The antifragile founder | Ustraa

Business news often talks about companies that become successful overnight, but if you want to learn how to build a business from scratch, you should hunt for tales that are more of a slow-cooked stew than a microwaved success burrito!

In 2003, Rajat Tuli was in his twenties and had just finished business school when he decided to start his own business. Little did he know that his journey would be like a fine wine, needing a couple of decades to mature.

Over the next 20 years, Rajat and his co-founder created two well-known brands: Happily Unmarried and Ustraa.

Ustraa was one of India’s first D2C brands to venture into the men’s grooming industry. Rajat's ability to identify a niche market, master the online sales game, and create a strong brand made Ustraa a market leader.

And then, in a plot twist worthy of a Bollywood blockbuster, VLCC decided to sweep Ustraa off its feet in a strategic merger. Talk about levelling up!

But Rajat's journey as an entrepreneur was no cakewalk. He faced several challenges like lousy pitch presentations, running out of money multiple times, and investors changing their minds. He also had to deal with the COVID-19 pandemic.

Despite nearly going out of business three or four times, Rajat didn’t just dodge obstacles- he turned them into stepping stones and kept bouncing back. He's what Nassim Taleb would call an "antifragile"!

In this episode, he talks all about his two-decade journey of building up two iconic brands!

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Additional readings:-

1.Happily Unmarried to Ustraa 2.0: Life on razor's edge

2.VLCC acquires Ustraa through a strategic merger

3.Technological innovation will shape men’s grooming in the years to come

Read the text version of the episode below:-

Rajat: Hi, I'm Rajat. I'm co-founder of Ustraa.com

One day you had a full house and the next day you didn't have anything. We moved to Dehradun and then to Delhi. Delhi is very competitive in business. So the idea was to do college, possibly do an MBA and then take up a good job so that things at home stabilize.

Joined Du, I was in Venkateswara College, B. Com honours. Good fun three years. Really enjoyed college. Then like everybody else that time was preparing, so I took CAT exams. I was interested in advertising, so I was very sure I wanted to do advertising.

Then I read about MICA and it seemed the perfect place for advertising. Got into MICA. Was in MICA for two years. That's where I met Rahul, who's my co-founder and partner. We both started together, joined advertising and then in two years got bored.

I read this book by Alyque Padamsee long time ago, and it said the biggest industry in India is follow up, which is so true because that's what you're doing all the time.

You're only following up with people. That was a time when the first .com boom was starting, early 2001, 2002. Lots of stuff was happening. Both Rahul and me had zero knowledge about computers, no idea about internet, no idea about technology. So we thought let's work for an IT company and get an understanding, because that's where the future is.

We joined a company in Hyderabad, which is into touchscreen solutions. Touchscreen that time had just barely coming to ATMs and here this guy was trying to set up a touchscreen-based system and we had this very nice kiosk where I could touch him. And it was very interesting because his idea was- look in India most of the people are not educated.

If you want them to understand they have to do it through touch and we like to touch things. While we were in Hyderabad, when we were trying to find accommodation or find a place to live, nobody was giving us a preference because one: we were bachelor's, two: we were from the north. So the advice you were getting is- why don't you guys get married? Why don't you settle down?

It was very bizarre. But that was the time when we got this idea that- look in this country, everything is targeted towards single people, what if we can set up something for unmarried people. That was when we started discussing this idea and then what this company did was, finally as it agreed, we started handling their Delhi operations.

But like I said, they blew up all the money. Suddenly salary stopped coming and there was no money coming. But by that time Rahul and me were discussing this Happily Unmarried ideas back and forth.

At that time even laptops were difficult to access so the company had given us a very fancy Dell laptop. We gave it to somebody and said, look give us some money we have to clear some salary.

Because there was a law at that time that if an IT company is importing a laptop, they can't sell it to anybody. You could only use it for software development. We said we can't sell it, so we'll give it to you as a mortgage. You give us the money. And that became our seed capital.

Akshay: What was the idea?

Rajat: The idea of Happily Unmarried was to be a one-stop shop for people living on their own- this is the thing we are offering. We are offering them a place on rent. We had tied up with brokers to get a place on rent. We're getting their furniture on hire, we were getting them things like curtains, rugs, sofas and everything.

And then we realized that finally you have some money in your life and you want to do up your homes a little interestingly. We thought let's do some quirky merchandise that will go with their homes. You want to have nice bar accessories, let's do that as a small range.

Akshay: So you were going to earn through the rent arbitrage.

Rajat: Yeah, that was the model and then we would get curtains from Panipat and give them curtains. Because we realized when you set up a house most of the guys don't know what they need. We had these starter kits which had these two utensils, four curtains, one rug, one stove and stuff like that.

Akshay: But this merchandise was not chargeable. This was just part of the package only.

