founder & CEO IndiaMART

Dinesh Agarwal, Founder & CEO IndiaMART chats with Amit Somani, Managing Partner Prime Venture Partners.

Listen to the podcast to learn about

01:00 - Founding story of IndiaMART

09:00 - IndiaMART’s journey into the domestic B2B space

20:00 - Bundling & Unbundling; Verticalization; Superapps

25:00 - Opportunities in Indian B2B space

29:10 - Keep Learning & Don’t Go Home

Read the complete transcript below

Amit Somani 00:50

Welcome to the Prime Venture Partners podcast. I am delighted to have with us Dinesh Agarwal, founder and CEO of IndiaMART, a relatively recently listed company but one of the stalwarts in the B2B space in India. Welcome to the show, Dinesh.

Dinesh Agarwal 01:02

Thank you, Amit.

Amit Somani 01:04

It’s good to see you after all the years we interacted in Delhi back when I was at MakeMyTrip. So, Dinesh, maybe you can talk to us about the founding story of IndiaMART. I know you’ve probably shared it many times, but for the benefit of our listeners, how did you stumble upon this notion of wanting to do this back 20, 25 years ago when you started this venture?

Dinesh Agarwal 01:25

I was a normal software engineer coming from a traditional small business family. I simply wanted to first do a job and get some industry experience and get to learn what’s happening around the world. Fortunately, I worked for two great companies here in India, CMC Limited and CDOT, working on some of the very big projects here in India, Government of India project. And then in the US with HCL America, two, three projects. And I always wanted to come back and settle here in India. So that was for sure; I didn’t want my computer science degree to go to waste in the US.

While I was in the US, a few incidents happened where I was always very fascinated with the networking, networking communication kind of technology and convergence kind of technology. But as the web evolved, as the internet evolved, I think I had some very good incidences of learning how powerful the internet can be and how powerful it can be for the convergence that we keep thinking about. And believe me or not, it was the 15th of August 1995 when the Prime Minister from Lal Qila announced that now internet is here in India. The very next day I told my manager that I want to go back to India. So that’s how I came back to India without any idea of what exactly am I going to do.

And while I came back to India, first I thought can I become an ISP? ISP was not allowed. It was licensed only to VSNL. Then one fine day we were sitting, me and my friends were sitting in a cafe, and one said, “You know, why don’t you look at making websites?” And I said, “Yeah, this is a good idea. It’s still close to my heart, internet and everything.” And as we started looking for websites, how to make websites, whom to make it for, we discovered that there are two kinds of markets. Either we could do mostly for Indian businesses, Indian corporates, but in those days, the Indian user base was very minuscule, hardly 5,000, 10,000 users in India.

The other part was exporters. So I decided that we do exporters’ websites. And while trying to find the list of exporters, I came upon some directories and those directories were hardly updated. So that’s how the idea of internet-based exporters’ directory was born, and that’s what we named IndiaMART. That’s how you just go with one idea and take a little bit further and refine from there and that’s how it went.

Amit Somani 03:55

Yeah. What were some other interesting inflection points in the journey? Because like I said, you’ve been very, very perseverant through this journey. So what were other defining points? Like you said, the internet coming to India in ’95, particularly in B2B, right? Because it was obviously not very sexy, everybody wants to do B2C, and yet probably it’s just as big, if not a bigger opportunity.

Dinesh Agarwal 04:20

Yeah, so I think I saw that in the B2C there was no revenue, and when I started, my foremost goal was to create a business which has its own revenue and its own profit and everything, and at least not a loss. And that’s where B2B sounded more like the thing to do because it had revenue from day one. Otherwise, I didn’t know the word venture capital. When somebody first time called me in 1998 from Gujarat Venture Finance, I told them, “Sir, humko koi loan nahi chahiye(Sir, I don’t need a loan).” I didn’t know anything.

In 1998, when I visited Mumbai and Rediff had painted the whole Mumbai red, I didn’t know what am I doing wrong? Why are we not getting this kind of money? Are they getting all this money from … I didn’t even know they were planning an IPO. So, I mean, we were quite naive from that perspective, trying to create a business.

And the second inflection point was that when I learned that I need to create an exporters’ directory, and here in India, out of the 50,000 exporters, not even 500 had a internet connection or a PC or a … they were the most advanced because they were interacting with foreign customers. They were visiting foreign countries. So they were more likely to have an exposure to computers and the internet, but it was still very minuscule. Out of the 50,000, not even 1%. So we started to build the directory and to build the belief in the business, took a more of a B2C kind of approach, which is a freemium business listing and inquiry forwarding. So for five years, starting from 1997 to 2001 or so, we did a free listing of every business, every export business. And every day when the inquiries came to us for those businesses, we printed them in the evening, faxed them overnight, and next day sent those inquiries by post.

