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Nuts and bolts

Urban Ladder has the ingredients for a great brand story. It now has to make the business work.
By Nirmal John

Before he turned entrepreneur, Ashish Goel was COO of ACK Media, the company behind the popular Amar Chitra Katha series of illustrated stories. He likes to tell a story about how once, when he turned up at office before anyone else, he had to wait for an office attendant to unlock the doors. The attendant lived in Virar, a suburb north of Mumbai, and it would have taken him a gruelling two hours on a train crammed with people to arrive at the ACK Media office. Still, as soon as he arrived and opened the doors, he went down on his knees and performed the traditional Indian ritual of touching forehead to floor in prayer.

“It got me thinking,” Goel tells me, some five years later. “This guy should have been in a really bad mood. But what his behaviour taught me was that when a person starts his morning, no matter how hard things are, he still hopes and prays that he will have a good day.” And then, philosophically: “If that is the starting point for most human beings, the question is, how does a business channelise it?”

That little scene seems to have stayed with Goel even as he set up Urban Ladder with buddy Rajiv Srivatsa four years ago. The furniture and home decor startup is fast becoming a benchmark for customer experience in the dog-eat-dog world of e-commerce. I get a taste of this when I order a bookshelf off Urban Ladder. The shelf arrives when I am told it will, the delivery guy is polite (Urban Ladder employs its own staff and doesn’t use third-party logistics vendors), walks me through the formalities in under five minutes, and then offers me a bar of chocolate tied up with a ‘Thank you for shopping with us’ ribbon. 

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Ashish Shah, CEO, Pepperfry

It’s these little touches that give Urban Ladder an ‘above industry average’ rating in more categories (delivery, payment method, installation, and product quality) than any of its key competitors—including the No. 1 online furniture seller Pepperfry, Rocket Internet-backed FabFurnish (which, reports say, is likely to shut soon), and e-commerce biggie Snapdeal—according to a RedSeer Consulting report published on startup news platform NextBigWhat.

I ask Goel what motivates Urban Ladder and its delivery team to go to such lengths to pamper customers, and he tells me the story of the ACK employee from Virar. The unstated moral: Everyone wants to start a relationship on a good note, and if that means on-time delivery and a bar of chocolate, Urban Ladder will provide that. The subtext, of course, is that a happy customer will return. (That, I later find out, may not be the case. But we’ll get to that.)

For newfangled Internet-based businesses, prioritising intangible values like service and experience time after time can be a liability—it slows them down in the brutal contest for customer acquisition: By 2014 end, for instance, Urban Ladder had 50,000 customers; Flipkart had 1,500,000 bargain hunters on the Big Billion Day alone. But that’s a trade-off the Urban Ladder co-founders made peace with in the early days. They launched nationwide in 2012, but complaints about poor service from third-party vendors saw them scale back to only three cities, Bengaluru, Delhi, and Mumbai, even though it cost the company a third of its revenue. The co-founders decided to take control of everything—from sourcing the wood to design and manufacturing to delivery. The company now delivers to 28 cities. Mumbai-based competitor Pepperfry, barely a year older, claims to reach 400.

More important, in an age when customer service is often confused with deep discounts, Goel and Srivatsa refuse to play that game. They know it’s a huge risk in the face of a better-funded rival like Pepperfry, and may leave them even more vulnerable as biggies like Flipkart, Snapdeal, and Amazon get into furniture more aggressively. “It’s okay if we are out-discounted right now,” says Goel. “We want to build an enduring brand.”

The difference between Urban Ladder and Pepperfry is stark. Before Republic Day, a big sale day, the Pepperfry website was plastered with banner ads announcing mega discount deals. On the Urban Ladder site, the word ‘sale’ was tucked away as just another link. 

Goel and Srivatsa are clear that their goal isn’t to build a mammoth furniture empire that is present everywhere. Rather, they want to focus on building a strong brand of furniture and furnishings distributed over the Internet, with 4,000 to 5,000 pieces delivered to a compact nucleus of cities and towns. The smaller footprint explains the need to go the extra mile in delighting the customer and perfecting unit economics—the yield per customer over their lifetime—and hence the pains taken to invest in the experience, both in terms of the product and how it is delivered.

But here’s the thing. A delighted customer is not necessarily a loyal customer. A Harvard Business Review article (‘Stop Trying to Delight Your Customers’), based on a survey of 75,000 people, reveals a key learning: Delighting customers doesn’t build loyalty; reducing the work they must do to get their problem solved does. 

