Gaurav Singh Kushwaha, Founder & CEO Bluestone with Amit Somani, Managing Partner Prime Venture Partners.

Listen to the podcast to learn about

03:00 - When Starting Up: Defensibility & Differentiation

11:00 - Online is Much More Than a Sales Channel

20:00 - First Click, Last Click: Building the Right Attribution Models

30:00 - Don’t Let Your Biases Define Your Metrics

35:45 - CAC/LTV Fallacy: VCs & Entrepreneurs

Read the complete transcript below

Amit Somani 00:45

Welcome to the Prime Venture Partners Podcast. This is your host Amit Somani, and I am delighted to have an entrepreneur and a friend and a neighbor, Gaurav Singh Kushwaha, Co-founder and CEO of BlueStone. Welcome to the show, Gaurav.

Gaurav Singh Kushwaha 01:00

Thank you, Amit. Excited to be here on Prime Venture Podcast.

Amit Somani 01:05

Thanks Gaurav. I’ve known you from actually the late 2009, 2010 timeframe when you were perhaps at that time a first time founder, although knowing you, you might have done two companies before that, which was a company called Chakpak in the movies and movie review space. Maybe you could tell our listeners a little bit about the first startup, if that was the first, before we go onto the journey of BlueStone.

Gaurav Singh Kushwaha 01:30

Great. Indeed, that was the first startup, Amit. Before that we had… there were a few ideas which I dabbled with, but the proper run was… the first run was Chakpak.

We started it in 2006 along with my co-founder, Nitin Rajput. We were in the kind of a mix of social network and entertainment space. At that time, Web 2.0 was just coming up and a lot of properties in India, a lot of portals in India were kind of very primitive. Those were like Yahoo! type portals and not exactly Facebook, MySpace kind of portals.

And world over, things were moving to Web 2.0, which was when we thought that, “Okay, Indians are so passionate about movies, their entertainment and so on, and there’s so much excitement to talk about it, review stuff, engage, debate with each other and so on. It would be a very interesting offering for them if we can create a Web 2.0 kind of a service on top of movies and entertainment.”

Indeed, what we saw was that the product offtake was very nice. I mean, there were very few internet connections at that time. I used to remember broadband connections at that time were less than 1 million, in fact, 5 lakhs, 6 lakhs and so on. There were projections that those would increase to some 10 million, 100 million et cetera by 2010, ’11. That truly happened only after the advent of smartphones.

While the product offtake was good, what we realized was that it was very difficult to monetize many of those. Rather, it was difficult to monetize the content-based social network at that point in time. There was not a lot of money on the internet. Even e-commerce per se had not evolved. We ran it for around three years, and very quickly were kind of among the top 50 websites in the country. Monetization, though, was a struggle, which kind of kept us haunting for almost two to three years.

Amit Somani 03:20

Yeah, I remember vividly both using Chakpak as a user and at least thinking about how will they ever monetize kind of thing. As you decided to wrap that venture up or move on from it and think about BlueStone, what were some of the lessons you carried away from the previous venture? Let’s start with that and then we’ll talk about why you picked jewelry as a category and BlueStone as the company in that category.

Gaurav Singh Kushwaha 03:45

Sure. I think one of the very first lessons was to kind of do a deeper study of the market where we intend to enter. Chakpak in a way was started as a project out of boredom. Nitin and I, we both were working in Amazon, had plenty of time at hand. In the evenings, we’d just do some coding and so on, and it was just a fun project to begin with.

That’s how it started, but then we invested our three years into that. Next time when I was starting, I was actually very particular about things like TAM, how big the market is, how easy or difficult is it to make inroads into that market?

Most importantly, how defensible that category is. I think one of the most important things that I look at in any category is that, fine, I mean there are lots of categories where you can easily enter, but if life is not becoming harder for the next person entering into the same category, then you are not actually truly building a differentiation. It might become big, but when four more people enter, it will… you’ll just become one-fifth of whatever you were. That must not happen. Many of these things we had learned in our first venture.

When I was starting BlueStone, I looked at many of these aspects in the category, and hence chose BlueStone. I can elaborate on those also if you want.