Amit Somani 06:35


Dinesh Agarwal 06:36

For five years every day. I mean, it was like an online to offline connection between the … People would remember us by the end of third year that yet another business inquiry through IndiaMART. So that was another big inflection point.

And the third one that I would recall is probably the dot com burst because we were doing good revenues and if not profitable, at least near profitable or break-even kind of revenues. And when this ’99 thing happened and ’99, 2000 thing happened, everybody got carried away, and we were still getting some revenues. And I think when the dot com burst happened, since we continued to have good revenues, I think we got a very good talent attraction, very good media attraction, and very good customers because in those days, dot com had become like a fly by night operator. So we used to take customers to our office and take them full round because we had like 18,000 square feet of office by then.

So I think those are the two, three inflection points that happened during our export import journey that continued for 14 years. And then we pivoted completely post 2007, 2008 into a domestic B2B. And that’s another story altogether.

Amit Somani 08:00

Yeah. We’d love to come to the domestic B2B story in a second. But before we do that, since you said you had a viable business model, how were you charging the fees in those first five years when you were doing this sort of online, offline kind of hybrid of faxing and all that? Were you charging mainly the buyers or were the suppliers also paying you?

Dinesh Agarwal 08:20

We were always the supplier side monetization and buyer side always free. Even within the supplier side, you can list on IndiaMART for free, you can receive inquiries for free. To come on the top of any category or in the first few listings of any category, you pay money. And that’s what has been the business model. Initial four, five years, the business model was more like building websites or building microsites, and we used to charge per page or per 10-page package, mostly anywhere between 10,000 to 50,000 rupees to build the website.

And then the second thing was we said that these websites are not only built like a brochure for you, we will do promotion of your website. And we will do promotion by two ways. One, we will try and optimize to see what keywords people are searching on Yahoo and Google and Alta Vista and those search engines. And we will try to do, I mean, SEO as a word was not known. Probably we would have coined that word, search engine optimization.

The second thing that we’ll do is we will give you a top listing in IndiaMART directory, and IndiaMART directory was built over the years. So for the first five years, I think the revenue model was purely building websites: designing, hosting, search engine optimization and getting a linking. And over the period of time, I think IndiaMART linking became the most powerful. IndiaMART listing became the most powerful.

Amit Somani 09:45

Wonderful. So switching gears and talking about when did the opportunity for domestic B2B kind of dawn and actually become probably bigger than your import export/website building, SEO generating kind of business? Were there some early signs of that that made you trigger? I remember B2C, right? Like a lot of the Indian B2C businesses, whether it’s MakeMyTrip or Flipkart or others, they started in that 2007 to 2009 timeframe. Love to hear about that story.

Dinesh Agarwal 10:15

Yeah. So I think post 2001, there was a two years of economic downturn across the world; September 11 and then the Afghanistan War and everything. But then from 2003 to 2007, I think was the golden years for India in terms of domestic economy, as well as export. And we continued to grow leaps and bounds. I remember by 2006, when we had 10 years of celebration, we had 10,000 customers probably churning out at 20,000 rupees per annum, ARPU. And that’s how that became. By the time we decided to pivot, we were like a 50 crore rupees business with nice 30% profit on the export-import side.

But then during 2007-8, few things started to change. One, domestic internet adoption went very high during that 2005 to 2008 timeframe. It became very reliable. The Internet became reliable. Second, mobile phones, the SMS based mobile phones and then the smart phones launch, became very powerful. Third, a lot of domestic inquiry. People started to come on IndiaMART and started to inquire about things. And fourth, I could see that now exports are not going to go anywhere over the next couple of years. And that turned out to be true. I don’t know where did I get that intuition that exports are now kind of saturating from India because somehow it has proven wherever you go anywhere in the world, everything was made in China. And Alibaba IPO happened in 2007 September with a 17 billion market cap overnight.

I think those are some of the things that I started to think, whether export is something that we want to continue to do, or whether domestic is going to be a bigger opportunity because domestic had this network effect of buyer and supplier being at the same place. Otherwise, we had to go and market ourselves in different countries to say that, “You know IndiaMART and if you want to source something from India, source …” I mean, that didn’t have a network effect. Buyer and supplier were into different geographies. Here in domestic, buyers and suppliers are the same people. And even better than B2C because buyers and suppliers are both businesses. Today 33% of our suppliers are also our buyers.

