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Dinesh Agarwal, Founder and CEO, IndiaMart.com

IndiaMart.com is a leading online B2B (business-to-business) marketplace bringing Indian suppliers and international buyers together. Founded in 1996, IndiaMart currently has around 900 employees across 29 offices across India. Recently, the company received an undisclosed amount of funding from Intel Capital.

IndiaMart.com is a leading online B2B (business-to-business) marketplace bringing Indian suppliers and international buyers together. Founded in 1996, IndiaMart currently has around 900 employees across 29 offices across India. Recently, the company received an undisclosed amount of funding from Intel Capital.

Dinesh Agarwal, founder and chief executive officer of IndiaMart.com was initially working as a software engineer and had a vision to own a business. In an exclusive interview with AlooTechie, Agarwal shares the story of the launch of IndiaMart.com as a business in India.

Before launching IndiaMart.com, you were working at HCL Technologies in US. What made you decide to leave your job and start as an entrepreneur in India?

When I was working for HCL in US, I already had an experience of around five to six years of working as a software engineer in the IT industry. I had already worked for large organisations including CMC (a subsidiary of Tata Consultancy Services), C-DOT (Centre for Development of Telematics) and then HCL America.

As I basically hail from a traditional business family, I always had this question at the back of my mind, “Is there a possibility of owning a business based on the IT industry?” I was sure that an Indian business could not be initiated from US as I didn’t know the country and I was not connected to the people well. Hence, I decided to take a transfer and come back to India. Then I was working with HCL Technologies and I asked them to transfer me back to India. This is how I took the first step to launch a business of my own.

Why did you choose to launch an internet business and that too around 1996, when internet was quite unheard of in the country?

After coming back to India, I actively started taking part in different trade fairs and shows to know what’s happening in different industries in the country. After roaming in the market for some time, I understood that the software industry was getting very competitive and I didn’t have that kind of resource to start a software business. So I used to wonder, after software what would be the next thing that will rule the market!

At around early 1995, internet was being born in US. Yahoo had just begun at that time and I was fortunately one of the first internet users. Thus, I already had an inclination towards internet. There were many instances where I could find the required information only on internet and I was pretty sure that the future belongs to internet and thus I decided to launch an internet business.

Initially, I decided to set up an internet service provider business like Sify, but that was not possible as licensing policies in India only allowed BSNL (Bharat Sanchar Nigam Limited) to provide the service in the country. So, I started with a website making business, InterMesh Systems, in 1996.

You started as a consumer product. What made you feel that an online B2B marketplace will be successful in India and thus diversify into this business?

At that time, if I remember well, the desktop publishing (DTP) business was flourishing all over the country. DTP cafes were being set up in every nook and corner and anybody who had to design a card could easily get that done by paying a minimal amount. Somehow, I had the feeling that the website making business would turn out to be another DTP business and website designers would crop up in every corner of the country. So, I started thinking about alternatives of sustaining the website making business.

As I was regularly visiting various trade fairs, I developed a knack of Assocham (Associated Chambers of Commerce and Industry of India), FICCI (Federation of Indian Chambers of Commerce and Industry), Federation of Indian Export Organizations (FIEO), Apparel Export Promotion Council (AEPC) and CII (Confederation of Indian Industry). I was impressed by the way these trade bodies maintained a database of several businesses and the way they organised several trade fairs. This made me think whether a similar model was possible in internet or not.

We decided to create our own website wherein we would list websites that were developed by Intermesh Systems. This could give small businesses, whose websites had been developed by us, more visibility. So, we launched IndiaMart.com. We started with an online directory of Indian websites that were designed by us. As the list of websites grew on, we categorised the companies in different sections, including apparel, automobile and engineering, and so it became an online yellow page directory. Thus, instead of starting an IT business, we launched a website making business and to save the website making business we started this website listing business called IndiaMart.com.

How much did you charge the companies for listing?

Initially, we listed all the companies for free and did not charge anything from them. Then as the business grew popular, we started charging companies. Currently, we have around 500,000 free listed companies and a paid user-base of around 15,000.

What were the initial challenges that you had to deal with while setting up IndiaMart?