Amit Somani 05:05

Yeah, that will be great. But one just follow-up question on the previous three things you said, right? One is TAM. Second very interesting one, actually, which caught my attention is the defensibility or… As investors or professional investors, we always look for differentiation at entry and defensibility or MOAT five years hence. Because you could enter because you’re… there’s nobody else. But if there’s no defensibility, that causes a problem.

The third, which you didn’t mention, I don’t think, but was, did you figure out or was that implicit in the TAM, customers’ willingness to pay, right? Will people pay for this? Of course, jewelry people will pay for, right? I get that. But Chakpak, everybody was probably using, like you said, you were a top 50 website and so on. Is there willingness to pay? Could there be viable economics or you’re just saying, “Look, jewelry is a big category. Everybody wants jewelry. Can we innovate? Can we differentiate? Can we build a defensible offering here?”

Gaurav Singh Kushwaha 06:00

Got it. On that front, Amit, I’d actually think of Chakpak and BlueStone in slightly different ways. In Chakpak, we were trying to do something new in an existing category. Okay, something totally new. Our offering itself per se was new so that you can actually come on a portal and do some of these interactions.

BlueStone per se was very… It’s a direct commerce model. Do people pay for jewelry? They do. Are they paying offline for jewelry? Jewelry at that time was also a $60 billion market, which now is around $80 to $100B market. The market is huge. Okay. Now will people pay for it or will people buy it online was the only big question.

Will people pay for jewelry? Yes. That is anyway captured in TAM. Is online going to make a substantial dent into the market? I think that was a very big question at that time also, but that was… In any startup, there are a few unknowns. If everything is known, probably Tata and Reliance of the world would do it anyway. There are some unknowns, and because of my last four, five years in consumer internet and the confidence that I had on my understanding of consumer internet, I said, “Okay, if rest of the questions are answered or if rest of the things are answered, then this one particular question is something that we’ll look forward to and experiment in, get answers for.”

Even the biggest players like Tanishq et cetera in the space were hardly doing anything on the internet. I think CaratLane was around, but they were primarily selling solitaires, not jewelry. We were the first ones to actually start at the jewelry segment, after which a lot of people followed. We did a lot of innovations to make the needle move there.

But it was not very, very evident that people would buy it online, right? At the same time, the offering was exactly what was there in offline also, right? We were just selling it online. Whereas in the case of Chakpak, the offering itself was different. Will people pay for that offering in Chakpak was not very, very clear. Here, will people pay for the offering was clear. Will they pay it online or will they buy it online was not very, very clear.

Amit Somani 08:05

No, that’s fair. In fact, I remember in the US, I used to stay there for a while, there was a company called Blue Nile, which is also in the jewelry space, and from the 2000 dotcom era days, and I even remember having bought something back in early 2000s from Blue Nile for my wife there, so I knew… But what gave you the confidence that this online will happen or was that a long bet thing? It can take 10 years, but it will happen, right? There was no doubt it’ll happen. Just take time maybe.

Gaurav Singh Kushwaha 08:30

Totally. It was a long bet. My hypothesis there was that, okay… In fact, I remember back in 2007, 2008, when people were debating or arguing that why would anyone buy books online, and before Flipkart came to be.

What I had seen time and again in any category is that categories kept on moving online. People, they got their comfort first from books with low value kind of very, very specific, very particular, very tangible product. They started buying that online, then they moved to other category, which are… On a two-dimensional coordinates, essentially, if you look at… In four quadrants, if you look at price and, let’s say, the tangibility of a product, so books would… are low price products and very, very tangible product. You know exactly what you’re getting. Those are the easiest to move.

Then, let’s say, something like clothes, shoes, et cetera, which are still low value, but it’s not a box or a very tangible product. You don’t know exactly what you’re getting. Just look at the picture and take a call.

Then third category smartphone is high value, but highly tangible. You know exactly what you’re going to get in the box. Then jewelry, cars, et cetera fall in the other bucket, which are very high value also and which are very intangible also in the sense it’s not very specific. It’s not specification-driven products.