“The idea that companies must “delight” their customers has become so entrenched that managers rarely examine it,” says the article. “How often does someone patronise a company specifically because of its over-the-top service? You can probably think of a few examples, such as the traveller who makes a point of returning to a hotel that has a particularly attentive staff. But you probably can’t come up with many. Now ask yourself: How often do consumers cut companies loose because of terrible service? All the time.” 

In other words, while a smiling delivery guy and chocolate help, to ensure that all that effort translates into loyalty it is crucial for Urban Ladder to consistently ace the basics of service—read timely delivery—so that impatient customers don’t have to keep following up. For that, it must hold a certain volume of inventory rather than wait for an order to start making the item. But how do you predict what customers will order? 

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To be fair, it is a challenge endemic to e-commerce, and companies are finding their own ways around it. Flipkart, for example, holds seller inventory for quick-moving items like mobile phones that people would want to get their hands on as soon as they order them, while slower-moving items are mostly shipped from seller locations and take a few more days in transit. Pepperfry too holds inventory as a managed marketplace, and claims that the sellers are charged a fee for this. For Urban Ladder, which sells only its own products, this is not an option. If it needs to hold inventory, there’s nobody to share the risk of pile-up.

It’s one of the things Srivatsa is preoccupied with these days. “Inventory is an issue that could become bigger at a bigger scale,” he admits. “Equally, we could also have an out-of-stock problem [if there isn’t enough inventory]. We honestly don’t know what our final model will be, because we have just started working on it.”

Srivatsa says a large team, along with an external consultant, is working on cracking the inventory puzzle. The strategy broadly has two parts. First, concentrate on increasing the revenue share of higher-value made-to-order goods and services—like modular kitchens or wardrobes—where there may still be a need to hold inventory, but in the form of raw material rather than finished goods.

The other is to automate the entire chain so that algorithms can predict demand for specific products and balance inventory. Making this work is a complex operation and involves writing code that will listen to a mindboggling array of signals—from page views to click-throughs on external banners to online traffic patterns to current sales to historical sales to the cannibalisation effect of new products to vendor capacity.

The focus on customer service, coupled with the antipathy to huge discounting, has created an impression in the mind of the shopping public that Urban Ladder is pricey. Goel and Srivatsa try to defend themselves, saying that Urban Ladder’s average ticket size, while still 20% to 30% higher than competition, has actually come down from last year because savings from improvements in sourcing, manufacturing, and inventory management have been passed on to customers.

According to industry estimates, between 91% and 94% of India’s $10 billion (Rs 63,170 crore) furniture market, 70% of which is residential furniture, belongs to unorganised players—the neighbourhood carpenter or furniture store. As with retail in general, the belief is that organising this market will happen online rather than offline because the Internet solves the problem of costly real estate and parking space, among others. The online furniture market is still paltry—in the region of $40 million—but industry estimates indicate that it will reach $700 million by 2020. And online players are expected to dominate the residential furniture market by then.

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Online furniture sellers are divided into the verticals—Urban Ladder, Pepperfry, FabFurnish—and the horizontals—Amazon, Snapdeal, and Flipkart. FabFurnish hit rough weather primarily because of the complicated cost structures inherent in its hybrid online-offline business model. Gurgaon-based Snapdeal, the earliest horizontal firm to move into furniture, is thought to be a strong player, even though numbers confirming this are hard to come by. 

Most industry watchers believe it’s a two-horse race, between Urban Ladder and Pepperfry. Sid Talwar, partner at Mumbai-based venture capital firm Lightbox Ventures, says, “When you look at other vertical players, very few have been able to create the kind of brand recall that they have. The problem they are solving is access and convenience, not price. I may be able to buy the same kind of furniture outside but I may not know where to go looking for it.”

Started in 2011 by ex-eBay professionals Ambareesh Murthy and Ashish Shah, Pepperfry wants to be the store with the biggest catalogue—it says its range is in the hundreds of thousands—and the widest reach. “Seventy percent of e-commerce in India happens from 11 cities,” says Shah. “But tomorrow the business will come from smaller towns. In a city like Vadodara, we have 11 vehicles for delivery, and people have already seen us around.”

To get better control over processes and cut delivery time, Pepperfry has deviated from being a pure marketplace, which just facilitates transactions, to a managed marketplace, using its own warehouses and distribution channels to collect, store, and distribute what it sells. It also operates small physical stores (unlike the larger ones that FabFurnish chose), using them more as experience zones where customers can get a feel of the furniture and order online later. 