Rajat: No, you'd buy it. And the response was very encouraging, it was quite good. Except that we couldn't deliver at all. Like for instance, we would tie up with brokers and he said, haa ap ly ky ajao. When you'd go there, there would be no house or the broker would not be there. There was a lot of demand but we just couldn't manage the supply.

I realized that it had a lot of demand because everybody was looking for cheap housing but there was no supply. That was the time when call centres were opening up and there was all this excitement about BPO and everything, so there were a lot of young people moving to Delhi or moving cities. But we realized that you don't control the entire demand and we didn't do that because we did not had the kind of networks that brokers had. And now if you look at it, that has become a startup of its own.

There are companies which are providing accommodation to single youth. There is a company which is providing furniture on hire. My sense is that the ideas were right but the timing was way too early.

Akshay: Plus you were doing too much. These are like three different startups you were doing.

Rajat: We did too much. We were two of us so it was a big team of two people. Besides that, we were getting merchandise made like quirky ashtrays and stuff. Then we were going to different offices in and around Delhi where our friends work, mostly advertising agencies and casually go and say hello, we have come to say hi, and then we set up these little stalls there and try to sell things every day. This was our routine.

Akshay: That was like majboori, like you had to make money.

Rajat: Haa and we realized kaha bechay gy so we were like let's go and meet a friend. We'd also, sometimes go to different offices and use them to, yaar ye humara ek courier kar dy na, so we were using our friends’ networks.

Some of them didn't realize that we were doing that, as a backup office and to sell merchandise. Within a year of starting, we realized that the merchandise piece is only one which is getting traction. So that became the main business, and we realized that we were pretty good at it. This is like 2003, 2004.

We don't have money. Then somebody reached out to us and said that we're looking for an interesting promotion offer for the World Cup so if you can think of some good ideas to go with a packet of Britannia biscuits, you can make some money. So we said this might give us some seed capital to expand.

Akshay: This is like a corporate gifting opportunity.

Rajat: And this is massive. They ordered 4 crore gifts. So we really thought about this and finally came up with this idea that we'll get kanchas printed with caricatures of cricketers and they'll go out with every packet of biscuit. That was the idea we cracked and fairly excited, but then we had to find out the entire supply.

Where are the kanchas being made? Who's going to make them? How will they get printed? How will they get packed? How will they dispatch? It was a very interesting project and we spent six months planning, and then its executions of four months.

We were only printing marbles, we printed 40 million marbles- four chrome marbles. We made decent money and that became our real estate capital. We had some money to go. This was 'Britannia khao World Cup jao' campaign. Learned lot about how corporate works.

We started doing a lot of corporate gigs after that because it got your capital. We did a lot of work for National Geographic Channel, we've done for HBO, Bacardi. Then one day we decided ki yaar Delhi mai toh ho nai raha hai let's open something. And again this is a time where there is no Facebook, there is no internet as such. There is no networks for people to communicate.

So we said, okay which is the coolest place in India. The coolest place in India is Goa. Everybody who is cool, goes to Goa so let's go open a store in Goa. Then both Rahul and me packed our bags and decided to go Goa.

Akshay: Which year is this, when you landed in Goa?

Rajat: I think this was 2003 or 2004. This is like peak summers and we're in Goa. We hired a bike and we are going all around up and down asking people, do you have a shop to give on hire.

When we went to return the bike to the guy, he said, who are you guys? Why are you here? Because all I saw you doing for three days was up and down the roads, you didn't go to any place. So we told him, we are looking for a shop to start and we couldn't find anything so we are going back.

He said mery pass dukan hai na, mujh sy bolna tha na. This guy had a shop, very nice location. And the best part was, right on top of the shop was the apartment. So we took both the places and we opened the Happily Unmarried store in Goa. It was absolutely crazy. We had so much fun. But Rahul relocated to Goa entirely. He was based in Goa and I would go back and forth.

We had a second-hand Maruti 800, which we drove to Goa. That was a crazy trip. Goa shop actually helped us incredibly, in the sense that a lot of people came to Goa. We understood that proof of concept is working. The products are doing very well and there's good feedback on everything. So we were very happy.

Akshay: How much were you making monthly? Were you able to pay yourselves?

Rajat: Basic salaries, nothing extra but I think 2,3 lakh ki monthly sales horahi thi. We ran the Goa store for 4, 5 years. But there was the point where Goa had limitation.

Akshay: Obviously it's a lifestyle business.

Rajat: It's a lifestyle business, so you can't make money out of it. Then we came back, relocated and said, we have a product range, let us start operating shops.

Akshay: That corporate business was still going on while you were in Goa.

Rajat: It was going on the side. Then by the time Happily Unmarried became a very cool entity, BBC featured us, we were on the cover of Outlook Magazine.

It had got a fairly cult following without us having spent any money. I'm talking about 2007, 8, 9, 10. It had become a very established brand. We had stores in Khan market, Select Citywalk- small kiosks, we were in Bangalore.