Ours was going to be the last category to move online. I was very, very clear about it. But whenever it does move online, the point was that the category was huge. The category is bigger than even electronics in this country. It’s almost 9 to 10% of the overall retail. The game was going to be big was very, very clear. That the defensibility was going to be there was very, very clear.

It’s not easy to enter into jewelry. Even if you look in the offline world, it’s not that there are like 20 people who entered into jewelry successfully over the last 20, 30 years. There’s just one company, that too backed by Tata. You need a lot of grit, a lot of backing to actually make inroads into this category. You need to earn the right to be a jeweler. A lot of those things favored it.

I think the only biggest question that we had in our minds at that time was would people buy it online or not, essentially?

Amit Somani 10:45

Got it. How has online penetration changed? I know that I see BlueStone stores everywhere now that I go, especially in Bangalore and in some other cities, and we’ll talk about that as well later in sort of coming full circle. But how did the online penetration pan out? Did it keep rising? Where are we at now?

Gaurav Singh Kushwaha 11:10

Yeah, I think that’s a very important question and that’s a question which is… That’s a particular facet which is very less understood.

Essentially, what happens is, okay, what does one mean by online penetration? When we started the business, we also thought very kind of online and offline that this is an online company, this is an offline company. It’s an online business. This is an offline business and so on.

What we realized over four to five years is that the world, the consumers are not just online and offline. It’s not that the whole world population is split between these other guys who are always online and these other guys were always offline. Not like that.

What we realized was that how we defined online at that time and we started was how many people are buying it online. Over time, we realized that buying is not the only thing that the internet can do. It can go beyond that also and it can do much more powerful things than just acting as a sales channel.

I’m assuming that your question, when you say how many, what’s the penetration of online, you mean people buying it online, which is still very, very, very low. In our category, I believe it is less than 1% of the overall people who are buying jewelry in the country are buying it online. Okay. However, that does not mean that online is not important, and I can… We’ll touch upon those also as we move along later.

Amit Somani 12:35

Yeah, so might as well elaborate on that, Gaurav, which is what happens in the online assist. I’m assuming people discover you online or build conviction or do shopping and selection or narrowing it down and then look for offline physical presence to consummate the transaction. Is that how it works?

Gaurav Singh Kushwaha 13:00

That is right. In fact, that is true for us and that is true for a lot of high value categories. It becomes very difficult for people… In our category, what happens is if you look at the offline world and how people buy jewelry, you would realize that it has not changed in the last 30, 40, 50 years.

Now if you go back to any other categories, let’s just think of how we used to buy shoes, let’s say, 50 years back or shirt 50 years back. My dad would typically go to a shop to buy shoes or to buy a shirt, and it would always be a counter-based experience. A person would be on the other side of the counter.

My dad would tell him that I’m looking to buy a check shirt. He would actually get a shirt out. Then he would say, “Okay, more dull colors or bigger checks,” et cetera, et cetera. There’ll be another iterative session, and then at the end of the session he would actually converge on what he… on the product, and he would actually walk away with that product.

I had never heard my dad saying, “On the weekend, let’s go check out this store or this shop.” If you would ever go to a shop, it would be to buy a shirt or to buy a shoe. Not to check them out.

Now all that changed with large format retail. I’m talking offline only. With Shopper Stop, Lifestyle in US and other markets, other retailers, what they did was they replaced the counters with aisles and that shopkeeper or that shop person who was… who used to be on the other side of the counter actually came behind you.

And so there was no counter, there were people to assist you, and the whole experience moved from buying experience to browsing experience, or from buy first to browse first.

It worked across all the categories. Even mundane categories like groceries, if 20 years back, you would actually go to a grocery store and keep telling that person that I want this, this, this and so on. There’d be kind of five more people talking to the same person when you were also talking.

Even the smallest of the grocery stores now have converted to aisles from the counters. This happened across the categories. Ikea did that in furniture also, and they reaped the benefits of it. In jewelry, that didn’t happen.

Now going back to the other categories, now then what happened was that the buying, those… that buying behavior moved to browsing behavior and then came online, which actually then made those aisles endless and made that behavior, or took that behavior from weekend behavior to a weeklong behavior.

