Welcome back to part 3 of this series. In today’s episode, we discuss about the journey of Ninjacart and learnings on building unit economics positive business in Agri. We have with us Thirukumaran Nagarajan, co-founder of Ninjacart, Shashank Kumar, Founder & CEO, DeHaat, Karthik Jayaraman, Co-founder of WayCool and Shobhit, Co-founder of VeGrow. The conversation was moderated by Ankush Goyal, Sanjot Malhi & Tarun Davda who look over the investments in the agri-tech sector for Matrix Partners India.
Thiru, if you remember we’d spoken earlier about growing sustainably and having sustainable economics and how you sort of came around to that realization and that’s kind of a North Star for you now. So, can you talk a little bit about what that journey was like where you discovered the right model in terms of economics and if there are any sort of common structure learnings that you think can be applied across Agri to create a more sustainable and viable economic model?
There is no one answer to what is the mantra to build a sustainable unit economics company. I don’t know whether I’d be the right person to say because I’ve not done it yet so we’re still finding the path to it. But there are certain learnings which I carry which I could apply.
The biggest learning I carry is again as you said earlier when you’re a very small company where you have a group of highly engaged people who are well connected with the founders etcetera the organization is very different from let’s say when you’re a 2000-3000 member organization where the last level guy is no more connected to you, he doesn’t even know you, it’s very different.
So what happened, primarily with Ninjacart was this, so when we were only primarily based out of Bangalore and started scaling, our unit economics was better or close to break even and we were doing a fabulous job. Then we said like, hey, this model is ready to expand, we can go to geographies and sort of fill this market. But the moment we expanded into geographies it opened up a Pandora box actually.
So what happened is if you have a whole bunch of people who are not really connecting with the organization who come and look at it like a job and they’re not worried about what others are doing etcetera. It had led to a lot of chaos for us so a lot of processes broke, let’s say the ownership level was a huge problem. I don’t know whether it’s only related to the agri sector but as a company if it applies for the other companies also so then because unit economics is not only for agri sector it’s for every company, every sector.
So when the unit economics which we made Bangalore was very, very different from our unit economics across the country for us and in fact getting worser and worser as every day passed by. So then we had to go deep to understand like what fundamentally changed and this change also came so fast maybe because we expanded also so fast so for us to maybe put our heads together to really go deep to figure out like what went wrong and then come up with reasons.
And then every reason was attributed to people rather than the core activity down there. No one followed the processes’; how do you standardize the processes because let’s say if you build a very people dependent company and your processes are not standardized the people will make their own decisions and do it their own way. So how do you go on to standardize every single small part of the supply chain and say this is the process that has to be followed and even if you have to change it we have to discuss because when you’re small you know every changes that goes into the company and you are able to see whether it is an impactful change or non-impactful change and you can quickly reiterate.
But when you’re spread over 7 geographies and then you’re growing if you allow each one to make their own decision then it becomes very, very difficult to get a standardized output. So that is one problem we faced. Then we had a larger cultural question of like are we curbing the innovation at the grassroot level and telling people that you cannot innovate on top of it. Or are we going to put a structure to the innovation, so these are some of the things that we had to answer and solve to get the unit economics right.
I fundamentally believe that agri business is not a business that doesn’t exist, it exists currently also. And whether all the people in this supply chain is profitable, yes, they’re definitely profitable, that’s why they operate. But then why we’re not making money is a question which we consistently keep asking. Why, like everyone makes money but why we’re not able to make money. So with that angle we pursued the problem and we’re trying to figure out solution one after the other. So I largely believe that if someone asks me like, hey, Ninjacart that’s a revolutionary alternative to farmer I say no, it is not. Actually, we’re building an ordinary distribution channel and trying to be better efficient than the market.