Amit Somani 13:00

Yeah. Every buyer is also a supplier and vice versa, or most of them are.

Dinesh Agarwal 13:05

And possibly vice versa. So we decided in 2008 that this time, instead of … by 2008 we hadn’t raised any money. So we were all profitable. But in 2008, me and Brijesh sat down and said that no, if we want to build a domestic business, let’s raise money and build it in a faster manner because we would not have the time on our side, just like we had the last 10 years of slow, slow growth profitable. So I think we raised money first and then we decided what domestic business we will do. And in 2010, we did blitzscaling. I remember in 52 weeks, we opened 52 offices.

Amit Somani 13:50

Yeah. So that’s what was going to be one of my questions, is how did you get access to all these suppliers, right? And what was your own distribution strategy like?

Dinesh Agarwal 14:00

Yeah, I mean, so we would do aggregation like anything. We would stand in front of every B2B exhibition. We would participate in every B2B exhibition. We would have field sales force to go industry to industry to collect their visiting cards and to aggregate that. We would do free listing, online free listing by people. So we did everything. I think even from newspapers, any kind of classifieds, wherever we could find any businesses.

The whole idea was that if you are in a business, it got to be listed on IndiaMART. And we did a lot of aggregation to say that “Since you advertise here, since your card was found here, would you like to register free of cost?” And that we did using all mechanisms.

Amit Somani 14:55

Understood. So now of course, I was just looking through your website, you have 97,000 categories, right? And literally millions and millions of suppliers. So can you just, for our listeners, give us a scope of both the range of what you already reach but also the size of the market, if any, in terms of what the opportunity is?

Dinesh Agarwal 15:15

So, according to some studies by Walmart and others, there’s a give and take about a trillion dollar B2B market today in India, which includes all retail, wholesale, everything. Now coming to the categories, look at the categories, variety of the categories, whether it’s engineering products, whether it is clothing, whether it is food, whether it is plastic packaging, whether it is chemical, intermediates, pharmaceutical intermediate, machinery components, wire, cable, their component, their raw material. So for every end product that you end up consuming for 100 rupees, probably 1,000 rupees worth of 10, 10 rupees, 20, 20 rupees, 30, 30 rupees worth of B2B transaction would have happened for you to do one transaction of 100 rupees at the end of the consumer. And imagine the variety of the products and companies that we have on our portal, whether it is Tata Steel or whether it is Tata Motors. So from steel to motor and everything in between.

So whether it is Birla Cement or one of those cement companies, and whether it is tiles for the homes, and everything in between. So what happens is that there’s enough of a market and these are not digitized. And unlike in the US or unlike in Western worlds, where real estate is still cheaper, they still have large format B2B stores. Here in India, we don’t even have large format B2C stores.

I mean, malls are a very new phenomena. Malls can still survive with 30, 40% gross margin; B2Bs won’t survive. Because either if you do it here in Delhi, Mumbai, Chennai, the real estate will kill you. And if you do it in Bahraich, which is my hometown, there is not enough market. So there is no way that we could go to the same strategy as what the US has gone through. I mean, our evolution will not happen that way. It will have to happen through digital means only. There is enough market and there is enough headway for … long headway to go.

Amit Somani 17:35

Yeah. And the breadth and the diversity of categories is also quite mind boggling. Can you talk to us about maybe a couple of interesting ones? Maybe like a flagship category that has always been there and done well; I don’t know if it’s in construction or steel or whatever it is. And then maybe some categories that have emerged in the last few years that have surprised you, you say, “Wow, even this is coming online or becoming active online.” I mean, everybody had a signpost on the web, but really doing business and transactions.

Dinesh Agarwal 18:05

Yeah, so to begin with when we started export-import, the most common categories that you will see were apparel and handicrafts. Some BBC correspondent went to Moradabad and asked, “Do you guys use the internet for … I’m told.” So they said, “No, we don’t use the internet.” But they said, “No, IndiaMART gave your name.” So they say, “Yeah, we use IndiaMART. We don’t use the internet.”

So that’s the kind of affinity we built in the early on. Then over time, we found that construction and machinery and components became quite popular. For example, chappal making machine, dona making machine, agarbatti making machine. These are like the categories which went into domestic B2B across every district. Every district would have a local chappal manufacturer, local pouch manufacturer, local plastic cup manufacturer, plastic glass manufacturer, those kinds of things.