Now you can actually browse for products on Myntra, on many other websites even when you’re having your lunch or when you’re commuting to office, before sleeping and so on. That browsing, which was a weekend habit, became a week long habit, and people started browsing more and more and more and buying became a sort of a side product of browsing.

None of that happened in jewelry. People’s behavior was changing, but the category was not actually catering to that. When we gave them the option to actually meaningfully browse jewelry online, that was the first time they ever got that. Otherwise, jewelry is way, way more expensive than shoes, apparel or anything.

But a woman was still, or a consumer was still taking that decision within one hour, and under a very high pressure environment wherein, let’s say… Okay, so in the case of shoes, let’s say, for my wife, if she’s buying a pair of shoes, she would actually have spent several days on Myntra. She would have made several visits to malls and so on, and then she would pick up one pair of shoes.

In the case of jewelry, she should actually go into a store and say “what do you have”, and he would say “this is what we have today”. She would have no idea what to even expect that there are these 10 or 15 or 20 subcategories in rings also, right? Today’s consumer knows about, let’s say, 20 sub-categorization of footwear, but she wouldn’t know about 20 sub-categorization of rings just because you cannot browse them.

Now if you go on our website, we have those 25 categorization, and this is the first time that’s even happening. Otherwise, one would only enter a jewelry store to buy a ring or an earring and then they would walk away with or they would walk out buying one of the things that is available, that was available that particular day. They would not know what all were their options. Online made all that possible.

However, going to the high ticket size or high value of the product, it needed the support of offline to kind of convert that or to make that whole browsing meaningful for the consumer and for the business to convert all that browsing into transactions.

Amit Somani 17:40

No, that’s very, very interesting. This whole browse first behavior versus transactional buying behavior and so forth. The question is, when did you in your journey realize, and by the way, we’re seeing this with a lot of other brands also, right? Like a Warby Parker versus a Lenskart, or so many other brands, right? That offline is going to be very, very critical to the… Number one.

Number two, today, now that you have I think 150 stores right, you just touched 150 stores, do you also find that there’s a lot of customers who have not browsed online and are just showing up straight offline in a meaningful way? I’m sure there are some, but is it double-digit percentage points or is it largely still online assisted and online lead before they actually show up in the store?

Gaurav Singh Kushwaha 18:30

It’s mostly. I think more than 80%. Not think, actually, I have data. This is data-backed observation. More than 80% of people who are walking to the store have actually browsed the website in the past three weeks before buying. This is essentially what is largely leading to the success of our stores also because, see, jewelry store is not something which is easy to run or easy to make profitable, and that’s why you don’t see a lot of new jewelry stores popping up ,right?

Let’s say, wherever you are living, a new grocery store opens, you’ll start buying your groceries from there. No two ways more, right. Just convenience. A new electronic store opens, you will start buying a USB drive, hard disk, phone, et cetera from that store. A new jewelry store opens, you wouldn’t even notice that there’s a jewelry store that is open. You’d still go back to your jeweler that you have been buying for the last 15, 20 years whenever it came to jewelry shopping.

It’s just not very easy to make jewelry store profitable within the first couple of years. Forget about the first couple of months. In our case, most of our stores are profitable within one to two months of rolling out, and not because offline… This is because online is supporting them in a big, big, big way. While they’re… It’s like a football game, right. I mean, the goal is scored by a forward, but that doesn’t mean that you take all the defense out, all the support system out of the ground, and they would still do well. They would not, right? Stores in this case are the forwards for us.

Amit Somani 19:55

100%. In fact, yeah, I used to work in advertising at Google many years ago, and I think one of the biggest myths even when we see young early stage entrepreneurs is first click versus last click attribution. Even in an online only full experience like your shopping experience or X, Y, Z-

… you’re just thinking, “Okay, last click, that’s what it is.” But you don’t know where they discovered you, where they engaged with you, where they built the conviction. They come into the store, five minutes, they buy it and you say, “look, I’m an amazing salesperson.” It’s like, no, no, a lot of work was already done before they walked in, right.

Gaurav Singh Kushwaha 20:30

This last click, first click is also a crazy thing, and it’s just very difficult to kind of build. In our business, we see… Even when we are only offline. Now it’s even more complex with the kind of… A lot of these transactions happening online, how do you attribute.