Yeah. So, Thiru, I remember when we last chatted, I think you had made a really interesting point where you had said hundred percent of your energies are spent on solving for integrity and that is the number one problem to be solved in the whole agri supply chain. We’d love for you to maybe just double click on that a little bit and share some of your thoughts because I had found that a very sort of interesting insight
Sure. I’ll throw some light into what we’re doing. We’re dealing with commodities which has a very great market access and things can be taken out of the supply chain and sold very easily. Let’s say for example you steal 100 mobile phones maybe you’ll find it difficult to sell but you steal 100 kilos of tomatoes you can sell it in no time because all you have to do is offer it at 10 percent discount and people will go on buying.
The biggest problem we faced in our supply chain is actually the pilferage problem and at every leg people were stealing something. That’s what I said when you’re small when everyone we know they acted very responsibly, and we never had pilferage as a problem. But when we expanded into geographies where there are multiple teams involved where we couldn’t bring in a sense of ownership at a cultural level, we saw that most of the people who had to care really didn’t care, because of that people who had integrity issues went ahead and created a lot of pilferage for us. To give a small example like if a farmer brings an item to your collection center and we had to sample grade the item and we have a person who is grading.
The farmer tips the guy like Rs. 100 take everything inside. And then you are mixing this in a whole lot of – it’s a whole ocean of items we cannot track which farmer gave the bad item, day in and day out let’s say 5-6 percent or 5-10 percent of my customers return things, saying this item is bad and that’s the major problem we faced.
Then maybe to solve that we went and implemented complete traceability and then if the customer returns, we were able to track down to the farmer who does it and now we’re able to tell the farmer that hey, this is not acceptable. It’s a farmer problem or a labor problem or a collection center problem that’s one form of cheating. Like this everywhere people cheated on quality.
Let’s say for example I go and deliver an item to a customer the customer takes a good item, puts all the bad item inside and says, oh, this quality is bad, take it. Now the problem is it’s with the farmer or the customer. Then we started leveraging some products as well as data to figure out where the real problem is, who is cheating. So it’s not the integrity level of the employees I’m talking about it’s the integrity level of all the stakeholders it’s a problem because traditionally we’re in a country where if people don’t watch, we’re okay to make the mistake. So that is something we fought and that is something we cannot change but we have to put your process and get solution for that.
Similarly in every crate of tomatoes we have open crate, we don’t pack it. When I say open crate it’s like a plastic bin where you put the vegetable in and we don’t close it or seal it. Now what happens is weighing is a costly affair in our supply chain, let’s say you’re removing 2000 tonnes and every supply chain point if you start weighing it it’s a Herculean effort to do that.
For example we weigh it when you get it from the farmer, until it goes to the customer we don’t weigh it because weighing costs me a bomb. In markets till the item arrives in the market and sold it is not weighed, at the point of selling it gets weighed and from there on the risk is transferred. But we weigh it at the farm gate and pay a price and carry it so we had to be very mindful of our inventory, right.
Let’s say so we don’t weigh it at any point but then what if a driver starts stealing one, one tomato from every crate and makes a new crate then he can sell it easily. It then goes to the customer the customer says hey, this is not a 20 kilo crate this is like a 19 kilo crate. So then we don’t know who took this one kilo, right, so everywhere one, one person is stealing one, one tomato that’s like a very hard problem to solve. So there how do you end up with solving it. Like that the quality, weight, in terms of like vegetables shrink so whatever I keep in my warehouse tomorrow it won’t measure the same, it’ll be like maybe 10 percent less. So how do we latch on to our inventory and make sure that the inventory pilferage of stealing. I still remember like one guy he kept on putting like say 100, 100 kilo shortage and let’s say at one point he accumulated some 10 tonnes of onion, he got a truck and put it in that and left. Then we went on to figure out like which is this truck parked and somehow through our CCTV cameras we figured out this. So it’s a complex problem when it comes to pilferage and that’s why this sector is largely unorganized for a long time because it needed entrepreneurs to behave with a lot of integrity, so disrupting an entrepreneur driven supply chain or entrepreneur driven eco system with the organized ecosystem where ownership levels of people are questionable and ownership level of customer or different stakeholders is questionable - it’s a relatively much, much harder problem to solve is what we like to believe.