If there is one company, which has had its fair share of ups and downs in the last decade is Snapdeal. Snapdeal’s rise from ashes is nothing short of a fairy-tale story. Currently, the company is making the news for all the right reasons. 

Founded in 2010 by Kunal Bahl and Rohit Bansal, Snapdeal was one of the first few companies to tap into the Indian E-commerce juggernaut. Soon, it became the poster child of the Indian start-up community. Things were going so rosy that in an interview with Economic Times during 2016, Kunal Bahl said, “I’m very confident that whatever their (Flipkart) numbers are (in terms of sale) we will be ahead of them by March.”

Where did Snapdeal lose the plot?

The things that made Snapdeal successful led to its massive downfall. Snapdeal had been performing very well and the founders were aggressively expanding across the country. Amazon entered the Indian shores in 2012. To keep its deep-pocketed rivals Amazon and Flipkart at bay it started to expand aggressively. Soft Bank pumped in $900 million.

Cash burn rate skyrocketed. The strategy to expand rapidly by investing in warehouses and logistics hit the company badly. Money got tied up and it failed to carve its own niche- differentiate itself. It had no USP of its own.

Flipkart created its identity as the best store for electronics especially mobile phones. Amazon differentiated itself with its “prime offerings” but Snapdeal never focussed on developing categories. The management assumed that due to the rapid penetration of internet and a paradigm shift in the way we shop customers would continue to walk in.

Management Muddle?

By 2016, Snapdeal was valued at a whopping at $6.1 billion dollars led by investments by SoftBank Corp., Kalaari Capital and Nexus Venture Partners. Snapdeal, which was splurging money left and right was burning money at a meteoric pace.

It undertook a 200 crore whopping re-branding exercise an example of unnecessary expense when it had only $500 million in the bank. To match its rival it was offering deep discounts and sales, which were mounting up continuous losses. Sales too began to dwindle after a number of unnecessary external scandals hit it.

For instance, people began to uninstall the app after its brand ambassador Aamir Khan came under fire for his statements relating to rising intolerance in the country. Another misunderstanding, which destroyed the brand image of the company, is when people started to uninstall snapdeal instead of Snapchat. Snapchat’s CEO, Evan Spiegel had commented, “the app is only for rich people.”

This comment did not go down well with the Indian users. Dwindling shipments from 150,000-200,000 a day to 20,000 shipments a day made the investors hesitant to invest. The shareholding pattern hurt the company a lot. It were the VCs and the investors calling the shots.

snapchat-shareholding

The decision making power of the founders was limited. The company suffered immensely due to conflicts on the board. Two funding offers were rejected due to a boardroom tussle. The lack of funds pushed the company towards the brink of bankruptcy.

Soft bank, which had always promised to infuse fresh capital, could not do so as the other investors on the boards would not agree to its terms. In Addition to this, key employees weren’t happy with the organisational structure of the firm. Many were poached by other rival and start-ups while many left on their own. 

Just when you thought it could not get worse, Snapdeal made a series of acquisition mistakes. It passed on the chance to acquire Jabong, which worked wonders for its direct competitor Flipkart. It’s a major acquisition in Freecharge to failed to capitalise the favourable business environment during demonetisation.

All this mess led to buyout talks with Flipkart at a cut-price deal of $850 million. The seven-month negotiation did not bore any result due to yet another board tussle. Softbank wanted to cut its losses but other investors such as Kalaari and Nexus didn’t want to concede. 

Rise of the Phoenix- Snapdeal 2.0

snapdeal cultural shift

The dire situation prompted the founders to revert back to the drawing board. They took some major decisions. Cash burn rate got reduced by 100%. There was major resizing of the firm. They sold the payments and logistics arm of the business and started focussing on the core values. In a LinkedIn post, Kunal Bahl named the strategy Snapdeal 2.0. According to Bahl, “Snapdeal 2.0 is all of below:

  • Single-minded focus on our core business – only running a pure-play marketplace
  • And hence, divest non-core assets. We were clearly moving away from the approach of being in multiple businesses at the same time, each with their own moving parts, competitive pressures and demand on resources
  • Fix the economics of the business, and then resume growing it
  • For that, go back to our roots of catering to the needs of the value-conscious buyer, because that’s why our most loyal consumers came to us over the years
  • Continuously improve the experience for our buyers and sellers, keeping the guardrails on economics in place
  • Stabilise the culture and ensure everyone in the team was aligned to the company’s plans
  • Time-bound plan to reach positive cash flow and liberate the company from fundraising cycles

After staying incognito for a whole year, Snapdeal was finally successful in getting its mojo back and stay cash flow positive. In a major turnaround, Snapdeal became the only e-commerce company in India to achieve the cash-profit milestone. According to Economic Times, In FY19, Snapdeal’s revenue rose a whopping 73% from 525 crores to 925 crores. Losses too declined from 611 crores to 186 crores in the same period. The turnaround can be credited to a cultural change and focus on non-metro cities. Currently, snapdeal delivers to 26000 pin codes across the country. Nine out of every 10 orders received on the platform were from non-metro towns in the country, said Snapdeal, which now has more than 500,000 registered sellers.

financials snapdeal

What’s Next?

Earlier last year, Snapdeal received an investment from Anand Piramal in his personal capacity which has gone a long way in strengthening the management team and the board of the e-commerce giant. Counterfeiting is a major problem that e-commerce platforms are facing. Currently, Snapdeal is exploring deals with major brands to sell directly on its platform. Snapdeal has also acquired a stake in Azah, a Gurgaon based female wellness Start-up. Co-founded by Shashwat Diesh and Aqib Mohammed in 2018, Azah focuses on solving some of the most critical problems in the feminine hygiene sector. It also acquired a stake in Open Secret, healthy snacks startup. 

Snapdeal’s Bharat strategy- focus on tier 2 and tier 3 cities, towns and villages have the potential to pay immense dividends in the long run by building a consumer loyal user base. A challenge the company still faces in spite of the massive turnaround is of profitability. There are a lot of uncertainties. With the economy stuttering at a 4% GDP rate, a global slowdown could really hurt the company. Currently, the company enjoys a meagre 2% market share but the management expects it to rise to 10% over the next few years. It would be interesting to see if this is a start of something new or a mere flash in the pan.

If there is one company, which has had its fair share of ups and downs in the last decade is Snapdeal. Snapdeal’s rise from ashes is nothing short of a fairy-tale story. Currently, the company is making the news for all the right reasons.