But even when we were only online, given that our purchase cycles were three to four weeks, where do you put your incremental money? You’ll always feel inclined that you are ROIs of 20, 25 year. Maybe you should put more money there, but it won’t increase any sales. It’ll dilute the ROIs. It becomes very, very difficult unless you build the right attribution models.

I’m saying you had seen that in Google where it was purely online only world. Everything was still measurable, or everything was measurable and people are still not taking the right calls.

Now imagine this, which is a lot more complicated, channel switching, people switching. Your cookies identified switching. You’re not able to actually stitch together all the data properly also, and then trying to figure out where to spend your money, where to spend your resources and so on. I think a lot of people struggle there.

Amit Somani 21:30

So I have two very interesting threads to pursue with you. One is, let’s say there’s some entrepreneur listening to this podcast who’s running in an interesting new category. It could be even a D2C brand, it could be something that they’re enabling.

At what point would you recommend they foray into offline? Because like you said, it’s not easy, it’s expensive. Unit economics at a offline store level might be difficult, et cetera, right?

I mean, I know it’s a little vague question, but at what point should you meaningfully start thinking about offline or should you be thinking that from day zero saying, “Look, in an India kind of market, you’re going to need offline. Otherwise, it’s not going to work.”

Gaurav Singh Kushwaha 22:00

I’m not sure if that’s even true for all the categories, right? In our category, what had happened was the high ticket size, and this is a category where people generally have the fear of buying from a new person.

There were fundamental reasons why offline was needed or a store was needed to support the same transaction which was originating online. In many of the cases, so let’s say if the ticket size is low, if you’re creating a, let’s say, online-only publishing house, you don’t need offline.

This is also a very extreme example, I know, but you don’t need offline per se. It depends on the spectrum where you are falling. There are categories where people would happily browse online and convert online also.

There you would largely be online. Even then you can build offline touchpoints like MakeMyTrip did, I think right? Or even shaadi.com, et cetera, some of these legacy online players had also done, and I think they got more comfort, more leads.

As in customers got more comfort, they got more leads, more business, et cetera from that. But that was kind of an incremental business from them, and they got new transactions from there.

In our case, what was happening was the same person, same transaction is actually flowing through both online and offline. Now our category is very, very particular, and what is true for us is also true for a lot of high value categories.

For example, cars, if you see, we don’t see a lot of omnichannel player, but that doesn’t mean that behavior is not omnichannel. Behavior is omnichannel. The same person who browses cars on CarDekho.com for two weeks, three weeks, deciding which car to buy, reviews, photos, discussions, whatnot, then goes into the dealership to do a test drive. The behavior is omnichannel. Just so happens that the offline part of it is so well taken care of already that one does not need to build that.

Now in D2C, mostly, it changes because you’re selling your own products, and wherever there’s omnichannel behavior, you yourself need to kind of make sure that the offline leg of it is also covered. For example, for a lot of apparel brands, the consumer behavior is still omnichannel. People go to Shoppers Stop and check out those products. They’ll go to Myntra and buy it. Now the consumer is behaving omnichannel. As a company, you are not because someone else is taking care of the offline part.

In D2C, mostly there’s no one else who’s taking care of this offline part. For example, in our case, these were our own products that we were selling online or making people… or letting people browse them online. So we have to take care of the offline part ourselves, and that would be true for a lot of D2C players.

But I think in our case, for example, let’s say, stores can amplify… We did a lot of surveys before entering into this, right? Our hypothesis was that stores can potentially increase the size of the business on an as is basis by 25 to 30 times. Now that would not be true for many of the other businesses, right?

For many of the other businesses, it might be an incremental 20%, 25%, 30% and so. In our case, again, this is strictly because of the nature of the category. That is on whether one should even go offline or…On exactly when to go offline, okay, I wouldn’t suggest thinking about offline from the day one because it’ll just actually put too many things on your plate. Online is beautiful when it comes to iterating on the product, getting the right product market, right? In many of the cases, two years down the line, actually your product has changed significantly from the first version that you had in mind.