Then probably came the LED revolution. You know, LED bulb kits will come from China or will come from there and then everybody is … In Ghaziabad, I remember hundreds and thousands of ladies making LED bulbs; buying from IndiaMART and then selling it to the local sites.

What new categories we discovered, especially in the last two years, first thing when last year February, last to last year February, I started to see suddenly there is a demand for sanitizer growing up. And we didn’t even have a corona here; I’m talking mid-February. Mid-February, some of the categories started to go up. And before we could even understand and respond to it, we were under a severe lockdown. By the next one month, what’s going on, why are these categories getting export traction? And then suddenly there was this rush of medical and mask and sanitizer, and these related categories.

I remember after the lockdown we couldn’t do anything because all our revenues used to come from field sales forces and everybody was locked up at home. So we said, “Nothing doing. Everybody in the entire organization is now category manager, and we are all going to work on medical and safety and food and these kinds of categories.” And I remember calling undergarment manufacturers to see if they can build masks, calling helmet manufacturers to see if they can build a face shield, calling shampoo guys to see if they can do packing of sanitizers.

Then the second wave came, and the second wave we didn’t know in the first wave that there is something called oxygen required and there’s something called BiPAP, CPAP required. But in the second wave, it was a completely, again, different challenge. So I think newer categories we discovered like medical, pharmaceutical, safety, these kinds of things.

So over the time we have seen that IndiaMART has created a large space for itself, but hasn’t worked on every category. I think every time I look at IndiaMART, I find it very skin-deep, hardly any depth. You as an outsider can see, okay, there’s a lot of depth, but when I see, or when any industry expert will see his category, he will see it’s still very skin-deep. So there’s enough to do.

And if you look at these B2C companies, large B2C companies, Flipkart, Amazon, and these kinds of people, they have a very limited set of categories, 2,000 categories, and huge volumes in that, whether it is mobile phone or whether it is clothing or whether it is some of the items. But then there is a huge long tail before you buy any consumer product. When you buy one shirt, imagine the button and the thread and the chain and the collar and the packaging material and the box and the label and everything that goes behind that.

Amit Somani 22:20

Yeah. So actually, that leads me to two different questions, Dinesh. One is, if you look at any marketplace, including Alibaba in China or for that matter in the US, B2C or B2B, over time we observe this phenomenon of bundling and unbundling. So what happens is a category gets deep enough that it needs more nuances, right? So whether it is, we’ve seen a lot of startups pitching just handicrafts, just B2B handicrafts, right? Or B2B apparel, or it could be even cross border startups and cross border commerce. What are the thresholds?

And obviously, in a dream world you would want to be, like you said, not skin-deep but mild-deep in every category, and you would want to be broad enough in hundreds of thousands. But practically, it’s not possible to have both things, right? I assume your DNA is more and the company’s DNA is more on the search discovery breadth rather than going deep.

So the question really is how do you think about bundling and unbundling? So how do you decide whether, not just at a selection level or SKU level, that you go deeper, get more suppliers, more products, et cetera, but also at an engagement, interaction, facility, purchase order, credit, financing, all that stuff? If you can talk about both those dimensions, that would be useful.

Dinesh Agarwal 23:45

I think the way I understand that is there are two things or three things. One is the verticalization. And I have seen, it sounds very fascinating that you have to have a MakeMyTrip, which is a vertically handling travel as my need. Or you have an Uber or an Ola which handles my transportation, local transportation needs. Or similarly CarDekho or similarly Zomato or Swiggy kind of thing.

But even in B2B, people have tried to make verticals world over in the last 25 years; they’ve not succeeded. Why? Because there is not enough buyer and seller traction to create a marketplace. And that’s been the case for these 25 years. I remember VerticalNet kind of companies and those kinds of companies in ’99, and then why, because there is a minimum buyer-supplier threshold to be crossed before you can say that … Now, in the US and in China, there may be 20 verticals, 20 large verticals, which are billion dollar plus. In India, there are hardly four verticals, just a MakeMyTrip or an Ola and Zomato and … Not even a real estate vertical which is a billion dollars, not even a job vertical which is a billion dollar, not even an automobile vertical. So the only ones big enough are transport, travel transport and food.