When we started listing and categorising the websites designed by Intermesh under different business verticals, we saw that many of the categories were either empty or had just two to three listings and that didn’t look good. Then we decided to list a few other companies for free and use them as a lead generation mechanism for our own purpose. Thus we started pitching to companies and asking them if we could collaborate. Initially, no one listened to us and so we went to trade fairs and collected free listing form from various small and medium enterprises. Thus, various SMEs (small and medium enterprises) listed themselves online with us.

But the problem was that most of those businesses did not have an internet connection at that time and were not familiar with internet. So, there was a problem in connecting them with the foreign buyers and hence we launched an enquiry forwarding service where we started printing the email queries that came to us and then we would send the printouts of queries to the concerned businesses through local post.

Everyday almost two to three hundred mailers were sent from our office and we did that consistently for about five years. This repeated query generation made the SMEs wonder who IndiaMart.com is and then they would call back to us. We used to take those calls as our generated leads and our marketing guys would go to those businesses and educate them about the online media. Thus, educating the people about the benefits of internet was our key challenge.

How did you convince the SMEs about having an online presence?

Leads started pouring in from various western markets including UK and US, which were the frontrunners in internet boom those days. So, the buyer queries were flowing in smoothly and as we were sending the printed version of the queries to different companies, we monitored how many queries were being sent to those companies.

Our internet consultants went to different Indian businesses to make them understand the usability of internet. We made them understand how they could browse from page to page with a click. That was a difficult thing, to make them understand internet, and so we started marketing by results. We asked businesses to register with us for free and see within a month how much business queries they generated through us and see how useful that query was. Thus, we led by results.

Did you charge for lead generation from both the buyers and the suppliers?

No. Our model still runs on listing the companies for free. We just charged them for getting their websites done but did not charge anything for listing. Till date our model remains exactly the same as we started with. If one wants to register with IndiaMart, one can do it without making any payments done. Moreover, one can also update the information for free.

How did you recover the cost of printing the email queries and sending them via post?

Initially, the premium that we charged from companies for making their websites was much higher than what the cost of operation was. The cost of operations actually started rising post 1999-2000 and by that time around 80 per cent of our clients were already having email and so we dropped the practice of sending printed mails to businesses. Thus, the operational costs became much lower at our end. And now we don’t list any business which doesn’t have an email. All the five lakh companies that are listed with us have an email address with them.

What’s the ratio of leads that come to IndiaMart from within and outside India?

There used to be a time when 80 to 90 per cent of the leads came from abroad and the remaining came from India. Today, we have 40 per cent of leads coming from abroad and the rest 60 per cent come from within India. However, as our business is focussed on the international market, most of the conversions that happen are from our foreign leads.

What was the initial response from friends and family after you started the business?

My family was supportive, though initially they were a little worried that I left the job in US and came back to India to set up my own venture. Friends were also supportive but there were various people who kept on criticising us. Even the media criticised us saying that we won’t be profitable. But I am thankful to our critics as their criticisms have made us probably the only company in the internet business being profitable from the start. We have never been in the red ever.

Did you ever get any support from the Government?

People started asking us if we were a Government of India initiative. At that point of time, there was an organisation called Hong Kong Trade Development Council (HKTDC), which was a government initiative and they had a similar model like us. So, many people who knew about HKTDC thought that IndiaMart was also a government initiative. But we were never supported by the Government. In initial days we were expecting some collaboration from government bodies. But they always considered us as a competition. Now, we have stopped expecting collaborations from the government.

Who were your investors?

Initially, we did not have any investor investing on us. Very recently, we had Intel Capital investing in our company. Now we plan to expand our company’s offerings and replicate the same business model in alternate media and work towards venturing into international markets.

Besides, there has been a private equity deal with BCCL (Bennett, Coleman & Co Ltd). The deal provided us ad space in the BCCL properties, which include The Times of India and The Economic Times.

Your company has already been in operations for 12 years. Didn’t you ever feel like diversifying into other businesses as well?