All those iterations are better done in online world where the cost is low, where you can actually listen to your customers. We can talk to each and every… Where you talk one-on-one with each of your customers. You kind of collect. We have a very strong handle of data and so on. While all this iteration et cetera is being done and the first round of scale up should only happen online. Offline should not even cross your mind.

But I’m saying once that is done then you speak more with your consumers, figure out what kind of a role, how can you even expand your offerings and what kind of a role can offline potentially play there?

In our case, we spoke to our… people who were actually… What gave us the strongest insight was when we spoke to people who were buying from us and asked them RTBs. Why were you buying from BlueStone? The strongest RTB, almost 86% people said designs. Now that’s not really true for a lot of e-commerce, right? E-commerce is price and convenience mostly. Ours was design, choices, price and convenience together was only 4%.

It told us that we are a product brand. We are truly a product brand, and that’s how we had always started and what we always believed. Now for every one such person, there were at least 25 to 30 who were exhibiting the same browsing behavior but were not converting.

We spoke to them. The number one reason was, “How can I buy something so expensive without touching and feeling it?” This cohort of… which was 25 to 30 times of the buyer, they all said the same thing that designs were beautiful, we can browse so many products and so on. But when it came to buying, almost all of them said, “How can we buy without touching, without… “ Number one reason was touch and feel. How can I buy something so expensive without touching?

Number two reason was how… where would I go if something goes wrong? If I need to change my ring size, if a diamond falls off, where do I go?

Number three was let’s say if I need to exchange it three, four years down the line, if I want to exchange this design for a new one, which is a very common behavior in India and very… It’s a behavior, very, very peculiar to the country. Where would I go? Then we realized that, okay, if we can solve for all these with a simple scope.

That actually, those were the insights that came to us. When we were talking to these customers the very first time, our objective was to figure out how to improve our conversion funnel, or how to improve our checkout funnel. That was the reason why we were talking to them. Then we realized that our checkout funnel needs one more page and that page is offline.

Amit Somani 28:05

Yeah, that’s very deep and profound. In fact, I was going to ask you that how did you have the insight to do the reason to buy survey and whether you would recommend that for others. You kind of answered it at the end that you didn’t start with the reason to buy. You started with how do I improve the funnel? But maybe you can talk a little bit about some best practices around RTB as well as objections to buy. Are there any good tools or tips or blogs or books that guided your thinking or this was more first principles?

Gaurav Singh Kushwaha 28:40

This was almost all first principles, Amit. I was just already in this space for almost 8 to 10 years. I don’t know. I mean, whatever books I might have read, I might have read in 2006, ’07 and so on, all the blogs and so on. After that I think, and you would also have been in this space for many years, I think slightly more than me.

Lately, though, I’ve not been reading any books et cetera. Must have read in 2005, 2006, 2007. But I think it becomes very, very fundamental. You’re kind of measuring everything you’re seeing. We all know that standard four-page checkout funnel then which became one click and so on so forth, and all these experiments we’ve all done. Changing the language, changing from buy to add to cart, et cetera, et cetera. Does it increase the size of the cart and so on?

I think for the young entrepreneurs who are starting now, it would be very interesting to actually go through. Now I can’t pinpoint any blogs and so on, but I think a lot of wisdom on add to card… I’m sorry, E-commerce is already built. How to optimize the checkout funnel? 80% of the job can be done if you just go to the right resources and read the right resources.

I think what also happens is as you actually execute a lot of these things, you understand how A/B tests are done, you understand how multi-variant testing is done. Once you’ve done that, then I think you generally become more scientific, more in your approach in general. It would be very important for anyone who is starting afresh to go through these resources.

Amit Somani 30:00

Yeah. One of my question was less about the resources, although fair point, was really what are your own lessons learned with doing RTB correctly or to do objections to buy correctly, right? Because I often find that people when they go around doing surveys or user research or customer discovery… I’m a product manager “I have to make this work”. So I just like, “Boss, you’re not buying because you don’t trust us, right? Boom. Gone. Kapoosh. That is you already led the witness. That’s a very tactical example. But since you’ve done RTB, I don’t know if you did an objections to buy as well, but to do it correctly-

Gaurav Singh Kushwaha 30:35

Yeah, the second cohort that I told you about, which was 25 to 30 times of the buyers was actually objections to buy. You’re exhibiting the behavior that should actually make you a transacting user, but you’re still not transacting. Specifically, we found out that cohort.