So I think in India, this verticalization may take maybe 10 years or so, but then by the time that verticalization happens, will I be able to go from skin-deep to, if not a mild-deep, to a foot-deep? And that’s what Google is doing. So world over what is happening, this is what we call the super apps. Super apps are all neither skin-deep nor mild-deep, they’re somewhere in between. Because the cost of switching and cost of branding of each vertical, whether you’re creating a Delhi Mart or creating a Mumbai Mart or creating that, is difficult.

The other strategy is very good, which you said. How do I build minimum common denominator functionality, like CRM, like lead manager, like payment facilitation? How do I build that, which cuts across everything, accounting or invoicing and … And that’s what we have been trying to focus on in the last two, three years.

The last two, three years if you see, our strategy has been to build some other minimum comment denominators which can create this marketplace even more important. So for example, our lead manager is now being used by 100,000 individual businesses in India every week. Now we are probably the largest CRM company in India now.

Amit Somani 26:45

Fascinating. Switching gears before we wrap up on the B2B side, if there are young entrepreneurs, just like maybe you were in 1995 or 1998, who are looking at B2B, what are some kind of tips and suggestions you would have for them, right? These are people just starting out, maybe six months into their venture or looking at either a vertical or foot-deep or whatever it is. Right? What are some areas that you think are underserved, right? Even being a giant yourself.

Dinesh Agarwal 27:20

Many, many areas. I think if we look at it two ways, one is what you can do globally and what you can do in India. So globally, I guess all the software that has been written in the last 25, 30 years will have to be rewritten because that software is no longer valid. That was on-premises desktop software. And that was a single user software; it was meant for employees. The other software was meant for customers. Now you need a software which your employees can login into, your customers can login into, your vendors can login into. They should be able to login from mobile, they should be able to login from desktop, they should be able to login from different countries, different languages, different form factors. And this whole thing opens up a huge plethora of B2B opportunities.

So I think on that side, I feel sitting here, from India, earlier we were making only services-based products. Now I think we can make product-based products. And now most of the sales can also happen on online and remote sales. And there are some great examples like Freshdesk, which has created like this. So I think one, on that side there is a great example.

On the other hand, within India, people need a lot of vertical solutions. We just solve one small piece called discovery. I know it’s the biggest piece, but still, it solves only 20% of the problem. I think 80% of the problems are lying because earlier there were hardly 50 million computers or 100 million computers in India. Now, suddenly everybody has already 500 million computers and maybe going up to a billion computers, mobile-held computers soon. So I think it opens up a lot of opportunities in terms of technology-based solution.

Lot of recent ones that I have seen in B2B are still trying to aid the trading. Whatever trading was happening, you are just trying to package it into a technology-based trading and subsidizing by way of equity. So I think trading will not lead you to create a B2B … I mean, until and unless you create solutions by way of technology.

Amit Somani 29:40

Fantastic. As we wrap up here, I’d be remiss in not asking you about your own journey as an entrepreneur. What have you learned about yourself as you’ve gone? I know it’ll take much longer than five minutes, but just maybe some highlights. And what do you wish if you could advise the Dinesh of even 10 years ago, let alone 20 years ago because the world has changed like 10 times over, what advice would you have for your younger self?

Dinesh Agarwal 30:05

One, I think you should take a very long term because you are not making something for three years or five years. I think it should be a lifelong bet that you are going to work in. If something changes, the next one has to be lifelong. So it’s not that we didn’t change; we changed from export to domestic. But when we started export, it was with the lifelong objective. And when we moved to domestic, now it’s again a lifelong objective. So one, I think you have to take a very long term view. I haven’t seen businesses in the past being created and sold left, right and center. Businesses are either built and built and built. So, one is that.

The second part is I think there is no end to learning. You just keep trying, keep at it. I mean, I am not a very big fan of go big or go home. Why should I go home? Why should I go home? I’ll keep trying. Nobody tells me to go home. If you go home, you are anyway not part of the game anyway. So you just be there, keep learning the tricks of the game. There is no point quitting. Quitting is not advisable. You just keep participating, keep participating, and don’t die. Those are the only two things. Don’t quit and don’t die.

Amit Somani 31:30

I love it. I think that’s a fantastic high to end on, which is that keep going big, keep learning, don’t quit, don’t go home.

Dinesh Agarwal 31:42

I always say everybody’s born with at least 20% luck with an 80/20 principle. So if you try five times, you’ll get lucky once.

Amit Somani 31:51

I love it. Well, Dinesh, we could go on and on, but really, really appreciate you being on the Prime Venture Partners podcast, so thank you so much for joining us.

Dinesh Agarwal 32:00

Thank you very much for the opportunity, and I hope this helps.

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