Akshay: Like your own store? Company operated?

Rajat: They were like kiosks and fairly good visibility, people knew us. 2007-8 is when Facebook entered our lives.

I set up a page called Happily Unmarried and forgot about it. Then after some couple of months I checked it, it had about 1 lakh followers. I said, ary wah! that's quite amazing. Then we realized there's a following. Till then we didn't realize. Toh aisy hi ek invite aya humary ko India Internet day tha and we were supposed to come and make our presentation. This is 2012 or 2011.

Akshay: And by 2011, you were essentially multi- location retail company.

Rajat: Multi-location retail company supplying to all cool stores. Had a decent product line.

Akshay: You also had a channel.

Rajat: Yeah, distribution.

Akshay: I believe you used to be there in Archies. I remember buying your products from Archies.

Rajat: A lot of Archies type stores kept our things. Some of the Archies guys bought our stuff and sold it, not through the company. But every city had this really cool store, like Puna has Either Or. So we were in all of the stores.

We used to get so many intern applications because everybody wanted to do it with us because cool hai. Humari ek basically website thi, we got an intern application from one student from some fancy Stanford kind of place doing computers. Hum ny kaha isko ly lyty hai at least she'll be able to fix our website. We had no idea about tech.

So then we went to India Internet day and we were asked to make a presentation. We made a very cool- we are this cool company and this. That time we had this parent who came to us- hello, Happily Unmarried our daughter is going to intern with you. I said yaar kitnay loog karty hai toh thk hai. I said, yeah! welcome. And then he gave me his card. Then I saw the card name was Sanjeev Bikhchandani Naukri.com- this name is very familiar. So that girl who wanted to intern was his daughter. And he really helped us, when we were there because we were completely lost story, he is a great guy. He helped us set up and connecting us to the people and everything. Then I thanked him and I said thank you so much for everything. So he said, you guys have a great business, but you made a very lousy presentation.

Akshay: Why was it lousy?

Rajat: Because we didn't realize it, that time it was almost like a business pitch to investors and we had no numbers on our website.

Akshay: It was all like story elements, but very less numbers.

Rajat: No numbers and it wasn't a pitch. Then he had done some back checks on us and realized that, the company is decent. He said, we have started investing in companies and you look like a good bet, but you're a great business, take it online. We said, okay, we'll take it online. 2012 is when we raised the first round with Sanjeev, end of 2012.

Akshay: Revenue wise what were you doing by then? Monthly or annual?

Rajat: We were doing about 5 crores annually. It wasn't a big business, but it wasn't a small business and it was enough to sustain us. Hum logun ki choti si ek team thi, toh thk thy.

Akshay: For that era without any funding, 5 crores is extremely good.

Rajat: Sanjeev said; look, this is a good business but now if you want to raise funding, you have to think beyond yourself and think of it like a business, not like a lifestyle. That was the call we took ki yaar thk hai bohat masti kar li, 10 saal sy hum loog bootstrap kar ky party kar rahy hai, now let's build a business the conventional way. So we raised a round with Sanjeev.

Akshay: How much did you raise?

Rajat: We raised 5 crores. Sanjeev nai tha, Info Edge invested in the business. We had to pitch to the entire board, met everybody and got approvals. Finally paisa agaya, started expanding Happily Unmarried. We got a full house enabled tech team in houses, started building own websites, started website operations. We opened the stores at Delhi terminal 3 airport. Which is a big thing because, in terms of visibility and just getting allowed into the airport, it shows that you arrived in some state. Because not everybody gets to open shop at the airport.

We did all that. But as the business was expanding, we realized that we were blocking too much of our cash in inventory. If we had 70 t-shirts, for example, 70 t-shirts into four colours, that's 280 into 4 sizes. So almost a 1000 SKU in number. So like that it was becoming a business which had very lot of cash trapped in inventory

Akshay: Because you had large number of SKUs, but the numbers per SKU were small because you were all about uniqueness.

Rajat: Yes. The constant pressure to create more SKUs. But then we realized that ki ye business aisy chal nai sakta because its asking too much of your working capital to invest in inventory.

Akshay: And you were selling online also by this time?

Rajat: Haa we were selling online.

Akshay: The 5-crore funding, you spent it on building an e-commerce thing.

Rajat: Building an e-commerce engine. Got some good people. Within a year or two we did one more round of another 6 crores with Info Edge.

So money came in, but then we realized that there's a solid problem because beyond a point you can't grow if you keep opening stores, that's a lot of capital expense.

Akshay: Unit economics are not making sense.

Rajat: When we had a store at Delhi Airport, we almost had a crore blocked only as security deposit. That's crazy, you're blocking good capital. So we realized kuch aur karna pady ga. Now Happily Unmarried essentially had lot of male customers, it had a lot of these barracks.

Akshay: What was your average selling price across all SKUs?

