Things a new business shouldn't do: snapdeal's case study.
Updated: Nov 30, 2018
Are you planning to start a new business? Read on to find out what are the type of mistakes you should definitely avoid.
With a population of 1.3 billion and rapidly increasing number of mobile consumers, the Indian e-commerce market is one of the largest in the world and the most difficult one to master as well. Very few firms were able to master the nips and tricks of the market but still were not able to stand against the current duopoly of Flipkart and Amazon. One such example is Snapdeal, which started right and at the right time. Snapdeal during its beginning days showed promising growth prospects and was expected to go shoulder to shoulder with Flipkart but then a series of cumulative wrong decisions coupled with the entry of a new giant Amazon who was committed to winning the Indian market sent Snapdeal spiraling down.
Snapdeal’s story is the one which shows us that, a company may have a great start but can still fall.
Snapdeal was born in the year 2010 as a platform which listed daily deals from merchants and service providers on their site. This was a very attractive proposition for both the customers and the businesses and the fact that Snapdeal took a cut on every deal a customer availed on their site made up for a robust and sustainable business model. Snapdeal had a majority share of close to 70% in this business segment of daily deals and offers which ensured healthier revenue streams for the company. Had Snapdeal continued on the same path, they would have probably avoided their current state but instead, they fell prey to the shiny object syndrome of getting into e-commerce. The surging success of Flipkart made the investor community take notice and hunt for a mule to invest in, which could compete with Flipkart or least coexist with it in the Indian market. Snapdeal with their sustainable business model looked like a perfect bet and thus began the journey of turning from a deal and offers site to an online marketplace.
Snapdeal’s fall from grace can be attributed to the following factors,
Raising capital way too soon at the expense of losing controlling stake.
Snapdeal raised multiple rounds of VC money, which never went into growing or sustaining activities. The glaring disadvantage of this was that the founders were left with a very little stake in their own company thereby losing the decision making power and letting the investors interest take over.
They acquired too many companies in a short span of time, these companies firstly were paid more than they actually deserved and acquisitions were done more with a purpose of justifying the funding they’d been receiving than to actually include them in their current value proposition. For ex: Freecharge as a platform was not fully utilized which could have bought much value for the customer.
Snapdeal expanded it’s team way too rapidly, with least regards to the business requirements. Instead of perfecting their business processes they chose to increase the workforce and pay them hefty salaries too. For any business this can be the costliest mistake it can commit against itself.
Not taking care of the seller community:
For any e-commerce company, it’s sellers are the most important assets and as is evident from the best practices of giants like Amazon or Flipkart which ensure that the sellers on their platforms are able to ship their products and receive the payments seamlessly- Snapdeal lagged behind by greater margins in this field.
Not investing in creating an in-house retailing arm:
Having an in-house retailer arm for ex: WS retail for Flipkart and Cloudtail for Amazon brings in a lot of stability and certainty in the day to day operations of any e-commerce company. Snapdeal realized this pretty late and by the time that happened it was already too late and they were too deep underwater to take corrective measures.
Not investing in their tech processes:
Beyond the obvious, the real magic of e-commerce happens in the space of user analytics and tailored product recommendations according to the individual user. Snapdeal failed big time in this and ruined the experience of being a seller on their platform which resulted in a lot of retailers leaving their platform.
Not thinking about exclusive brand partnerships and launches:
The biggies like Amazon and Flipkart had very early on realized the importance of having exclusive partnerships with brands and facilitating exclusive launches or flash sales as they are known in the market; like for ex: Flipkart launched Moto devices and Amazon launched one plus devices under the flash sales model, which was equally beneficial for both the manufacturer and the seller. These flash sales crossed every estimation and only kept growing bigger and bigger and also making other brands take the similar route. Snapdeal definitely failed to capitalize on this phenomenon. They did try their hands at this but the brands that they chose were the ones about which consumers hardly cared for.
There were many other things which were cumulatively going wrong for Snapdeal when everything else failed the investors tried to coerce the founding team into selling Snapdeal to Flipkart. This, unfortunately didn’t happen though and now Snapdeal is on its own again and the founders seem to have been working on reviving Snapdeal now. We can only wait and watch what will Snapdeal evolve into in the coming future.
Snapdeal’s journey so far is filled with valuable lessons on what a new and upcoming business should not do during in the early days.
What are the things you will not be doing in your business after reading this story?
Let us know in the comments.