Urban Ladder doesn’t have stores—as with discounts, Goel and Srivatsa are allergic to real estate—but has booked space in premium traffic zones like the Bengaluru airport. It calls itself a curated marketplace, with one important difference from a traditional marketplace: It offers products of only one seller and brand—Urban Ladder.

If you think Urban Ladder has already conceded a lead too big, consider that the furniture business actually gives it the latitude to take its time. Furniture is not a mass category like mobile phones, books, or clothes, which allows the company to be more attentive to customer engagement. Goel claims the cost of acquiring customers is also coming down because of increasing customer comfort with online shopping in general. But by August 2015, the company had started ploughing big money into costly television ads. “TV has a central role to play in building the brand as opposed to increasing transactions,” Goel told Fortune India last year.

The costs have started to tell. Urban Ladder’s 2014-15 filing with the Registrar of Companies says its marketing expenses spiralled 11 times year on year to over Rs 40 crore, accounting for nearly half its expenses. Revenues stood at Rs 19.2 crore, compared with Rs 11.9 crore the previous year. Losses zoomed to Rs 58.5 crore from Rs 7.6 crore. (The numbers for Pepperfry: revenue of Rs 25.3 crore and loss of Rs 88 crore.) But Srivatsa  says the numbers don’t reveal the complete picture. He says the balance sheet filed to the RoC shows only the commission earned by the Urban Ladder platform (the marketplace) and not the total revenue of the furniture and furnishings brand Urban Ladder.

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Sid Talwar, Lightbox Ventures

Spending time with Goel and Srivatsa is likely to make you believe that while they back all these efforts, they are happier focussing their energy in making every customer happy every time. Sure, it has worked so far. Sample this: “Whenever I’ve ordered from Urban Ladder, it has been a very seamless experience. Right from cataloguing to delivery to the post-sale experience, they are pretty good. If I were to do furniture, I would do a similar job.” That’s Ankit Nagori, chief business officer at Flipkart, India’s largest e-commerce company with a growing interest in selling furniture, and, therefore, prime adversary to Goel and Srivatsa. 

Among others who have noticed Urban Ladder’s approach is  Ratan Tata. Exactly a year ago, we had identified the company’s eye for design as something that impressed Tata, who chose it as one of his early investees (‘Ratan Tata Logs In’, March 2015). But there was something more: “Tata relates to subtle, specific values central to each [of his investees],” we had said. “At the heart of these companies is the emphasis on building engaged user communities, signalling Tata-esque focus on longevity.”

Consistently delivering such experience calls for that elusive resource many startups struggle with: a great team beyond the founders. “The DNA match that we are looking for in an employee is an absolute bar,” says Goel. “Irrespective of how fantastic the person is, [we take into account] the depth of expertise they have, their knowledge, everything.” The percentage of DNA match is higher with some companies, and a lot of Urban Ladder’s lateral hires are referrals from these companies. “We have a lot of people who have joined from organisations like ITC. Fabindia is another organisation which shares a certain set of values with us and we have hired from there,” Goel says.

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Making sure every hire is the right fit is the job of the Great Finds Council—whom Goel calls “absolute stewards of upholding the culture and the values of Urban Ladder”. The council makes sure that team leads are hired first to increase the odds of them hiring similar people in turn. “The most important thing to do when you are building a brand is consistency,” says Goel. “People often do something for six months and something else the next six.” 

Both founders share this unhurried approach towards the business. Gautam Mago, managing director at Sequoia Capital India, which has invested in Urban Ladder, says that being slightly older and more experienced than most tech founders could explain why Goel and Srivatsa seem to think longer term. “When you are trying to build a brand, the tenets of the brand experience have to be consistent, and that doesn’t really happen in a hurry,” Mago says.   

Does Urban Ladder have enough fuel to keep up these habits without succumbing to the ‘grow big, fast’ syndrome? Srivasta claims that at the moment, there’s enough money in the bank to do things right without any rush. “We raised $50 million last April, and we started using it just three months ago,” he says. “If we maintain this burn rate, we are sorted for the next 18 to 24 months.” 

The company’s big goal is to hit revenues of $150 million over the next year. Much of that projection is based on its ability to build an aspirational brand, but are there enough customers in India who will pay the premium that Goel and Srivatsa think they will? Finding the right answer now will help them prepare for life when India finally sees the entry of the big daddy of furniture brands, which plays on similar sensibilities as Urban Ladder: Ikea.