Rajat: Between 300 to 500, doing well. That time the business had reached to 17 crores. I think 17, 20 crores we were making annually.

Akshay: What is your gross margin? If you sell something for 400 rupees, how much was the gross?

Rajat: The gross margin was about 60, 65%. One third was the cost. We used to do that, whatever the cost, we used to divide by three. Because there's a lot of design. We had massive design team, we had about 20 designers working for us.

But we realized that this business is not going to sustain. It can't grow. It has too many limitations, especially from an internet perspective. If you wanna do internet business, you should have 10 SKUs, they should be selling in multiple quantities so that production is easier.

One thing that both Rahul and me were very confident about was men's grooming, because that is one area which is not looked by anybody. Like men were growing beards, but there were no products to cater to beards. We figured that maybe if we do something in this category without realizing that FMCG is a different business altogether. If we get into FMCG, ye chal sakta hai. Good gross margins and repeat sales. HU mai there is no repeats. I bought an ash tray then it's with me for life.

Akshay: And at that time the Beardo, Bombay shaving all of these were there?

Rajat: Nobody was there, this is 2015. So 2012, when we raised the first round and then 2015, we were already working on a men's grooming. We took a factory on hire in Bawana. So it's called loan license to take up existing factory.

We started working there. We hired a cosmetologist and said facewash bana do, beard oil bana do. So we started making.

Akshay: There was no market research and all of that you did before.

Rajat: Nothing. We just said that there are so many guys with beards, there has to be something here. What we did was, we actually spoke to some of our HU customers. We had their numbers because they used to come to our website. We said, look, we want to start this, what do you think?

They said great idea, bohat acha hai, karna chahiye, there is nothing like that. So we started working on this and then in August of 2015, till then we had done about 17, 18 trials of different products, we said, let's launch it. On the Happily Unmarried website only we launched Ustraa.

Within three months of launching, Ustraa was outselling Happily Unmarried and we were like shocked. I'll give you an idea that our website would maximum reach out to about 30, 35 cities across India. Ustraa till now, we have touched about 1200 cities in towns across the country.

We realized the scale was so different and that for once was very good because we were used to niche, quirky, and now we were mass FMCG. So it was a great experience.

Akshay: One quick question here. When you went online for Happily Unmarried first, how did you build traffic and all those things of e-commerce which you need?

Rajat: A lot of organic traffic was coming. We never advertised.

Akshay: You already had a Facebook following.

Rajat: We had a Facebook and that time post would go organic, the travel virality was there.

Akshay: How much was the website doing monthly? As a business, you were doing 17, 20 crores so what contribution was coming from online?

Rajat: Online would be not more than 25, 30%. It is quite a minuscule. Once Ustraa started giving traction, we went to Sanjeev again and said ki Sanjeev, we didn't tell you, but we launched a men's rooming brand and this has happened to us since then that it's getting fabulous traction and we are now reaching this many countries.

So he said, guys, I think you have also found your 'Naukri'. He said, before I started Naukri.com, I was doing 8, 10 different things but when I realized Naukri was getting traction, I shut down everything else. So howsoever attached you are to Happily Unmarried, shut it down and focus only on Ustraa. And we did that.

It was very interesting that the same team which was running Happily Unmarried suddenly started running a FMCG brand and there were no big changes in the company, the same spirit, the same DNA. Of course we had to hire cosmetologists and that's how it started. Ustraa was selling online and then we started selling in marketplaces and then suddenly there was a lot of interest.

Akshay: Was it the same legal entity or you created a new one?

Rajat: HU was the company and this was a sub-brand. This is also the time when Beardo and Man company was launched. All came in 2015. There was a good traction, in fact we did a lot of spending on Facebook. So Ustraa became a case study. Manish, who had joined us when we got our first round and was heading e-com, was invited to present to Facebook USA.

He was flown to Facebook office and he made a presentation of how we built a FMCG brand on Facebook. And then there was fabulous investor interest suddenly. From HU jis mai bohat zyada investor interest nai tha kabi suddenly we had a line of people asking us about it. Then we got feeders from three big FMCG companies, there was Wipro, Emami and Marico. We were talking to all of them.

Akshay: This is 2017. And how much were you doing sales revenue annual?

Rajat: We were doing about crore and a half, a month. I think that is the number we were at.

Akshay: And you had shut down Happily Unmarried. This was all Ustraa sale.

Rajat: I think that was also the time when the demonetization happened. We were doing a crore before demonetization and then we stuck to a crore number.

We did not spend money. We could have become two. In fact, I think March 2016 we had done that, we touched the 2 crore a month number. But after demonetization the signals we got were, just lie low and don't spend your money. We were steady at a crore a month and then Wipro invested in Ustraa. They invested as a financial investor, which is very good for us because we didn't want to get tied to a strategic investor so early in our life of the company. And Wipro seemed like the most ethical and the most clean bunch of guys among all the companies that we had met and spoken to.