I think in a lot of cases what I’ve seen product managers doing, okay, and I’ll only be talking about things that they do incorrectly. That doesn’t mean that they do everything incorrectly. They do a lot of things right, but because the focus is on those things that they can potentially improve on, what I’ve seen is a lot of times people already have the hypothesis. When they implement it, they test it in such a way. Okay. They don’t define the metrics beforehand while testing it.

They set up a test, then look at the metric, which would actually tell them that was successful. In many of the cases, because it is their own baby, that bias is already set.

I think one important thing is to define those metrics beforehand. I’ll give you one simple example of there was someone who said that we should increase use the size of the search box on our portal. I said, on our category there are no keywords for people to search. What will they search for? Rings, earrings, and the nomenclature itself is not established, the starting point is not established. The starting point can only be established when people… once people interact with the category enough. There were those things.

But I’m generally someone who say because it’s a very low cost experiment, it takes only five minutes, I wouldn’t mind you experimenting with it. Go ahead, experiment, right? It’s not that… Okay, I was open, I was hoping that it would still work. It might have worked also actually. I don’t know if it worked or did not work.

The thoughts were not align… Okay. He believed something different, I believed something different. That’s fine. That is always the case. Then he went ahead and increased the size, and then he said that, “Okay, earlier people were searching on our website, only 3% of them were buying. Now 8% of those are buying.” I said, “How is that even the right metric to look at? It might just be that the people who are otherwise also going to buy are just searching more because we increased the size of the search box.”

Right, so some of these things. He was pretty convinced on his mind that earlier 3% people who were searching were buying. Now 8% of the people who were searching are buying. It has definitely led to increase in the business.

I said, “You just do a simple A/B test and then tell me if the absolute number of orders in this particular cohort have increased or not.” I think some of those. It’s a very specific example of that bias that sets in once you’re actually working on something, and you’re not just… Because you are not decided what is the metric that you’re going to look at, you actually look at 10 metrics, and you ignore those 8 which are not supporting the case.

But those 2, which even in a distorted way can support the case, you actually believe in this. You start believing in those and then move ahead with that.

We all swear by A/B testing, right. A/B testing actually removes all these biases and so on. Even after that, even when you’re doing A/B testing, I have to be very clear, “Is this thing going to decrease my bounce rate? Is this thing going to increase the page… time spent on the site? Is this thing going to increase the add to cart? Is it going to increase the conversion, the people you’ve already added to cart?”

Where exactly and what exactly to measure is very, very important. To define that before running the experiment is very important. Otherwise, the biases would get in.

Amit Somani 34:10

Hey, wonderful, Gaurav. I think we could talk for hours, but just to try to bring this to a close, second last question, which I would be remiss in not asking given that VCs ask this question all the time, this whole n otion of to CAC to LTV, and how do you figure out. Of course, in your case, you also have to build the brand, you have to build trust. Now you’re doing offline 150 stores.

How do you think about the role of marketing and customer acquisition, number one? Number two, is this a category that lends itself to high repeat or is it more like a one, two time or certainly infrequent category? Even if it is multi-time, it might be like I buy a ring now or a bracelet now, but the next thing I might buy might be two years later. Can you talk a little bit about this notion of building the brand marketing CAC/LTV kind of thing?

Gaurav Singh Kushwaha 34:55

Sure. This whole CAC/LTV kind of came to the picture with online marketing and so on because everything became so measurable. Before that, marketing was not as measurable as it was.

I think a lot of the early stage internet businesses were kind of arbitrage businesses also. The idea was that, okay, you’re spending this much on getting a person. How much more money you are making from that person? In fact, if you remember Google Ads, there was a lots of companies would actually run Google Ads, get people and then send those people to Amazon and then take money from Amazon. They would actually acquire a person because no one else understood marketing as well as they did. They created arbitrage businesses there.

In the single transaction, they would have to measure their CAC and LTV. They would have to say that, “Okay, I gave Google 10 rupees for person on average and I made 15 rupees from Amazon on average and 5 rupees is what I made.”