We have been playing different roles in the last twelve years. The first four years were given to highlighting the business of IndiaMart. Next four years were given to staying alive in the market and actually prove the worth of IndiaMart. And the last four years were invested in scaling up the business and making it a profitable one. About 90 per cent of our total 12 years’ profit has come in the last four years. Thus, we did not have time to think about diversifying into other businesses.

So, what is the roadmap for the next four years?

In the next four years we want to become a complete B2B business media company in India. For that we will have to diversify into telephone and WAP (mobile web). We have already started with our own print version. Similarly, we have started partnering with trade fairs to make them an IndiaMart show. We have already partnered with around five such shows. We promote these shows heavily through our website.

Are there also plans to venture outside India?

There are plans but they are still in the Alpha Beta versions. This will not be a country specific initiative rather will be an industry specific initiative and will be vertically split into various industries.

Which verticals have generated more business for IndiaMart?

Initially, most of the exporter business was apparel and textile oriented; then Indian handicrafts became popular; and now a bulk of the queries is generated for industrial engineering.

What was your reaction to Alibaba.com entering India? Did it make you change your business strategy?

We have not changed our policies but have cautioned ourselves to stay more focussed towards our business. And we also want to be consumer centric. There are many instances when world biggies came to India but the Indian companies still rule the roost. Monster came in but Naukri is still bigger and better.

What have been your major achievements?

Sustaining a profitable growth has been one of our key achievements. Besides, we have largely been able to hold on to our older employees. We have more than 10 people who have been working with us for the last ten years and more than fifty people who have been with us for more than five years. The people commitment has been very good, probably because they love the company and they share the vision of the company.

Has the current economic slowdown affected your business?

Not yet. But if it spreads to general economy and affects our SMEs to the extent of closing down their businesses, then it might affect us as well. As far as simple internet businesses go, I do not think slowdown has affected much.

When are you planning to list your company?

As soon as we reach Rs 100-crore revenue mark, we will go for public listing. We think we will take around three more years to achieve that mark. We are looking to cross Rs 50 crore this year; last year our revenue was around Rs 38 crore.

Could you please share your thoughts on hiring people for a startup?

Every industry has its own fundamentals and it is impossible to find a person who is already trained for any industry. So we hire freshers and train them. We hire people on the basis of their personality and not on the basis of who they are. We hire those people who stay close to our offices and if we see that a person is staying 20 Km away from our office, we discourage him or her to join us. There are some nonsense basics that we follow while hiring people. We do conduct written tests but more than the marks scored, we focus on the thoughts reflected in the write-up.

After hiring people, we treat them as our own brothers and sisters. We retain our employees by treating them like a family.

Please share your experience about different phases of Indian internet industry from 1996 till date. Also, how do you see the industry moving forward?

The initial three-to-four years were more of creating an online presence when people mostly used internet for emailing and chatting along with some news surfing. Then post September 2001 everybody was worried about the response. All sort of online businesses were asking the same question, where is the response? Till 2006, businesses having a good model got the response and those who did not have a good model, they failed.

Post 2006, people want to collaborate, form a community and entertain the user. And the next will be the integration of the response with collaboration. Now people want to know how Orkut can be integrated to Naukri and thus form a LinkedIn. And that is going to happen with all the classifieds sites and all the communitised sites. After everybody has grown independently, the future of all internet businesses depend on the integration and partnering with businesses which are champions in their own fields.

Now, everyone is talking about using mobile as a channel of using internet. Though the industry is yet to reach standard norms for doing the same, mobile has a tremendous opportunity for online businesses. But one needs to clarify the niche verticals of the businesses. I think people will not search for jobs or life partners on the mobile, however people might not mind sending a flower to a friend through mobile. Also, news, cricket scores and financial stocks are going to be the hot favourites on the mobile platform. So, one needs to define the niche before launching the business.

The government bodies need to develop more consumer friendly internet entities. Apart from IRCTC.co.in (Indian Railways’ online ticket booking service), there is hardly any governmental initiative which is widely used by consumers. The banking industry has also done wonders with internet banking, but look at the mutual fund industry in the country. Till today, India does not have a model where one could buy or sell mutual funds online. Again education has a lot of scope in the online fields and any educational initiative from the government can take the number of internet users to 100 million in India.

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