Akshay: How much did you raise?

Rajat: That time we raised 30. It was a big business, but it came in tranches. Then Ustraa became the core. 2017 the Wipro came in and they got in the discipline of FMCG, MIS systems, financial health, financial living. They also started helping us build the offline business.

So 2018 onwards when Wipro came with us, we started building the offline business. Then things started moving well, we kept growing.

Akshay: How do you build offline in FMCG? What's the way to do that? Is it that you appoint like these stockists or how do you do that?

Rajat: The offline in FMCG, you have to do it the way the big companies have done it. It is very painful. It is a very slow process, and it also involves building a lot of trust with the community, with the distributors, with the retailers. And we did that.

Akshay: Just take me through the steps. What's like the first step?

Rajat: There are two things that happen in an offline business. One is general trade, which is your kirana shops and there's modern trade, which is your Big Bazaars, D-marts. It is easier to get into modern trade because you have to just pay money, get your products registered and they do the distribution. They put all your products everywhere. But it is more expensive.

Akshay: You have to pay money for what? I mean you're selling from them.

Rajat: Typically what a monetary outlet does is, they have to also find ways to make money. So they'll say, you have 20 SKUs to register, each SKU I will take say 5,000 rupees. That's about a lakh rupee and if they have 10 outlets that become 10 lakh rupees. Then they'll say, I'm putting your product but if you want a dedicated space, which is called end cap like the end of the shelf, I will charge you money for that. That is their way of making money.

Akshay: In store branding and visual merchandising.

Rajat: And they insist on that because that's how they make money. If they put up a FSU they will say iska mujy 20,000 mahina dy na.

Akshay: What is FSU?

Rajat: Floor standing unit. Gillette will have these things with their branding.

That is the model that they use. The other is a general store where you put your salesman who goes to every shop and says mera maal rakh lo, acha product hai. Phir dukandaar bolay ga mai paisy nai du ga, but have you to convince him to pay advanced and this is the distributor. So you have to first convince a distributor to invest in you.

Akshay: And distributors like one per city or something like that?

Rajat: No, multiple. Delhi will probably have,

Akshay: One for South Delhi, one for North Delhi like that.

Rajat: Like in West Delhi we have three. As the business expands, you increase the number of distributors. He finances the business. He has to see ROI.

Akshay: He pays you upfront when you give it and then he gives some working capital financing to the kirana store.

Rajat: The difficult part was that we said, we won't do modern trade, we will do general trade because it's less money. We'll work with distributors only on advanced payments, and I'm telling you right now that out of all the FMCG, new age companies working in India, nobody does this and then you have to pray and make sure that it sells. Toh vo sab kia. Now we are selling to about 15,000 outlets pan India.

Akshay: What is the product range?

Rajat: Product range is everything from facewashes to shampoos to hair oil to beard oil. Ustraa now has about 85 SKUs, but out of this our top 10 SKU are giving us 80% of the business. We build that. So we are classic FMCG ki yaar tumhara ye bik raha hai, website p chal raha hai, marketism p beech rahy hai. Now it's a Pan India business, throughout Indonesia, Malaysia, Vietnam, UAE. It's a fully grown business. We have almost 200 people on our roles right now.

Akshay: Out of these 200, how many do sales? What's the split here?

Rajat: Sales is the biggest chunk, but as a company we believe that everybody does sales. We all believe that our job is to sell. About 120 people are in sales, 120-130.

Akshay: You have like a typical FMCG structure with the NSM, RSM, ASM.

Rajat: We have actually two divisions now. We have an online division. Online still is a bigger business. I would say 65% of the business is online. 30% is offline. So there is an entire online team including developers, digital marketing, UI, UX and then you have these customer care people. And then you have the entire offline structure, like you have National sales director, RSMs and ASMs and sales executive then go down with that. You have to build that otherwise voh hota nain hai.

Akshay: And this year, how much will you do revenue wise?

Rajat: We'll cross a hundred. So it's a big year for us. It's been a long journey, but I think this year we'll cross a hundred.

Akshay: How much did you grow? Tell me last 2,3 years numbers just to understand the growth.

Rajat: So last year was about 65.

Akshay: That's a pretty big jump.

Rajat: But again, there was a de-growth during the Covid years and Covid was a bad year. Last year was 65 and this year we are going to cross a 100.

Akshay: What is driving this growth? 65 to 100 is a pretty big jump. What's driving it?

Rajat: One is that, the business is growing. We still feel that if you look at the size of the opportunity, it's massive. Now we ask ourselves, can we be a 500-crore company or a 1000 crore company?

In another five years, maybe yes, that is a possibility. The growth has been given by increased businesses online and also, we've now started expanding offline. Like I said, we are in 15,000 stores right now. The idea is to be in another 40 by the end of 2023.