Now as these businesses mature, what had also happened was these are purely arbitrage businesses, but as businesses mature, as people build more and more compelling offerings, they said, “Okay.” First transaction… There are multiple transactions that a person is doing, right. I should actually bake in all the value that I’m generating from that person from those transactions, and that’s how they started measuring it. I think CAC/LTV that way is… that’s how it was built.

Now in today’s world, the way it is being used as many of the people are using it as the only metric which is… or the only marketing metric which I generally don’t agree with. Brand et cetera also play a very big role.

Also, what happens is, and one of the major fallacies that happen is people think that CAC/LTV… the ratio of LTV by CAC is very, very fun… It’s a very fundamental number to the business, or in the sense it’s like a universal constant for a business. It’s not.

It changes drastically with scale. If you’re spending 1 crore, your CAC/LTV is different. If you’re spending 10 crore, it’s not going to be a number even closer to the number that you’re seeing.

I have seen online marketing performance degrading by almost 60% as you double your budgets. Now very early on, when I looked… That’s why VCs I’m not sure should be as focused on it as they are because VCs are in the business of actually investing in businesses which are going to grow 20X, 30X, 40X. Now when they grow 20, 30, 40X, that CAC/LTV equation is not going to hold anyways.

It’s not that you can actually just keep that as constant. In a Excel sheet, people do that, that they keep that constant and increase the size and then say, “Okay, CAC/LTV or CAC will go down by 30% in four years. Market will go up by 10 times in four years, et cetera, et cetera.” None of that actually pans.

It’s a function of the budget. At 10 lakh, you have a different LTV/CAC and at 1 crore, you have a different LTV/CAC. I don’t think VCs should look at it fundamentally. Entrepreneurs should definitely look at it because it tells them how much they can stretch their business. How much more can they spend in online marketing without actually going overboard?

The second part of the question was on us. I focus, I believe, a lot more in brand. I believe marketing’s job is to grow the category, to grow awareness, to kind of bring more people on the table. Online marketing I believe is like a salesman. It’s like a salesperson in your showroom, and you should only spend as much on it as you’re making in that transaction or in, let’s say, next one to two years on that person, on that particular customer, which is a duration we define for lifetime.

Whatever we get after that is something that continues to make bottom line also. I have folks coming over from Google that you’re making this much on this… on customer, so on average, so we can spend more. I said, “I need to make money also.” I don’t look at blended CAC. I actually break it down into the CAC I’m spending on the last person that I’m acquiring, not the blended. Blended CAC or blended cost of acquisition has to be something which actually generates a lot of money for the business.

Amit Somani 39:00

Got it. Hey, Gaurav, we’ve gone well over our time, but I’ll close with one question. What advice would you, Gaurav, give the Gaurav of 2012 or 2011 when you started BlueStone? What are one or two things you would redo or do differently or what are one or two things you would say, “Ah, I just got this right and I won’t change it for a dime?”

Gaurav Singh Kushwaha 39:25

Basically offline rollout, which started in 2018, I would actually, with the kind of conviction that I have now on this whole omnichannel behavior, I would have actually done that much, much, much sooner.

Some of the mistakes that we did on the way I think, hiring aggressively or going overboard on… In 2015, ’16, that was very common across a lot of companies. What we also did was we also stretched our marketing budgets, our team size, et cetera, believing that the online is going to keep on increasing perpetually, which was not the case. I would not do a few of the things that I did on… that I had done on the way.

Would have built it a lot more frugally and a lot more… a lot… Basically, could have… I would save off some $20 to $30 million that were kind of spent, which could have easily been saved in two to three years, which we delayed in rolling out our offline stores to complement the online offering, would have done that sooner.

Amit Somani 40:25

Hey, fantastic, Gaurav. I’m sure a lot of entrepreneurs will benefit from this. I certainly did. It reinvigorated my thing about the reason to buy. I often obsess on customer discovery before you start up or zero to one. I learned that quite a few things myself. Thank you so much for being on the Prime Venture Partners Podcast.

Gaurav Singh Kushwaha 40:45

Thank you, Amit, for hosting me.

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