Akshay: What is the way in which you have spent for growth? One way is you spend on, let's say a TV ad to grow or you can spend on building your sales team to grow or you can spend on performance marketing to grow. So what has been your strategy?

Rajat: We are doing a bit of both. For instance offline, we have what is called promoters or grooming advisors. These guys are at premium shops and they help the customers. At the last count we had about 450 grooming advisors.

Those guys are on our payrolls, and their job is to tell the customer about the product. That's what we do in offline. Online we do performance marketing also and we do a lot of brand building kind of ads on Facebook and Instagram.

Akshay: Have you still kept away from modern trade? Because you said modern trade mai your margins are lower.

Rajat: A little bit, we've done some regional modern trade. There is a chain called LuLu in Kochi, which is now expanding to Bangalore. They're also very big in the Middle East, but in India they've just open a store in Lucknow and doing very well. So we are going with them. We are also now in talks with Reliance and we should be there soon.

What's happened now is that the brand has become acceptable. So these guys also realize that thoda sa demand hai so we are hopeful that soon they'll get better terms and it'll be not so bad. But the best is yet to come.

Akshay: So you are putting maximum amount of your capital on expanding offline, that's where your spend goes.

Rajat: And also considerable portion of our marketing spends are on advertising online. But what that does is, it also helps our offline. We discovered when you run ads on Facebook or Instagram, it also reaches out to the offline customers. So it does both. But yeah, our choice of advertising if you ask, the biggest money goes to digital marketing. That's our biggest spend.

Akshay: What is the difference in the economics of each of these channels, like modern trade, general trade online? Which one gives you better gross margin?

Rajat: The best, obviously are from our own website because of the direct sales and there is no middleman.

Akshay: But there you would spend on customer acquisition costs.

Rajat: We spend on customer acquisition but then the repeats start kicking in. Having said that, for online as a single medium, our website is the biggest source. Not only does it give you valuable data information, it also tells you about what the customer's preferring and interest.

Akshay: Then why are you focused so much on offline if the gross margin is lowest there?

Rajat: The contribution margin is still decent, one is that. The second is, while online is growing very big, it's still a very small part of your overall.

Akshay: So there's a ceiling there that online can only grow up to so much.

Rajat: No, it's growing faster. Like they think in the next 5 years, 10 years offline will grow. But India is so diverse, so vast and so many different people with so many different kinds of spending base. But what's happening is that the tech is also getting integrated into offline, which is very good.

Akshay: How is that?

Rajat: We use apps for our sales team to track their daily beats. Our promoters or grooming advisors also have an app to let us know what is being sold every day. So you get to monitor real-time that this is what is selling. All the order placement right now is through apps again. A lot of interesting works happen in this, a lot of development work is happening.

Then there are actual startups who are trying to disrupt the distribution business. They're saying we will become virtual distributors of your products. They're all trying to find faith. I'm sure that with India, it's such a wonderful and such a massive landscape that there is something in it for everybody.

Akshay: So compared to traditional FMCG sales, you are able to have a lot more visibility than a traditional FMCG because of your app, through which you get real time data on what is selling, where it is selling.

Rajat: I think in comparison to a traditional FMCG, we are also faster in reaction. It's a newer category, because of our app what you get is- the refurbishment is faster.

Akshay: Refurbishment means like refilling once the stock is over.

Rajat: I was reading about how HU now is setting up nano factories. They have massive factories. Now they're setting up small factories to actually compete with companies like us where they will be able to produce smaller qualities, innovate faster, get production faster.

Akshay: How many SKUs do you have now?

Rajat: We have 85 SKUs and then there are multiple packages and there are bundling and so on.

Akshay: What are some of the lessons that you can share with founders who are building in the FMCG space? What are some things which you've learned from experience?

Rajat: One is- don't do men's grooming because we are doing it and we are doing good job of it. It's an interesting category. Unfortunately it does take a lot more money because in this business the biggest chunk is not the product development it's distribution and marketing. So you'll spend a lot more money telling people about your product.

Akshay: But you have very patient investors like Premji Invest, Info Edge are both patient investors.

Rajat: Info Edge thankfully is, because they have been entrepreneurs themselves and they've seen the journey so they're very patient and they're very aligned to what the promoters feel. So the FMCG was our part of the business. They have their own funds so that makes a big difference. The other investor is IIFL which is a private equity but IIFL is fairly new. It's just been two years. But they're all aligned to how we see the business and I think they're okay with the growth. Of course, it could have been more. It could have been higher but that is how it is.

Akshay: What do you regret? Like you said that it could have been more, what could you have done differently?

Rajat: What happened was that during the lockdown we stopped advertising completely. We realized that was a mistake because some of the companies that kept advertising that time when the thing got over, they were really on top.

Like right now people are saying that this is a funding winter, things are very bad, it's very bleak. But at the end of it, the companies that emerge will be much stronger and bigger.

Akshay: What is the exit for your investors? IPO or acquisition?

Rajat: I think the company will have to be at least do it much bigger. So there are 2,3 ways. One is that we merge with another company and that company itself does an IPO. Secondly, somebody acquires us. Thirdly is somebody puts a lot of money in us and we acquire a clutch of companies and then we go into an IPO. These are the options right now, and like Ravi Shastri says, all three options are open right now.

Akshay: But what would you like? Do you have a preference?

Rajat: The important thing is whoever type one is, they need to have the same vision for the band that you have. What I would only want is that Ustraa should stay in perpetuity. Even if we are not there, the brand should stay for long. That's how big FMCG brands have stayed.

Akshay: There are all these like Thrasio Model e-commerce rollups. Have any of them approached you?

Rajat: All of them did.

Akshay: But you were not interested in selling?

Rajat: We speak to everybody. But the thing is that these models are not fully evolved yet. They're also experimenting. It's an interesting take but because it's worked somewhere else, doesn't mean it'll work in India and secondly, it'll also have a lot of tweaking. But I would say it's an interesting thing because if you look at all these companies, even P&G is a cluster of multiple brands. Unilever acquired multiple brands. That's how FMCG is. It's not a unique model. It's unique in the sense because it's online first.

Akshay: Like Marico has acquired Beardo, would you really be able to go up against Beardo considering that they have all these advantages which you're talking about. Like the Marico sales team is selling Beardo as well.

Rajat: Beardo was about 95 odd crores last year. And if you have that kind of number with the Marico support system, then I would say that something is not working, I don't know what's it. If we were on a similar network like that, we would probably be three times, four times over what we are right now.

I've discovered that one doesn't need to worry about this because when we started and when we were online, Brylcreem launched its beard grooming products and they launched a beard oil. Then everybody was saying, what are you going to do? They are going to outspend you there. They had Sidharth Malhotra and Varun Dhawan both as brand ambassadors. They ran the ads and we discovered those two months when they were doing, our sales were increasing.

Akshay: So our listeners have heard the story up to a certain point. There's a major development which has happened. Can you tell us about that?

Rajat: We got acquired by VLCC a couple of months ago.

Akshay: How did it happen?

Rajat: We've had an investment banker who'd been scouting for either funds or some kind of a strategic tie up because we had reached a certain scale.

I think we crossed almost 100 crores last year. To go further beyond that point, either you needed a lot of money or you need some sort of strategic partnership where you could leverage existing capabilities and skill sets to expand. We were working with the ENY on this and then they introduced us to Carlyle.

We met Amit Jain who heads Carlyle India and his team, there is Aamir and Tej. It was a very informal meeting over coffee. It was more like, they wanted to understand our story and he was trying to tell us what Carlyle is doing in India.

Akshay: Carlyle is a private equity fund which has acquired VLCC.

Rajat: Carlyle is biggest private equity funds in the world. They're pretty big in India, but they don't normally do investments our size. And this one also is not directly through Carlyle. Carlyle acquired VLCC and then VLCC acquired us. But initially all our talks were with Carlyle team.

They're a young, very focused, very hardworking set of people, who get really involved in the business. So they want to know everything, they want to know the full details. We've raised a lot of money; we've worked with a lot of VCs. I felt private equities guys go far more into detail.

Probably because they want to acquire a company. We're not a bet, we are an investment for them to receive a return, take a return there. It's not like one of the many seven bets that they'll take in a sector.

And then they told us that, look, we have a very interesting situation here. There is VLCC- strong legacy brand almost 30-year-old, very popular once upon a time, still has a good recall, people know of the brand, has a pan India presence, also present abroad in the Middle East and Southeast Asia, but with very negligible online presence.

Ustraa on the other hand was a strong edgy young brand, more online than offline. Challenger D2C brand looking to expand in offline, because unless you have a sizable presence in offline stores in India, you can't really build a sustainable business or you can't build a big business. Then the idea was that if these two companies get together and we work with VLCC and take their entire business online and help them set up a D2C site, which we've already done, using our skills in marketplace sales help VLCC also build a business like we have done for Ustraa and we use their warehousing, logistics and offline distribution skills to expand Ustraa offline.

It seemed like a very good idea. Of course, because it was a 100% acquisition, we had to talk to all our investors, convince them. They were calls with investors and Amit, then from Carlyle. So all those things happened.

Thankfully everybody realized that this is a very good decision for the greater good of the business. And it's been almost two months now and we've been going through what is called integration pains or trying to integrate. And it's a huge learning experience.

What VLCC has also done is- they were entirely new team very good people. There is Vikas who has joined us as a CEO, he is an ex-Unilever guy, he has worked with Flipkart, Nykaa. There is Gopal who is again ex-Unilever, ex-Reckitt, he was at Fab India, who is the CFO.

Very good team, very good people and they're trying to build a solid company. It's a lot of fun. It's like being in a startup 2.0.

Akshay: This was like a stock and like equity and cash all equity, all cash?

Rajat: What was offered to us was that, it was part cash and part equity for all the investors and for us it was mostly equity. So basically our shares were getting swapped for VLCC shares. And we were very okay with that because we see huge value being realized in the next couple of years. In fact, the interesting bit is- all the investors did not want cash right now. They said, give us equity. But I think there was only a limited number of equity available. All the investors had to make some sort of a cash exits, which they did.

Akshay: I read an article which said that there was a 40% discount to your last fundraise valuation. Did the investors agree?

Rajat: That was a click bait because what it didn't tell you was- that valuation was really high.

I'll give you a context- that valuation was almost 450 or 490 crores on a run rate of about, we were doing about 6 crores a month, so we're getting almost 7x which is not realistic for the company which is not yet profitable. And it was happening because that was the crazy post Covid year when everything went crazy, when everything went haywire. The valuation just skyrocketed. So while everybody knew that this is not realistic, but we went along because there's finally money on the table. Then I read somewhere that, value is what you get paid for and valuation is what is on Excel. So that I think was an Excel valuation and this is a real valuation.

How we see it is that it gives us a lot of leverage and a lot of opportunity to now take two brands to a scale which we couldn't have done otherwise. And because we have equity, the realization of value can happen in the next 3, 4, 5 years. We are all firm believers that we will realize value in some time. It's a matter of time

Akshay: Also fundamentally, PE and VC valuations are different. As you said, PE is looking to buy, go all in. For a VC it's one of seven bets.

Rajat: That is a big difference and I also realized that, while we spoke to Carlyle, we were also talking to a couple of other strategy companies and most of the valuation that was being offered was in the similar region or lower.

Akshay: VLCC is a pure FMCG now? Because I remember when I was a kid and VLCC used to be a weight loss centre.

Rajat: Interestingly that's still the bigger business. It's not just weight loss centre. They have a fantastic set of clinics I think more than a 100 now.

They do a lot of, state of art services around beauty. The core is beauty. Right from this slimming, there is LASIK, there is laser hair removal, there is Botox and lot of hair treatments. So that is still a bigger chunk of business.

Then there is a product business, which is smaller but is getting more traction. We see the product business also getting bigger in the next couple of days. Important thing to note is that, it's a profitable company and good solid margins, good businesses. And we have learned how to think like a brand manager or somebody responsible for P&L to see how do you deliver profit given the constraints.

Akshay: How has your decision making changed? Like you said that you had to learn to work within constraints, more focus on unit economics. How has that changed the way you decide?

Rajat: It hasn't changed fundamentally. It may have become a little slower because there are more stakeholders involved right now. But about that, we weren't going crazy or overboard in spends even before.

What we felt was that there is a matter of size and scale where automatically the profits will start appearing, whether it is using the same salesforce to sell both brands, using the same warehousing to house both brands, using the same backend to sell to D2C customers.

Once that is in place, given that our unit economics are strong, profitability was a matter of time.

Akshay: So you would essentially be responsible for the entire product division, both VLCC and Ustraa.

Rajat: So what's happening right now is, our team is taking care of the entire e-commerce piece. I am also involved in the offline piece with both Ustraa and VLCC. I'm actually looking at how we can use the BA as a channel to create a separate channel.

Rahul, my partner who does a lot of product development is trying to build a range for VLCC which can sell in modern trade, which can sell in e-commerce, slightly more premium and higher ticket priced items.

We are doing all those things. While the e-commerce team is fully involved in selling VLCC and Ustraa, we guys are also involved in building sales channels and products for both companies, for both brands rather, company is only one.

Akshay: What's the beauty advisor channel? Are these people who are standing in shops and they make you try stuff?

Rajat: We had this experiment in Ustraa and we felt that this is a very good way to educate customers about the brand.

Now, if you can do this well, if the BAs are well trained, if there is enough tech integrated so that whatever feedback is being received at the customer end, is reported to the right stakeholders at the right time. You can do multiple improvements and you can act really fast and everything.

So I would say that more than MT, the BA channel is what is going to drive offline growth for us.

Akshay: BA and MT are not exclusive, like you could have BAs placed in MTs in large format GTE's.

Rajat: I am seeing it as BA. You'll have lot of MT's where there'll be no BA. There'll be a lot of modern data outlets where there'll be no BA. I am saying it as, you either have 1000 BA stores and you have the others. Now can these 1000 BA stores give you 100 crores of business in a year? And then the other store can do so.

We're trying to work on that. I am personally looking at that BA channel piece so I'm more invested in that. So yes, we'll be looking at BA's for both modern trade as well as general trade. Or what is called as standalone modern trade or the regional modern trade.

Akshay: Fascinating.

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